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National CineMedia Inc. Reports Operating Results (10-Q/A)
Posted by: gurufocus (IP Logged)
Date: November 5, 2009 06:17PM

National CineMedia Inc. (NCMI) filed Amended Quarterly Report for the period ended 2009-04-02. NATIONAL CINEMEDIA operates the largest digital in theatre network in North America that allows them to distribute advertisements and other content for our advertising meetings and events businesses utilizing our proprietary digital content network. They have long term exhibitor services agreements with our founding members Cinemark and Regal the three largest motion picture exhibition companies in the U.S.and multi year agreements with several other theatre operators whom they refer to as network affiliates. The network affiliate agreements grant them exclusive rights subject to limited exceptions to sell advertising on their theatre screens. National Cinemedia Inc. has a market cap of $638.5 million; its shares were traded at around $15.16 with a P/E ratio of 22.7 and P/S ratio of 1.7. The dividend yield of National Cinemedia Inc. stocks is 4.3%.

Highlight of Business Operations:

National advertising revenue of $51.1 million (including $8.4 million of beverage revenue) for the quarter ended April 2, 2009 increased 20.2% compared to $42.5 million (including $10.2 million of beverage revenue) for the quarter ended March 27, 2008. The 32.3% increase in national revenue (excluding beverage revenue) was due primarily to an increase in national inventory utilization to 67.4% from 58.7%, while CPM’s remained relatively flat and salable advertising impressions increased approximately 131.1 million due to the inclusion in our network of the AMC Loews and Hollywood theatres as well as a full quarter of Keratsotes theatres in our digital network. This revenue increase was offset by a $1.7 million decrease in beverage revenue, primarily due to a reduction in contracted beverage advertising time by two of our founding members as compared to the quarter ended March 27, 2008, offset by a contractual annual 8% increase in beverage CPM and the attendance associated with the Consolidated Theatres acquired by Regal in the second quarter of 2008.

Local advertising revenue decreased $2.2 million or 19.6% to $9.0 million for the quarter ended April 2, 2009 compared to $11.2 million for the quarter ended March 27, 2008. The decrease is due to the effect of the current economic recession offset by a 9.0% increase in network screens. Local revenue per theatre attendee in the first quarter of 2009 declined to $0.06 per attendee compared to $0.08 for the first quarter of 2008.

Net income (loss) attributable to NCM, Inc. Net income attributable to NCM, Inc. generated for the quarter ended April 2, 2009 was $1.2 million compared to a loss attributable to NCM, Inc. of $0.4 million during the quarter ended March 27, 2008 due to an increase in operating income and lower net interest expense offset by higher income taxes and noncontrolling interest. The decrease in net interest expense is primarily due to a $1.9 million credit to interest expense related to the change in the status of our interest rate hedge of our senior secured credit facility due to the bankruptcy of Lehman as discussed in Notes 4 and 7 above and lower market interest rates on the unhedged portion of our debt. The increase in income taxes is due primarily to higher pretax income. The increase in net noncontrolling interest is primarily due to higher operating income and additional common membership units issued in 2008 and 2009.

As of April 2, 2009, our cash, cash equivalents and short-term investments balance was $71.3 million, an increase of $2.1 million compared to the balance of $69.2 million as of January 1, 2009 and an increase of $36.0 million compared to the balance at March 27, 2008 (2008’s first quarter end).

NCM LLC has an aggregate revolving credit facility commitment of $80.0 million with a consortium of banks. On September 15, 2008, Lehman filed for protection under Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. NCM LLC’s revolving credit facility includes $20.0 million with Lehman Commercial Paper Inc. (“LCPI”), a subsidiary of Lehman. As of April 2, 2009, NCM LLC has borrowed $14.0 million from LCPI under the revolving credit facility. Shortly after Lehman’s bankruptcy filing, LCPI failed to fund its undrawn commitment of $6.0 million. NCM LLC does not anticipate LCPI will fulfill its funding commitment. Such reduced funding is not expected to be required to meet our liquidity needs. Until the LCPI issues are resolved, NCM LLC is not anticipating repaying any of its revolver borrowings as it would effectively result in a permanent reduction of its revolving credit facility, to the extent of the payments against LCPI borrowings. In addition, while the bankruptcy court has authorized LCPI to resign as the administrative agent under the revolving credit facility, to the Company’s knowledge they have not yet done so. While our revolving credit facility is fully drawn, we believe we have sufficient cash balances and cash flow generated by operating activities to conduct our normal operations and do not expect the events with Lehman to have a material impact on our liquidity. Refer to Notes 4 and 7 to our unaudited condensed consolidated financial statements for further discussion regarding Lehman’s bankruptcy. We do not expect to make repayments to reduce our revolving credit facility at this time.

Management believes that future funds generated from NCM LLC’s operations and cash on hand should be sufficient to fund working capital requirements, NCM LLC’s debt service requirements, and capital expenditure and other investing requirements, through the next 12 months. Cash flows generated by NCM LLC’s distributions to NCM, Inc. and the founding members can be impacted by the seasonality experienced in advertising revenues and to a lesser extent theatre attendance. NCM LLC is required pursuant to terms its the operating agreement to distribute its available cash, as defined in the operating agreement, to its members (the founding members and NCM, Inc.). The available cash distribution to the members of NCM LLC for the quarter ended April 2, 2009 was $15.0 million, of which $6.2 million was NCM, Inc.’s portion. NCM, Inc. will use cash received from the available cash distributions to fund income taxes, payments associated with the tax sharing agreement with the founding members and current and future dividends as declared by the board of directors, including a dividend declared in April 2009 of $0.16 per share (approximately $6.8 million) which will be paid on June 4, 2009. Distributions from NCM LLC and NCM, Inc. cash balances should be sufficient to fund NCM, Inc.’s tax sharing payments to the founding member circuits, income taxes and its regular dividend.

Read the The complete Report

NCMI is in the portfolios of Ron Baron of Baron Funds.


Stocks Discussed: NCMI,
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