ncmi-10ka_20171228.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

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

For the fiscal year ended December 28, 2017

or

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

For the transition period from __________________ to __________________

Commission file number:  001-33296

 

NATIONAL CINEMEDIA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-5665602

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

9110 East Nichols Avenue, Suite 200

 

 

Centennial, Colorado

 

80112-3405

(Address of principal executive offices)

 

(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, par value $0.01 per share

 

The NASDAQ Stock Market LLC

(Title of each class)

 

(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes     No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

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

 

Large accelerated filer

 

 

Smaller reporting company

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

 

Emerging growth company

 

Accelerated filer

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition method for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Based on the closing sales price on June 29, 2017, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was $459,709,991.

As of March 5, 2018, 79,134,647 shares of the registrant’s common stock (including unvested restricted stock), par value of $0.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

 


EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) amends our Annual Report on Form 10-K for the fiscal year ended December 28, 2017 (“Original Filing”), filed with the U.S. Securities and Exchange Commission (“SEC”) on March 19, 2018 (“Original Filing Date”). The sole purpose of this Amendment No. 1 is to include the information required by Items 10 through 14 of Part III of Form 10-K. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such proxy statement is filed no later than 120 days after our fiscal year-end. The reference on the cover of the Original Filing to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original Filing is hereby deleted.

 

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), Part III, Items 10 through 14 of the Original Filing are hereby amended and restated in their entirety. In addition, we have included Part IV, Item 16, which was unintentionally omitted from the Original Filing, and new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment No. 1, as required by Rule 12b-15 under the Exchange Act. This Amendment No. 1 does not amend, modify, or otherwise update any other information in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing. In addition, this Amendment No. 1 does not reflect events that may have occurred subsequent to the Original Filing Date.

  

In this document, unless the context otherwise requires:

 

“NCM, Inc.,” “the Company,” “we,” “us” or “our” refer to National CineMedia, Inc., a Delaware corporation, and its consolidated subsidiary National CineMedia, LLC.

 

 

“NCM LLC” refers to National CineMedia, LLC, a Delaware limited liability company, which commenced operations on April 1, 2005, and is the current operating company for our business, which NCM, Inc. acquired an interest in, and became a member and the sole manager of, upon completion of our initial public offering, or “IPO,” which closed on February 13, 2007.

 

“AMC” refers to AMC Entertainment Inc. and its subsidiaries, National Cinema Network, Inc., or “NCN,” which contributed assets used in the operations of NCM LLC and formed NCM LLC in March 2005, AMC ShowPlace Theaters, Inc., which joined NCM LLC in June 2010 in connection with AMC’s acquisition of Kerasotes ICON Theaters AMC Starplex, LLC, which joined NCM LLC in December 2015 in connection with AMC’s acquisition of Starplex Cinemas and American Multi-Cinema, Inc., which is a party to an ESA with NCM LLC

 

“Cinemark” refers to Cinemark Holdings, Inc. and its subsidiaries, Cinemark Media, Inc., which joined NCM LLC in July 2005, and Cinemark USA, Inc., and is party to an ESA with NCM LLC.

 

“Regal” refers to Cineworld Group plc, Regal Entertainment Group and its subsidiaries, Regal CineMedia Corporation, or “RCM,” which contributed assets used in the operations of NCM LLC, Regal CineMedia Holdings, LLC, which formed NCM LLC in March 2005, and Regal Cinemas, Inc., and is party to an ESA with NCM LLC.

 

“ESAs” refers to the amended and restated exhibitor services agreements entered into by NCM LLC with each of NCM LLC’s founding members upon completion of the IPO, which were further amended and restated on December 26, 2013 in connection with the sale of the Fathom Events business.

 

“Founding members” refers to AMC, Cinemark and Regal.

 



TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

4

 

 

 

 

 

Item 11.

 

Executive Compensation

 

11

 

 

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

35

 

 

 

 

 

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

37

 

 

 

 

 

Item 14.

 

Principal Accounting Fees and Services

 

44

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

Item 15.

 

Exhibits, Financial Statement Schedules

 

46

 

 

 

 

 

Item 16.

 

Form 10-K Summary

 

46

 

 

 

 

 

Signatures

 

47

 

 

 

 

 


 

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item regarding our executive officers is set forth in Part I of the Original Filing on Form 10-K under the heading “Executive Officers of the Registrant” and is incorporated herein by this reference.

Our board of directors currently consists of nine directors. Under the director designation agreement dated as of February 13, 2007, each of our founding members – AMC, Cinemark and Regal – are permitted to appoint or designate up to two persons for nomination to election on our board of directors under the terms set forth in the agreement, one of whom must qualify as “independent” as required by the rules promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and by the Nasdaq Stock Market (“Nasdaq”). See “Certain Relationships and Related Party Transactions – Director Designation Agreement.” The designees pursuant to this agreement for Cinemark are Thomas F. Lesinski and Lee Roy Mitchell and for Regal are Mark B. Segall and Renana Teperberg. In December 2016, AMC agreed to a proposed final judgment in a lawsuit brought by the U.S. Department of Justice in connection with AMC’s acquisition of Carmike Cinemas, Inc. Among other conditions, AMC was required to relinquish its governance rights in NCM LLC, including its seats on the NCM, Inc. board of directors as well as its rights to nominate any person to serve on the NCM, Inc. board of directors. AMC’s non-independent designee to the board of directors resigned in December 2016. AMC’s independent designee was Paula Williams Madison and she remained on the board. AMC was also required to divest the majority of its equity interests in NCM LLC, so that by June 20, 2019 it will own no more than 4.99% of NCM LLC’s outstanding membership units.

Our amended and restated certificate of incorporation provides that directors are divided, as evenly as possible, into three classes, designated as Class I, Class II and Class III and that the number of total directors shall not be more than ten. The number of director positions is nine. The members of each class serve for staggered three-year terms. In 2018, the Class II directors are up for re-election.

The following table provides information regarding our directors as of March 30, 2018.

Name

  

Age

  

Position

Scott N. Schneider

 

60

 

Chairman (Class I)

Andrew J. England

  

53

  

Chief Executive Officer and Director (Class I)

Lawrence A. Goodman

 

63

 

Director (Class I)

David R. Haas

  

76

  

Director (Class II)

Thomas F. Lesinski

  

58

  

Director (Class II)

Paula Williams Madison

  

65

  

Director (Class II)

Lee Roy Mitchell

  

81

  

Director (Class III)

Mark B. Segall

 

55

 

Director (Class II)

Renana Teperberg

 

40

 

Director (Class III)

Scott N. Schneider. Mr. Schneider has been a director of NCM, Inc. since February 2007 and currently serves as the Chairman of the Board.  He also served as lead director from October 2014 through January 2016 and served as Non-Employee Executive Chairman of NCM, Inc. from January 2016 through January 2018. His current term as director expires in 2020. Mr. Schneider became the Chief Executive Officer of AHC LLC, a financial consulting and advisory firm in October 2009. He served as Operating Partner and Chairman, Media and Communications, of Diamond Castle Holdings, LP, a private equity firm, from January 2005 to September 2009. From 2001 to 2004, Mr. Schneider served in various senior executive capacities including President, Chief Operating Officer and Vice Chairman of the Board of Citizens Communications Company.

Mr. Schneider’s extensive experience in senior leadership positions at several public and private media companies makes him well suited to understand and advise the board on complex managerial, strategic and financial considerations and to serve as Non-Employee Executive Chairman. He has a strong knowledge of the nuances of financial markets and is able to provide a variety of perspectives on financial and operational issues as well as provide guidance to assist the Company with its public communications.

Andrew J. England. Mr. England was appointed Chief Executive Officer and Director of NCM, Inc. on January 1, 2016. His current term as director expires in 2020. Mr. England has a long career in marketing, previously serving as the

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Executive Vice President and Chief Marketing Officer of MillerCoors, LLC from 2010 until July 2015.  From 2008 to 2010, Mr. England served as the Chief Marketing Officer of the then newly formed MillerCoors, LLC.  From 2006 to 2008 he served as Chief Marketing Officer of Coors Brewing Co.  Prior to that, Mr. England was Vice President and General Manager of Hershey’s Snacks division, Director of the Reese’s Brand, and held various marketing and brand management positions for over ten years at Nabisco Biscuit Company and Cadbury Schweppes.  Mr. England holds a Master of Business Administration degree from Stanford University and a bachelor’s degree in Engineering Science from Durham University in the United Kingdom.

