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Article by DailyStocks_admin    (06-29-08 03:18 PM)

The Daily Magic Formula Stock for 06/28/2008 is National CineMedia Inc. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

The Company

National CineMedia, Inc., a Delaware corporation organized on October 5, 2006, is a holding company that manages its consolidated subsidiary NCM LLC, but has no business operations or material assets other than its ownership interest of approximately 44.8% of the common membership units in NCM LLC acquired in connection with our initial public offering as discussed more fully in “Corporate History” below. NCM LLC’s founding members, AMC, Cinemark and Regal, the three largest motion picture exhibition companies in the United States, hold the remaining 55.2% of NCM LLC’s common membership units. Our primary source of cash flow from operations is distributions from NCM LLC pursuant to the NCM LLC operating agreement. We also receive management fees pursuant to a management services agreement between us and NCM LLC in exchange for our providing specific management services to NCM LLC.

NCM LLC has long-term exhibitor services agreements (“ESAs”) with NCM LLC’s founding members and multi-year agreements with several other theatre operators whom we refer to as network affiliates. The ESAs grant exclusive rights, subject to limited exceptions, to sell advertising and meeting services and to distribute entertainment programming in those theatres. The network affiliate agreements grant us exclusive rights, subject to limited exceptions, to sell advertising and meeting services and to distribute entertainment programming on their theatre screens.

Description of Business

Overview

We operate the largest digital in-theatre network in North America that allows us to distribute advertising, business meetings and digital programming event services utilizing our proprietary digital content network (“DCN”) and digital broadcast network (“DBN”). We currently derive revenue principally from the following activities:




Advertising : We develop, produce, sell and distribute a branded, pre-feature entertainment and advertising program called “ FirstLook ,” along with an advertising program for our lobby entertainment network and various marketing and promotional products in theatre lobbies; for the year ended December 27, 2007, advertising accounted for 91.6% of our total pro forma revenue;




CineMeetings : We facilitate live and pre-recorded networked and single-site meetings, corporate events and church services in the movie theatres throughout our network; for the year ended December 27, 2007, CineMeetings accounted for 5.6% of our total pro forma revenue; and




Fathom Events : We distribute live and pre-recorded concerts, sporting events and other entertainment programming content to theatres across our digital network; for the year ended December 27, 2007, digital programming events accounted for 2.8% of our total pro forma revenue.

We believe that the reach, scope and digital delivery capability of our network provide an effective platform for national, regional and local advertisers to reach a young, affluent and engaged audience on a highly-targeted and measurable basis. Our network is currently located in 47 states and the District of Columbia and covers all of the top 25, as well as 49 of the top 50, Designated Market Areas ® , or DMAs ® , and 169 DMAs ® in total. DMA ® is a registered trademark of Nielsen Media Research, Inc . During 2007, approximately 542 million patrons, representing approximately 38% of the total U.S. theatre attendance, and approximately 94% of our total network attendance, attended movies shown in theatres owned by NCM LLC’s founding members. As of December 27, 2007, we had a total of 15,265 screens in our network, as set forth in the table below:

On December 10, 2007, 725 screens operated by the Kerasotes theatre circuit, the 6 th largest theatre circuit in the United States, joined our network. On January 1, 2008, approximately 125 additional screens of Colorado Cinemas (operated by the Kerasotes circuit) joined our network.

On January 26, 2006, AMC acquired the Loews theatre circuit. As of December 27, 2007, Loews operated approximately 101 theatres with 1,207 screens. The Loews screens will become part of our network on an exclusive basis beginning on June 1, 2008, subject to the run-out of certain pre-existing contractual obligations for on-screen advertising on the Loews screens existing on May 31, 2008. During 2007, approximately 57.5 million movie patrons attended Loews’ theatres in the United States. Once the Loews screens are added to our network, we expect to have approximately 16,500 screens, representing approximately 44% of the total indoor screens in the United States, as reported by the National Association of Theatre Owners, or NATO, as of December 31, 2006.

On-Screen Advertising

Our on-screen digital FirstLook pre-feature show consists of national, regional and local advertising, as well as behind the scenes “making of” and other entertainment content. The pre-feature show generally ranges in length from 20 to 30 minutes and ends at or about the advertised movie show time. National advertising is sold on a CPM (cost per thousand) impressions basis, while local and regional advertising is sold on a per-screen, per-week basis. While we generally sell our network as one single national network, we also have the ability to sell portions of our network on a regional basis or by movie rating, offering various price points for national advertisers and expanding the number of potential buyers. While not generally offered to our clients, our technology also has the ability to target by film.

The pre-feature advertising begins with a three to five-minute looping segment which consists of a digital carousel of static and moving slide images for local advertisers. This digital carousel can loop partially or repeatedly and provides a mechanism to contract or expand depending on the time between feature film presentations. The advertisements shown in the digital carousel represent primarily local advertising, which generally is our lowest cost advertising inventory. We often bundle time in the digital carousel presentation with other local on-screen or lobby advertising inventory.

Following the conclusion of the digital carousel, the branded FirstLook pre-show commences. In January 2006, FirstLook was launched throughout our digital network in order to provide a more entertaining pre-feature program for theatre patrons and a more effective advertising platform. The FirstLook program integrates full-motion local, regional and national advertising with entertainment content segments primarily provided by our content partners.

FirstLook is comprised of up to four segments, each approximately four to seven minutes in length. Segment four, the first section of FirstLook , begins approximately 20 minutes prior to the advertised show time and generally includes local and regional advertising. Segment three typically begins approximately 18 minutes prior to the advertised show time and features primarily 15 or 30 second regional advertising. Segment three also includes a two and one-half minute entertainment content segment. Segment two and segment one run closest to the advertised show time and feature national advertising inventory. Both segment two and segment one include a two and one-half minute entertainment content segment from our content partners along with national 30 or 60 second (or in some cases longer) advertisements. Segment two and segment one begin approximately 13 minutes and eight minutes, respectively, before the advertised show time.

The film trailers that typically run before the feature film are not part of FirstLook . Film trailers do not begin until after the FirstLook program ends at or about the advertised show time.

The majority of our entertainment content segments are provided to us under exclusive multi-year contractual arrangements with leading media companies that we refer to as content partners. Under the terms of these contracts, our content partners make available to us original content segments and make commitments (generally two years) to buy a portion of our advertising inventory at a specified CPM. Our content partners during 2007 included Discovery Communications, Inc., or Discovery; NBC Universal, or NBC; Sony Pictures Entertainment, or Sony; Turner Broadcasting System Inc., or TBS; and Universal City Studios, or Universal. In addition, A&E Television Networks, or A&E and the History Channel, Warner Brothers and Walt Disney Studios, or Disney will be added as content partners for 2008. The original content produced by these content partners typically features behind-the-scenes interviews with producers, directors and actors or “making-of” segments relating to feature films or upcoming broadcast or cable television shows.

We offer multiple versions of FirstLook each month, tailored to a specific film rating category. This programming flexibility provides advertisers with the ability to target specific audience demographics and gives us the ability to ensure that the content and advertising is age-appropriate for the movie audience. We rotate the entertainment content segments between theatres approximately every two weeks to ensure that frequent movie-goers are entertained by fresh content.

Our goal in creating FirstLook as a branded entertainment program is to create a new “first release window” for advertising into the marketplace, similar to the way films are released first in cinemas. To that end, we encourage advertisers to provide us with advertisements before they are shown in other media platforms or with original content that is specifically created for cinema. We also offer pre- and post-production services to our clients (primarily local) for a fee to enhance the quality of the content we display.

The FirstLook program also includes up to two minutes for founding member advertisements to promote various activities associated with the operation of the theatres, including concessions, on-line ticketing partners, gift card and loyalty programs, special events presented by the founding member and vendors of services provided to theatres, so long as such promotion is incidental to the vendor’s service. This time is provided by us to the founding members at no charge and includes 45 seconds within 15 minutes of show time, 15 seconds of which will be placed within 11 minutes of show time, and the remainder placed at our discretion. We may move the placement of the founding member advertisements up to one minute further from the advertised movie show time if NCM LLC sells additional advertising units to third parties that precede the founding member advertisements.

Under the exhibitor services agreements, the last 60-90 seconds of the FirstLook program are sold to the founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. The arrangements with NCM LLC’s founding members relating to on-screen advertising for their beverage concessionaires and the agreements with our content partners represented approximately 29.3% of our total revenue for the year ended December 27, 2007 on a pro forma basis.

