Exhibit 99.2
Source Interlink Announces Fiscal 2008 Third Quarter Results
– Benefits of Increased Scale and Efficiency Keep Results on Track with Guidance for Fiscal Year 2008, as Q3 Adjusted Income from Continuing Operations Hits $12.6 million, $0.24 per share –
BONITA SPRINGS, FL, December 6, 2007 – Source Interlink Companies, Inc. (Nasdaq: SORC), one of the largest publishers of magazines and online content for enthusiast audiences and a leading distributor of DVDs, CDs, magazines, games and books, today announced financial results for the fiscal 2008 third quarter ending October 31, 2007. Adjusted income from continuing operations for the fiscal 2008 third quarter totaled $12.6 million, or $0.24 per diluted share, up 60 percent over the year-earlier on a per share basis.
| | GAAP Results ($ in millions) | | Adjusted Results* ($ in millions) | |
| | 3Q08 | | 3Q07 | | % Change | | 3Q08 | | 3Q07 | | % Change | |
| | | | | | | | | | | | | |
Revenue | | $ | 639.1 | | $ | 467.9 | | 36.6 | % | $ | 640.1 | | $ | 467.9 | | 36.8 | % |
Magazine Fulfillment | | 241.4 | | 222.2 | | 8.6 | % | 241.4 | | 222.2 | | 8.6 | % |
CD/DVD Fulfillment | | 261.1 | | 233.3 | | 11.9 | % | 261.1 | | 233.3 | | 11.9 | % |
Source Interlink Media | | 132.9 | | — | | | | 133.9 | | — | | | |
In-Store Services | | 11.7 | | 12.4 | | (5.3 | )% | 11.7 | | 12.4 | | (5.3 | )% |
Eliminations | | (8.0 | ) | — | | | | (8.0 | ) | — | | | |
| | | | | | | | | | | | | |
Operating Income | | $ | 29.5 | | $ | 10.7 | | 174.3 | % | $ | 45.9 | | $ | 16.4 | | 180.6 | % |
Income from continuing | | | | | | | | | | | | | |
operations | | $ | (4.5 | ) | $ | 4.3 | | (203.0 | )% | $ | 12.6 | | $ | 7.7 | | 62.3 | % |
EPS - Diluted | | $ | (0.09 | ) | $ | 0.08 | | (212.5 | )% | $ | 0.24 | | $ | 0.15 | | 60.0 | % |
| | GAAP Results ($ in millions) | | Adjusted Results* ($ in millions) | |
| | YTD ‘08 | | YTD ‘07 | | % Change | | YTD ‘08 | | YTD ‘07 | | % Change | |
| | | | | | | | | | | | | |
Revenue | | $ | 1,548.7 | | $ | 1,349.1 | | 14.9 | % | $ | 1,549.7 | | $ | 1,349.1 | | 14.9 | % |
Magazine Fulfillment | | 703.8 | | 640.5 | | 9.9 | % | 703.8 | | 640.5 | | 9.9 | % |
CD/DVD Fulfillment | | 687.1 | | 672.1 | | 2.2 | % | 687.1 | | 672.1 | | 2.2 | % |
Source Interlink Media | | 132.9 | | — | | | | 133.9 | | — | | | |
In-Store Services | | 32.9 | | 36.5 | | (10.0 | )% | 32.9 | | 36.5 | | (10.0 | )% |
Eliminations | | (8.0 | ) | — | | | | (8.0 | ) | — | | | |
| | | | | | | | | | | | | |
Operating Income | | $ | 44.9 | | $ | 25.6 | | 75.4 | % | $ | 68.5 | | $ | 38.6 | | 77.5 | % |
Income from continuing | | | | | | | | | | | | | |
operations | | $ | 1.2 | | $ | 10.4 | | (88.6 | )% | $ | 22.5 | | $ | 18.8 | | 19.7 | % |
EPS - Diluted | | $ | 0.02 | | $ | 0.20 | | (90.0 | )% | $ | 0.43 | | $ | 0.35 | | 22.9 | % |
* Please see “Financial Highlights” section of this press release for definition and reconciliation of non-GAAP financial measures.