Mr. England’s extensive experience as an executive in the marketing industry brings valuable experience to the board regarding our strategic and operating objectives.  Further, his position as our Chief Executive Officer provides insight to all aspects of the Company, including its management, operations and financial requirements.  Mr. England also offers exceptional leadership skills to the board.  

Lawrence A. Goodman. Mr. Goodman has been a director since February 2007. He was chairman of the Compensation Committee of NCM, Inc. from February 2007 to July 2017 (co-chairman from January 2017 to July 2017). His current term as director expires in 2020. Mr. Goodman founded White Mountain Media, a media consulting company, in July 2004 and has served as its president since inception. From July 2003 to July 2004, Mr. Goodman was retired. From March 1995 to July 2003, Mr. Goodman was the President of Sales and Marketing for CNN, a division of Turner Broadcasting System, Inc.

Mr. Goodman’s extensive background in the media industry allows him to provide media sales and marketing advice to our management and board. Mr. Goodman brings significant business experience to provide strategies and solutions to resolve the issues addressed by the board.

David R. Haas. Mr. Haas has served as a director of NCM, Inc. and chairman of its Audit Committee since February 2007. His current term as director expires in 2018. He has been a private investor and financial consultant since January 1995. Mr. Haas was a Senior Vice President and Controller for Time Warner, Inc. from January 1990 through December 1994.

Mr. Haas’ experience as a former high-ranking financial executive in a media company qualifies him to serve on our board of directors and chairman of our Audit Committee and to provide guidance to our internal audit function and financial advice to our board. In addition, Mr. Haas’ previous experience serving on several public company boards and audit committees has provided him a broad-based understanding of financial risks and compliance expertise.

Thomas F. Lesinski.  Mr. Lesinski has served as a director of NCM, Inc. since December 2014, as co-chairman of its Compensation Committee since January 2017 and as chairman of its Compensation Committee since July 2017. His current term as director expires in 2018. Mr. Lesinski has served as the Chief Executive Officer of Sonar Entertainment, an independent entertainment studio, since January 2016. Mr. Lesinski served as the Founder and CEO of Energi Entertainment, a multi-media content production company, from August 2014 until December 2015.   From 2013 to 2014, Mr. Lesinski was President of Digital Content and Distribution at Legendary Entertainment, a leading media company dedicated to owning, producing and delivering content to mainstream audiences with a targeted focus on the powerful fandom demographic.  Prior to that role, from 2006 to 2013, Mr. Lesinski served as President, Digital Entertainment at Paramount Pictures, a global producer and distributor of filmed entertainment. Mr. Lesinski also served as President of Worldwide Home Entertainment at Paramount Pictures for three years, prior to which, he spent ten years in various leadership positions at Warner Bros. Entertainment and was a Managing Director for an advertising agency.

Mr. Lesinski’s experience in home entertainment and digital media gives him the experience to critically review the various business considerations necessary to run a business such as ours and offers a valuable perspective as the media marketplace becomes more competitive, particularly with the growth of online and mobile advertising platforms. Mr. Lesinski’s experience as a Chief Executive Officer provides valuable perspective as chairman of our Compensation Committee.

Paula Williams Madison. Ms. Madison has served as a director of NCM, Inc. since March 2014 and as chairman of its Nominating and Governance Committee since January 2017. Her current term as director expires in 2018. Ms. Madison has served as Chairman and CEO of Madison Media Management LLC, a company that invests in emerging media, entertainment and communication businesses, since 2011.  From 2011 to 2014, Ms. Madison also was Chief Executive Officer of the Los Angeles Sparks, a WNBA professional women’s basketball team.   Prior to this role, Ms. Madison served

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as Executive Vice President of Diversity at NBCUniversal, as well as, Vice President of the General Electric Company, NBCUniversal’s parent company at the time.  Ms. Madison spent 22 years with NBCUniversal in various leadership positions and prior to that ran several different local affiliate television stations.

Ms. Madison’s senior executive positions in the media and entertainment industries give her the experience to critically review the various business considerations necessary to run a business such as ours. Ms. Madison is able to offer the board sound business strategies. This, combined with her many years of business experience, makes her a valued contributor to the Board and qualifies her to serve as chairman of our Nominating and Governance Committee.

Lee Roy Mitchell. Mr. Mitchell has served as a director of NCM, Inc. since October 2006. His current term as director expires in 2019.  Mr. Mitchell has served as Chairman of the Board of Cinemark Holdings, Inc. since March 1996 and as a director since its inception in 1987.  Mr. Mitchell served as Chief Executive Officer of Cinemark Holdings, Inc. from its inception in 1987 until December 2006, Vice Chairman of the Board from March 1996 and was President from inception in 1987 until March 1993.  

Mr. Mitchell has over four decades of executive leadership experience, including a key role in the theater industry and brings important institutional knowledge to the board. Mr. Mitchell’s experience enables him to share with the board suggestions about how similarly situated companies effectively assess and undertake business considerations and opportunities. Since Mr. Mitchell is a board designee for one of our founding members, he brings to the board the perspective of a major stakeholder.

Mark B. Segall. Mr. Segall has served as a director of NCM, Inc. since March 2018. His current term as director expires in 2018. Mr. Segall is the owner and Managing Director of Kidron Corporate Advisors, LLC, a New York based mergers and acquisitions corporate advisory boutique founded in 2003, and has been the CEO of Kidron Capital Advisors LLC since 2009. Previously, he served as the Co-Chief Executive Officer of Investec, Inc., an asset management company, from 2001 to 2003, following his role as Investec Inc.’s head of investment banking and general counsel. Prior to that, he was a partner at the law firm of Kramer, Levin, Naftalis & Frankel LLP, specializing in cross-border mergers and acquisitions and capital markets activities. Mr. Segall serves as a director of the following public companies: Integrated Asset Management Plc (2000 to 2014 and 2018 to present) and Bel Fuse, Inc (2011 to present). In the past five years he has served on other public company boards including: Ronson Europe N.V. (2008 to 2017), Temco Service Industries, Inc. (2011 to 2016), Infinity Cross Border Acquisition Corp. (2012 to 2014), and ATMI, Inc. (2013 to 2014). Mr. Segall also serves on a number of private company boards. Mr. Segall’s two decades of board leadership experience at both public and private companies, gives him the ability to offer guidance to the Company and its operations.

Renana Teperberg. Ms. Teperberg has served as a director of NCM, Inc. since March 2018. Her current term as director expires in 2019. Ms. Teperberg has served as Chief Commercial Officer of Cineworld Group plc since 2016 and Senior Vice President Commercial from 2014 to 2015. Prior to that time, she served as Head of Programming and Marketing for Cinema City International from 2002 to 2013. On February 28, 2018, Cineworld Group plc acquired the parent corporation of Regal.

Ms. Teperberg has extensive experience in the cinema industry which enables her to share with the board suggestions about how similarly situated companies effectively assess and undertake business considerations and opportunities.  

Independence of the Board of Directors

Our board of directors has determined that Lawrence A. Goodman, David R. Haas, Thomas F. Lesinski, Paula Williams Madison, Scott N. Schneider and Mark Segall, all current directors, qualify as “independent” directors under the rules promulgated by the SEC under the Exchange Act, and by Nasdaq.  There are no family relationships among any of our executive officers or directors.

Company Leadership Structure

Our board determined to split the roles of Chairman of the board of directors and Chief Executive Officer. Our Chief Executive Officer is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while our Chairman sets the agenda for board meetings and presides over meetings of the full board in their oversight role.  We believe this leadership structure will best serve the objectives of the board’s oversight of management, the board’s ability to carry out its roles and responsibilities on behalf of our stockholders, and the Company’s overall corporate governance.

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Mr. Schneider assumed the position of Chairman of the board of directors on January 1, 2016 and on January 20, 2016, the board appointed him as the Non-Employee Executive Chairman during the CEO transition period. On January 24, 2018, the board reappointed him Chairman of the board of directors.

The board plans to periodically review the leadership structure to determine whether it continues to best serve the Company and our stockholders.

Board’s Role in Risk Oversight

The board as a whole has responsibility for risk oversight, including setting the “tone at the top” regarding the importance of risk management. The board reviews information on the Company’s credit, liquidity and operations, as well as reports from management on enterprise risk and committee reports. The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation. The Audit Committee is responsible for overseeing the management of financial risks. The Nominating and Governance Committee is responsible for overseeing the management of risks associated with board independence and potential conflicts of interests. While each committee is responsible for evaluating and overseeing the management of such risks, the entire board is regularly informed of each committee’s analysis.