Lobby Network and Promotions

Lobby Entertainment Network. Our lobby entertainment network is a network of television and high-definition plasma screens strategically located throughout the lobbies of a majority of our digitally equipped theatres. As of December 27, 2007, we had 2,236 screens in 1,032 founding member and network affiliate theatres connected to our DCN. The lobby entertainment network screens are strategically placed in high-traffic locations such as concession stands and auditorium waiting areas. Programming on our lobby entertainment network consists of an approximately 30-minute loop of five branded entertainment content segments created specifically for the lobby with advertisements running between each segment. Our lobby entertainment network programming is distributed by our network operations center and has the same programming flexibility as the FirstLook on-screen programming. The lobby entertainment network is currently displaying the same program simultaneously on all screens within a given theatre, which we believe provides the maximum impact for our advertisers. A study of our lobby entertainment network conducted by RH Bruskin Marketing, Inc . in February 2007 showed that the combination of screen placement, high-impact content and advertising produced recall rates that were three times those of prime time television advertising. We sell advertising on the lobby entertainment network individually or bundled with on-screen or other lobby promotions. The lobby entertainment network programming includes up to two minutes for founding member advertisements to promote activities associated with the operation of the theatres, including concessions, ticketing partners, gift card and loyalty programs, special events presented by the founding member, vendors of services provided to theatres, so long as such promotion is incidental to the vendor’s service. Additionally, subject to certain limitations, the lobby entertainment network programming includes up to two minutes (one minute of which we provide to the founding member at no cost and one minute of which the founding member may purchase) to promote certain non-exclusive cross-marketing relationships entered into by the founding members for the purpose of increasing attendance or revenue, other than from advertising, which we call strategic programs.

Under the terms of the ESAs, the founding members also have the right to install additional screens in their theatre lobbies, which would not display our lobby entertainment network programming, and would be used to promote their theatre concessions, ticketing partners, gift card and loyalty programs, special events presented by the founding member and vendors of services provided to theatres, so long as such promotion is incidental to the vendor’s service.

Lobby Promotions. We also sell a wide variety of advertising and promotional products in our theatre lobbies. These products can be sold individually or bundled with an on-screen or lobby entertainment network advertising package. Lobby promotions typically include:




advertising on tickets and concession items such as beverage cups, popcorn bags and kids’ trays;




coupons and promotional materials, which are customizable by film or film rating category and are distributed to ticket buyers at the box office;




product sampling and display; and




signage throughout the lobbies, including posters, banners, counter cards, danglers, floor mats, standees and window clings.

Under the terms of the exhibitor services agreements, the founding members may conduct a limited number of lobby promotions at no charge in connection with the promotion of motion pictures and their strategic programs; however, such activities will not reduce the lobby promotions inventory available to us.

Our ability to provide in-lobby marketing and promotional placements in conjunction with our other marketing solutions allows us to provide integrated marketing products to advertisers with multiple interactions with theatre patrons throughout the movie-going experience, which we believe is a competitive advantage over other national media platforms. We are also working on an expansion of our websites, which could in the future provide for an extension of the FirstLook pre-show to the internet or even wireless devices. This provides clients another advertising platform that can be packaged with our in-theatre products.

CineMeetings

Our CineMeetings business facilitates live and pre-recorded networked and single-site business meetings, corporate events and church services in movie theatres. These events are typically scheduled from Monday through Thursday during off-peak hours while theatre attendance for movies is traditionally low. Clients can communicate on a live basis to audiences located in auditoriums connected to our DBN. As of December 27, 2007, there were 293 locations set up to accommodate live broadcasts. At all of our DCN locations, in-person presentations or pre-recorded content can be distributed over our DCN and presented as part of a national presentation. Event content broadcast over our DBN may be encrypted to protect against piracy.

We offer meetings that enhance the educational and entertainment value of a presentation by utilizing the big screen, stadium seating, high-resolution digital projection and audio. Our network also facilitates large meetings in multiple locations across the U.S. We provide centralized event management including booking, event coordination and execution, technical support, promotional tools, advanced audio/visual technologies and catering services. We are able to offer customers a single point of contact and standardized pricing across our network, which dramatically increases the efficiency of booking multi-location events for our clients. By bundling meetings or events with the screening of a feature film or other entertainment content, sometimes before the film opens to the general public, our “Meeting and a Movie” and “Meeting and a Fathom Event” products represent a point of differentiation between us and other meeting venues such as hotels. We promote our CineMeetings business throughout the theatre, on the internet and through other select media outlets such as trade publications. Recent CineMeetings events have included corporate meetings, training seminars, product launches, religious services and sales and marketing events.

Fathom

Our Fathom business focuses on the distribution across our digital network of entertainment programming products associated with live or pre-recorded programming on an event-by-event basis or for a series of events. Our DBN or DCN provides a highly attractive high-definition distribution network for this type of programming and promotional opportunities for national brands. Our digital programming events include live and pre-recorded concerts and music events, DVD product releases and marketing events, theatrical premieres, Broadway plays, live sporting events and other special events. Event content is broadcast live over our DBN or on a pre-recorded basis over our DCN or DBN and may be encrypted for piracy protection. As of December 27, 2007, our network has the capability to deliver:




live high-definition content to nearly 350 theatres with, in certain cases, up to four screens per theatre;




live up-converted standard definition content to nearly 350 theatres with up to four screens per theatre; and




high-definition pre-recorded content to virtually all our digital screens in our network.

We advertise digital programming events on our network either through a digital trailer shown after FirstLook or during FirstLook using unsold advertising inventory including posters, our lobby entertainment network, on the internet, on radio and in select publications.

We have developed content and cross-marketing relationships with several live concert promotion companies and other owners of entertainment content. We believe that these partnerships and other content owners and producers will provide us with a consistent supply of music and other programming as these relationships provide additional marketing channels for bands, promoters and content owners. The New York Metropolitan Opera (“Met”) is an example of one of our more successful events that we distribute live and on a pre-recorded basis across our digital network. During 2007 over 250,000 patrons attended live and pre-recorded Met events in our network theatres at an average ticket price of approximately $17.50.

Sales and Marketing

In-Theatre Advertising . We sell and market our in-theatre advertising through our national and regional/local sales and marketing groups. We also on occasion take out advertising in national trade publications and execute direct mail and internet marketing for our local advertising business.

Our national sales staff is located in our four national sales offices in New York City, Woodland Hills (outside Los Angeles), Chicago and Detroit. During 2007, approximately 39% of the total compensation of the national sales staff was related to commission or bonus, which is based on achieving certain sales targets, with commissions or bonuses shared across the entire team in order to enhance coordination and teamwork. Our national sales organization has proven to be highly profitable and scalable as we have not added significant sales personnel as our network has expanded.

Our regional and local sales staff is located throughout the country, covering on average approximately 125 screens each and selling directly to our regional and local clients. During 2007, approximately 78% of the compensation for local and regional sales staff was based on an individual sales commission on collected sales. However, as our network and local and regional business grows, it may require the addition of sales personnel to cover the new markets or screens.

Over the past several years we have increased our advertising revenue by expanding the number of clients and product categories through sales outreach and several marketing tactics. We aggressively market and sell directly to clients as well as advertising agencies. We have a public relations department, a marketing department and a research department and on occasion have commissioned third-party market research to assist our sales team. This research has provided our customers with compelling statistical evidence of the superiority of our advertising products relative to television and other traditional advertising mediums based on metrics such as brand recognition, message recall, and likeability. We believe we are capturing increasing market share from traditional advertising media by establishing cinema advertising as a more accountable and effective advertising medium relative to other media.

CineMeetings and Fathom . We have a staff that is dedicated to sales, marketing and operations of our meetings and events business. In fiscal 2007, we facilitated approximately 8,400 CineMeetings events, and held 33 Fathom events (an increase of 50% over 2006) attended by approximately 750,000 patrons (an increase of 184% over 2006).