“We are encouraged by the momentum in each of our businesses and remain confident in our guidance for the full year,” said Michael R. Duckworth, Chairman of Source Interlink. “We are seeing the benefits of scale and our efforts to reduce cost as we build share in our magazine and DVD/CD distribution businesses.”
“The integration of our newest division, Source Interlink Media, formerly known as Enthusiast Media, is close to complete and we are well ahead of schedule in the realization of synergies. Our print business is performing as expected and the digital side is experiencing strong demand which will lead the way to profitable overall growth as we transform the Company into a leading content provider,” Mr. Duckworth added.
Financial Highlights
Adjusted income from continuing operations for the fiscal 2008 third quarter totaled $12.6 million, or $0.24 per diluted share. Adjusted revenue totaled $640.1 million. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the quarter totaled $52.5 million, which was a 166% increase over the same period last year. Adjusted operating income for the third quarter totaled $45.9 million, an increase of 180.6% over the prior year quarter. Operating margins increased to 7.2% from 3.5%.
GAAP loss from continuing operations for the fiscal 2008 third quarter totaled $4.5 million, or $0.09 per diluted share, compared to fiscal 2007 third quarter income from continuing operations of $4.3 million, or $0.08 per diluted share.
The increases over prior year in both adjusted and GAAP operating income and adjusted EBITDA reflect improved operating performance and the acquisition of Source Interlink Media (“SIM”). The decrease over the prior year of $8.5 million in GAAP income from continuing operations relates primarily to increased amortization of intangible assets relating to SIM and incremental interest expense in the quarter.
Adjusted income from continuing operations for the nine month period ending October 31, 2007 totaled $22.5 million, or $0.43 per diluted share, on total adjusted revenue of $1.55 billion. Adjusted EBITDA for the nine month period totaled $82.4 million, compared to $48.4 million last year, a 70.2% increase. GAAP income from continuing operations for the nine month period ended October 31, 2007 decreased $9.2 million or 86.3% to $1.2 million or $0.02 per diluted share as compared to $10.4 million or $0.20 per diluted share for the same period last year. Adjusted revenue in the current nine month period increased $200.6 million or 14.9% to $1.55 billion compared to prior year nine month period total GAAP revenue of $1.35 billion.
The Company uses both Generally Accepted Accounting Principles (GAAP), and non-GAAP or adjusted financial measures, to evaluate and report the results of its business. A reconciliation of the non-GAAP financial measures to the comparable GAAP financial measure is available on the Company’s home page at www.sourceinterlink.com by selecting “Reconciliation of Non-GAAP Financial Measures.”
The Company provides non-GAAP or adjusted financial information in order to provide meaningful supplemental information regarding its operational performance and to enhance investors’ overall understanding of the Company’s current financial performance and prospects for the future. The Company believes that investors benefit from seeing its results “through the eyes” of management in addition to the GAAP presentation. Management measures segment and enterprise performance using measures such as those disclosed in this release. This information facilitates management’s internal comparisons to the Company’s historical operating results.
Non-GAAP or adjusted information allows for greater transparency to supplemental information used by management in its financial and operational decision making. This information is not in accordance with, or an alternative for, GAAP in the United States. It excludes items, such as amortization of acquired intangible assets, charges incurred to consolidate and integrate distribution facilities of recently acquired businesses and non-cash stock-based compensation that may have a material effect on the Company’s net income and net income per share calculated in accordance with GAAP. Management monitors these items to ensure that expenses are in line with expectations and that its GAAP results are correctly stated but does not use them to measure the ongoing operating performance of the Company. The non-GAAP or adjusted information provided by the Company may be different from the non-GAAP or adjusted information provided by other companies.
GAAP and adjusted earnings per share in the fiscal 2007 third quarter were calculated on 53.1 million diluted shares outstanding, compared with 52.3 million diluted shares outstanding in fiscal 2008 third quarter.
See table below for reconciliation of GAAP financial results to adjusted amounts for the three month periods ended October 31. Adjusted Incomes from Continuing Operations were calculated utilizing a tax rate of 40 percent and three percent for the three months ended October 31, 2007 and October 31, 2006, respectively.
