News Column

NATIONAL CINEMEDIA, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 5, 2014

Some of the information in this Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, certain statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations", may constitute forward-looking statements. In some cases, you can identify these "forward-looking statements" by the specific words, including but not limited to "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of those words and other comparable words. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these statements as a result of certain factors as more fully discussed under the heading "Risk Factors" contained in our annual report on Form 10-K for the Company's fiscal year ended December 26, 2013. The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herein and the audited financial statements and other disclosure included in our annual report on Form 10-K for the Company's fiscal year ended December 26, 2013. In the following discussion and analysis, the term net income refers to net income attributable to NCM, Inc.



Overview

NCM LLC operates the largest digital in-theatre network in North America, for the distribution of advertising. Our revenue is principally derived from the sale of advertising through long-term ESAs with NCM LLC's founding members (approximately 23 years remaining as of June 26, 2014) and multi-year agreements with network affiliates. The ESAs with the founding members and network affiliate agreements grant us exclusive rights, subject to limited exceptions, to sell advertising in those theatres. Our advertising FirstLook pre-show and lobby entertainment network ("LEN") programming are distributed predominantly via satellite through our proprietary digital content network ("DCN"). Approximately 97% of the aggregate founding member and network affiliate theatre attendance is generated by theatres connected to our DCN and 100% of the FirstLook pre-show is projected on digital projectors (78% digital cinema projectors and 22% LCD projectors). Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business, determine how we are performing versus our internal goals and targets, and against the performance of our competitors and other benchmarks in the marketplace in which we operate. Senior executives hold meetings twice per quarter with officers, managers and staff to discuss and analyze operating results and address significant variances to budget in an effort to identify trends and changes in our business and adjust operating strategy and tactics as needed. We focus on operating metrics including changes in OIBDA, Adjusted OIBDA and Adjusted OIBDA margin, as defined and discussed in "Non-GAAP Financial Measures" below, as some of our primary measurement metrics. In addition, we monitor our monthly advertising performance measurements, including advertising inventory utilization, pricing (CPM), local and total advertising revenue per attendee, as well as our operating cash flow and related financial leverage and revolving credit facility availability to ensure that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our Board of Directors.



Recent Transactions

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. The Fathom Events business focused on the marketing and distribution of live and pre-recorded entertainment programming to theatre operators to provide additional programs to augment their feature film schedule. In consideration for the sale, NCM LLC received a total of $25.0 million in promissory notes from its founding members (one-third from each founding member). The notes bear interest at a fixed rate of 5.0% per annum, compounded annually. Interest and principal payments are due annually in six equal installments commencing on the first anniversary of the closing. In connection with the sale, NCM LLC entered into a transition services agreement to provide certain corporate overhead services for a fee and reimbursement for the use of facilities and certain services including creative, technical event management and event management for AC JV, LLC for nine months following closing. In addition, NCM LLC entered into a services agreement with a term coinciding with the digital programming ESAs, which grants AC JV, LLC advertising on-screen and on our LEN and a pre-feature program prior to Fathom events reasonably consistent with what was previously dedicated to Fathom. In addition, the services agreement provides that we will assist with event sponsorship sales in return for a share of the sponsorship revenue. NCM LLC has also agreed to provide creative and media production services for the same fee available to the founding members related to the marketing of their core theatrical business. 25



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On May 5, 2014, NCM, Inc. entered into the Merger Agreement to merge with Screenvision for $375 million, consisting of $225 million in cash and $150 million of NCM, Inc. common stock (9,900,990 shares at a fixed price of $15.15 per share). The merger consideration is subject to adjustment based upon Screenvision's Adjusted EBITDA for the twelve months ended April 30, 2014 and Screenvision's working capital at closing. Consummation of the merger is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions, including satisfaction of representations, warranties and covenants. All necessary corporate action by NCM, Inc. and Screenvision to approve the merger has occurred. During the second quarter of 2014, NCM, Inc. and Screenvision each received a request for additional information from the DOJ in connection with the DOJ's review of the merger. Issuance of the second request extends the waiting period under the HSR Act until 30 days after both parties have substantially complied with the requests, unless the waiting period is terminated sooner by the DOJ or the parties otherwise agree to extend the closing date for the merger. The companies have been cooperating with the DOJ staff since shortly after the announcement of the merger and intend to continue to work cooperatively with the DOJ staff in the review of the merger. Following the merger, NCM, Inc. will evaluate whether to contribute the Screenvision assets to NCM LLC. Although it is under no obligation to do so, upon approval of NCM, Inc.'s Board of Directors and the founding members, NCM, Inc. may contribute Screenvision assets and NCM, Inc. debt to NCM LLC in exchange for 9,900,990 NCM LLC membership units. NCM, Inc. has secured a commitment from a group of financial institutions for a $250 million term loan to finance the $225 million portion of the merger consideration that will be paid in cash, along with fees and expenses incurred in connection with the term loan and the merger. In addition, NCM LLC amended its senior secured credit facility to allow for the contribution of the Screenvision assets and NCM, Inc. debt to NCM LLC following the closing of the merger. Further information regarding these financing transactions is described in Note 10 - Subsequent Events to the unaudited Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.



Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled "Risk Factors" in our Form 10-K filed with the SEC on February 21, 2014 for the Company's fiscal year ended December 26, 2013.

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Summary Historical and Operating Data

The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data):