Katherine L. Scherping, Chief Financial Officer is our Chief Risk Officer. The Chief Risk Officer provides periodic updates to the board on the strategic, operational, financial, compliance and reputational risks facing the Company, which serves to ensure that risk management is a priority within the organization and the Company’s risk oversight is aligned with its strategies.  

Compensation Risk Assessment

We do not believe we have compensation practices that are reasonably likely to have a material adverse effect on the Company. Our Compensation Committee reviews the compensation policies and practices for all employees, including executive officers. Among other things, the Compensation Committee considers whether the compensation program encouraged excessive risk taking by employees at the expense of long-term Company value. Based upon its assessment, the Compensation Committee does not believe that our compensation program encourages excessive or inappropriate risk-taking. The Compensation Committee believes that the design of our compensation program, which includes a mix of annual and long-term incentives, cash and equity awards and retention incentives, is balanced and does not motivate imprudent risk-taking.

Meetings of the Board of Directors and Standing Committees

The board of directors held eleven meetings during the fiscal year ended December 28, 2017. During our 2017 fiscal year, no director then in office attended fewer than 75% of the aggregate total number of meetings of the board of directors held during the period in which he or she was a director and of the total number of meetings held by all of the committees of the board of directors on which he or she served. The Company does not have a formal policy regarding attendance by members of the board of directors at the Company’s Annual Meeting, but encourages our directors to attend. All nine of our directors attended our Annual Meeting of Stockholders held on April 28, 2017. The three standing committees of the board of directors are the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Periodically the board has established a special committee to review significant transactions and other matters. For example, in 2017 a special committee of the board of directors was formed to consider the implications of AMC’s Memorandum of Understanding with the Department of Justice regarding the acquisition of Carmike Cinemas, Inc. The special committee during 2017 consisted of the three independent directors who were not designated by one of NCM LLC’s founding members, Messrs. Goodman, Haas and Schneider.  There were sixteen meetings of the special committee during our 2017 fiscal year.

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The following table shows the current membership as of March 30, 2018:

DIRECTOR COMMITTEE MEMBERSHIP AND MEETINGS

 

Director

 

Audit

Committee

 

Compensation

Committee

 

Nominating and

Governance

Committee

 

Board of

Directors

Andrew J. England

 

 

 

 

 

 

 

X

Lawrence A. Goodman

 

 

 

X

 

X

 

X

David R. Haas

 

Chair

 

X

 

 

 

X

Thomas F. Lesinski

 

X

 

Chair

 

 

 

X

Paula Williams Madison

 

 

 

X

 

Chair

 

X

Lee Roy Mitchell

 

 

 

 

 

 

 

X

Scott N. Schneider

 

X

 

 

 

X

 

Chair

Mark B. Segall

 

 

 

 

 

 

 

X

Renana Teperberg

 

 

 

 

 

 

 

X

 

Audit Committee

The Audit Committee consists of David R. Haas (chairman), Thomas F. Lesinski and Scott N. Schneider.  Each of the committee members was determined to be “independent” as required by the rules promulgated by the SEC under the Exchange Act, and by the Nasdaq. Each of them also meets the financial literacy requirements of the Nasdaq. Our board of directors has determined that Mr. Haas qualifies as an “audit committee financial expert” as defined in the federal securities laws and regulations.

The Audit Committee is primarily concerned with overseeing management’s processes and activities relating to the following:

 

(1)

maintaining the reliability and integrity of our accounting policies, financial reporting practices and financial statements;

 

(2)

the independent auditor’s qualifications and independence;

 

(3)

the performance of our internal audit function and independent auditor; and

 

(4)

confirming compliance with laws and regulations, and the requirements of any stock exchange or quotation system on which our securities may be listed.

The Audit Committee also is responsible for establishing procedures for the receipt of complaints regarding our accounting, internal accounting controls or audit matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee’s responsibilities are set forth in its charter, the current version of which was most recently reviewed by the Committee and approved by the board in January 2018. The current version of the charter is available on our website at www.ncm.com at the Investor Relations link. There were eight meetings of the Audit Committee during our 2017 fiscal year.

Compensation Committee

The Compensation Committee consists of Thomas F. Lesinski (chairman), Lawrence A. Goodman, David R. Haas and Paula Williams Madison.  Each member was determined to be “independent” as defined in the rules promulgated by the SEC under the Exchange Act and by Nasdaq, and each also qualifies as an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code and a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act.

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The Compensation Committee’s purposes, as set forth in its charter, are:

 

(1)

to assist the board in discharging its responsibilities relating to compensation of our CEO and other executives;

 

(2)

to administer our equity incentive plans (other than equity compensation for non-employee directors which is administered by the board); and

 

(3)

to have overall responsibility for approving and evaluating all of our compensation plans, policies and programs that affect our executive officers.

The Compensation Committee’s responsibilities are set forth in its charter, which is reviewed at least annually. The current Compensation Committee charter was most recently reviewed by the Committee and approved by the board in January 2018. The current version of the charter is available on our website at www.ncm.com at the Investor Relations link. There were eight meetings of the Compensation Committee during our 2017 fiscal year.

The Compensation Committee performs such functions and has the authority and responsibilities enumerated in its charter. The Compensation Committee is authorized to form and delegate responsibility to subcommittees of the Compensation Committee as it deems necessary or appropriate, provided, however, that any such subcommittees shall meet all applicable independence requirements and that the Compensation Committee shall not delegate to persons other than independent directors any functions that are required under applicable law, regulation or Nasdaq rule to be performed by independent directors.

The Compensation Committee engaged ClearBridge Compensation Group, LLC (“ClearBridge”), a nationally recognized consulting firm, to assess the competitiveness of compensation for the executive officers and provide independent advice and recommendations to the Compensation Committee regarding executive compensation. Prior to retaining ClearBridge, the Compensation Committee reviewed ClearBridge’s independence as contemplated by the committee’s charter and applicable Nasdaq rules, and determined that there were no conflicts of interest and that ClearBridge is independent from the Company, our Compensation Committee and our executive officers.

Nominating and Governance Committee

The Nominating and Governance Committee consists of Paula Williams Madison (chairman), Lawrence A. Goodman and Scott N. Schneider.  Each of the members of our Nominating and Governance Committee was determined to be independent in accordance with Nasdaq rules and relevant federal securities laws and regulations.

The Nominating and Governance Committee’s purposes, as set forth in its charter, are:

 

(1)

to identify individuals qualified to become board members, and to recommend director nominees to the board;

 

(2)

to oversee the evaluation of our management and the board; and

 

(3)

to review from time to time the Corporate Governance Guidelines applicable to us and to recommend to the board such changes as it may deem appropriate.

The Nominating and Governance Committee’s responsibilities are set forth in its charter, which was most recently reviewed by the Committee and approved by the board in January 2018. The current version of the charter as well as our Corporate Governance Guidelines are available on our website at www.ncm.com at the Investor Relations link. There were four meetings of the Nominating and Governance Committee during our 2017 fiscal year.

Other than the director candidates designated by our founding members, the Nominating and Governance Committee identifies individuals qualified to become board members and recommends director nominees to our board for each annual meeting of stockholders or in connection with filling a vacancy on the board between annual meetings. It also reviews the qualifications and independence of the members of our board of directors and its various committees on a regular basis and makes any recommendations the committee members may deem appropriate from time to time concerning any changes in the overall composition of our board of directors and its committees. The Nominating and Governance Committee recommends to our board of directors the terms of our Corporate Governance Guidelines. The Nominating and Governance Committee reviews such guidelines and the provisions of the Nominating and Governance Committee charter on a regular basis to confirm that such guidelines and charter remain consistent with sound corporate governance practices and with any legal, regulatory or Nasdaq requirements. The Nominating and Governance Committee also monitors our board of directors and our

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compliance with any commitments made to regulators or otherwise regarding changes in corporate governance practices and leads our board of directors in its annual review of our board of directors.

As the need to fill vacancies arises in the future, the Nominating and Governance Committee will refer to its list of potential candidates that is maintained and updated on an on-going basis and will seek individuals qualified to become board members for recommendation to the board. The Nominating and Governance Committee would consider potential director candidates recommended by stockholders and use the same criteria for screening all candidates, regardless of who proposed such candidates. See “Stockholder Communications” below for information on how our stockholders may communicate with our board of directors.  See “Proposals of Stockholders” below for further information on making director nominations.

The Nominating and Governance Committee and board of directors consider whether candidates for nomination to the board of directors possess the following qualifications, among others:

 

(a)

the highest level of personal and professional ethics, integrity, and values;

 

(b)

expertise that is useful to us and is complementary to the background and expertise of the other members of the board of directors;

 

(c)

a willingness and ability to devote the time necessary to carry out the duties and responsibilities of membership on the board of directors;

 

(d)

a desire to ensure that our operations and financial reporting are effected in a transparent manner and in compliance with applicable laws, rules, and regulations; and

 

(e)

a dedication to the representation of the best interests of all our stockholders, including our founding members.