Q3 2008
| | Operating Income | | Income from | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | | Continuing | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | | Operations | |
| | | | | | | | | | | | | | | |
GAAP | | $ | 15,551 | | $ | 9,182 | | $ | 6,276 | | $ | 3,296 | | $ | (4,818 | ) | $ | 29,487 | | $ | (4,461 | ) |
Adjustments: | | | | | | | | | | | | | | | |
Amortization of acquired intangibles | | 9,776 | | 2,620 | | 1,690 | | 104 | | — | | 14,190 | | 8,514 | |
Deferred revenue | | 988 | | — | | — | | — | | — | | 988 | | 593 | |
Integration and relocation expenses | | — | | — | | 590 | | — | | — | | 590 | | 354 | |
Merger and acquisition costs | | 152 | | — | | — | | — | | 443 | | 595 | | 357 | |
Disposal of land, building and equipment, net | | — | | — | | 94 | | — | | — | | 94 | | 56 | |
Accretion of Automotive.com liability | | — | | — | | — | | — | | — | | — | | 236 | |
Amortization of Bridge Facility fees | | — | | — | | — | | — | | — | | — | | 1,332 | |
Write off of deferred financing fees | | — | | — | | — | | — | | — | | — | | 788 | |
Difference between GAAP and Adjusted tax rate | | — | | — | | — | | — | | — | | — | | 4,792 | |
| | | | | | | | | | | | | | | |
Adjusted | | $ | 26,467 | | $ | 11,802 | | $ | 8,650 | | $ | 3,400 | | $ | (4,375 | ) | $ | 45,944 | | $ | 12,561 | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | |
| | | | | | | | | | | | | |
Adjusted operating income | | $ | 26,467 | | $ | 11,802 | | $ | 8,650 | | $ | 3,400 | | $ | (4,375 | ) | $ | 45,944 | |
Depreciation and other amortization | | 3,485 | | 1,650 | | 914 | | 90 | | 509 | | 6,648 | |
Other income | | 58 | | — | | (74 | ) | 13 | | (45 | ) | (48 | ) |
| | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 30,010 | | $ | 13,452 | | $ | 9,490 | | $ | 3,503 | | $ | (3,911 | ) | $ | 52,544 | |
Q3 2007
| | Operating Income | | Income from | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | | Continuing | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | | Operations | |
| | | | | | | | | | | | | | | |
GAAP | | $ | — | | $ | 9,707 | | $ | 3,088 | | $ | 4,117 | | $ | (6,164 | ) | $ | 10,748 | | $ | 4,333 | |
Adjustments: | | — | | | | | | | | | | | | | |
Amortization of acquired intangibles | | — | | 1,878 | | 1,030 | | — | | — | | 2,908 | | 1,745 | |
Allocation changes | | — | | (62 | ) | (1,301 | ) | (176 | ) | 1,539 | | — | | — | |
Relocation, integration and consolidation expenses | | — | | — | | 2,451 | | — | | 131 | | 2,582 | | 1,549 | |
Disposal of land, building and equipment, net | | — | | 287 | | (49 | ) | (86 | ) | — | | 152 | | 91 | |
| | | | | | | | | | | | | | | |
Adjusted | | $ | — | | $ | 11,810 | | $ | 5,219 | | $ | 3,855 | | $ | (4,494 | ) | $ | 16,390 | | $ | 7,718 | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | |
| | | | | | | | | | | | | |
Adjusted operating income | | $ | — | | $ | 11,810 | | $ | 5,219 | | $ | 3,855 | | $ | (4,494 | ) | $ | 16,390 | |
Depreciation and other amortization | | — | | 1,803 | | 808 | | 205 | | 498 | | 3,314 | |
Other income | | — | | — | | 40 | | — | | 6 | | 46 | |
| | | | | | | | | | | | | |
Adjusted EBITDA | | $ | — | | $ | 13,613 | | $ | 6,067 | | $ | 4,060 | | $ | (3,990 | ) | $ | 19,750 | |
See table below for reconciliation of GAAP financial results to adjusted amounts for the nine month periods ended October 31. Adjusted Incomes from Continuing Operations were calculated utilizing a tax rate of 40 percent and approximately 24 percent for the nine months ended October 31, 2007 and October 31, 2006, respectively.