Three Months Ended Six Months Ended % Change YTD 2014 June 26, June 27, June 26, June 27, Q2 2014 to to 2014 2013 2014 2013 Q2 2013 YTD 2013 Revenue: Advertising $ 99.9$ 116.9$ 170.1$ 190.6 (14.5 %) (10.8 %) Fathom Events - 5.9 - 14.4 (100.0 %) (100.0 %) Total 99.9 122.8 170.1 205.0 (18.6 %) (17.0 %) Operating expenses: Advertising 38.5 41.3 76.0 76.6 (6.8 %) (0.8 %) Fathom Events - 5.1 - 12.2 (100.0 %) (100.0 %) Network, administrative and unallocated costs 19.4 18.4 39.3 36.6 5.4 % 7.4 % Merger-related administrative costs (1) 1.7 - 1.7 - 100.0 % 100.0 % Total 59.6 64.8 117.0 125.4 (8.0 %) (6.7 %) Operating income 40.3 58.0 53.1 79.6 (30.5 %) (33.3 %) Non-operating expenses 18.6 20.0 37.7 39.1 (7.0 %) (3.6 %) Income tax expense 3.8 6.0 2.1 6.6 (36.7 %) (68.2 %) Net income attributable to noncontrolling interests 14.3 22.5 12.8 25.4 (36.4 %) (49.6 %) Net income attributable to NCM, Inc. $ 3.6$ 9.5$ 0.5$ 8.5 NM NM Net income per NCM, Inc. basic share $ 0.06$ 0.17$ 0.01$ 0.16 NM NM Net income per NCM, Inc. diluted share $ 0.06$ 0.17$ 0.01$ 0.15 NM NM Adjusted OIBDA $ 52.0$ 66.2$ 74.6$ 95.3 (21.5 %) (21.7 %) Adjusted OIBDA margin 52.1 % 53.9 % 43.9 % 46.5 % (1.8 %) (2.6 %) Total theatre attendance (in millions) (2)(3) 175.4 187.2 341.9 341.7 (6.3 %) 0.1 % NM = not meaningful.



(1) Merger-related costs represent legal, accounting, advisory and other

professional fees associated with the proposed merger with Screenvision and

are included in administrative expense in the accompanying unaudited

Condensed Consolidated Financial Statements.

(2) Represents the total attendance within NCM LLC's advertising network.

(3) Excludes screens and attendance associated with certain AMC Rave and Cinemark

Rave theatres for all periods presented.

Non-GAAP Financial Measures

Operating Income Before Depreciation and Amortization ("OIBDA"), Adjusted OIBDA and Adjusted OIBDA margin are not financial measures calculated in accordance with U.S. GAAP. OIBDA represents consolidated net income plus income tax expense, interest and other costs and depreciation and amortization expense. Adjusted OIBDA excludes from OIBDA share based payment costs and merger-related costs. Adjusted OIBDA margin is calculated by dividing Adjusted OIBDA by total revenue. These non-GAAP financial measures are used by management to evaluate operating performance, to forecast future results and as a basis for compensation. The Company believes these are important supplemental measures of operating performance because they eliminate items that have less bearing on its operating performance and so highlight trends in its core business that may not otherwise be apparent when relying solely on GAAP financial measures. The Company believes the presentation of these measures is relevant and useful for investors because it enables them to view performance in a manner similar 27



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to the method used by the Company's management, helps improve their ability to understand the Company's operating performance and makes it easier to compare the Company's results with other companies that may have different depreciation and amortization policies, non-cash share based compensation programs, levels of mergers and acquisitions, interest rates or debt levels or income tax rates. A limitation of these measures, however, is that they exclude depreciation and amortization, which represent a proxy for the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company's business. In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the Company's share based payment costs or costs associated with the Screenvision merger. OIBDA or Adjusted OIBDA should not be regarded as an alternative to operating income, net income or as indicators of operating performance, nor should they be considered in isolation of, or as substitutes for financial measures prepared in accordance with GAAP. The Company believes that consolidated net income is the most directly comparable GAAP financial measure to OIBDA. Because not all companies use identical calculations these non-GAAP presentations may not be comparable to other similarly titled measures of other companies, or calculations in the Company's debt agreement.



The following table reconciles consolidated net income to OIBDA and Adjusted OIBDA for the periods presented (dollars in millions):

Three Months Ended Six Months Ended June 26, June 27, June 26, June 27, 2014 2013 2014 2013 Consolidated net income $ 17.9$ 32.0$ 13.3$ 33.9 Income tax expense 3.8 6.0 2.1 6.6 Interest and other non-operating costs 18.6 20.0 37.7 39.1 Depreciation and amortization 7.8 6.2 15.6 11.6 OIBDA $ 48.1$ 64.2$ 68.7$ 91.2 Share-based compensation costs (1) 2.2 2.0 4.2 4.1 Merger-related administrative costs (2) 1.7 - 1.7 - Adjusted OIBDA $ 52.0$ 66.2$ 74.6$ 95.3 Total revenue $ 99.9$ 122.8$ 170.1$ 205.0 Adjusted OIBDA margin 52.1 % 53.9 % 43.9 % 46.5 %



(1) Share-based compensation costs are included in network operations, selling

and marketing and administrative expense in the accompanying unaudited

Condensed Consolidated Financial Statements.

(2) Merger-related costs represent legal, accounting, advisory and other

professional fees associated with the proposed merger with Screenvision and

are included in administrative expense in the accompanying unaudited

Condensed Consolidated Financial Statements.

Basis of Presentation

The results of operations data for the three and six months ended June 26, 2014 and June 27, 2013 was derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc. and should be read in conjunction with the notes thereto. 28



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Results of Operations

Three Months Ended June 26, 2014 and June 27, 2013

Revenue. Total revenue decreased $22.9 million, or 18.6%, from $122.8 million for the three months ended June 27, 2013 to $99.9 million for the three months ended June 26, 2014, due to a 14.5% decrease in total advertising revenue and a $5.9 million decrease in Fathom Events revenue related to the sale of that part of our business at the end of 2013. The following is a summary of revenue by category (in millions): Three Months Ended $ Change % Change June 26, June 27, Q2 2014 to Q2 2014 to 2014 2013 Q2 2013 Q2 2013 National advertising revenue $ 68.4$ 83.4$ (15.0 ) (18.0 %) Local advertising revenue 21.7 22.4 (0.7 ) (3.1 %) Founding member advertising revenue from beverage concessionaire agreements 9.8 11.1 (1.3 ) (11.7 %) Total advertising revenue 99.9 116.9 (17.0 ) (14.5 %) Fathom Consumer revenue - 5.0 (5.0 ) (100.0 %) Fathom Business revenue - 0.9 (0.9 ) (100.0 %) Total Fathom Events revenue - 5.9 (5.9 ) (100.0 %) Total revenue $ 99.9$ 122.8$ (22.9 ) (18.6 %)



The following table shows data on theatre attendance and revenue per attendee for the three months ended June 26, 2014 and June 27, 2013:

Three Months Ended % Change June 26, June 27, Q2 2014 to 2014 2013 Q2 2013



National advertising revenue per attendee $ 0.390$ 0.446

(12.6 %) Local advertising revenue per attendee $ 0.124$ 0.120 3.3 % Total advertising revenue (excluding founding member beverage revenue) per attendee $ 0.514$ 0.565 (9.0 %) Total advertising revenue per attendee $ 0.570$ 0.624 (8.7 %) Total theatre attendance (in millions) (1) (2) 175.4 187.2 (6.3 %)



(1) Represents the total attendance within NCM LLC's advertising network.