Diversity of Directors. In considering whether to recommend any candidate for inclusion in the slate of director nominees, the Nominating and Governance Committee complies with the Company’s Corporate Governance Guidelines and Corporate Code of Conduct. In addition to considering the qualifications listed above, the Committee seeks nominees that will complement the existing members and provide diversity of background, professional expertise, gender and ethnicity. The Nominating and Governance Committee periodically reviews and assesses its evaluation process for considering nominee directors.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to our directors, executive officers and all of our employees. We will provide any person, without charge and upon request, with a copy of our Code of Conduct. Requests should be directed to us at 9110 E. Nichols Ave., Suite 200, Centennial, Colorado 80112-3405, Attention: Secretary. The Code of Business Conduct and Ethics is also available on our website at www.ncm.com at the Investor Relation link. The information on our website is not incorporated into this proxy statement.

We will disclose any amendments to or waivers of the Code of Business Conduct and Ethics on our website at www.ncm.com. We have established a confidential hotline and website to answer employees’ questions related to the Code of Business Conduct and Ethics and to report any concerns regarding accounting, internal accounting controls or auditing matters. Our Audit Committee also has established procedures to receive, retain and treat complaints regarding accounting, internal accounting controls or auditing matters, and to allow for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of our common stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. As a matter of practice, we assist many of our directors and all of our executive officers by preparing initial ownership reports and reporting ownership changes, and typically file these reports on their behalf. To our knowledge, based solely on our review of the copies of such reports received by us, we believe that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with on a timely basis during the fiscal year ended December 28, 2017, except that (i) one Form 4 for Andrew England was filed one

10

 


 

day late on January 24, 2017 and (ii) one Form 4 for Geri House due on January 23, 2017 was filed on January 30, 2017 in conjunction with the timely filing of her Form 3.

 

Item 11.

Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

 

Introduction

This Compensation Discussion and Analysis (“CD&A”) explains the executive compensation program for the following individuals, who are referred to as the “Named Executive Officers” (“NEOs”).

 

Andrew J. England – Chief Executive Officer and Director

 

Clifford E. Marks – President

 

Katherine L. Scherping – Chief Financial Officer

 

Ralph E. Hardy – Former Executive Vice President and General Counsel (until February 12, 2018)

 

Geri R. House – Former Executive Vice President, People and Organization (until December 31, 2017)

 

Executive Summary

Fiscal Year 2017 Performance. Total revenue for the year ended December 28, 2017 decreased 4.8% to $426.1 million from $447.6 million for the comparable period last year.  Adjusted OIBDA decreased 11.1% to $205.1 million for the full year of 2017 from $230.7 million for the full year of 2016. Operating income decreased 11.0% from $173.0 million in 2016 to $153.9 million in 2017. Net income increased slightly from $25.4 million in 2016 to $25.6 million in 2017.

Key Performance Measures. The following tables summarize the key fiscal 2017 financial metrics on which the Company based its executive compensation.

 

Fiscal 2017 Performance Measures (in millions) (1)

 

 

Target

 

 

Actual

 

 

Achievement relative to target

Adjusted OIBDA for Compensation Purposes

 

$

 

197.9

 

 

$

 

177.5

 

 

89.7% of targeted Adjusted OIBDA for Compensation Purposes

Adjusted Advertising Revenue

 

$

422.8

 

 

$

396.2

 

 

93.7% of targeted Adjusted Advertising Revenue target

 

 

(1)

Refer to “Annual Cash Incentive” below for additional details on the Executive Performance Bonus Plan, Adjusted OIBDA for Compensation Purposes and Adjusted Advertising Revenue, which are non-GAAP measures.  See “Definitions of Performance Measures Used in Incentive Plans in Fiscal 2017” below for the definitions of Adjusted OIBDA for Compensation Purposes and Adjusted Advertising Revenue and the reconciliations to the closest GAAP based measurement.  

 

 

Fiscal 2015-2017 Performance Measures (in millions) (1)

 

 

Target

 

 

Actual

 

 

Achievement relative to target

2015 PBRS cumulative Free Cash Flow

 

$

 

557.8

 

 

$

 

543.1

 

 

97.37% of targeted Free Cash Flow

April 2015 PBRS grant three-year cumulative Free Cash Flow

 

$

 

541.5

 

 

$

 

525.6

 

 

97.10% of targeted Free Cash Flow

(1) Refer to “Long-Term Incentives (LTI)” section below for additional details on the 2016 Equity Plan and Free Cash Flow

     which is a non-GAAP measure.  See “Definitions of Performance Measures Used in Incentive Plans in Fiscal 2017”

     below for the definitions of Free Cash Flow and the reconciliations to the closest GAAP based measurement.

 

 

11

 


 

Elements of 2017 Compensation Program. Our Compensation Committee believes that the Company’s compensation policies and procedures are aligned with the short-term and long-term interests of our stockholders and are designed to attract, motivate, reward and retain superior talent who are critical to our long-term growth and profitability.  The 2017 Compensation Program consists of the following pay elements:  

 

Base Salary

+

Annual Cash Incentive

+

Performance-Based Restricted Stock (PBRS)

+

Time-Based

Restricted Stock (TBRS)

=

Total Direct Compensation

The designs for the Annual Cash Incentive Plan and Long-Term Incentive Plan were generally maintained from the 2016 Compensation Program, based on the Compensation Committee’s assessment that the compensation program continued to align with the Company’s business and compensation objectives.

Pay Mix.  We believe the mix of annual and long-term incentives and the mix of cash and equity awards are balanced, emphasize Company performance and do not motivate imprudent risk-taking.  The following charts present the elements of compensation as a percentage of total target direct compensation for fiscal year 2017, computed using the annual salary, target annual cash incentive (assuming 100% achievement) and grant date fair value of PBRS and TBRS.  The first chart presents the compensation elements for our CEO, Andrew J. England.  The NEOs included in the second chart are Messrs. Marks and Hardy and Mses. Scherping and House.

 

Fiscal Year 2017 Compensation Mix

 

Andrew J. England (a)

 

 

 

(a)

Approximately 62% of Mr. England’s compensation is performance-based and approximately 73% of his compensation is variable, which represents the performance-based elements and time-based restricted stock.

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Other NEOs (b)

 

 

 

 

(b)

Approximately 54% of all other NEOs’ compensation is performance-based and approximately 76% of their compensation is variable, which represents the performance-based elements and time-based restricted stock.

Pay-for-Performance Alignment.  The Compensation Committee believes that having a large percentage of executive officers’ pay as performance-based compensation ensures that their interests are aligned with those of our stockholders. Consistent with our compensation program design, our compensation program results for the 2017 fiscal year were aligned with the Company’s financial results.  The fiscal year 2017 annual cash incentives paid out below target (58.6%) as described in greater detail in “Fiscal 2017 Executive Performance Bonus Plan Payments.”  PBRS paid out below target (94.7%) for the 2015-2017 performance period, as described in greater detail in “Long-Term Incentives”.  

 

Detailed Discussion & Analysis

Compensation Philosophy

The primary goals of our Compensation Committee with respect to executive compensation are to:

 

review the competitiveness of executive cash compensation and equity grant levels compared to a select peer group of companies, using the 50th percentile as a reference point for setting compensation;

 

provide shorter-term cash incentives primarily for achieving specified annual performance objectives;

 

provide a mix of long-term equity incentives that are performance- and time-based to promote stock price growth, retention and ownership through achievement of long-term financial performance goals; and

 

establish and monitor appropriate pay and performance relationships.

To achieve these goals, we intend to maintain a compensation structure that provides rewards for high performance and value creation for our stockholders (including the founding members).

Role of Compensation Consultant and CEO in Determining Executive Compensation

Our CEO has substantial input in the determination of executive compensation other than his own and made recommendations for the compensation of all of the other NEOs that were ultimately approved by the Compensation

13

 


 

Committee. Our CEO’s compensation was determined and approved by the Compensation Committee. Our CEO is not present during voting or deliberations by the Compensation Committee regarding his compensation.

In 2017, the Compensation Committee engaged ClearBridge, a nationally recognized consulting firm, to serve as an independent consultant on executive compensation matters.  ClearBridge assessed the competitiveness of pay for the executive officers and provided independent advice and recommendations to the Compensation Committee regarding executive compensation. The Compensation Committee determined that ClearBridge is independent from the Company.