9 Months 2008
| | Operating Income | | Income from | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | | Continuing | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | | Operations | |
| | | | | | | | | | | | | | | |
GAAP | | $ | 15,551 | | $ | 19,634 | | $ | 15,375 | | $ | 8,057 | | $ | (13,724 | ) | $ | 44,893 | | $ | 1,193 | |
Adjustments: | | | | | | | | | | | | | | | |
Amortization of acquired intangibles | | 9,776 | | 7,053 | | 4,251 | | 309 | | — | | 21,389 | | 12,833 | |
Stock compensation expense | | — | | — | | — | | — | | 179 | | 179 | | 107 | |
Deferred revenue | | 988 | | — | | — | | — | | — | | 988 | | 593 | |
Integration and relocation expenses | | — | | — | | 590 | | — | | — | | 590 | | 354 | |
Merger and acquisition costs | | 152 | | — | | — | | — | | 443 | | 595 | | 357 | |
Disposal of land, building and equipment, net | | — | | — | | 94 | | — | | — | | 94 | | 56 | |
Gain on sale of assets | | — | | — | | — | | (173 | ) | — | | (173 | ) | (104 | ) |
Accretion of Automotive.com liability | | — | | — | | — | | — | | — | | — | | 236 | |
Amortization of Bridge Facility fees | | — | | — | | — | | — | | — | | — | | 1,332 | |
Write off of deferred financing fees | | — | | — | | — | | — | | — | | — | | 788 | |
Difference between GAAP and Adjusted tax rate | | — | | — | | — | | — | | — | | — | | 4,792 | |
| | | | | | | | | | | | | | | |
Adjusted | | $ | 26,467 | | $ | 26,687 | | $ | 20,310 | | $ | 8,193 | | $ | (13,102 | ) | $ | 68,555 | | $ | 22,538 | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | |
| | | | | | | | | | | | | |
Adjusted operating income | | $ | 26,467 | | $ | 26,687 | | $ | 20,310 | | $ | 8,193 | | $ | (13,102 | ) | $ | 68,555 | |
Depreciation and other amortization | | 3,485 | | 5,433 | | 2,886 | | 270 | | 1,632 | | 13,706 | |
Other income | | 58 | | — | | 237 | | (119 | ) | (25 | ) | 151 | |
| | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 30,010 | | $ | 32,120 | | $ | 23,433 | | $ | 8,344 | | $ | (11,495 | ) | $ | 82,412 | |
9 Months 2007
| | Operating Income | | Income from | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | | Continuing | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | | Operations | |
| | | | | | | | | | | | | | | |
GAAP | | $ | — | | $ | 23,857 | | $ | 11,549 | | $ | 10,096 | | $ | (19,903 | ) | $ | 25,599 | | $ | 10,433 | |
Adjustments: | | — | | | | | | | | | | | | | |
Amortization of acquired intangibles | | — | | 5,634 | | 2,971 | | — | | — | | 8,605 | | 5,163 | |
Impairment charge | | — | | — | | — | | — | | 529 | | 529 | | 317 | |
Allocation changes | | — | | 92 | | (4,083 | ) | (357 | ) | 4,348 | | — | | — | |
Relocation, integration and consolidation expenses | | — | | — | | 2,998 | | — | | 299 | | 3,297 | | 1,978 | |
Stock compensation expense | | — | | — | | — | | — | | 400 | | 400 | | 240 | |
Difference in GAAP and adjusted tax rate | | — | | — | | — | | — | | — | | — | | (159 | ) |
Disposal of land, building and equipment, net | | 287 | | (49 | ) | (86 | ) | — | | | | 152 | | 91 | |
| | | | | | | | | | | | | | | |
Adjusted | | $ | — | | $ | 29,870 | | $ | 13,386 | | $ | 9,653 | | $ | (14,327 | ) | $ | 38,582 | | $ | 18,064 | |
| | PEM | | CD and DVD | | Magazine | | In-Store | | Shared | | | |
(in thousands) | | Publishing | | Fulfillment | | Fulfillment | | Services | | Services | | Consolidated | |
| | | | | | | | | | | | | |
Adjusted operating income | | $ | — | | $ | 29,870 | | $ | 13,386 | | $ | 9,653 | | $ | (14,327 | ) | $ | 38,582 | |
Depreciation and other amortization | | — | | 5,120 | | 2,245 | | 788 | | 1,571 | | 9,724 | |
Other income | | — | | — | | 72 | | 9 | | 39 | | 120 | |
| | | | | | | | | | | | | |
Adjusted EBITDA | | $ | — | | $ | 34,990 | | $ | 15,703 | | $ | 10,450 | | $ | (12,717 | ) | $ | 48,426 | |
As stated on the Company’s first quarter earning conference call, effective with the current fiscal year, the Company has modified the allocation of certain shared service expenses to the operating segments to correspond with a change in management’s view of each segment’s operating structure. This change has no effect on consolidated results. Also, note that for comparative purposes, adjusted segment results presented for last year have been restated to reflect this change. Please see the Company’s Q1 earnings release or the Company’s Web site for the impact on each segment by quarter for the prior year.