(2) Excludes screens and attendance associated with certain AMC Rave and Cinemark

Rave theatres for all periods presented.

National advertising revenue. The $15.0 million, or 18.0%, decrease in national advertising revenue (excluding beverage revenue from NCM LLC's founding members) was due primarily to a 21.8% decrease in national advertising CPMs (excluding beverage revenue) due primarily to the expansion of our client mix to new client categories that traditionally buy television and other advertising at lower CPMs, the implementation of more aggressive seasonal and volume pricing strategies and a soft television scatter marketplace combined with an increase in competition from other national video networks, including several new online and mobile advertising platforms. The decrease in national advertising revenue (excluding beverage revenue) was partially offset by an increase in national inventory utilization which rose from 107.1% in the second quarter of 2013 to 122.9% in the second quarter of 2014, which included a $3.3 million increase in revenue by content partners versus the second quarter of 2013. Inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show, which can be expanded, should market demand dictate. The number of utilized impressions sold increased despite a 6.3% decline in theatre attendance quarter over quarter. Local advertising revenue. The $0.7 million, or 3.1%, decrease in local advertising revenue was driven by a 9.8% decrease in the average contract value in the second quarter of 2014, compared to the second quarter of 2013, partially offset by an increase in contract volume of 7.4% in the second quarter of 2014, compared to the second quarter of 2013. The decrease in average contract value was driven by a decrease in the value of larger local contracts (over $250,000), due primarily to the absence of one large automotive contract that occurred in the second quarter of 2013, a portion of which is expected to be incurred as national advertising revenue in future periods. The increase in contract volume was driven by an increase in the number of contracts under $250,000 which was due in part to the growth of our network and better geographic coverage in many markets and states that increased our appeal to advertisers and an improving economic outlook in many of the local markets that we serve. 29



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Founding member beverage revenue. The $1.3 million, or 11.7%, decrease in national advertising revenue from NCM LLC's founding members' beverage concessionaire agreements was due to a 6.4% decrease in founding member attendance in the second quarter of 2014, compared to the second quarter of 2013 and a decrease in beverage revenue CPMs, which declined because they are based on prior year realized rates during segment one of the FirstLook pre-show, which decreased year-over-year. Fathom Events revenue. Fathom Events revenue was zero for the three months ended June 26, 2014 from $5.9 million for the three months ended June 27, 2013 due to the sale of this portion of our business on December 26, 2013. Operating expenses. Total operating expenses decreased $5.2 million, or 8.0%, from $64.8 million for the three months ended June 27, 2013 to $59.6 million for the three months ended June 26, 2014. The following table shows the changes in operating expense for the three months ended June 26, 2014 and June 27, 2013 (in millions): Three Months Ended $ Change % Change June 26, June 27, Q2 2014 to Q2 2014 to 2014 2013 Q2 2013 Q2 2013 Advertising operating costs $ 6.6$ 8.1$ (1.5 ) (18.5 %) Fathom Events operating costs - 4.2 (4.2 ) (100.0 %) Network costs 4.4 5.1 (0.7 ) (13.7 %) Theatre access fees-founding members 17.9 18.1 (0.2 ) (1.1 %) Selling and marketing costs 14.1 15.7 (1.6 ) (10.2 %) Merger-related administrative costs 1.7 - 1.7 100.0 % Other administrative and other costs 7.1 7.4 (0.3 ) (4.1 %) Depreciation and amortization 7.8 6.2 1.6 25.8 % Total operating expenses $ 59.6$ 64.8$ (5.2 ) (8.0 %) Advertising operating costs. Advertising operating costs decreased $1.5 million, or 18.5%, from $8.1 million for the second quarter of 2013 to $6.6 million for the second quarter of 2014. This decrease was primarily the result of a $0.5 million decrease in affiliate advertising payments, a $0.4 million decrease in lobby production supplies and a $0.2 million decrease in onscreen production costs. The decrease in affiliate advertising payments was driven by lower total advertising revenue and a 3.3% decrease in the number of average affiliate screens in the second quarter of 2014, compared to the second quarter of 2013 due to the acquisition of certain affiliate screens by NCM LLC's founding members, partially offset by the addition of 205 affiliate screens related to newly constructed, acquired and signed affiliate theatres. Eight new affiliate circuits have been added since the end of the second quarter of 2013. Lobby production supplies and onscreen production costs decreased due to lower revenue in the period. Fathom Events operating costs. Fathom Events operating costs decreased to zero in the three months ended June 26, 2014 from $4.2 million for the three months ended June 27, 2013 due to the sale of this portion of our business on December 26, 2013. Network costs. Network costs decreased $0.7 million, or 13.7%, from $5.1 million for the second quarter of 2013 to $4.4 million for the second quarter of 2014. The decrease was primarily due to a decrease in personnel expense of $0.3 million due primarily to lower bonus expense and related taxes (due to lower performance against internal targets) and lower benefit costs, as well as, a decrease in contract labor and network maintenance costs. Theatre access fees. Theatre access fees decreased $0.2 million, or 1.1%, from $18.1 million for the second quarter of 2013 to $17.9 million for the second quarter of 2014. The decrease was due to a $0.8 million decrease related to the 6.4% decrease in founding member attendance in the second quarter of 2014 compared to the second quarter of 2013, partially offset by a $0.6 million increase in theatre access fees due to an increase in the number of digital screens, including higher quality digital cinema projectors and related equipment. The fees for digital screens and equipment increased $0.3 million related to an annual 5% rate increase specified in the ESAs and $0.3 million from an increase of 3.4% in the average number of NCM LLC's founding member theatres equipped with the higher quality digital cinema equipment quarter-over-quarter due primarily to acquisitions of new theatres by the founding members. 30