As part of its review, ClearBridge considered base salary, annual cash incentive, total cash compensation (combined salary and annual cash incentive), long-term incentives, and total direct compensation. ClearBridge reviewed and recommended a peer group for pay comparison for our executive officers comprised of companies that are publicly and domestically traded, of comparable size to NCM, Inc., and in relevant industries (i.e., in advertising, media and entertainment industries, or software technology-based companies in media-related industries).  The Compensation Committee reviewed and approved the peer group.

Our Compensation Committee believes that peer group comparisons are useful to measure the competitiveness of our compensation practices and uses the information provided by the compensation consultant as an input to its decision making. Although the Compensation Committee references the 50th percentile of the peer group’s pay levels, specific positioning for each NEO is determined on a case-by-case basis considering multiple factors.

The following peer companies were used in our competitive analysis for fiscal 2017 decisions:

 

Carmike Cinemas, Inc.

 

Nexstar Media Group, Inc.

comScore, Inc.

 

Salem Media Group, Inc.

Entercom Communications Corp

 

The E.W. Scripps Company

Entravision Communications Corporation

 

TiVo Inc.

Global Eagle Entertainment Inc.

 

Townsquare Media, Inc.

Gray Television, Inc.

 

Urban One, Inc (formerly Radio One)

IMAX Corp.

 

WebMD Health Corp.

Lee Enterprises, Incorporated

 

World Wrestling Entertainment, Inc.

MSG Networks Inc.

 

 

 

We eliminated seven companies and added twelve companies from our 2016 peer group either due to acquisition or as a result of the Compensation Committee’s assessment of the group relative to industry and size criteria.

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2017 Compensation

Provided below is a summary of the key elements of our 2017 compensation program.

 

Component

 

Description

 

Purpose

Base Salary

 

Fixed cash component

 

Reward for level of responsibility, experience and sustained individual performance

 

 

 

 

 

Annual Cash Incentive

 

Cash performance bonus based on achievement of pre-determined performance goals

 

Reward team and individual achievement against specific objective financial goals

 

 

 

 

 

Long-Term Incentives

 

Equity grants in 2017 consisted of:

 Performance-based restricted shares

 Time-based restricted shares

 

Reward for the creation of stockholder value and retain executives for the long-term

 

 

 

 

 

Other Compensation

 

A matching contribution to our defined contribution 401(k) plan and various health, life and disability insurance plans; dividend equivalents accrued on restricted stock and other customary employee benefits.

 

Provide an appropriate level of employee benefit plans and programs

 

 

 

 

 

Potential Payments Upon Termination or Change in Control

 

Contingent in nature. Amounts are payable only if employment is terminated as specified under each employment agreement. No excise tax gross-ups are provided.

 

Provide an appropriate level of payment in the event of a change in control or termination

 

 

 

 

 

Other Policies

 

Stock Ownership Guideline policy

 

Clawback policy

 

Insider trading policy, which includes anti-hedging and anti-pledging policies

 

Enhance alignment with stockholder interests

 

Specific compensation decisions made in 2017 are described below.

Base Salary. Base salaries for our executives were established based on the scope of their role and responsibilities, taking into account the experience and seniority of the individual, individual performance, peer salary levels, and other primarily subjective factors deemed relevant by the Compensation Committee.

Base salaries are reviewed annually by the Compensation Committee and the board, and may be adjusted from time to time pursuant to such review and/or in accordance with guidelines contained in the various employment agreements.


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The base salaries of our NEOs in 2017 compared to 2016 as of the end of the fiscal year were as follows.

Name

2016 Base Salary

 

 

2017 Base Salary

 

 

Percentage Change

Andrew J. England

$

 

750,000

 

 

$

 

875,000

 

 

 

 

17

 

%

Clifford E. Marks

$

 

841,500

 

 

$

 

858,330

 

 

 

 

2

 

%

Katherine L. Scherping

$

 

400,000

 

 

$

 

408,000

 

 

 

 

2

 

%

Ralph E. Hardy

$

 

304,187

 

 

$

 

310,271

 

 

 

 

2

 

%

Geri R. House

$

 

237,866

 

 

$

 

285,440

 

 

 

 

20

 

%

 

For 2017, we believe salary was within a market competitive range compared to our competitors.

Annual Cash Incentive. Annual cash incentives are intended to compensate executives for achieving financial goals that support our annual operational and strategic goals. The 2017 annual cash incentives for NEOs were awarded under the Executive Performance Bonus Plan that was approved by stockholders on May 1, 2013.  

The target percentages for our NEOs were established based on the responsibility, experience and seniority of the individual. We believe our annual cash incentives, in combination with base salaries, deliver competitive total cash compensation. In addition, we believe rewarding our executives for achievement of our financial goals is consistent with the practice of aligning their interests with those of our stockholders. A “stretch bonus” is further incentive for our executive officers to exceed operating budgets and thus further increase our equity value.

Payments of annual cash incentives are objectively calculated based on the achievement of specific financial targets for each NEO.  The process for setting the financial targets for 2017 was consistent with previous years as part of the annual budget review and approval.  The Compensation Committee approved a change in the performance measures for the annual cash incentive for all NEOs to align the team to work toward the same objectives.  For 2017, the annual cash incentive was based (i) 50% on achievement of Adjusted OIBDA for Compensation Purposes and (ii) 50% on Adjusted Advertising Revenue targets.  The stretch bonus for achievement above 100% of the target bonus was also based on the equal weighting of the achievement of the aforementioned targets.  For 2017, the Compensation Committee also approved an additional cash incentive payment equal to 10 percentage points of the executive’s annual cash incentive as a percentage of target if revenue in the first quarter of 2017 was achieved at or above target in order to incentivize higher sales during the first quarter, which has historically been the Company’s lowest quarter of the year.  This additional cash incentive was only to be paid if both annual Adjusted Advertising Revenue and annual Adjusted OIBDA for Compensation Purposes were achieved at or above target. The additional cash incentive payment was not achieved. Additionally, for Fiscal 2017 no stretch bonuses were paid as 100% of the target was not achieved that year. These performance measures are non-GAAP measures and are specifically defined in the “Definitions of Performance Measures Used in Incentive Plans in Fiscal 2017” section below.

Our annual cash incentive is paid in a single payment in the first quarter following the completion of a given fiscal year. Payments are subject to review, approval and certification by the Compensation Committee in conjunction with the issuance of our annual audit report.

 

The annual cash incentive potential which is based equally on Adjusted OIBDA for Compensation Purposes (defined in the “Definitions of Performance Measures Used in Incentive Plans in Fiscal 2017” below) and Adjusted Advertising Revenue (defined in “Definitions of Performance Measures Used in Incentive Plans in Fiscal 2017” below) is achieved as follows.  Straight line interpolation is applied to performance between the levels shown.

 

Percentage of Adjusted OIBDA for Compensation Purposes and Adjusted Advertising Revenue Achieved

 

% of Target Bonus

 

Less than 85%

 

0%

 

85%

 

25%

 

90%

 

50%

 

95%

 

75%

 

100%

 

100%

 

Greater than 105%

 

150%

 

 

 

 

 

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Actual fiscal year 2017 performance results were as follows.

 

Fiscal 2017 Performance Measures (in millions) (1)

 

 

Target

 

 

Actual

 

 

Achievement relative to target

Adjusted OIBDA for Compensation Purposes

 

$

 

197.9

 

 

$

 

177.5

 

 

89.7% of targeted Adjusted OIBDA for Compensation Purposes

Adjusted Advertising Revenue

 

$

422.8

 

 

$

396.2

 

 

93.7% of targeted Adjusted Advertising Revenue target

 

 

(1)

Adjusted OIBDA for Compensation Purposes and Adjusted Advertising Revenue are non-GAAP measures.  See “Definitions of Performance Measures Used in Incentive Plans” below for the definitions of Adjusted OIBDA for Compensation Purposes and Adjusted Advertising Revenue and the reconciliations to the closest GAAP basis measurement.

Resulting annual cash incentive payouts for fiscal year 2017 were as follows.

Fiscal 2017 Executive Performance Bonus Plan Payments

The awards under the Executive Performance Bonus Plan were determined in accordance with the Company’s actual performance compared to our internal targets. We believe the amounts paid under the Executive Performance Bonus Plan are appropriate in light of the achievement relative to the financial targets. The following table provides details about each component of the “Non-Equity Incentive Plan Compensation” column of the Fiscal 2017 Summary Compensation Table for Messrs. England, Marks, and Hardy and Mses. Scherping and House.