Media and Creative Services

Our media and creative services department uses state of the art, proprietary and non-proprietary technologies and practices to ensure the highest possible cinema quality presentation for all of our in-theatre marketing products. We believe the expertise of this group in optimizing content for cinema playback within our FirstLook pre-show has been instrumental in our ability to provide a better experience for the theatre patron and to enhance our ability to attract and retain our on-screen advertising customers and network affiliates. We provide a full spectrum of production and post-production services to our clients (primarily local and regional) for a fee, including audio enhancements, color correction and noise reduction. We also up-convert standard definition content to high-definition format and quality cinema surround sound post-production that we distribute over our DCN, ensuring a high quality, high impact presentation of our clients’ content. Our expertise in tailoring advertisements developed for television to a high-definition cinema playback format facilitates the ability of national advertisers to display content that optimizes the big-screen format. We also offer creative services to our clients (primarily local), developing full sight, sound and motion high-definition advertisements from concept to completion. This service substantially reduces the obstacles for smaller clients to invest in cinema-quality advertising. Additionally, our media and creative services ensure the consistent image and sound quality of the pre-feature and event content distributed over our network, which we believe has a positive impact on the audience reaction to and recall of our content and advertisements, as well as the overall quality of movie-goers’ experience. Certain of our founding members also engage us for the production of their on-screen concession product advertisements.

Technology and Other Corporate Branding

We utilize digital media, our proprietary DCS software and various network technologies to deliver high-quality cinema advertising, meeting services and digital programming events to screens at our network theatres. These technologies facilitate the delivery of a high quality entertainment experience and provide advertising clients a lower cost and more programming flexibility than 35 mm “rolling stock” traditionally used in cinema advertising. Moreover, our technology allows us to target various locations and movie ratings and demographic groups, measure advertising audience size and efficiently monitor and provide audit data of the on-screen playback.

We employ two satellite networks to distribute content to our theatres. Our DCN, which is the combination of a satellite distribution network operated by Hughes and a terrestrial network, is used to distribute our FirstLook content to 13,254 screens, 1,004 theatres and over 2.5 million seats. Our DBN satellite is used to support our digital programming efforts by broadcasting live feeds to 488 screens in 344 theatres and nearly 100,000 theatre seats.

The satellite technology we use to deliver data provides a cost-effective means to deliver content to theatres. We employ a variety of technologies that “wrap” around the satellite process to help ensure uninterrupted service to theatres. For example, our DCS software has automated implementation capabilities that allow for data files to be multicast to theatres over a large footprint. Our digital content system interfaced with the Hughes system also possesses the ability to dynamically control the quality, timing and completeness of content. The integrated DCN (including the DCS) is controlled by our network operations center in our Centennial, Colorado headquarters, which supports and monitors nearly 45,000 in-theatre hardware devices and more than 200,000 alarm points on the network.

CEO BACKGROUND

Kurt C. Hall. Mr. Hall was appointed President, Chief Executive Officer and Chairman of NCM Inc. in February 2007 and held those same positions with NCM LLC since March 2005. He has also served as Chairman, President and Chief Executive Officer of NCM Inc. since October 2006. Prior to his current position, from May 2002 to May 2005, Mr. Hall served as Co-Chairman and Co-Chief Executive Officer of Regal Entertainment Group and President and Chief Executive Officer of its media subsidiary Regal CineMedia Corporation. Since 1988, Mr. Hall has held various executive positions with United Artists Theatre Company, and its predecessor companies, including CEO when it became part of Regal Entertainment Group in 2002. In 2007, Mr. Hall joined the board of directors of IdeaCast Inc. and serves as a member of its compensation committee.

Lawrence A. Goodman. Mr. Goodman has been a director of NCM Inc. since February 2007. 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 October 1984 to July 2003, Mr. Goodman was the President of Sales and Marketing for CNN, a division of Turner Broadcasting System, Inc. Mr. Goodman currently serves as a director of Teletrax, Authenticlick and Sagacity Media.

Scott N. Schneider . Mr. Schneider has been a director of NCM Inc. since February 2007. Mr. Schneider has served as Operating Partner and Chairman, Media and Communications, of Diamond Castle Holdings, LP, a private equity firm, since January 2005. 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 currently serves as a director of Centennial Communications Corp., Bonten Media Group, LLC and PRC, LLC.

Peter C. Brown. Mr. Brown has served as a director of NCM Inc. since October 2006. Mr. Brown has served as a director of AMC Entertainment (AMCE) and American Multi-Cinema, Inc., a subsidiary of AMCE, since November 1992, as Chairman of the Board and Chief Executive Officer of AMCE since July 1999 and as President of AMCE since January 1997. Mr. Brown has served as a Director, Chairman of the Board and Chief Executive Officer of AMC Entertainment Holdings, Inc. and Marquee Holdings Inc. since June 2007 and December 2004, respectively. Mr. Brown served as Co-Chairman of the Board of AMCE from May 1998 through July 1999 and as Executive Vice President of AMCE from August 1994 to January 1997. Mr. Brown is also Chairman of the Board, Chief Executive Officer and a Director of American Multi-Cinema, Inc. Mr. Brown serves as a director of Embarq Corporation, Midway Games, Inc., and MovieTickets.com. Mr. Brown is also a member of the executive committee and Vice Chairman of the Board of Directors of the National Association of Theatre Owners.

Michael L. Campbell. Mr. Campbell has served as a director of NCM Inc. since October 2006. Mr. Campbell has served as Chairman and Chief Executive Officer of Regal Entertainment Group since May 2005. He has also served as a director, member of its executive committee, Co-Chairman and Co-Chief Executive Officer of Regal Entertainment Group since 2002. Mr. Campbell founded Regal Cinemas, Inc. in November 1989, and has served as Chief Executive Officer of Regal Cinemas, Inc. since its inception. Mr. Campbell currently serves as a director of the National Association of Theatre Owners, Fandango, Inc. and Regal Entertainment Group.

Lee Roy Mitchell. Mr. Mitchell has served as a director of NCM Inc. since October 2006. Mr. Mitchell has served as Chairman of the Board of Cinemark USA, Inc. since March 1996 and as a Director since its inception in 1987 and Chief Executive Officer of Cinemark USA, Inc. until December 2006. Mr. Mitchell serves on the boards of Cinemark Holdings, Inc. and National Association of Theatre Owners. In addition, Mr. Mitchell serves as a director of Texas Capital Bancshares, Inc. and is a member of its compensation committee.

David R. Haas. Mr. Haas has served as a director of NCM Inc. since February 2007. 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 served as a director and chair of the audit committee of Armor Holdings, Inc until July 2007.

James R. Holland, Jr . Mr. Holland has served as a director of NCM Inc. since February 2007. He has been the President and Chief Executive Officer of Unity Hunt, Inc., a diversified holding company, since September 1991, and also serves on its compensation committee and board of directors. He also serves as lead director of Texas Capital Bancshares, Inc., serves as an audit committee member and director of Placid Holding Co. and serves as chairman of the board of directors and on the audit and compensation committees of Hunt Midwest Enterprises, Inc.

Stephen L. Lanning. Mr. Lanning has served as a director of NCM Inc. since February 2007. He joined URS Corp. EG&G Division in November 2007 as the Director of Space and Information Operations Strategic Business Element and also served as an independent consultant beginning in September 2006. Mr. Lanning was employed by the United States Air Force from June 1977 until July 2006. From July 2005 to July 2006, Mr. Lanning was the Director, Logistics and Warfighting Integration, Chief Information Officer and Chief Sustainment Officer for the United States Air Force Space Command. Mr. Lanning was a Principal Director of the Defense Information Systems Agency from July 2002 to June 2005.

Edward H. Meyer . Mr. Meyer has served as a director of NCM Inc. since February 2007. Mr. Meyer founded Ocean Road Advisors, Inc., an investment management company, in January 2007 and currently serves as Chief Executive Officer. He was the former Chairman, Chief Executive Officer and President of Grey Global Group, Inc. from 1972 to December 2006. He also serves as a director and member of the compensation and audit committees of Harman International Industries, Inc.; director and member of the compensation committee of Ethan Allen Interiors Inc.; and director of NRDC and Jim Pattison Ltd.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

NCM LLC was formed on March 29, 2005, by AMC and Regal as a joint venture that combined the cinema advertising and meetings and events operations of a wholly owned subsidiary of Regal and the cinema advertising operations of a wholly owned subsidiary of AMC Entertainment, Inc. (“AMCE”). On July 15, 2005, Cinemark, through a wholly-owned subsidiary, joined NCM LLC as a founding member. Because Cinemark had a pre-existing contract with another cinema advertising provider, NCM LLC began selling advertising for Cinemark’s screens on an exclusive basis beginning on January 1, 2006, subject to the run-out of certain pre-existing contractual obligations for on-screen advertising through April 1, 2006. As a result, we began to record revenue from the sale of advertising for Cinemark’s screens on January 1, 2006 on a non-exclusive basis until April 1, 2006. Cinemark acquired Century theatres in October 2006 and NCM LLC began to sell advertising on an exclusive basis in those Century theatres in November 2006.