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Selling and marketing costs. Selling and marketing costs decreased $1.6 million, or 10.2%, from $15.7 million for the second quarter of 2013 to $14.1 million for the second quarter of 2014. This decrease was primarily due to a decrease of $0.7 million in personnel expense due primarily to lower commissions, bonuses and related taxes (due to lower performance against internal targets) and lower benefit costs, and a decrease of $0.6 million in non-cash barter expense related to timing of barter transactions. Merger-related administrative costs. Merger-related administrative costs increased $1.7 million, or 100.0%, from zero for the second quarter of 2013 to $1.7 million for the second quarter of 2014 due to legal, accounting, advisory and other professional fees associated with the proposed Screenvision merger. Other administrative and other costs. Other administrative and other costs decreased $0.3 million, or 4.1%, from $7.4 million for the second quarter of 2013 to $7.1 million for the second quarter of 2014 due primarily to a $0.4 million decrease in personnel expense due primarily to lower bonus expense and related taxes (due to lower performance against internal targets) and lower benefit costs. Depreciation and amortization. Depreciation and amortization expense increased $1.6 million, or 25.8%, from $6.2 million for the second quarter of 2013 to $7.8 million for the second quarter of 2014. The increase was primarily due to higher amortization of intangible assets related to new affiliate agreements and NCM LLC founding member common unit adjustments, primarily from founding member acquisitions. Non-operating expenses. Total non-operating expenses decreased $1.4 million, or 7.0%, from $20.0 million for the three months ended June 26, 2013 to $18.6 million for the three months ended June 26, 2014. The following table shows the changes in non-operating expense for the three months ended June 26, 2014 and June 27, 2013 (in millions): Three Months Ended $ Change % Change June 26, June 27, Q2 2014 to Q2 2014 to 2014 2013 Q2 2013 Q2 2013 Interest on borrowings $ 13.0$ 12.8$ 0.2 1.6 % Interest income (0.5 ) (0.1 ) (0.4 ) NM Accretion of interest on the discounted payable to founding members under tax receivable agreement 3.5 3.4 0.1 2.9 % Amortization of terminated derivatives 2.5 2.7 (0.2 ) (7.4 %) Other non-operating expense 0.1 1.2 (1.1 ) (91.7 %) Total non-operating expenses $ 18.6$ 20.0$ (1.4 ) (7.0 %) NM = not meaningful. The decline in non-operating expense was due primarily to a decrease in other non-operating expense of $1.1 million due to the absence of the write-off of debt issuance costs that occurred during the second quarter of 2013 related to a debt refinancing. In addition, interest income increased by $0.4 million due primarily to interest accrued on the notes receivable from NCM LLC's founding members from the sale of Fathom Events at the end of 2013. Net income. Net income decreased $5.9 million from $9.5 million for the three months ended June 27, 2013 to $3.6 million for the three months ended June 26, 2014. The decrease in net income was due to a decrease in operating income of $17.7 million, as described further above, partially offset by a $8.2 million decrease in income attributable to noncontrolling interests, a decrease in income tax expense of $2.2 million both due primarily to lower net income before taxes in the period and a decrease of $1.4 million in non-operating expense, as described further above. 31



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Six Months Ended June 26, 2014 and June 27, 2013

Revenue. Total revenue decreased $34.9 million, or 17.0%, from $205.0 million for the six months ended June 27, 2013 to $170.1 million for the six months ended June 26, 2014 due to a 10.8% decrease in advertising revenue and $14.4 million decrease in Fathom Events revenue due to the sale of this part of our business at the end of 2013. The following is a summary of revenue by category (in millions). Six Months Ended $ Change % Change June 26, June 27, YTD 2014 to YTD 2014 to 2014 2013 YTD 2013 YTD 2013 National advertising revenue $ 111.1$ 134.9$ (23.8 ) (17.6 %) Local advertising revenue 39.8 35.7 4.1 11.5 % Founding member advertising revenue from beverage concessionaire agreements 19.2 20.0 (0.8 ) (4.0 %) Total advertising revenue 170.1 190.6 (20.5 ) (10.8 %) Fathom Consumer revenue - 13.3 (13.3 ) (100.0 %) Fathom Business revenue - 1.1 (1.1 ) (100.0 %) Total Fathom Events revenue - 14.4 (14.4 ) (100.0 %) Total revenue $ 170.1$ 205.0$ (34.9 ) (17.0 %)



The following table shows data on theatre attendance and revenue per attendee for the six months ended June 26, 2014 and June 27, 2013:

Six Months Ended % Change June 26, June 27, YTD 2014 to 2014 2013



YTD 2013 National advertising revenue per attendee $ 0.325$ 0.395

(17.7 %) Local advertising revenue per attendee $ 0.116$ 0.104 11.5 % Total advertising revenue (excluding founding member beverage revenue) per attendee $ 0.441$ 0.499 (11.6 %) Total advertising revenue per attendee $ 0.498$ 0.558 (10.8 %) Total theatre attendance (in millions) (1) (2) 341.9 341.7 0.1 %



(1) Represents the total attendance within NCM LLC's advertising network.

(2) Excludes screens and attendance associated with certain AMC Rave and Cinemark

Rave theatres for all periods presented.

National advertising revenue. The $23.8 million, or 17.6%, decrease in national advertising revenue (excluding beverage revenue from NCM LLC's founding members) was due primarily to a 17.6% decrease in national advertising CPMs (excluding beverage revenue) due primarily to the expansion of our client mix to new client categories that traditionally buy their television and other advertising at lower CPMs, the implementation of more aggressive seasonal and volume pricing strategies and a soft television scatter market combined with an increase in competition from other national video networks, including several new online and mobile advertising platforms. This was partially offset by a slight increase in national inventory utilization which increased from 97.6% in the six months ended June 27, 2013 to 98.7% in the six months ended June 26, 2014. Local advertising revenue. The $4.1 million, or 11.5%, increase in local advertising revenue was driven by an increase in local advertising contract volume of 9.3% and an increase in the average contract value of 2.5% in the six months ended June 26, 2014, compared to the six months ended June 27, 2013. The increase in contract volume and average contract value was driven by a 96% increase in total value of contracts over $250,000. Revenue from contracts greater than $250,000 increased by $4.4 million, which represented growth in the number of contracts of 88.0% and growth in the average contract value of 4.5% during the six months ended June 26, 2014, compared to the six months ended June 27, 2013. The growth in these larger local contracts during the six months ended June 26, 2014 was due in part to the growth of our network and better geographic coverage in many markets and states that increased our appeal to advertisers and attracted several large additional regional contracts in the automotive and telecommunications industries. Founding member beverage revenue. The $0.8 million, or 4.0%, decrease in national advertising revenue from NCM LLC's founding members' beverage concessionaire agreements was due primarily to a decrease in beverage revenue CPMs, which declined because they are based on prior year realized rates during segment one of the FirstLook pre-show, which decreased year-over-year, partially offset by a 1.7% increase in founding member attendance in the six months ended June 26 2014, compared to the six months ended June 27, 2013. 32