 

 

 

Annual Cash Incentive

 

 

 

 

 

 

 

 

Adjusted OIBDA for Compensation Purposes (50% weighting)

 

 

Adjusted Advertising Revenue (50% weighting)

 

 

Total

 

 

 

 

 

 

Name

 

Target Award as a % of Salary (1)

 

 

Actual Achievement as a % of Target

 

 

Actual Award as a % of Target

 

 

Actual Achievement as a % of Target

 

 

Actual Award as a % of Target

 

 

Actual Award as a % of Target

 

 

Total Award Amount

 

 

Andrew J. England

 

100%

 

 

89.7%

 

 

48.7%

 

 

93.7%

 

 

68.6%

 

 

58.6%

 

$

 

512,969

 

 

Clifford E. Marks

 

100%

 

 

89.7%

 

 

48.7%

 

 

93.7%

 

 

68.6%

 

 

58.6%

 

$

 

503,196

 

 

Katherine L. Scherping

 

75%

 

 

89.7%

 

 

48.7%

 

 

93.7%

 

 

68.6%

 

 

58.6%

 

$

 

179,393

 

 

Ralph E. Hardy

 

75%

 

 

89.7%

 

 

48.7%

 

 

93.7%

 

 

68.6%

 

 

58.6%

 

$

 

136,422

 

 

Geri R. House

 

75%

 

 

89.7%

 

 

48.7%

 

 

93.7%

 

 

68.6%

 

 

58.6%

 

$

 

125,504

 

 

 

(1)

Percentage of base salary determined at the end of our 2017 fiscal year (December 28, 2017).

Long-Term Incentives (LTI). We believe that creating long-term value for our stockholders is achieved, in part, by aligning the interests of our executive officers with those of our stockholders. We grant awards under our stockholder approved equity incentive plans, the National CineMedia, Inc. 2007 Equity Incentive Plan as amended and restated and the National CineMedia, Inc. 2016 Equity Incentive Plan, together we refer to as the “Equity Incentive Plan”.  Stockholders approved the National CineMedia, Inc. 2016 Equity Incentive Plan in May 2016 because the National CineMedia, Inc. 2007 Equity Incentive Plan was set to expire, and has expired, by its terms in February 2017.

All grants under the Equity Incentive Plan to our executive officers are approved by the Compensation Committee at its first meeting of the fiscal year, although grants could be made at any time at the discretion of our Compensation Committee, generally related to promotions or other merit-related reasons.

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For 2017, the Committee decided to continue to grant the following LTI vehicles:

 

PBRS: Aligns executives with the long-term financial goals of the Company. PBRS vest based upon the achievement of cumulative 2017-2019 “Free Cash Flow”, as defined within the ‘“Definitions of Performance Measures Used in Incentive Plans” and 2019 “Digital Revenue” goals, as defined below.  

 

TBRS: Promotes retention objectives, stock ownership in the Company, and a more direct alignment of the executives’ interests with stockholders’ interests.  TBRS vest ratably over a 3-year period.

On January 19, 2017, the Compensation Committee granted PBRS and TBRS to Messrs. England, Marks, and Hardy and Mses. Scherping and House, as follows.  

 

 

 

2017 Restricted Stock Awards (1)

 

 

 

PBRS

 

 

TBRS

 

 

 

Total

 

Name

 

% of Total LTI (2)

 

 

 

Target Grant Date Fair Value

of Shares

Granted (3)

 

 

Target Number

of Shares

Granted (3)

 

 

% of Total

LTI

 

 

 

Grant Date Fair Value

of Shares

Granted

 

 

Number of

Shares

Granted (4)

 

 

 

Total Grant Date Fair Value

of Shares

Granted

 

 

Total Number of

Target Shares

Granted

 

Andrew J. England

 

75%

 

 

$

 

1,124,992

 

 

 

76,013

 

 

25%

 

 

$

 

375,002

 

 

 

25,338

 

 

$

 

1,499,995

 

 

 

101,351

 

Clifford E. Marks

 

60%

 

 

$

 

1,416,242

 

 

 

95,692

 

 

40%

 

 

$

 

944,166

 

 

 

63,795

 

 

$

 

2,360,408

 

 

 

159,487

 

Katherine L. Scherping

 

60%

 

 

$

 

428,401

 

 

 

28,946

 

 

40%

 

 

$

 

285,596

 

 

 

19,297

 

 

$

 

713,997

 

 

 

48,243

 

Ralph E. Hardy

 

60%

 

 

$

 

325,778

 

 

 

22,012

 

 

40%

 

 

$

 

217,190

 

 

 

14,675

 

 

$

 

542,968

 

 

 

36,687

 

Geri R. House

 

60%

 

 

$

 

299,700

 

 

 

20,250

 

 

40%

 

 

$

 

199,815

 

 

 

13,501

 

 

$

 

499,515

 

 

 

33,751

 

 

 

(1)

The performance-based and time-based restricted stock awards include the right to receive dividend equivalents, subject to vesting.

 

(2)

Messrs. Marks and Hardy and Mses. Scherping and House received 60% PBRS and 40% TBRS due to their positions as President in the case of Mr. Marks and Executive Vice Presidents in the case of Mr. Hardy and Mses. Scherping and House. Mr. England received 75% PBRS and 25% TBRS due to his position as Chief Executive Officer.

 

(3)

Performance-based restricted stock awards vest in February 2020 based (a) 75% on the achievement of cumulative 2017-2019 “Free Cash Flow” goals and (b) 25% on the achievement of 2019 “Digital Revenue” goals (defined as revenue derived from advertising sold online, through mobile devices and other digital platforms). Reflects the target number of shares that will vest if actual cumulative Free Cash Flow and Digital Revenue equals 100% of the targets. Straight line interpolation is applied to performance between the levels shown.

 

Free Cash Flow - % of Target

 

 

Award Vesting % of Target Shares

 

<85%

 

 

0%

 

85%

 

 

25%

 

90%

 

 

50%

 

95%

 

 

75%

 

100%

 

 

100%

 

105%

 

 

150%

 

 

Digital Revenue - % of Target

 

 

Award Vesting % of Target Shares

 

<44.4%

 

 

0%

 

44.4%

 

 

25%

 

100%

 

 

100%

 

155.6%

 

 

200%

 

 

(4)

Vest ratably over a 3-year period.

 

Results for Performance-Based Restricted Stock with Measurement Periods Ended December 28, 2017. The performance-based restricted stock granted on January 21, 2015 (“2015 PBRS”) were scheduled to vest based upon achievement of the actual cumulative “Free Cash Flow” target at the end of the three-year measurement period ending December 28, 2017.  The performance-based restricted stock granted on April 10, 2015 (“April 2015 PBRS”) were scheduled

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to vest based on achievement of the actual cumulative “Free Cash Flow” target at the end of the eleven-quarter measurement period ending December 28, 2017. The 2015 PBRS and April 2015 PBRS vest according to the scale shown below. Straight line interpolation is applied to Free Cash Flow performance between the levels shown to determine the corresponding payout.  

 

Free Cash Flow - % of Target

 

 

Award Vesting % of Target Shares

<80%

 

 

0%

80%

 

 

25%

95%

 

 

90%

100%

 

 

100%

≥110%

 

 

150%

On all PBRS, dividends accrue and are paid upon vesting for those shares earned. In the event that shares are not earned, accrued dividends on those shares are not paid.  

The PBRS vested as shown below.

 Performance Measure (in millions)

 

Target

 

 

Actual

 

 

Achievement Relative to Target

 

 

Vesting %

 

2015 PBRS cumulative Free Cash Flow (a)

 

$           557.8

 

 

$           543.1

 

 

  97.4%

 

 

  94.7%

 

April 2015 PBRS grant three-year cumulative Free Cash Flow (a)

 

$

 

        541.5

 

 

$

 

        525.6

 

 

 

     97.1%

 

 

 

  94.1%

 

 

(a)

“Free Cash Flow” is a non-GAAP measure.  See “Definitions of Performance Measures Used in Incentive Plans” below for the definition of Free Cash Flow and the reconciliations to the closest GAAP basis measurement.

The following table shows the number of shares vested and accrued dividends paid for our NEOs for the performance-based restricted stock with the measurement period ended December 28, 2017.