The results of operations data for the period December 28, 2006 through February 12, 2007 (the “2007 pre-IPO period”) give effect to allocations of revenues and expenses made using relative percentages of founding member attendance or days in each period, specific events or facts and other methods management considered to be a reasonable reflection of the results for such period. The results of operations data for the period February 13, 2007 through December 27, 2007 (the “2007 post-IPO period”) were derived from the audited consolidated financial results of NCM, Inc. The historical financial data of NCM LLC prior to the IPO may not be indicative of the Company’s post-IPO performance nor will such data reflect what its financial position and results of operations would have been had it operated as an independent publicly traded company during the pre-IPO periods presented.

Our revenue is principally derived from the sale of advertising and, to a lesser extent, from our CineMeetings business and Fathom events business. We have long-term exhibitor services agreements with NCM LLC’s founding members and multi-year agreements with several other unrelated theatre operators, whom we refer to as network affiliates. The exhibitor services agreements with the founding members and network affiliate agreements grant us exclusive rights, subject to limited exceptions, to sell advertising and meeting services and distribute entertainment programming in those theatres. Our advertising, CineMeetings and Fathom events are distributed primarily to theatres that are digitally equipped with our proprietary DCN technology. In excess of 90% of the aggregate founding member and network affiliate theatre attendance is included in our digital network.

Our national on-screen and lobby entertainment network advertising contracts with clients typically specify the number of theatre attendees, or impressions, to be delivered for a four- or five-week advertising campaign and the unit price per thousand impressions, or CPM, for a 30-second advertising unit. Our regional and local on-screen advertising contracts with clients typically specify the number of screens, duration of time (typically one to several weeks) and the unit price (typically a cost per screen per week) for an advertising campaign. Typically there are a minimum of 11 national 30-second advertising units and a minimum of 14 local 15-second units available in any advertising campaign within the FirstLook pre-feature program. The number of national or local units can be expanded to a certain extent depending on market demand. Programming on our lobby entertainment network consists of an approximately 30 minute loop of content segments and advertising. Our lobby promotions contracts are based on a standardized rate card for each product that typically specifies the number of impressions to be delivered. Our CineMeetings revenue is derived from the rental of theatre auditoriums, and the provision of catering services and network and audio visual services that are sold as part of our meeting and event services. Our Fathom revenue is derived from the sale of tickets to the general public for music, sporting and other entertainment events or a series of events. CineMeetings and Fathom events are typically held on the weekdays when theatre attendance for films is lower.

Our advertising rates are generally either based on contracts with our content partners and other advertisers, or driven by the demand in the advertising marketplace, including television and other segments of national, regional and local advertising. Our national on-screen CPMs vary by the time of year and the placement within our pre-feature program. Our founding members and certain of our network affiliates report to us each theatre’s attendance by film and film rating category on a weekly or monthly basis. Our network affiliate attendance represented approximately 6% of our total attendance for the 2007 post-IPO period and we estimate it will be in excess of 10% for 2008. The number of people in the auditorium at the time an advertisement is presented is based on the exhibitor’s attendance reports. We calculate the number of impressions delivered against advertising contracts by multiplying the attendance data received from the exhibitors by the number of patrons in their seat at a given time prior to the advertised show time. The percentage is based on independent third-party research. If, during any contract period we under-deliver the number of contracted impressions, we may be obligated to either provide “make-good” advertising units in a subsequent period (and defer the recognition of the related revenue) or refund a pro rata portion of the contract amount in cash to the client. Historically, in the majority of cases, clients have agreed to “make-good” rather than to request a refund of cash.

The expenses associated with our business historically have included (i) selling and marketing expenses, (ii) network operations and maintenance costs, (iii) advertising and event costs, (iv) administrative costs and (v) theatre access fees and circuit share expenses to our founding members. Our selling and marketing expenses include the base salaries and commissions of our advertising sales staff and expenses associated with marketing, public relations and research departments. Network operations and maintenance costs relate to the personnel and other costs associated with our content production and post-production activities, costs associated with operating our network operations center, satellite bandwidth costs and maintenance of the network software and hardware. Advertising and event costs relate primarily to production and fulfillment of non-digital advertising and payments based on a sharing of revenue with our network affiliates and the direct costs associated with CineMeetings and Fathom. Our administrative costs primarily consist of salaries and bonuses for our administrative staff, professional fees, insurance, and occupancy costs. Circuit share payments are the payments made to NCM LLC’s founding members for the right to provide our services in their theatres using our digital content network (“DCN”) and prior to the offering represented substantially all of our earnings before interest, income taxes, depreciation and amortization, or EBITDA. In the 2007 post-IPO period, under the amended and restated ESAs, theatre access fees were payable to the founding members, in lieu of circuit share expense, comprised of a payment per theatre attendee and a payment per digital screen, both of which escalate over time, but which are expected to result in significantly lower payments as a percentage of our revenue than have been required historically.

Our operating results may be affected by a variety of internal and external factors and trends described more fully below in Factors Affecting Comparability of Results of Operations and as also described in “Risk Factors”:




Pre-feature show content. We have sought to make our FirstLook pre-show both entertaining for theatre audiences and an effective advertising platform for our clients. If the theatre audiences or advertisers do not respond as we anticipate to our pre-feature show format or content, our advertising revenue could be adversely affected.




Trends in advertising. As advertisers continue to shift spending to non-traditional, targeted media platforms from traditional media such as television, newspapers and billboards, our advertising business could benefit from this trend.




Theatre attendance. Theatre attendance depends to a significant degree on the quality of the motion pictures distributed by the movie studios to the film exhibitors as well as the development of other distribution platforms. Although theatre attendance declined from 2001 to 2005 and then moderately increased in 2006 and 2007, during this time, cinema advertising revenue significantly increased as a result of better visibility of the medium and the use of digital technology, which enhanced the reach and overall value proposition of cinema advertising. However, as cinema advertising matures, this trend may not continue.




Addition of theatres. As theatres are added to our digital in-theatre network (either as NCM LLC’s founding members construct or acquire theatres, such as in the case of the Century acquisition, or as we add new network affiliates), due to the scalable nature of our business, we expect our revenue to increase with minimal additional capital or operating expenditures.




Growth of our meetings and digital programming businesses. Our ability to grow our meetings and digital programming businesses depends on our success in growing our customers’ awareness of these services through effective marketing.

Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators for us to manage our business and to determine how we are performing versus our internal goals and targets, and against the performance of our competitors and other benchmarks in the marketplace in which we operate. Management confers monthly to discuss and analyze operating results and address significant variances to budget in an effort to identify trends and changes in our business. We focus on many operating metrics including changes in EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, as discussed below, as some of our primary measurement metrics. In addition, we pay particular attention to our monthly advertising performance measurements, including advertising inventory utilization, pricing (CPM), advertising revenue per founding member attendee and the number of CineMeetings and Fathom event locations and revenue per location. Finally, we monitor our operating cash flow and revolving credit facility availability to ensure that debt and declared and future dividend obligations can be met.

Summary Historical and Pro Forma Financial and Operating Data

You should read this information together with the other information contained in this document, including “Business-Corporate History” and “Business-Reorganization, ” and our audited historical financial statements and the notes thereto included elsewhere in this document. The summary pro forma financial information in the table below was derived from (i) unaudited pro forma consolidated statement of operations for the year ended December 27, 2007 included elsewhere in this document, (ii) unaudited pro forma consolidated statement of operations for the year ended December 28, 2006, which was included in our 2006 Form 10-K and is not included elsewhere in this document, and (iii) unaudited pro forma consolidated statement of operations for the year ended December 29, 2005, which was included in our registration statement and is not included elsewhere in this document, present the consolidated results of operations of NCM Inc. assuming the IPO, reorganization and senior secured credit facility discussed in detail elsewhere in this document has been completed and the transactions and material changes to contractual arrangements, which occurred in connection with them completion of the IPO and related transactions described had become effective as of December 31, 2004. The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable in order to reflect, on a pro forma basis, the impact of the historical and the transaction adjustments as described in unaudited pro forma financial information included elsewhere in this document. The pro forma statements of operations do not include the full impact of additional administrative costs of a public company.