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Fathom Events revenue. Fathom Events revenue was zero for the six months ended June 26, 2014 from $14.4 million for the six months ended June 27, 2013 due to the sale of this portion of our business on December 26, 2013. Operating expenses. Total operating expenses decreased $8.4 million, or 6.7%, from $125.4 million for the six months ended June 27, 2013 to $117.0 million for the six months ended June 26, 2014. The following table shows the changes in operating expense for the six months ended June 26, 2014 and June 27, 2013 (in millions): Six Months Ended $ Change % Change June 26, June 27, YTD 2014 to YTD 2014 to 2014 2013 YTD 2013 YTD 2013 Advertising operating costs $ 11.6$ 13.8$ (2.2 ) (15.9 %) Fathom Events operating costs - 10.0 (10.0 ) (100.0 %) Network costs 9.0 10.1 (1.1 ) (10.9 %) Theatre access fees-founding members 35.3 33.7 1.6 4.7 % Selling and marketing costs 29.1 31.1 (2.0 ) (6.4 %) Merger-related administrative costs 1.7 - 1.7 100.0 % Other administrative and other costs 14.7 15.1 (0.4 ) (2.6 %) Depreciation and amortization 15.6 11.6 4.0 34.5 % Total operating expenses $ 117.0$ 125.4$ (8.4 ) (6.7 %) Advertising operating costs. Advertising operating costs decreased $2.2 million, or 15.9%, from $13.8 million for the six months ended June 27, 2013 to $11.6 million for the six months ended June 26, 2014. This decrease was primarily the result of a $1.3 million decrease in affiliate advertising payments, a $0.4 million decrease in lobby production supplies and a $0.3 million decrease in onscreen production costs. The decrease in affiliate advertising payments was driven by lower total advertising revenue and a 6.7% decrease in the number of average affiliate screens in the six months ended June 26, 2014, compared to the six months ended June 27, 2013 due to the acquisition of certain affiliate screens by NCM LLC's founding members, partially offset by the addition of 205 affiliate screens related to newly constructed, acquired and signed affiliate theatres. Eight new affiliate circuits have been added since the end of the second quarter of 2013. Lobby production supplies and onscreen production costs decreased due to lower revenue during the period.



Fathom Events operating costs. Fathom Events operating costs decreased to zero in the six months ended June 26, 2014 from $10.0 million for the six months ended June 27, 2013 due to the sale of this portion of our business on December 26, 2013.

Network costs. Network costs decreased $1.1 million, or 10.9%, from $10.1 million for the six months ended June 27, 2013 to $9.0 million for the six months ended June 26, 2014. The decrease was primarily due to a decrease in personnel expense of $0.3 million due primarily to lower bonus expense and related taxes (due to lower performance against internal targets) and lower benefit costs, as well as, a decrease in equipment rental and network maintenance costs of $0.4 million.

Theatre access fees.Theatre access fees increased $1.6 million, or 4.7%, from $33.7 million for the six months ended June 27, 2013 to $35.3 million for the six months ended June 26, 2014. Approximately $1.3 million of the increase was due to an increase in the number of digital screens, including higher quality digital cinema projectors and related equipment pertaining to an annual 5% rate increase specified in the ESAs and an increase of 4.5% in the average number of NCM LLC's founding member theatres equipped with the higher quality digital cinema equipment related primarily to acquisitions of new theatres by the founding members. In addition, approximately $0.3 million of the increase was due to the 1.7% increase in founding member attendance in the six months ended June 26, 2014 compared to the six months ended June 27, 2013. Selling and marketing costs. Selling and marketing costs decreased $2.0 million, or 6.4%, from $31.1 million for the six months ended June 27, 2013 to $29.1 million for the six months ended June 26, 2014. This decrease was primarily due to a decrease of $1.6 million in non-cash barter expense related to timing of barter transactions and a decrease of $0.4 million in personnel expense due primarily to lower salary and employee benefit costs. 33



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Merger-related administrative costs. Merger-related administrative costs increased $1.7 million, or 100.0%, from zero for the six months ended June 27, 2013 to $1.7 million for the six months ended June 26, 2014 due primarily to legal, accounting, advisory and other professional fees associated with the proposed Screenvision merger. Other administrative and other costs. Other administrative and other costs decreased $0.4 million, or 2.6%, from $15.1 million for the six months ended June 27, 2013 to $14.7 million for the six months ended June 26, 2014 due primarily a $0.4 million decrease in personnel expense due primarily to lower bonus expense and related taxes (due to lower performance against internal targets) and lower benefit costs. Depreciation and amortization. Depreciation and amortization expense increased $4.0 million, or 34.5%, from $11.6 million for the six months ended June 27, 2013 to $15.6 million for the six months ended June 26, 2014. The increase was primarily due to higher amortization of intangible assets related to new affiliate agreements and NCM LLC founding member common unit adjustments, primarily related to founding member acquisitions. Non-operating expenses. Total non-operating expenses decreased $1.4 million, or 3.6%, from $39.1 million for the six months ended June 26, 2013 to $37.7 million for the six months ended June 26, 2014. The following table shows the changes in non-operating expense for the six months ended June 26, 2014 and June 27, 2013 (in millions): Six Months Ended $ Change % Change June 26, June 27, YTD 2014 to YTD 2014 to 2014 2013 YTD 2013 YTD 2013 Interest on borrowings $ 26.1$ 26.1 $ - 0.0 % Interest income (0.9 ) (0.2 ) (0.7 ) NM Accretion of interest on the discounted payable to founding members under tax receivable agreement 7.3 6.8 0.5 7.4 % Amortization of terminated derivatives 5.0 5.2 (0.2 ) (3.8 %) Other non-operating expense 0.2 1.2 (1.0 ) (83.3 %) Total non-operating expenses $ 37.7$ 39.1$ (1.4 ) (3.6 %) NM = not meaningful. The decline in non-operating expense was due primarily to a decrease in other non-operating expense of $1.0 million due to the absence of the write-off of debt issuance costs that occurred during the second quarter of 2013 related to a debt refinancing. In addition, interest income increased by $0.7 million due primarily to interest accrued on the notes receivable from NCM LLC's founding members from the sale of Fathom Events. The decreases to non-operating expense were offset by an increase in interest due to NCM LLC's founding members under the tax receivable agreement of $0.5 million due primarily to changes in tax rates and NCM LLC ownership rates period over period. Net income. Net income decreased $8.0 million from net income of $8.5 million for the six months ended June 27, 2013 to $0.5 million for the six months ended June 26, 2014. The decrease in net income was due to a decrease in operating income of $26.5 million, as described further above, partially offset by a $12.6 million decrease in income attributable to noncontrolling interests, a decrease in income tax expense of $4.5 million both due primarily to lower net income before taxes in the period, and a decrease of $1.4 million in non-operating expense as described further above.