Segment Results
Source Interlink Media Segment – Source Interlink Media, formerly Enthusiast Media, was acquired on August 1, 2007. The third quarter represents the first time this segment is included in the Company’s consolidated financial results and results provided prior to August 1, 2007 are for comparative purposes only.
The Company’s Media segment reported adjusted revenue of $133.9 million, gross margin of 73.4% and adjusted operating income of $26.5 million for the third quarter. For comparative purposes only, revenue for the third quarter last year was $135.2 million, gross margin was 65% and adjusted operating income was $24.0 million..
Magazine Fulfillment Segment – The Company’s Magazine Fulfillment segment reported GAAP revenue of $241.4 million compared with $222.2 million in the prior year third quarter, an increase of approximately 8.6%. GAAP gross profit margins decreased from 24.2% in the prior year period to 23.1% in the current period. Adjusted operating income increased 66.3% to $8.7 million in the fiscal 2008 third quarter.
For the nine month period ended October 31, 2007, the Magazine Fulfillment segment, which includes the distribution service areas in Southern California and Washington D.C./Baltimore acquired as of March 30, 2006 reported GAAP revenue of $703.8 million, compared with $640.5 million in the prior year period, an increase of 9.9%.
The majority of the increase in revenue is due to the current year’s first quarter containing a full three months of revenue related to the Anderson acquisitions, compared to only one month last year. Gross margin increased from 23.1% in the prior year period to 23.2% in the current period. Adjusted operating income was $20.3 million, compared with $13.4 million in the prior year period. Adjusted operating margins increased from 2.1% in the prior year period to 2.9% in the current period.
DVD and CD Fulfillment Segment – The CD and DVD Fulfillment segment reported GAAP revenue of $261.1 million, gross margin of 17.1% and adjusted operating income of $11.8 million for the third quarter. Net revenue for the fiscal 2008 third quarter increased 11.9% compared to $233.3 million in the fiscal 2007 third quarter. Sales of DVDs increased 12.7% to $119.0 million, and CD revenue increased 15.6% to $140.5 million. Adjusted operating margins decreased from 5.1% in the prior year third quarter to 4.5% in the current year period. Gross profit margins for the third quarter decreased to 17.1% from 18.9% due primarily to the continued product mix shift.
For the nine month period ended October 31, 2007, the DVD and CD Fulfillment segment reported GAAP revenue of $687.1 million, operating income of $19.6 million, and gross margin of 17.6%. For comparative purposes, revenue for the first nine months
of last year was $672.1 million, operating income was $23.9 million, and gross margin was 18.3%. Adjusted operating income for the nine month period decreased 10.7% to $26.7 million. Adjusted operating margins for the nine month period decreased from 4.4% in the comparative prior year period to 3.9% in the current year period.