The unaudited pro forma condensed consolidated financial information is included for informational purposes only and does not purport to reflect the results of operations or financial position of NCM Inc. and NCM LLC that would have occurred had they operated as separate, independent companies during the periods presented. The historical results of operations of NCM LLC, RCM and NCN have been significantly impacted by related party transactions, as discussed more fully in the historical financial statements included elsewhere in this document, and the future operating results of NCM Inc. will also be impacted by related party transactions. Historical and pro forma results of operations and financial condition are not necessarily indicative of what would have occurred had all transactions occurred with unrelated parties. Also, the pro forma consolidated financial information should not be relied upon as being indicative of NCM Inc. or NCM LLC’s results of operations or financial condition had the historical adjustments and the transaction adjustments been completed on December 31, 2004, with respect to the pro forma statements of operations. The pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date.

The following table presents operating data and EBITDA on a historical and a pro forma basis. See “Item 6. Selected Financial Data—Notes to the Selected Historical Financial and Operating Data” above for a discussion of the historical calculation of adjusted EBITDA and reconciliation to net income and “—EBITDA” below for a discussion of the pro forma calculation of adjusted EBITDA and reconciliation to net income.

EBITDA, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures used by management to measure operating performance. EBITDA represents net income (loss) before net interest expense, income tax benefit (provision), and depreciation and amortization expense. Adjusted EBITDA excludes from EBITDA severance plan costs, non-cash unit based costs and deferred stock compensation. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenue. EBITDA and adjusted EBITDA do not reflect the Loews payments. The Loews payments received are added to adjusted EBITDA to determine our compliance with financial covenants under our new senior secured credit facility.

We have included a discussion of EBITDA, adjusted EBITDA and adjusted EBITDA margin to provide investors with supplemental measures of our operating performance and because they are the basis for an important financial covenant that is contained in our senior secured credit facility. We believe EBITDA, adjusted EBITDA and adjusted EBITDA margin are important supplemental measures of operating performance because they eliminate items that have less bearing on our operating performance and so highlight trends in our core business that may not otherwise be apparent when relying solely on generally accepted accounting principles, or GAAP, financial measures. We also believe that securities analysts, investors and other interested parties frequently use EBITDA, adjusted EBITDA and adjusted EBITDA margin to evaluate and value companies, many of which present EBITDA, adjusted EBITDA and adjusted EBITDA margin when reporting their results. Also, because of the significant changes in our operating results that resulted from the acquisition of an interest in NCM LLC by NCM, Inc., the changes in the exhibitor services agreements and the financing transaction, we disclose pro forma EBITDA, adjusted EBITDA and adjusted EBITDA margin in this document.

EBITDA, adjusted EBITDA and adjusted EBITDA margin are not presentations made in accordance with GAAP. As discussed above, we believe that the presentation of EBITDA, adjusted EBITDA and adjusted EBITDA margin is appropriate. However, when evaluating our results, you should not consider EBITDA, adjusted EBITDA and adjusted EBITDA margin in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as net income (loss). EBITDA, adjusted EBITDA and adjusted EBITDA margin have material limitations as performance measures because they exclude items that are necessary elements of our costs and operations. Because other companies may calculate EBITDA, adjusted EBITDA and adjusted EBITDA margin differently than we do, EBITDA, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly-titled measures reported by other companies.

Results of Operations

2007 Post-IPO Period and the 2007 Pre-IPO Period and the Year Ended December 28, 2006

Revenue. Total revenue of the Company for the 2007 post-IPO period was $308.3 million, while total revenue for the 2007 pre-IPO period was $23.6 million, as compared to $219.3 million during the twelve months ended December 28, 2006. The increase in the aggregate 2007 periods over the 2006 period was primarily the result of payments from the founding member beverage agreements, increase in national advertising inventory utilization and CPM, an increase in local and regional advertising sales, the conversion or assignment of certain legacy contracts and increasing meetings and events revenue. The aggregate national advertising revenue for the 2007 periods increase of 72.2% related primarily to an increase in national advertising inventory utilization to 87.0% from 77.5%, a 1.6% increase in CPMs, an increase in non-inventory on-screen and lobby revenue and a 5.4% increase in founding member attendance. Local and regional advertising revenue increased by 27.4% primarily due to an increase in screens and time sold. The meeting and events revenue increase of 11.4% related to an increase in Fathom revenue due to an increase in event count of approximately 50.0%, primarily for the Met, offset by 14.2% decrease in revenue for CineMeetings due to a 15.0% decrease in event count.

Total advertising contract value per founding member attendee for the Company for the 2007 post-IPO period was $0.60, while the total advertising contract value per founding member attendee was $0.31 for the 2007 pre-IPO period and $0.40 during the year ended December 28, 2006. The approximate 40.0% increase in the advertising contract value per founding member for the combined 2007 post-IPO period and 2007 pre-IPO period versus the year ended December 28, 2006 was primarily the result of increased utilization through an increase in expenditures from certain existing clients and the expansion of our advertising client base. The increase was also due to an increase in sales of non-inventory on-screen and lobby revenue, such as the sale of branded content segments, cell phone trailer segments and lobby promotional items.

Operating expenses. Total operating expenses for the 2007 post-IPO period were $103.8 million, $12.9 million during the 2007 pre-IPO period and $95.0 million for the year ended December 28, 2006. The increase of the combined 2007 post-IPO period and 2007 pre-IPO period versus total operating expenses for the year ended December 28, 2006 was primarily the result of the increase in sales commissions and event costs associated with the increase in revenue discussed above and increased expenses due to additional staffing and infrastructure required to support the increase in the number of advertising contracts, expansion of the network and public company compliance costs.

Non-cash costs associated with our equity incentive plan also contributed to the increase in administrative expenses. Share-based compensation expense for the 2007 post-IPO period was $3.1 million, while the expense was $0.3 million for the 2007 pre-IPO period and $2.5 million for the twelve months ended December 28, 2006. The increase in share-based compensation expense is primarily due to the plan being in place for the entire 2007 post-IPO and 2007 pre-IPO periods, while it was only in place for nine months of the twelve months ended December 28, 2006 as the options were originally issued in the second quarter of 2006 and additional grants made at the time of the IPO. See the information provided under Note 9 to the consolidated financial statements included elsewhere in this document for additional details.

Total operating expenses per founding member attendee for the Company for the 2007 post-IPO period was $0.22, $0.19 for the 2007 pre-IPO period and $0.19 during the year ended December 28, 2006. The 13.1% increase in total operating expenses per founding member for the combined 2007 post-IPO period and 2007 pre-IPO period versus the year ended December 28, 2006 was primarily the result of costs associated with increased revenue and related expenses associated with the lower-margin meetings and events businesses, increased administrative costs associated with our public company compliance, offset by the fixed nature of many of our operating expenses associated with our advertising business. Operating expenses as a percentage of revenues for the 2007 post-IPO period was 33.7%, for the 2007 pre-IPO period was 54.7% and for the year ended December 28, 2006 was 43.3%. The decrease in the 2007 post-IPO period percentage is primarily the result of higher advertising revenue levels discussed above and the scalable nature of several components of our operating expenses.

Circuit share expense/theatre access fee. Theatre access fees of the Company for the 2007 post-IPO period were $41.5 million, while circuit share expense was $14.4 million during the 2007 pre-IPO period and $130.1 million during year ended December 28, 2006. The decrease for the 2007 post-IPO period versus the NCM LLC 2007 pre-IPO period and the year ended December 28, 2006 was primarily the result of the amended and restated ESAs that became effective upon the completion of the IPO as discussed above. Total theatre access fees as a percentage of revenue of the Company for the 2007 post-IPO period were 13.5%, while the total circuit share expense as a percentage of revenue was 61.0% for the 2007 pre-IPO period and 59.3% during the year ended December 28, 2006. The decrease in the theatre access fee as a percentage of revenue for the 2007 post-IPO period was the result of the change in the structure of the theatre access fee as compared to the circuit share payments prior to the amendment and restatement of the ESAs, as previously discussed.