Known Trends and Uncertainties

Trends and Uncertainties Related to our Business, Industry and Corporate

Structure Changes in the current macro-economic environment and changes in the national and local and regional advertising markets, including the expansion of new online and mobile advertising platforms, present uncertainties that could impact our results of operations, including the timing and amount of spending from our advertising clients. The impact to our business associated with these issues could be mitigated somewhat over time due to factors including the expansion of our advertising network (including the proposed merger with Screenvision), the related increase in salable advertising impressions and better geographic coverage, growth in our advertising client base, the effectiveness of cinema advertising relative to other advertising mediums, and the technical quality of our network and upgrades to our inventory management and audience targeting systems that are in process. During 2013 and thus far in 2014, we have added ten new affiliate theatre circuits (with 347 screens) to our national 34



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network. In total, these contracted new affiliate theatres are expected to add approximately 10 million new attendees on a full-year pro-forma basis, which we expect will result in approximately 137 million new salable national advertising impressions (assuming 14 national advertising units of 30 seconds each). Our sales force integrates these additional impressions into the advertising sales process as they are added to our network and thus these additional attendees will provide the opportunity for future expansion of our revenue, operating income and cash flow. We believe that the continued growth of our network will expand our national reach and geographic coverage will strengthen our selling proposition and competitive positioning versus other national and local video advertising platforms, including television, online and mobile video platforms and other advertising platforms. In addition, during late 2012 and 2013, NCM LLC's founding members acquired 97 of our affiliate theatres (1,245 screens). In addition, the founding members also acquired 14 theatres with 223 screens and annual attendance of about 10 million that had existing agreements with another cinema advertising provider. These theatres are expected to join our network in November 2018 when the agreement with another cinema advertising provider expires. The acquisition of existing affiliates by our founding members will increase our Adjusted OIBDA and Adjusted OIBDA margins as the theatre access fees are generally lower, as a percentage of revenue, than affiliate payments. In 2013 and in the first six months of 2014, we experienced a decline of 7.6% and 17.6%, respectively, in national advertising CPMs (excluding beverage revenue) due primarily to the expansion of our client mix to new client categories that traditionally buy their television and other advertising at lower CPMs, the implementation of more aggressive seasonal and volume pricing strategies and increased competition from other national video networks, including several new online and mobile advertising platforms. We expect this trend of decreasing CPMs to continue during the remainder of 2014 as we further expand and diversify our client mix into client categories that have lower pricing expectations and the marketplace becomes more competitive due in part to the expansion of online and mobile video advertising platforms. Under the ESAs, up to 90 seconds of the FirstLook program can be sold to NCM LLC's founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. During 2013, we sold 60 seconds to NCM LLC's founding members. We expect to continue to sell 60 seconds of time to NCM LLC's founding members in 2014. During 2014, certain of NCM LLC's founding members will be renegotiating their agreements with their beverage supplier, which could change the amount of advertising time that is bought from us to satisfy those agreements. Should the amount of time acquired as part of these beverage concessionaire arrangements decline, that time will be available for sale to other clients. Through 2011, this time was priced on a CPM basis, which changed each year as specified in the ESAs. Per the ESAs, beginning in 2012, this time is priced equal to the annual percentage change in the advertising CPM for the previous year charged to unaffiliated third parties during segment one (closest to show time) of the FirstLook pre-show, limited to the highest advertising CPM being then-charged by NCM LLC. Due to the lower CPMs that we realized in 2013, this reduced the CPM on our beverage concessionaire revenue during the first six months of 2014 and will reduce the CPM on our beverage concessionaire revenue during the remainder of 2014. In consideration for NCM LLC's access to NCM LLC's founding members' theatre attendees for on-screen advertising and use of lobbies and other space within NCM LLC's founding members' theatres for the LEN and lobby promotions, NCM LLC's founding members receive a monthly theatre access fee under the ESAs. The theatre access fee is composed of a fixed payment per patron and a fixed payment per digital screen. The payment per theatre patron increases by 8% every five years, with the first such increase taking effect for fiscal year 2012, and the payment per digital screen increases annually by 5%. The theatre access fee paid in the aggregate to all founding members cannot be less than 12% of NCM LLC's aggregate advertising revenue (as defined in the ESA), or it will be adjusted upward to reach this minimum payment. Pursuant to ESAs, beginning on October 1, 2010 the theatre access fee paid to the members of NCM LLC included an additional fee for access to the higher quality digital cinema systems. This additional fee will continue to increase as additional screens are equipped with the new digital cinema equipment and the fee increases annually by 5%. As of June 26, 2014 and June 27, 2013, approximately 84.6% and 85.9%, respectively, of our founding member network screens were showing advertising on digital cinema projectors. On May 5, 2014, we entered into a Merger Agreement to merge with Screenvision as described in Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview. Consummation of the merger is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, as well, as other customary closing conditions. If we do not receive approval (or if we materially breach our representations or covenants such that the closing conditions in the Merger Agreement cannot be satisfied) we will be required to pay a termination fee of approximately $28.8 million. NCM LLC would indemnify NCM, Inc. and bear a pro rata portion of this fee based upon NCM, Inc.'s ownership percentage in NCM LLC, with NCM LLC's founding members bearing the remainder of the fee in accordance with their ownership percentage in NCM LLC. If Screenvision or its affiliates materially breach their representations or covenants such that the closing conditions in the Merger Agreement cannot be satisfied, they will be required to pay us a termination fee of $10 million, and if Screenvision is subsequently sold within one year of the termination, an additional amount equal to the amount by which the sale proceeds are greater than $385 million will be paid to us up to a maximum of $28.8 million (including the $10 million). If the merger is not completed and we are required to pay the termination a fee, our financial results would be adversely affected. 35