In-Store Services Segment – The In-Store Services segment recorded GAAP revenue of $11.7 million in the fiscal 2008 third quarter, compared with $12.4 million in the year-ago quarter. Adjusted operating income for the fiscal 2008 third quarter was $3.4 million compared to $3.9 million in the prior year period. Adjusted operating margins decreased to 29.0% from 31.1%
For the nine month period ended October 31, 2007, In-Store Services segment reported GAAP revenue of $32.9 million, compared with $36.5 million in the prior year period. Adjusted operating income for the nine month period ended October 31, 2007, was $8.1 million, versus $9.7 million in the prior year period.
Results have been adjusted to reflect the sale during the first quarter fiscal 2008 of the Company’s wood-manufacturing business, formerly a division of the In-Store services segment and currently reported as a discontinued operation.
Shared Services Segment – The Shared Services segment consists of corporate and shared overhead functions associated with the individual operating segments. Shared Services operating expenses decreased 2.6% from $4.5 million to $4.4 million in the third quarter and decreased 8.5% to $13.1 million for the nine month period on an adjusted basis. Shared services expenditures as a percentage of adjusted revenue decreased from 1.0% in the prior year period to 0.4% in the current year period.
For the nine month period ended October 31, 2007, shared services as a percentage of revenue decreased from 1.1% to 0.8% as compared to the prior year nine month period.
Fiscal 2008 Third Quarter Conference Call
Source Interlink Companies, Inc. will host a teleconference to discuss its fiscal 2008 third quarter on Thursday, December 6, 2007 at 4:30 p.m. Eastern Time. To access the teleconference, please dial 877-715-5297 (U.S. callers) and 973-582-2851 (Int’l callers), passcode 9478363, ten minutes prior to the start time. The teleconference will also be available via live webcast on the Company’s Web site at www.sourceinterlink.com. A slide presentation that corresponds with management’s third quarter report has been posted on the Company’s homepage. The slide presentation may be downloaded by using the link provided on the Web site and is also available on the webcast. A replay of the conference call will be available through Thursday, December 13, 2007. It can be accessed by dialing 877-519-4471 (U.S. callers) or 973-341-3080 (Int’l callers), passcode 9478363. The webcast will also be archived on www.sourceinterlink.com for 30 days.
About Source Interlink Companies, Inc.
Source Interlink Companies, Inc. (NASDAQ: SORC), a media and marketing services company, is one of the largest publishers of magazines and online content for enthusiast audiences and is also a leading distributor of home entertainment products, including DVDs, music CDs, magazines, games, books, and related items. With annual ”run-rate” revenue in excess of $2.5 billion, Source Interlink serves approximately 110,000 retail store locations throughout North America. Supply chain relationships include consumer goods advertisers, subscribers, movie
studios, record labels, magazine and newspaper publishers, confectionary companies and manufacturers of general merchandise.
The Company’s fully integrated businesses and activities include:
• Publishing and providing enthusiast media content including 70 magazines, over 65 events, two television shows, a radio program, 90 related Web sites and 400 branded products for automobile, marine, equine, outdoor sports, home tech and daytime television
• Distribution and fulfillment of entertainment products to major retail chains throughout North America and directly to consumers of entertainment products ordered through the Internet
• Import and export of periodicals to more than 100 markets worldwide
• Managing product selection and placement of impulse items at checkout counters
• Processing and collection of rebate claims and management of point-of-purchase sales data
• Design, manufacture and installation of wire fixtures and displays in major retail chains
• Licensing of children’s and family-friendly home entertainment products
For more information, please visit the Company’s Web site at http://www.sourceinterlink.com.
This press release contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995, including statements relating to, among other things, future business plans, strategies and financial position, working capital and capital expenditure needs, growth opportunities, and any statements of belief and any statements of assumptions underlying any of the foregoing.
These forward-looking statements reflect Source Interlink’s current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause future events, achievements or results to differ materially from those expressed by the forward-looking statements. Factors that could cause actual results to differ include: (i) adverse trends in advertising spending; (ii) interest rate volatility and the consequences of significantly increased debt obligations (iii) price volatility in fuel, paper and other raw materials used in our businesses; (iv) market acceptance of and continuing retail demand for physical copies of magazines, books, DVDs, CDs and other home entertainment products; (v) our ability to realize additional operating efficiencies, cost savings and other benefits from recent acquisitions, (iii) an evolving market for entertainment media, (vi) the ability to obtain product in sufficient quantities; (vii) adverse changes in general economic or market conditions; (viii) the ability to attract and retain employees; (ix) intense competition in the marketplace and (x) other events and other important factors disclosed previously and from time to time in Source Interlink’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 25, 2007.