 

 

 

Number of Shares Awarded on January 21, 2015

 

 

Number of Shares Awarded on

April 10, 2015

 

 

Total Vesting on February 26, 2018

 

 

 

Accrued Dividends (1)

 

Clifford E. Marks

 

 

78,168

 

 

 

9,422

 

 

 

82,924

 

 

$

 

216,969

 

Ralph E. Hardy

 

 

24,295

 

 

 

 

 

23,017

 

 

$

 

60,765

 

Geri R. House

 

 

17,811

 

 

 

 

 

16,874

 

 

$

 

44,548

 

 

(1)

As a result of the level of achievement of the awards which vested on February 26, 2018, accrued dividends were paid on March 13, 2018.

 

Shareholder Say-on-Pay Vote and Company Response Related to 2018 Compensation Decisions

In establishing and recommending 2018 compensation for the Company’s NEOs, the Compensation Committee considered the results of the say-on-pay vote at the 2017 Annual Meeting of Stockholders.  At that meeting, our stockholders approved our executive compensation for the 2017 fiscal year with approximately 97% of the votes cast in favor. Our board of directors recognizes that executive compensation is an important matter of stockholder concern and takes stockholder views into account through the say-on-pay vote when reviewing the compensation program throughout the year. The Compensation Committee considered the results of the advisory approval and as such, generally maintained the overall composition of executive compensation for the 2018 fiscal year.

Below is information about compensation decisions made in early 2018 for active NEOs, Mr. England, Mr. Marks and Ms. Scherping.  

Base Salary. The Compensation Committee reviewed executive compensation in January 2018 and decided to increase the base salary by a cost of living adjustment of 2% for Mr. Marks which is consistent with the average increases given to the majority of employees and leave Ms. Scherping and Mr. England’s base salary unchanged.  

Annual Cash Incentive. The process for setting the financial targets for 2018 was consistent with previous years as part of the annual budget review and approval. No changes were made to the pay-for-performance scales for Adjusted Advertising Revenue and Adjusted OIBDA for Compensation Purposes.

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Long-Term Incentives. The Compensation Committee granted standard LTI awards in the form of PBRS and TBRS to each of the NEOs based on generally the same design as the 2017 LTI program, as the Compensation Committee believed the program continued to align with the Company’s business and compensation objectives.  For the 2018 grants, the Compensation Committee approved a target of 2020 digital revenue weighted at 25% and a target for three-year cumulative Free Cash Flow weighted at 75%, consistent with the 2017 grant design to reinforce the future strategy of the business.

The 2018 long-term incentive grants were made in consideration of several factors, including current role, individual performance, potential company performance and market positioning, among other factors.  Specific details for awards granted on January 24, 2018 are provided below.  

 

 

 

2018 Restricted Stock Awards (1)

 

 

 

PBRS (2)

 

 

TBRS (3)

 

 

Total

 

Name

 

% of Total LTI

 

 

 

Target Grant Date Fair Value

of Shares

Granted

 

 

Target Number of Shares Granted (4)

 

 

% of Total LTI

 

 

 

Grant Date Fair Value

of Shares

Granted

 

 

Number of Shares  Granted

 

 

Total Number of Target Shares Granted

 

 

 

Total Grant Date Fair Value

of Shares

Granted

 

Andrew J. England

 

75%

 

 

$

 

1,125,003

 

 

 

170,455

 

 

25%

 

 

$

 

374,999

 

 

 

56,818

 

 

 

227,273

 

 

$

 

1,500,002

 

Clifford E. Marks

 

60%

 

 

$

 

631,567

 

 

 

95,692

 

 

40%

 

 

$

 

421,047

 

 

 

63,795

 

 

 

159,487

 

 

$

 

1,052,614

 

Katherine L. Scherping

 

60%

 

 

$

 

191,044

 

 

 

28,946

 

 

40%

 

 

$

 

127,360

 

 

 

19,297

 

 

 

48,243

 

 

$

 

318,404

 

 

(1)

The performance-based and time-based restricted stock awards include the right to receive dividend equivalents, subject to vesting.

(2)

Performance-based restricted stock awards vest on March 1, 2021 based (a) 75% on the achievement of cumulative 2018-2020 “Free Cash Flow” goals and (b) 25% on the achievement of 2020 “Digital Revenue” goals (defined as revenue derived from advertising sold online, through mobile devices and other digital platforms).

(3)

Vest ratably over a 3-year period.

(4)

Reflects the target number of shares that will vest if actual cumulative Free Cash Flow and Digital Revenue equals 100% of the targets.  The performance-based restricted stock awards are scheduled to vest based on the scales below.  The Compensation Committee may apply other pre-determined adjustments to the definition of Free Cash Flow and Digital Revenue under the plan.

 

Free Cash Flow - % of Target

 

 

Award Vesting % of Target Shares

 

<85%

 

 

 

0%

 

 

85%

 

 

 

25%

 

 

90%

 

 

 

50%

 

 

95%

 

 

 

75%

 

 

100%

 

 

 

100%

 

105%

 

 

 

150%

 

 

 

Digital Revenue - % of Target

 

 

Award Vesting % of Target Shares

 

<36.2%

 

 

0%

 

36.2%

 

 

25%

 

100%

 

 

100%

 

163.8%

 

 

200%

 

 

Straight line interpolation is applied to Free Cash Flow and Digital Revenue performance between the levels shown. Free Cash Flow is a non-GAAP measure. See “Definitions of Performance Measures Used in Incentive Plans” below for the definition of Free Cash Flow and the reconciliations to the closest GAAP basis measurement.

Other Compensation. Our employees, including our NEOs, participate in various employee benefits. These benefits include the following: medical and dental insurance; flexible spending accounts for healthcare; life, accidental death and dismemberment and disability insurance; employee assistance programs (confidential counseling); a 401(k) plan; and paid time off.

20

 


 

None of our NEOs participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us or in non-qualified defined contribution plans or other deferred compensation plans maintained by us. The Compensation Committee may elect to provide our officers and other employees with non-qualified defined contribution or deferred compensation benefits if the Compensation Committee determines that doing so is in our best interests.

Potential Payments upon Termination or Change in Control. Upon certain types of terminations of employment, payments may be made to our executive officers in accordance with their respective employment agreements. These events and potential amounts are further described below under the heading “Potential Payments Upon Termination or Change in Control.”

Definitions of Performance Measures Used in Incentive Plans for Fiscal 2017.  Presented below are definitions of performance measures used in incentive plans.  The Compensation Committee may apply pre-determined adjustments to the definitions of the financial performance criteria under the plans.  

Adjusted OIBDA for Compensation Purposes

Adjusted OIBDA for Compensation Purposes used to measure achievement against performance bonus targets is a non-GAAP financial measure that differs from Adjusted OIBDA as defined in our Form 10-K.  Adjusted OIBDA is a key metric used by management to measure the Company’s operating performance. OIBDA represents operating income plus depreciation and amortization expense. Adjusted OIBDA for Compensation Purposes subtracts out the revenue from advertising by NCM LLC’s founding members’ beverage supplier and barter revenue, net of barter expense, and adds back share-based compensation costs, CEO transition costs, restructuring expense, early lease termination expense, the change in the make-good liability during 2017.  While Adjusted OIBDA for Compensation Purposes is a measure used to calculate our Executive Performance Bonus awards, this non-GAAP measure should not be considered in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as operating income. Adjusted OIBDA for Compensation Purposes has material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate Adjusted OIBDA for Compensation Purposes differently than we do, this measure may not be comparable to similarly-titled measures reported by other companies. The following table reconciles operating income to Adjusted OIBDA for Compensation Purposes (dollars in millions).

 

 

FY 2017

Target

 

 

FY 2017

Actual

 

Operating income

$

 

177.5

 

 

$

 

153.9

 

Depreciation and amortization

 

 

35.5

 

 

 

 

37.6

 

OIBDA

 

 

213.0

 

 

 

 

191.5

 

Founding member circuit beverage revenue

 

 

(31.5

)

 

 

 

(29.9

)

Share-based compensation costs

 

 

15.4

 

 

 

 

11.2

 

CEO transition costs

 

 

0.3

 

 

 

 

0.5

 

Restructuring expense

 

 

0.9

 

 

 

 

0.9

 

Early lease termination expense

 

 

 

 

 

 

1.8

 

Change in the make-good liability

 

 

 

 

 

 

0.9

 

Barter revenue, net of barter expense

 

 

(0.2

)

 

 

 

0.6

 

Adjusted OIBDA for compensation purposes

$

 

197.9

 

 

$

 

177.5

 

 

Adjusted Advertising Revenue

Adjusted Advertising Revenue used to determine achievement against performance bonus targets is a non-GAAP financial measure. Adjusted Advertising Revenue represents reported advertising revenue less founding member circuit beverage revenue and zero margin barter revenue, plus the change in the make-good liability during 2017. This non-GAAP measure should not be considered in isolation of, or as a substitute for, measures of our financial performance as determined

21

 


 

in accordance with GAAP, such as advertising revenue.  The following table reconciles advertising revenue to Adjusted Advertising Revenue (dollars in millions).