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Trends and Uncertainties Related to Liquidity and Financial Performance

During 2014, 2013 and 2012, we amended our senior secured credit facility to extend the maturity, expand the revolver availability and reduce the interest rate spreads, and in 2012 and 2011, we issued new Senior Unsecured Notes and Senior Secured Notes primarily to refinance outstanding bank debt. As a result of these financing transactions, we extended the average maturities of our debt by over six years. The average remaining maturity is 6.8 years as of June 26, 2014. As of June 26, 2014, approximately 67% of our total borrowings bear interest at fixed rates. The remaining 33% of our borrowings bear interest at variable rates and as such, our net income and earnings per share could fluctuate with interest rate fluctuations related to our borrowings. Refer to Note 5-Borrowings to the unaudited Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for more information. During the first quarter of 2014, we paid a regular quarterly cash dividend of $0.22 per share on each share of the Company's common stock and we paid a special dividend of $0.50 per share on each share of the Company's common stock. These dividend payments totaled $42.3 million during the first quarter of 2014. During the second quarter of 2014, we paid a regular quarterly cash dividend of $0.22 per share on each share of the Company's common stock. This dividend payment totaled $12.9 million during the second quarter of 2014. Our short-term marketable securities balance decreased $32.6 million, from $71.3 million as of December 26, 2013 to $38.7 million as of June 26, 2014 and our long-term marketable securities balance increased by $21.6 million, from $0 as of December 26, 2013 to $21.6 million as of June 26, 2014. The decrease in short-term marketable securities and the increase in long-term marketable securities were due primarily to the Company purchasing more marketable securities with original maturities greater than one year to increase its average interest rates and increase interest income on excess cash balances. As investments mature during the remainder of 2014, the Company expects to continue to purchase securities with longer maturities in order to achieve higher average rates of return on its investments. Trends Related to Ownership in NCM LLC 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 theatre additions or dispositions during the previous year. During the first quarter of 2014, NCM LLC issued 1,087,911 common membership units to its founding members for the rights to exclusive access to net new theatre screens and attendees added by the founding members to NCM LLC's network during 2013. Of these units, 432,646 related to theatre acquisitions and 655,265 related to new theatres constructed, net of closures. NCM LLC recorded a net intangible asset of approximately $16.4 million during the first quarter of 2014 as a result of the annual Common Unit Adjustment. The common unit adjustment for the first quarter of 2014 was lower than the adjustment for the first quarter of 2013 primarily due to the fact that two special common unit adjustments were made in 2013 for large acquisitions by two founding members.



Overall, NCM, Inc.'s ownership in NCM LLC decreased to 45.8% as of June 26, 2014 compared to 46.1% at December 26, 2013 due primarily to the common unit adjustment described above, which we expect to proportionally increase net income attributable to noncontrolling interests and decrease net income attributable to NCM, Inc.

Financial Condition and Liquidity

Liquidity and Capital Resources

Our cash balances can fluctuate due to the seasonality of our business and related timing of collections of accounts receivable balances and operating expenditure payments, as well as available cash payments (as defined in the NCM LLC Operating Agreement) to NCM LLC's founding members, interest or principal payments on our term loan and the Senior Secured Notes and Senior Unsecured Notes, income tax payments, tax receivable agreement payments to NCM LLC's founding members and amount of quarterly dividends to NCM, Inc.'s common stockholders (including special dividends). 36



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A summary of our financial liquidity is as follows (in millions):

As of $ Change $ Change June 26, December 26, June 27, Q2 2014 to Q2 2014 to 2014 2013 2013 YE 2013 Q2 2013 Cash, cash equivalents and marketable securities (1) $ 73.7$ 126.0$ 95.1$ (52.3 )$ (21.4 ) Revolver availability (2) 120.0 104.0 110.0 16.0 10.0 Total $ 193.7$ 230.0$ 205.1$ (36.3 )$ (11.4 )



(1) Included in cash and cash equivalents as of June 26, 2014, December 26, 2013

and June 27, 2013, there was $3.4 million, $13.3 million and $8.8 million,

respectively, of cash held by NCM LLC which is not available to satisfy NCM,

Inc.'s dividend, income tax, tax receivable payments to NCM LLC's founding

members and other obligations.

(2) 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. NCM LLC's total availability under the

revolving credit facility is $149.0 million. Of the total available, $14.0

million outstanding principal of the revolving credit facility will not be

repaid in connection with any future prepayments of the revolving credit

facility amounts, but rather that portion of the revolving credit facility

will be paid in full along with any accrued and unpaid fees and interest, on

the maturity date of December 31, 2014.

We have generated and used cash as follows (in millions):

Six Months Ended June 26, 2014 June 27, 2013 Operating cash flow $ 36.6 $ 43.9 Investing cash flow $ 5.4 $ (15.5 ) Financing cash flow $ (83.3 ) $ (45.6 )



Operating Activities. The $7.3 million decrease in cash provided by

operating activities for the six months ended June 26, 2014



versus the

six months ended June 27, 2013 was due primarily to the $20.6



million

decrease in net income and a $15.0 million higher payment to



NCM LLC's

founding members under the tax receivable agreement due



primarily to

additional payments made for operating loss carrybacks to



prior years,

partially offset by an $22.6 million increase in accounts



receivable

period over period primarily from the timing of revenue and collections in the period and a $6.1 million increase in the



timing of

deferred revenue balances period over period. Investing Activities. The $20.9 million increase in cash provided by investing activities for the six months ended June 26, 2014



versus the

six months ended June 27, 2013 was due primarily to higher



proceeds

from sale and maturities of marketable securities, net of



purchases of

$16.7 million, and a decrease of $3.4 million in affiliate



payments

for the up-front fees paid upon commencement of network affiliate agreements. Financing Activities. The $37.7 million increase in cash used in financing activities for the three months ended June 26, 2014 versus the three months ended June 27, 2013 was due primarily to an increase of $31.0 million in cash dividends paid due to the payment of a special cash dividend of $0.50 per share during the first



quarter of

2014 and higher distributions to NCM LLC's founding members of $8.3 million.



