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National CineMedia Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 5, 2010 07:18AM

National CineMedia Inc. (NCMI) filed Quarterly Report for the period ended 2010-09-30. National Cinemedia Inc. has a market cap of $1 billion; its shares were traded at around $19.17 with a P/E ratio of 31.6 and P/S ratio of 2.7. The dividend yield of National Cinemedia Inc. stocks is 3.8%.

NCMI is in the portfolios of Ron Baron of Baron Funds, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

OIBDA and Adjusted OIBDA do not reflect the AMC Loews or Regal Consolidated Theatres integration payments. The integration payments received are added to Adjusted OIBDA to determine our compliance with financial covenants under our senior secured credit facility. AMC made Loews payments to NCM LLC pursuant to the AMC Loews screen integration agreement through April 2009, which were $0 and $0.1 million for the quarter and nine months ended October 1, 2009, respectively. Regal made Consolidated Theatre payments to NCM LLC pursuant to the revised ESAs, which were $1.4 million, $2.7 million, $0.9 million and $2.0 million for the quarter ended September 30, 2010, the nine months ended September 30, 2010, the quarter ended October 1, 2009 and the nine months ended October 1, 2009, respectively.

National advertising revenues of $96.2 million (including $9.7 million of beverage revenue) for the quarter ended September 30, 2010 increased 35.3% from $71.1 million (including $8.6 million of beverage revenue) for the quarter ended October 1, 2009. National advertising revenue (excluding beverage revenue) for the quarter ended September 30, 2010 increased $24.0 million or 38.4% to $86.5 million compared to $62.5 million for the quarter ended October 1, 2009. This increase was due to the continued expansion of our overall client base, an increase in the allocation to the third quarter of the annual content partner spending, and a favorable TV advertising scatter market, which contributed to an increase in inventory utilization (excluding beverage revenue) to 121.8% for the quarter ended September 30, 2010 from 96.5% for the quarter ended October 1, 2009. A 4.0% increase in advertising impressions available for sale compared to the prior year period also contributed to the increase in national advertising revenue. The higher inventory utilization and robust TV advertising scatter market contributed to a 7.6% increase in national advertising CPM’s (excluding beverage revenue). The 12.1% increase in payments from the founding members for their beverage concessionaire agreements was due primarily to a combination of the impact of the annual contractual 6% beverage revenue CPM increase and a 5.8% increase in founding member attendance due primarily to the AMC Kerasotes Acquisition and a strong box office during the third quarter of 2010. Our make-good reserve balance of $4.2 million at September 30, 2010 increased from a balance of $0.4 million at October 1, 2009. This increase is primarily the result of an under-delivery in certain film rating categories with respect to certain advertising contracts, and the high current quarter inventory utilization resulting in a lack of available inventory to deliver all previous quarter contracts during the current quarter. The Company now expects that the majority of this reserve will be recognized as revenue in the fourth quarter of 2010.

Local advertising revenue increased $4.3 million or 25.0% to $21.5 million for the quarter ended September 30, 2010 compared to $17.2 million for the quarter ended October 1, 2009. These increases were primarily due to an increase in the number of larger regional contracts and an increase in the level of spending by smaller businesses. Local revenue per theatre attendee increased 18.2% to $0.13 per attendee for the third quarter of 2010 compared to $0.11 for the third quarter of 2009, notwithstanding the 3.9% increase in theatre attendance.

Net income. Net income generated for the quarter ended September 30, 2010 was $11.8 million, an increase of 78.8% over the $6.6 million for the quarter ended October 1, 2009. The increase was due primarily to the 44.9% increase in operating income offset by an increase in the provision for income taxes and net income attributable to noncontrolling interests. The increase in the provision for income taxes of $2.4 million to $6.6 million for the third quarter of 2010 is due primarily to higher taxable income. Net income attributable to noncontrolling interests increased $11.0 million to $30.8 million for the quarter ended September 30, 2010 due to higher NCM LLC net income partially offset by the impact of the redemption of common membership units during the third quarter of 2010 (see Note 6 to the unaudited condensed consolidated financial statements included elsewhere in this document).

National advertising revenues of $225.5 million (including $28.5 million of beverage revenue) for the nine months ended September 30, 2010 increased 18.5% from $190.3 million (including $26.9 million of beverage revenue) for the 2009 period. National advertising revenue (excluding beverage revenue) for the nine months ended September 30, 2010 increased 20.6% to $197.0 million compared to $163.4 million for the nine months ended October 1, 2009, primarily due to an increase in national advertising inventory utilization (excluding beverage revenue) to 97.6% from 81.8% in 2009. The increase in utilization is due to the expansion of our advertising client base and a slight increase in the allocation of the annual spending by our content partners through the first three quarters of 2010 as compared to the same period in 2009. Utilization is also slightly impacted by a 1.0% decrease in our salable impressions through the third quarter of 2010 compared to the same period in 2009 due to a decrease in theatre industry attendance. In addition, the higher inventory utilization and favorable television scatter market contributed to the 6.0% increase in CPMs (excluding beverage revenue). The Company had a $1.6 million increase in beverage revenue, primarily due to the contracted annual 6% increase in beverage CPM, combined with a consistent level of founding member attendance in the nine months ended September 30, 2010 as compared to the nine months ended October 1, 2009 as the AMC Kerasotes Acquisition offset overall industry attendance declines.

Net income. Net income generated for the nine months ended September 30, 2010 increased 18.1% to $17.6 million compared to net income for the nine months ended October 1, 2009 of $14.9 million. The increase was due primarily to the 26.2% increase in operating income offset by a $13.4 million increase in the change in derivative fair value and a $9.8 million increase in the net income attributable to noncontrolling interests. The change in derivative fair value is due to a pre-tax non-cash charge of $9.4 million for the nine months ended September 30, 2010 compared to a pre-tax non-cash gain of $4.0 million for the nine months ended October 1, 2009, due to the change in the fair value of an interest rate hedge associated with our senior secured credit facility from decreases in market interest rates. The increase of $1.7 million to $10.2 million for the nine months ended September 30, 2010 in the provision for income taxes is due primarily to higher pretax income. Net income attributable to noncontrolling interests increased to $55.6 million for the nine months ended September 30, 2010 due primarily to higher NCM LLC net income partially offset by the impact of the redemption of common membership units during the third quarter of 2010 (see Note 6 to the unaudited condensed consolidated financial statements included elsewhere in this document).

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