Net income (loss) . Net income generated by the Company for the 2007 post-IPO period was $24.8 million, while for the 2007 pre-IPO period there was a net loss of $4.2 million and there was a net loss of $10.5 million during the year ended December 28, 2006. The increase in the profitability of the Company for the 2007 post-IPO period versus the periods prior to the IPO was due to the increase in revenue and decrease in payments to the founding members discussed above, partially offset by an increase in interest expense associated with the new credit facilities and the income taxes and expenses associated with the tax receivable agreement and minority interest expense associated with the new corporate structure. The comparability of the net income of the periods presented is limited due to the differing lengths of the periods, size of our network and changes in the corporate structure and capitalization as discussed above.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

NCM operates the largest digital in-theatre network in North America that allows us to distribute advertising, business meetings, and Fathom event services. Our revenue is principally derived from the sale of advertising and, to a lesser extent, from our CineMeetings business and Fathom events business. We have long-term ESAs with NCM LLC’s founding members and multi-year agreements with several other unrelated theatre operators, whom we refer to as network affiliates. The ESAs with the founding members and network affiliate agreements grant us exclusive rights, subject to limited exceptions, to sell advertising and meeting services and distribute entertainment programming in those theatres. Our advertising, CineMeetings and Fathom events are distributed primarily to theatres that are digitally equipped with our proprietary DCN technology. In excess of 90% of the aggregate founding member and network affiliate theatre attendance is included in our digital network.

The results of operations data for the period December 28, 2006 through February 12, 2007 (the “2007 pre-IPO period”) and the results of operations data for the period February 13, 2007 through March 29, 2007 (the “2007 post-IPO period”)give effect to allocations of revenues and expenses made using relative percentages of founding member attendance or days in each period, specific events or facts and other methods management considered to be a reasonable reflection of the results for such period. The historical financial data of NCM LLC prior to the IPO may not be indicative of the Company’s post-IPO performance nor will such data reflect what its financial position and results of operations would have been had it operated as an independent publicly traded company during the pre-IPO periods presented.

Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators for us to manage our business and to determine how we are performing versus our internal goals and targets, and against the performance of our competitors and other benchmarks in the marketplace in which we operate. Management confers monthly to discuss and analyze operating results and address significant variances to budget in an effort to identify trends and changes in our business. We focus on many operating metrics including changes in EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, as discussed below, as some of our primary measurement metrics. In addition, we pay particular attention to our monthly advertising performance measurements, including advertising inventory utilization, pricing (CPM), advertising revenue per attendee and the number of CineMeetings and Fathom event locations and revenue per location. Finally, we monitor our operating cash flow and revolving credit facility availability to ensure that debt and declared and future dividend obligations can be met.

Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” in our Form 10-K filed on March 7, 2008 with the SEC for the Company’s fiscal year ended December 27, 2007.

Summary Historical and Pro Forma Financial and Operating Data

The following table presents operating data and EBITDA on a historical and a pro forma basis. The summary pro forma financial information in the table below was derived from unaudited pro forma consolidated statement of operations for the quarter ended March 29, 2007 included elsewhere in this document. See “—EBITDA” below for a discussion of the calculation of adjusted EBITDA and reconciliation to net income.

Results of Operations

Quarter Ended March 27, 2008 and the 2007 Post-IPO Period and the 2007 Pre-IPO Period

Revenue. Total revenue of the Company for the quarter ended March 27, 2008 was $62.7 million as compared to $32.4 million for the 2007 post-IPO period and $23.6 million for the 2007 pre-IPO period. The increase in the first quarter of 2008 over the comparable aggregate 2007 periods was primarily the result of payments from the founding member beverage agreements, an increase in local and regional advertising sales, and increasing meetings and events revenue. National advertising revenue excluding payments from the founding members beverage agreements for the first quarter of 2008 decreased 6.1% related primarily to a decrease in national advertising inventory utilization to 58.7% from 70.1%, partially offset by a 6.7% increase in CPMs and a 4.8% increase in total attendance. The increase in total attendance is due to the addition throughout 2007 and in the first quarter 2008 of advertising affiliates to our network, however this was offset by fewer impressions because we passed on certain contracts with unacceptably low CPMs. Local and regional advertising revenue increased by 14.3% primarily due to an increase in screens and time sold. The meeting and events revenue increase of 45.2% related to an increase in Fathom revenue associated with more events and higher overall ticket sales.

Total advertising contract value per attendee for the Company for the quarter ended March 27, 2008 was $0.37, while the total advertising contract value per attendee was $0.44 and $0.30 for the 2007 post-IPO period and the 2007 pre-IPO period, respectively. The approximate 2.8% increase in the advertising contract value per attendee for the first quarter of 2008 versus the combined 2007 post-IPO period and 2007 pre-IPO period was primarily the result of the increased CPM and local and regional advertising through an expansion of our advertising client base.

Operating expenses. Total operating expenses excluding meetings and events operating costs for the quarter ended March 27, 2008 were $27.0 million, $11.4 million for the 2007 post-IPO period and $11.5 million for the 2007 pre-IPO period. The increase of the first quarter of 2008 versus the combined 2007 post-IPO period and 2007 pre-IPO period was primarily the result of the increase in local sales commissions, increased sales and marketing expenses for activities supporting outreach to customers over our increased live network footprint and increases in administrative expenses associated with being a public company.

Total operating expenses excluding meetings and events operating costs per attendee for the Company for the quarter ended March 27, 2008, the 2007 post-IPO period and the 2007 pre-IPO period was $0.19, $0.17 and $0.16, respectively. The 11.8% increase in total operating expenses excluding meetings and events operating costs per attendee was primarily the result of higher expense levels discussed above and due to the fixed nature of many of our operating expenses associated with our advertising business. Operating expenses excluding meetings and events operating costs as a percentage of advertising revenues for the quarter ended March 27, 2008 was 50.3%, 39.3% for the 2007 post-IPO period and 55.8% for the 2007 pre-IPO period. The increase in the percentage is primarily the result of higher revenue levels and expenses discussed above.

Meetings and Events Operating Costs . Meetings and events operating costs for the quarter ended March 27, 2008 were $6.3 million, $1.8 million for the 2007 post-IPO period and $1.4 million for the 2007 pre-IPO period. The increase of the first quarter of 2008 versus the combined 2007 post-IPO period and 2007 pre-IPO period was primarily the result of increased content and revenue splits associated with the increase in meetings and events revenue discussed above.

Circuit share expense/theatre access fee. Theatre access fees of the Company for the quarter ended March 27, 2008 was $11.5 million and $5.5 million for the 2007 post-IPO period, while circuit share expense was $14.4 million during the 2007 pre-IPO period. The change for the first quarter of 2008 and the 2007 post-IPO period versus the NCM LLC 2007 pre-IPO period was primarily the result of the amended and restated ESAs that became effective upon the completion of the IPO as discussed above. Total theatre access fees as a percentage of revenue of the Company for the quarter ended March 27, 2008 was 18.4% and the 2007 post-IPO period was 17.0%, while the total circuit share expense as a percentage of revenue was 61.0% for the 2007 pre-IPO period. The change in the theatre access fee as a percentage of revenue for the 2007 post-IPO period was the result of the change in the structure of the theatre access fee as compared to the circuit share payments prior to the amendment and restatement of the ESAs, as previously discussed.

Net income (loss) . Net loss generated by the Company for the quarter ended March 27, 2008 was $0.4 million compared to net income from the 2007 post-IPO period of $1.0 million and a net loss of $4.2 million for the 2007 pre-IPO period. The comparability of the net income of the periods presented is limited due to the differing lengths of the periods, size of our network and changes in the corporate structure and capitalization as discussed above.

Financial Condition and Liquidity

Liquidity and Capital Resources

As of March 27, 2008, our cash and cash equivalents balance was $32.3 million, an increase of $11.5 million compared to the balance of $20.8 million as of December 27, 2007. In addition, we had access to an undrawn line of credit of $31.0 million for a total liquidity position of $63.3 million as of March 27, 2008. The increase in our liquidity position from December 27, 2007 was in part a result of positive cash from operating and financing activities offset by higher levels of investing activities. A substantial amount of cash has been set aside for future income tax and tax sharing payments and payments related to dividends that have been declared.

