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National CineMedia Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 6, 2011 06:13AM
National CineMedia Inc. (NCMI) filed Quarterly Report for the period ended 2011-03-31.
Highlight of Business Operations:
Revenue. Total revenue of the Company for the quarter ended March 31, 2011 was $70.8 million compared to $84.6 million for the quarter ended April 1, 2010, a decrease of $13.8 million, or 16.3%. The decrease in total revenue was primarily the result of a decrease in total advertising revenue of $8.7 million or 12.8% (including revenue from our founding member beverage concessionaire agreements, or beverage revenue) in addition to a $5.1 million or 30.4% decrease in Fathom Events revenue.
National advertising revenues of $46.5 million (including $8.2 million of beverage revenue) for the quarter ended March 31, 2011 decreased 16.4% from $55.6 million (including $9.2 million of beverage revenue) for the quarter ended April 1, 2010. National advertising revenue (excluding beverage revenue) for the quarter ended March 31, 2011 decreased $8.1 million or 17.5% to $38.3 million compared to $46.4 million for the quarter ended April 1, 2010. This decrease was primarily due to the first quarter of 2010 including a significant advertising contract from one client in the military category that was not repeated in the first quarter of 2011. Additionally, content partner spending decreased $3.2 million for the quarter ended March 31, 2011 due to a shift in 2011 committed spending to later in the year. These decreases in client spending offset by a 17.6% decrease in advertising impressions available for sale compared to the prior year period, contributed to a decrease in inventory utilization (excluding beverage revenue) to 71.0% for the quarter ended March 31, 2011 from 78.1% for the quarter ended April 1, 2010. The impact of these decreases was partially offset by continued expansion of our overall client base and a favorable TV advertising scatter market that contributed to a 3.2% increase in national advertising CPMs (excluding beverage revenue). The 10.9% decrease in payments from the founding members for their beverage concessionaire agreements was due primarily to a 15.4% decrease in founding member attendance due to a weak box office during the first quarter of 2011, offset by the impact of the annual contractual 6% beverage revenue CPM increase.
Local advertising revenue increased $0.4 million or 3.3% to $12.6 million for the quarter ended March 31, 2011 compared to $12.2 million for the quarter ended April 1, 2010. This increase was primarily due to an increased number of contracts with mid and large sized local businesses while smaller local businesses continue to be impacted by the weak local economy. Local revenue per theatre attendee increased 12.5% to $0.09 per attendee for the first quarter of 2011 compared to $0.08 for the first quarter of 2010 due to local revenue increasing while theatre attendance declined.
Net income (loss). Net loss generated for the quarter ended March 31, 2011 was $1.0 million, compared to $1.2 million of net income for the quarter ended April 1, 2010. The decrease was due primarily to the decrease in operating income, offset by a decrease in the provision for income taxes and net income attributable to noncontrolling interests. The change in the income tax benefit of $0.7 million for March 31, 2011 compared to income tax expense of $0.9 million for April 1, 2010 is due primarily to lower pre-tax income. Net income attributable to noncontrolling interests decreased $4.9 million to $2.6 million for the quarter ended March 31, 2011 due to lower levels of NCM LLC net income.
As of March 31, 2011, our cash, cash equivalents and short-term investments balance was $64.8 million, a decrease of $18.1 million compared to the balance of $82.9 million as of December 30, 2010. The balance at April 1, 2010 was $82.6 million, or a $17.8 million decrease compared to the balance at March 31, 2011. This decrease in our cash balance was offset by an additional $27.0 million of borrowing availability on our revolving credit facility as of March 31, 2011 for total liquidity availability of $91.8 million compared to $112.9 and $82.6 million at December 30, 2010 and April 1, 2010, respectively. Our cash balances will 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) to NCM LLCs founding members, interest payments on our term loan and principal payments on debt, income tax payments, tax sharing payments to our founding members and quarterly dividends to NCM, Incs common shareholders. Our net debt balances (debt balance net of cash, cash equivalents and short-term investment balance) decreased $13.3 million compared to the balance at April 1, 2010.
The primary market risk to which we are exposed is interest rate risk. We have entered into variable-to-fixed interest rate swap arrangements economically hedging $550.0 million of the $725.0 million term loan at a fixed interest rate of 6.484%. For a discussion of market risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk contained in our annual report on Form 10-K for the fiscal year ended December 30, 2010 and incorporated by reference herein. The current interest rates on that debt are lower than those implicit in the hedge, thus a 100 basis point fluctuation in market interest rates would have the effect of increasing or decreasing our cash interest expense by approximately $2.3 million for an annual period on a total of $228.0 million of unhedged debt (which includes $53.0 million outstanding on our revolver). Because each of our interest rate swaps was in a liability position at March 31, 2011, we are not currently exposed to counterparty risk related to the swaps.
Stocks Discussed: NCMI,