Sources of Capital and Capital Requirements.

NCM, Inc.'s primary source of liquidity and capital resources is the quarterly available cash distributions from NCM LLC as well as its existing cash balances and marketable securities, which as of June 26, 2014 were $70.3 million (excluding NCM LLC). NCM LLC's primary sources of liquidity and capital resources are its cash provided by operating activities, availability under its revolving credit facility and cash on hand. As described above, the Company has secured a commitment for a $250 million term loan to finance the cash portion of the merger consideration for the proposed Screenvision merger as well as the related fees and expenses associated with the merger. The remaining portion of the merger consideration will be paid by the issuance of $150 million of Company stock (at a fixed price of $15.15 per share). 37



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Management believes that future funds generated from NCM LLC's operations and cash on hand should be sufficient to fund working capital requirements, NCM LLC's debt service requirements, and capital expenditure and other investing requirements, through the next twelve months. Cash flows generated by NCM LLC's distributions to NCM, Inc. and the founding members can be impacted by the seasonality of advertising sales, stock option exercises, interest on borrowings under our revolving credit agreement and to a lesser extent theatre attendance. NCM LLC is required pursuant to the terms of the NCM LLC Operating Agreement to distribute its available cash, as defined in the operating agreement quarterly to its members (NCM LLC's founding members and NCM, Inc.). The available cash distribution to the members of NCM LLC for the three months ended June 26, 2014 (which will be made during the third quarter of 2014) was $34.0 million, of which $15.6 million will be distributed to NCM, Inc.NCM, Inc. expects to use cash received from the available cash distributions and its cash balances to fund income taxes, payments associated with the tax receivable agreement with NCM LLC's founding members and current and future dividends as declared by the Board of Directors, including a dividend declared on July 30, 2014 of $0.22 per share (approximately $12.9 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 August 21, 2014 to be paid on September 5, 2014. Distributions from NCM LLC and NCM, Inc. cash balances should be sufficient to fund the above listed items for the foreseeable future at the discretion of the Board of Directors dependent on anticipated cash needs, overall financial condition, future prospects for earnings, available cash and cash flows as well as other relevant factors.



Critical Accounting Policies

For a discussion of accounting policies that we consider critical to our business operations and understanding of our results of operations, and that affect the more significant judgments and estimates used in the preparation of our unaudited Condensed Consolidated Financial Statements, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" contained in our annual report on Form 10-K filed for the fiscal year ended December 26, 2013 and incorporated by reference herein. As of June 26, 2014, there were no significant changes in those critical accounting policies.



Recent Accounting Pronouncements

In March 2014, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue 13-D, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period ("EITF 13-D"). Under EITF 13-D, a performance target that can be achieved after the requisite service period should be treated as a performance condition that affects vesting, rather than a condition that affects grant date fair value. Compensation cost is recognized over the requisite service period if it is probable that the performance condition will be achieved. If necessary, compensation cost is subsequently adjusted, to reflect those awards that ultimately vest. EITF 13-D will be effective, on a prospective basis, for the Company during its first quarter of 2016, with early adoption permitted. The adoption of this standard is not anticipated to have a material impact on the Company's unaudited Condensed Consolidated Financial Statements or notes thereto. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. The new revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This guidance will be effective beginning in fiscal year 2017 and early adoption is not permitted. The standard allows for either a full retrospective or a modified retrospective transition method. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its unaudited Condensed Consolidated Financial Statements or notes thereto, as well as which transition method it intends to use. 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 unaudited Condensed Consolidated Financial Statements.



Related Party Transactions

For a discussion of related party transactions, see the information provided under Note 4-Related Party Transactions to the unaudited Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q. 38



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Off-Balance Sheet Arrangements

Our operating lease obligations, which primarily include office leases, are not reflected on our balance sheet. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual and Other Obligations" contained in our annual report on Form 10-K for the fiscal year ended December 26, 2013 and incorporated by reference herein. We do not believe these arrangements are material to our current or future financial condition, results of operations, liquidity, capital resources or capital expenditures.



Contractual and Other Obligations

There were no material changes to our contractual obligations during the six months ended June 26, 2014.

Seasonality Our revenue and operating results are seasonal in nature, coinciding with the timing of marketing expenditures by our advertising clients and to a lesser extent the attendance patterns within the film exhibition industry. Both advertising expenditures and theatre attendance tend to be higher during the second, third, and fourth fiscal quarters. Advertising revenue is primarily correlated with new product releases, advertising client marketing priorities and economic cycles and to a lesser extent theatre attendance levels. The actual quarterly results for each quarter could differ materially depending on these factors or other risks and uncertainties. Based on our historical experience, our first quarter typically has less revenue than the other quarters of a given year due primarily to lower advertising client demand and lower theatre industry attendance levels. Accordingly, there can be no assurances that seasonal variations will not materially affect our results of operations in the future.



The following table reflects the quarterly percentage of total revenue for the fiscal years ended 2010, 2011, 2012 and 2013.

First Second Third Fourth Quarter Quarter Quarter Quarter FY 2010 19.8 % 23.2 % 29.4 % 27.6 % FY 2011 16.3 % 26.2 % 31.2 % 26.3 % FY 2012 17.6 % 24.5 % 32.1 % 25.8 % FY 2013 17.8 % 26.5 % 29.2 % 26.5 %



The following table reflects the quarterly percentage of total advertising revenue for the fiscal years ended 2010, 2011, 2012 and 2013.

First Second Third Fourth Quarter Quarter Quarter Quarter FY 2010 17.9 % 23.7 % 31.0 % 27.4 % FY 2011 15.3 % 25.5 % 32.9 % 26.3 % FY 2012 16.2 % 24.7 % 33.7 % 25.4 % FY 2013 17.3 % 27.4 % 29.9 % 25.4 %


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