Source Interlink does not intend to, and disclaims any duty or obligation to, update or revise any forward-looking statements or industry information set forth in this press release to reflect new information, future events or otherwise.
Contacts:
Investors: | | Media: |
Dean Heine | Denise Roche | Nancy Zakhary |
Investor Relations | Brainerd Communicators | Brainerd Communicators |
Source Interlink Companies, Inc. | 212-986-6667 | 212-986-6667 |
239-949-4450 | roche@braincomm.com | nancy@braincomm.com |
dheine@sourceinterlink.com | | |
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| | Three months ended October 31, | | Nine months ended October 31, | |
| | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | | | | | | |
Revenues, net: | | | | | | | | | |
Distribution | | $ | 500,974 | | $ | 451,288 | | $ | 1,380,619 | | $ | 1,302,132 | |
Advertising | | 67,471 | | — | | 67,471 | | — | |
Circulation | | 32,132 | | — | | 32,132 | | — | |
Manufacturing | | 8,315 | | 9,139 | | 22,325 | | 24,818 | |
Claiming and information | | 3,429 | | 3,264 | | 10,542 | | 11,696 | |
Other | | 26,828 | | 4,199 | | 35,612 | | 10,446 | |
Total revenues, net | | 639,149 | | 467,890 | | 1,548,701 | | 1,349,092 | |
Cost of goods sold | | 436,034 | | 364,050 | | 1,152,602 | | 1,062,171 | |
| | | | | | | | | |
Gross profit | | 203,115 | | 103,840 | | 396,099 | | 286,921 | |
Distribution, circulation and fulfillment | | 55,801 | | 45,148 | | 138,832 | | 126,646 | |
Selling, general and administrative expenses | | 96,194 | | 39,039 | | 176,755 | | 112,712 | |
Depreciation and amortization | | 20,354 | | 6,171 | | 34,176 | | 17,986 | |
Integration and relocation expense | | 590 | | 2,582 | | 674 | | 3,297 | |
Merger and acquisition costs | | 595 | | — | | 595 | | — | |
Disposal of land, building and equipment, net | | 94 | | 152 | | 347 | | 681 | |
Gain on sale of assets | | — | | — | | (173 | ) | — | |
| | | | | | | | | |
Operating income | | 29,487 | | 10,748 | | 44,893 | | 25,599 | |
| | | | | | | | | |
Other expense: | | | | | | | | | |
Interest expense | | (36,079 | ) | (3,560 | ) | (42,539 | ) | (8,694 | ) |
Interest income | | 519 | | 41 | | 797 | | 153 | |
Write off of deferred financing fees | | (1,313 | ) | — | | (1,313 | ) | — | |
Other (expense) income: | | (49 | ) | (8 | ) | 150 | | 62 | |
| | | | | | | | | |
Total other expense | | (36,922 | ) | (3,527 | ) | (42,905 | ) | (8,474 | ) |
| | | | | | | | | |
(Loss) income from continuing operations, before income taxes | | (7,435 | ) | 7,221 | | 1,988 | | 17,125 | |
Income tax (benefit) expense | | (2,974 | ) | 2,888 | | 795 | | 6,691 | |
(Loss) income from continuing operations | | (4,461 | ) | 4,333 | | 1,193 | | 10,434 | |
Income (loss) from discontinued operations, net of taxes | | — | | 498 | | (1,608 | ) | 1,750 | |
Net (loss) income | | $ | (4,461 | ) | $ | 4,831 | | $ | (415 | ) | $ | 12,184 | |
| | | | | | | | | |
(Loss) earnings per share – Basic | | | | | | | | | |
Continuing operations | | $ | (0.09 | ) | $ | 0.08 | | $ | 0.02 | | $ | 0.21 | |
Discontinued operations | | — | | 0.01 | | (0.03 | ) | 0.03 | |
Total | | $ | (0.09 | ) | $ | 0.09 | | $ | (0.01 | ) | $ | 0.24 | |
| | | | | | | | | |
(Loss) earnings per share – Diluted | | | | | | | | | |