 

 

FY 2017

Target

 

 

FY 2017

Actual

 

Advertising revenue

$

 

456.8

 

 

$

 

426.1

 

Less: Founding member circuit beverage revenue and other revenue

 

 

(31.5

)

 

 

 

(29.9

)

Less: Barter revenue

 

 

(2.5

)

 

 

 

(0.9

)

Plus: Change in the make-good liability

 

 

 

 

 

 

0.9

 

Adjusted Advertising Revenue

$

 

422.8

 

 

$

 

396.2

 

 

Free Cash Flow

Free Cash Flow is a non-GAAP measure used by management to measure the Company’s operating cash flow in determining whether PBRS targets have been achieved.  Free Cash Flow represents Adjusted OIBDA for Compensation Purposes, described above, less capital expenditures.  The following table reconciles operating income to Free Cash Flow (dollars in millions).

 

2015 Performance Based Restricted Stock

 

2015-2017

3- Year Cumulative Ended

December 28, 2017

 

 

 

Target

 

 

Actual

 

Operating income

 

$

 

532.3

 

 

$

 

480.1

 

Depreciation and amortization

 

 

 

110.5

 

 

 

 

100.4

 

OIBDA

 

 

 

642.8

 

 

 

 

580.5

 

Founding member circuit beverage revenue

 

 

 

(92.4

)

 

 

 

(88.6

)

Share-based compensation costs

 

 

 

40.4

 

 

 

 

44.2

 

Merger-related administrative costs

 

 

 

 

 

 

 

34.3

 

CEO transition costs

 

 

 

 

 

 

 

4.8

 

Early lease termination expense

 

 

 

 

 

 

 

1.8

 

Change in the make-good liability

 

 

 

 

 

 

 

3.6

 

Restructuring expense

 

 

 

 

 

 

 

0.9

 

Capital expenditures

 

 

 

(33.0

)

 

 

 

(38.4

)

Free Cash Flow – Actual

 

$

 

557.8

 

 

$

 

543.1

 

 

 

April 2015 Performance Based Restricted Stock

 

Q2 2015-2017

11 Quarter Cumulative Ended

December 28, 2017

 

 

 

Target

 

 

Actual

 

Operating income

 

$

 

516.1

 

 

$

 

497.2

 

Depreciation and amortization

 

 

 

102.3

 

 

 

 

92.0

 

OIBDA

 

 

 

618.4

 

 

 

 

589.2

 

Founding member circuit beverage revenue

 

 

 

(84.2

)

 

 

 

(81.0

)

Share-based compensation costs

 

 

 

37.2

 

 

 

 

41.3

 

Merger-related administrative costs

 

 

 

 

 

 

 

0.9

 

CEO transition costs

 

 

 

 

 

 

 

4.7

 

Early lease termination expense

 

 

 

 

 

 

 

1.8

 

Change in the make-good liability

 

 

 

 

 

 

 

4.0

 

Restructuring expense

 

 

 

 

 

 

 

0.9

 

Capital expenditures

 

 

 

(29.9

)

 

 

 

(36.2

)

Free Cash Flow – Actual

 

$

 

541.5

 

 

$

 

525.6

 

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Other Policies

Adoption of Share Ownership Guidelines

The Company adopted the following share ownership guidelines for its executive officers and directors in January 2013:

 

Position

  

Minimum Share Ownership Level

Chief Executive Officer and Director

  

Lesser of: 3 times base salary or 140,000 shares

President and Executive Vice Presidents

  

Lesser of: 1 times base salary or 20,000 shares

Non-Employee Independent Directors

  

Lesser of: 3 times annual Board cash retainer or 8,000 shares

 

Each individual is expected to attain the minimum ownership level within five years of the effective date of the policy, or the individual’s date of appointment, if later. If the minimum ownership level is not attained within the required timeframe, holding restrictions will apply. Upon vesting of equity awards, 50% of the individual’s shares that become vested will be subject to holding restrictions until the minimum ownership level is attained. Ownership levels are determined based on Company common stock owned by each individual, including shares of unvested timed-based restricted stock and in-the-money vested stock options. As of March 8, 2018, all executive officers and directors meeting the tenure requirement were in compliance with the share ownership guidelines.

Anti-Hedging Policy

The Company’s insider trading policy includes provisions that prohibit all employees and directors from entering into hedging transactions with respect to Company stock.

Anti-Pledging Policy

The Company’s insider trading policy includes provisions that prohibit all employees and directors from keeping Company stock in a margin account or using Company stock as collateral for a loan. To our knowledge, none of our officers or directors has pledged any of his or her shares in violation of Company policy.

Clawback Policy

We have adopted a “clawback” policy addressing the adjustment or recovery of awards or payments if the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment. This policy, also known as a “clawback” policy, applies to all of our executive officers, including the NEOs. Under the policy, we may recover any incentive compensation paid to an executive officer of our company in the event of a material negative accounting restatement of our financial statements due to material noncompliance by our company with any financial reporting requirement under the securities laws. If the board of directors determines that any current or former executive officer has engaged in fraud or intentional misconduct that caused the error that, directly or indirectly, resulted in the financial restatement, the board of directors may require reimbursement or forfeiture of any annual or long-term cash bonus or any equity compensation award earned with respect to the period covered by the restatement by such executive officer.

23

 


 

EXECUTIVE COMPENSATION TABLES

 

FISCAL 2017 SUMMARY COMPENSATION TABLE

The following table shows the amount of compensation earned by our NEOs during the years indicated. For additional information regarding the material terms of each NEOs’ employment agreement, see “Employment Agreements” and “Potential Payments Upon Termination or Change in Control” below.

 

Name and Principal Position

 

Year

 

Salary

 

 

 

Stock

Awards (1)

 

 

 

 

Non-Equity Incentive Plan Compensation (2)

 

 

All Other Compensation (3)

 

 

Total

 

Andrew J. England

 

2017

 

$

 

875,000

 

 

 

 

$

 

1,500,000

 

 

 

 

 

$

 

512,969

 

 

$

 

212,893

 

 

$

 

3,100,861

 

Chief Executive Officer

 

2016

 

$

 

750,000

 

 

 

 

$

 

2,255,787

 

 

 

 

 

$

 

660,464

 

 

$

 

201,060

 

 

$

 

3,867,311

 

Clifford E. Marks

 

2017

 

$

 

858,330

 

 

 

 

$

 

2,360,408

 

 

 

 

 

$

 

503,196

 

 

$

 

271,594

 

 

$

 

3,993,528

 

President

 

2016

 

$

 

841,500

 

 

 

 

$

 

2,314,122

 

 

 

 

 

$

 

741,041

 

 

$

 

301,079

 

 

$

 

4,197,742

 

 

 

2015

 

$

 

806,763

 

 

 

 

$

 

2,169,032

 

 

 

 

 

$

 

1,200,465

 

 

$

 

281,503

 

 

$

 

4,457,763

 

Katherine L. Scherping (4)

 

2017

 

$

 

408,000

 

 

 

 

$

 

714,000

 

 

 

 

 

$

 

179,393

 

 

$

 

57,692

 

 

$

 

1,359,085

 

   Chief Financial Officer

 

2016

 

$

 

160,000

 

 

 

 

$

 

396,843

 

 

 

 

 

$

 

116,393

 

 

$

 

15,249

 

 

$

 

688,485

 

Ralph E. Hardy

 

2017

 

$

 

310,271

 

 

 

 

$

 

542,968

 

 

 

 

 

$

 

136,422

 

 

$

 

75,527

 

 

$

 

1,065,194

 

Former EVP and General

 

2016

 

$

 

304,187

 

 

 

 

$

 

532,330

 

 

 

 

 

$

 

200,905

 

 

$

 

83,162

 

 

$

 

1,120,584

 

Counsel

 

2015

 

$

 

297,997

 

 

 

 

$

 

596,447

 

 

 

 

 

$

 

334,717

 

 

$

 

84,353

 

 

$

 

1,313,514

 

Geri R. House

 

2017

 

$

 

285,440

 

 

 

 

$

 

499,515

 

 

 

 

 

$

 

125,504

 

 

$

 

66,585

 

 

$

 

977,044

 

   Former EVP, People and

 

2016

 

$

 

237,866

 

 

 

 

$

 

525,005

 

 

 

 

 

$

 

157,102

 

 

$

 

78,175