Our cash balances at the end of the historical periods are typically low, as circuit share payments are made to the founding members out of excess cash subsequent to the IPO. Our cash balances will fluctuate due to the timing of available cash payments (as defined) to our founding members, interest payments on our term loan, income tax payments, tax sharing payments to our founding members and quarterly dividends to our common shareholders we expect to pay pursuant to our dividend policy.

Sources of capital and capital requirements. NCM, Inc.’s primary sources of liquidity and capital resources are distributions from NCM LLC generated by the operating, investing and financing activities of the operating subsidiary and availability of up to $80.0 million under NCM LLC’s senior secured revolving credit facility entered into in February 2007. Management believes that future funds generated from NCM LLC’s operations and distributions to NCM, Inc. and available borrowing capacity of up to $80.0 million under NCM LLC’s revolving credit facility 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 and to fund quarterly dividends as they are declared by the Company. The amount outstanding as of March 27, 2008 on the revolving credit facility was $49.0 million. Cash flows generated by NCM LLC’s distributions to NCM, Inc. can be impacted by the seasonality experienced in advertising revenues at NCM LLC and the impact to associated collections of accounts receivable. In addition, NCM LLC is required pursuant to terms of the operating agreement effective as of February 13, 2007 to distribute its available cash, as defined in the operating agreement, to its members, including the Company. The available cash distribution to the members of NCM LLC for the quarter ended March 27, 2008 was approximately $5.6 million, of which $2.5 million was the Company’s portion. NCM, Inc. will use cash received from the available cash distributions to fund income taxes and current and future dividends as declared by the board of directors, including a dividend declared of $0.15 per share (approximately $6.3 million) which will be paid on June 4, 2008.

Contractual and Other Obligations

For a discussion of contractual and other obligations, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual and Other Obligations” contained in our annual report on Form 10-K for the fiscal year ended December 27, 2007 and incorporated by reference herein. As of March 27, 2008, there were no significant changes in those contractual or other obligations. However, subsequent to March 27, 2008, the Company has agreed to certain obligations with respect to IdeaCast as described further in Note 6.

CONF CALL

Brad Cohen

I’d like to remind our listeners that this conference call contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended and section 21E of the Securities and Exchange Act of 1934 as amended. All statements other than statements of historical fact communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company’s expectations are disclosed in the risk factors contained in the company’s filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I’ll turn the call over to Kurt Hall, Chief Executive Officer of National CineMedia.

Kurt Hall

Welcome and thanks for joining us for our first quarter 2008 conference call. Today I’ll be providing you with an overview of our first quarter results as well as our progress against our current year operating target and key growth strategies for the future. Gary Ferrera, our CFO, will then get into a more detailed discussion of our financial performance for the quarter and then as always we will open the lines for questions.

As we had expected, our total Q1 2008 EBITDA declined versus pro forma Q1 2007. While we continued to make great progress growing our national CPM’s and our local and regional advertising business and expanding our meetings events businesses it did not offset the EBITDA margin impact of lower national inventory utilization and lower beverage revenue.

While our Q1 national advertising inventory utilization of 58.7% was down versus the 71% in Q1 2007 it was significantly above the 48.5% in Q1 2006. We had expected a decrease as the national advertising inventory utilization during the 2007 quarter was significantly above planning with an increase of over 20 percentage points over Q1 2006. This strong Q1 2007 utilization growth was primarily related to a couple of clients who advertised heavily with us ahead of key product launches that did not repeat during the first quarter of 2008.

This quarterly volatility highlights the importance of our strategy to broaden the number of advertising categories and clients. While we are making progress in several large spending categories such as packaged goods and quick service restaurants, cinema is still underrepresented in their media plans. These two categories in particular are important as they buy media throughout the year and thus will help to reduce the risk of revenue volatility quarter to quarter.

As we continue to develop creative executions that work in the cinema environment and improve our value proposition I am confident that the cinema advertising will become increasingly important to clients in these underrepresented categories.

Although our overall national utilization declined our national CPM increased by 6.7% as we held the line on pricing and passed on certain contracts with unacceptably low CPM’s. Our average dollar commitment per national contract declined during the current quarter versus last year as we sold fewer 60-second and all-network units and our content partner’s first quarter spending allocation declined approximately $3 million or from 18% to 12% of their annual must spend commitment.

As these are must-spend commitments we expect this money to be spent later in the year. We believe that the slight drop in national scatter contract values is a short-term phenomenon rather than a developing trend that could be attributable to the general cautiousness in the marketplace relating to fears about the slowing economy. This view is supported by the fact that we have entered into 2008 and 2009 contracts with over 16 first-time clients in the auto, apparel, credit card and personal care categories and have increased commitment levels from several clients for 2008 and 2009 that ran small schedules or tested cinema in 2007.

Also we began multi-year relationships with new content partners, Warner Brothers, A&E and History Channel at the beginning of the quarter and Disney mid-quarter. This increase in our client base is a promising sign as it reflects the continued movement of media budgets from the traditional media platforms to new digital platforms like Cinema.

During the current quarter we also continued to make progress on our strategy to strengthen our network reach and market coverage, improving our competitive position relative to TV and other national advertising platforms. Effective April 1, 2008 the 480 screen Holiday Theater Circuit joined our network. This addition along with Lowes, Kerasotes and Goodrich will increase the size of our network beginning in June to approximately 17,100 screens and expand our market share in the top 10 and top 50 DMA’s to in excess of 70% and 65% respectively.

As our network grows we have noted an increase in advertisers who are seeking to create a new or expanded relationship with us. In many cases booking national multi-flight deals for later in 2008 and even extending into 2009. In some cases these first time clients have in the past committed their budget exclusively to Screen Vision.

In addition to our network affiliate growth we have continued to benefit from the new construction and acquisitions of our founding member circuits. While net screen and attendance growth will require us to make additional equity issuances it is accretive from a value standpoint as incremental attendees are being added at a much higher EBITDA margin than the company as a whole. In many respects it is no different than making an acquisition for equity where the synergies can be immediately realized.

Also our long-term right to have access to these theater additions ensures that our network will continue to strengthen and grow. While some older theaters that are being retired at the end of their leases are not included in the calculation the number of attendees is very low and in most cases those patrons go to existing theaters in our network. It is also important to note that we have a very unique business model with virtually no cash asset replacement costs.

Our local advertising business had another solid quarter with revenue up 14.3%. The only sign of the weakening local economy that we have seen is that certain clients have been less willing to sign up for annual or multi-month contracts. Our local business has appeared to be more resilient to the slowing economic condition than several other traditional local mediums. While some of this may be because we have not relied as heavily on real estate related clients, it may also relate to the ability of our clients to buy theaters only within their specific trade area thus providing a more effective buy while lowering the out of pocket costs compared to other advertising platforms.

Cinema is currently one of the only advertising mediums that can provide local and regional geographic targeting for full motion video content. Our regional business also continued to benefit from the increase in coverage of the larger DMA’s improving our ability to effectively compete on a reach basis with PB, newspapers and radio.

Our meetings and events business is also benefiting from the continued expansion of our overall network and our live broadcast capabilities. With the addition of new founding member theaters and new network affiliates to our advertising network we now have over 400 live broadcast locations in 145 markets. This expansion has allowed us to attract more high quality programming and build a meaningful 2008 pipeline as content owners benefit from the incremental revenue opportunity and revenue impact created by national release in theaters.

While not expected to provide significant near-term revenue and EBITDA growth, we continue to incubate a couple of future growth opportunities within two of the fastest growing media sectors. We plan to launch our new Internet site later this year and have recently restructured our IdeaCast investment increasing our current ownership to over 40% with that interest growing to as much as 80% over the next couple of years at an accretive early stage valuation.

As both of these initiatives leverage our existing technology, media production and sales infrastructure, NCM could be very well positioned should media buying silos consolidate around the higher quality digital media platform and we are able to offer clients a unique bundle of local and national digital marketing products across several digital platforms.

Looking ahead for the remainder of the year the Q2 TV scatter market has been very sluggish due to either up-front positioning by the networks and media buyers or the slowing economy or some combination of both factors. In addition we have passed on several contracts with low CPM’s particularly for the month of May.

While we have previously passed on deals with unacceptably low CPM’s, the discount and added value elements offered by Screen Vision has recently increased possibly due to the upcoming loss of Lowes on June 1. As many of these deals were often with large buying agencies that represent several clients, accepting these deals right at the time when our network was expanding and improving in quality did not make sense to us. While building our utilization to create better supply and demand characteristics continues to be our primary focus we felt that accepting these low effective CPM’s now could create long-term damage to our rate card and our future growth potential.