Continuing operations | | $ | (0.09 | ) | $ | 0.08 | | $ | 0.02 | | $ | 0.20 | |
Discontinued operations | | — | | 0.01 | | (0.03 | ) | 0.03 | |
Total | | $ | (0.09 | ) | $ | 0.09 | | $ | (0.01 | ) | $ | 0.23 | |
| | | | | | | | | |
WAVG shares outstanding – Basic | | 52,321 | | 51,914 | | 52,261 | | 51,812 | |
WAVG shares outstanding – Diluted | | 52,321 | | 53,120 | | 52,261 | | 53,190 | |
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
| | October 31,
2007 | | January 31,
2007 | |
| | (unaudited) | | | |
| | | | | |
Assets | | | | | |
Current assets | | | | | |
Cash | | $ | 33,048 | | $ | — | |
Trade receivables, net | | 218,103 | | 102,658 | |
Purchased claims receivable | | 11,151 | | 16,983 | |
Inventories | | 357,057 | | 248,941 | |
Income tax receivable | | 2,433 | | 9,932 | |
Deferred tax asset | | 29,855 | | 29,531 | |
Other | | 16,592 | | 5,440 | |
| | | | | |
Total current assets | | 668,239 | | 413,485 | |
| | | | | |
Property, plants and equipment | | 229,500 | | 98,812 | |
Less accumulated depreciation and amortization | | (126,056 | ) | (30,897 | |
| | | | | |
Net property, plants and equipment | | 103,444 | | 67,915 | |
| | | | | |
Other assets | | | | | |
Goodwill, net | | 1,072,826 | | 395,902 | |
Intangibles, net | | 705,018 | | 118,971 | |
Other | | 56,465 | | 13,758 | |
| | | | | |
Total other assets | | 1,834,309 | | 528,631 | |
| | | | | |
Total assets | | $ | 2,605,992 | | $ | 1,010,031 | |
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
(in thousands, except per share amounts)
| | October 31,
2007 | | January 31,
2007 | |
| | (unaudited) | | | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities | | | | | |
Checks issued against future advances on revolving credit facility | | $ | — | | $ | 1,465 | |
Accounts payable (net of allowance for returns of $165,204 and $164,069 at October 31, 2007 and January 31, 2007, respectively) | | 490,273 | | 308,184 | |
Accrued expenses | | 92,362 | | 62,838 | |
Deferred revenue | | 78,969 | | 2,630 | |
Current portion of obligations under capital leases | | 1,438 | | 995 | |
Current maturities of debt | | 16,148 | | 7,850 | |
| | | | | |
Total current liabilities | | 679,190 | | 383,962 | |
| | | | | |
Deferred tax liability | | 32,389 | | 32,500 | |
Obligations under capital leases | | 2,177 | | 1,069 | |
Debt, less current maturities | | 1,362,361 | | 146,534 | |
Other | | 87,485 | | 6,519 | |
| | | | | |
Total liabilities | | 2,163,602 | | 570,584 | |
| | | | | |
Commitments and contingencies | | | | | |
| | | | | |
Stockholders’ equity | | | | | |
Contributed capital: | | | | | |
Preferred stock, $0.01 par (2,000 shares authorized; none issued) | | — | | — | |
Common stock, $0.01 par (100,000 shares authorized; 52,321 and 52,064 shares issued) | | 523 | | 521 | |
Additional paid-in-capital | | 476,078 | | 474,796 | |
| | | | | |
Total contributed capital | | 476,601 | | 475,317 | |
Accumulated deficit | | (38,181 | ) | (37,766 | ) |
Accumulated other comprehensive income: Foreign currency translation | | 3,970 | | 1,896 | |
| | | | | |
Total stockholders’ equity | | 442,390 | | 439,447 | |
| | | | | |
Total liabilities and stockholders’ equity | | $ | 2,605,992 | | $ | 1,010,031 | |