With our 6.7% quarterly increase in CPM’s and continued growth in our client base including several new content partners we believe that this is the right long-term decision even though it cost us some short-term revenue.

With these short-term issues with Screen Vision and the Q2 scatter market sluggishness, we continue to believe that the 2008 first half revenue and EBITDA comps will be challenging and making up for the 2008 first half consensus revenue and EBITDA shortfalls during the second half of the year could prove difficult.

Having said this, our book to advertising revenue for the year as a percentage of our annual advertising budget is consistent with where we were at about the same time in 2007. Thus as we integrate Lowes and the other new network affiliates, this larger and higher quality network positions us for strong year-over-year growth in the second half of 2008 and will continue into 2009 and beyond.

Now I’d like to turn over the presentation to Gary to give you some more details concerning our financial performance.

Gary Ferrera

I will now spend some time reviewing our first quarter financial performance in a bit more detail. You should note that the 2007 first quarter comparisons reflect pro forma results that assume that the IPO and related transactions and the $805 million senior secured credit facility were effective as of December 28, 2006.

In addition, you should also note that the effect of the Lowes integration agreement is not included in our operating results as those net payments are reported directly to our equity account. The Lowes integration amount was $800,000 for the first quarter of 2008.

For the first quarter our total revenue grew 1% to $62.7 million from $62.1 million. Advertising revenue declined 3.8% to $53.7 million from $55.8 million. While meetings and events revenue increased 45.2% to $9 million from $6.2 million.

The slower national advertising revenue resulted in a 19.5% decline in total Q1 adjusted EBITDA to $20.7 million excluding the Lowes payments. As mentioned previously this decrease in national advertising revenue had been budgeted as we do not expect to repeat the same national advertising utilization rate that we achieved in Q1 2007. Excluding the make good we would have comfortably exceeded our budget.

Adjusted EBITDA including the Lowes payment for the first quarter was $21.5 million. Adjusted EBITDA margin was 33% versus 41.4% in the first quarter of 2007 due primarily to a slight change in our revenue mix resulting from the decreases in high margin national and beverage advertising revenue, an increase in the percentage of total attendance contributed by our network affiliates. We were also able to offset some of this revenue mix with the tight cost controls as we delayed certain marketing expenditures and new hires.

The decline in total advertising revenue was primarily due to a nearly 12 percentage point decline in national advertising utilization partially offset by improvement in CPM, and increases in local advertising time sold. The lower beverage revenue was due to a slight lower founding member attendance and the reduction in Regal’s time provided for Coke from 90 to 60 seconds. This decrease was partially offset by the 8% contractual CPM increase towards beverage revenue.

As we expect to sell this premium unit at a much higher CPM than the contractual long-term rate, this change provides a future growth opportunity as market demand and our inventory utilization increases. During several sold out flights in 2007 we bought back inventory from Coke at a favorable spread and therefore we expect to sell this unit in several flights in the second half of 2008.

The advertising revenue mix for the first quarter of 2008 was approximately 60% national advertising revenue, 21% local advertising revenue and 19% beverage agreement revenue versus 62%, 18% and 20% respectively Q1 2007.

National advertising revenue per attendee fell by 12% from $0.25 to $0.22 due to the lower inventory utilization mentioned previously as well as an increase in attendees due primarily to the addition of new affiliate screens the majority of which were not digital and fully integrated into our sales process until late in the quarter and therefore generated lower average revenue per attendee during the quarter.

As we have mentioned in the past our national ad revenue and resulting EBITDA could fluctuate significantly due to one or two contracts. This is especially true in a low advertising inventory utilization quarter like the first quarter.

We were pleased with the growth in our local and regional advertising in the first quarter which was slightly above what we had budgeted and up approximately 14.3% over Q1 2007 with local revenue per attendee increasing approximately 9%. This was based off a 9.3% increase in the average number of screens.

We entered the quarter with approximately $4 million of make good and as of the end of the first quarter we had approximately $1.9 million of make good compared to $1.2 million at the end of the first quarter of 2007. January and February attendance was strong allowing us to make good much of the year-end balance, however approximately $1.1 million of the balance was requested by our clients to be made good in quarters beyond Q1 and an additional $800,000 in make good’s were generated in March due to the lower than projected attendance in that month.

Our meetings and events business continues to expand with combined Q1 revenue growth of 45.2% versus the first quarter of 2007. While this business is still a small part of our overall financial results it is providing additional EBITDA with very limited capital investment required. In addition, it is proving to be an important consideration for new affiliate circuits that are considering joining our advertising network.

Our quarterly Fathom revenue increased nearly 80% with a continuing success at the Metropolitan Opera and the surprise hit of the Spirit of the Marathon event. MET attendance increased 71% over the comparable Q1 period last year and the Spirit of the Marathon event had ticket sales approaching $1 million for two events. The success of this programming is now being shown in digital cities in advance of their summer marathon races.

While our cinemeetings revenue continued to be volatile quarter to quarter due to the number and size of events scheduled it had a solid first quarter with revenue growth of 12.5%. Our changes in sales personnel and more focused sales and marketing tactics appear to be paying off. We continue to make great progress expanding our network.

As of March 27, 2008 we had 15,419 total screens in our network of which approximately 88% were connected to our digital network versus 87% in the first quarter of last year. These digital screens generate approximately over 90% of our total attendance. Our screen count now includes 2,208 network affiliate screens not including the 480 Hollywood Theater screens that joined our network on April 1 and should be fully deployed in the third quarter.

Pro forma for all of our announced network affiliate screen additions and the addition of approximately 1,200 Lowes screens in June 2008 we will have approximately 17,100 screens and approximately 725 million attendees. In the second half of the year we estimate our network affiliate attendance will approximate 12% of our total attendance. As we have noted in the past revenue per attendee and EBITDA margins in affiliate theaters are lower than that from our founding member theaters.

On April 14 we disclosed the details behind the results of the annual common unit adjustment per our agreement with our three founding member theater circuits in an 8K. The overall result was the issuance of 2.5 million of additional common membership units based on an overall net increase in attendance of approximately 13 million. This resulted in a slight reduction of the NCM Inc. equity stake and NCM LLC from 44.8% to 43.6%. As mentioned previously we continue to believe that this agreement provides a long term accretive growth opportunity.

In addition to this adjustment we have also recently received a notice from Regal that they have completed the 400 screen Consolidated Theaters acquisition. Consolidated’s attendance is greater than the 2% of our total attendance. Therefore this acquisition will result in an extraordinary attendance increase as defined in the common unit adjustment agreement. The advertising for these screens is currently being sold by Screen Vision but Regal has elected to receive additional units and pay us [X insivity] run out payments until the end of the Screen Vision contract similar to the way that AMC paid us for Lowes. We expect to disclose more details in the next few weeks.

Our capital expenditures for the first quarter were $5.3 million versus $1.7 million in Q1 2007. This increase was primarily due to the digital deployment of Kerasotes and Colorado Cinemas as well as some costs associated with our Internet initiative. We estimate the 2006 [sic] CapEx will be in the range of $17-18 million. Much of the CapEx is related to network affiliate expansion and to a lesser extent from our Internet initiative and software systems development and upgrade. This estimate does include the expected capital from Hollywood Theaters network expansion but does not take into account any other potential network affiliate agreement we might enter into in the future.

Regarding our balance sheet our total debt outstanding as of March 27, 2008 was $774 million comprised of $725 million term loans and $49 million revolver. The revolver balance net of the NCM LLC cash and cash equivalents was approximately $45.1 million. The interest rate on our $725 million term loan was approximately 6.8% for the Q1 period while the interest rate on our revolver borrowings carried a slightly lower interest rate of 6% for the Q1 period. Our average total cash interest rate was 6.7% for the quarter.

Our pro forma leverage at NCM LLC as of March 27, 2008 is approximately 4.1x trailing four-quarter pro forma adjusted EBITDA including the Lowes payments. While we do not anticipate paying down our term debt we expect to continue to de-lever over time through EBITDA growth and do not envision dropping to a leverage ratio much less than three times before reevaluating our capital structure.

We also announced our quarterly dividend payment of $0.15 per share which is consistent with previous quarters. This dividend represents an annual yield of approximately 3% based on the current trading levels of our stock.

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