EXHIBIT 99.1
Contact: Todd Fromer or Michael Cimini
KCSA Worldwide
212-682-6300
SOURCE INTERLINK REPORTS THIRD QUARTER RESULTS
BONITA SPRINGS, FL, DECEMBER 9, 2004 - SOURCE INTERLINK COMPANIES (NASDAQ:
SORC), the largest direct-to-retail magazine distribution/fulfillment company in
North America and a leading provider of magazine information and management
services for retailers and publishers, today announced results for the third
quarter ended October 31, 2004.
Revenue for the third quarter increased 4.1% to $96.0 million from $92.0 million
in the same period last year. Net income was $4.4 million, or $0.18 per diluted
share, versus $4.1 million, or $0.20 per diluted share in the third quarter last
fiscal year. The weighted average shares outstanding for the three months ended
October 31, 2004, were approximately 24.9 million on a fully diluted basis
compared to 20.3 million for the same period last year.
Leslie Flegel, Source Interlink Chairman and Chief Executive Officer, said, "Our
third quarter performance produced a record quarter in Interlink, our magazine
and distribution division, and strong profits in the Wood Manufacturing
division. The In-Store Services division, while reporting record results in
rebate and information management, was negatively affected overall by the
previously forecast poor performance in wire manufacturing.
"Interlink, which represents approximately 79% of the Company's revenues and is
our growth engine, continues to improve its performance. Revenues increased
10.5% to $75.2 million, margins improved from 23.6% to 25.4% of sales and
operating profits reached 7.8% of revenues. The division as a whole continues to
make operational improvements, add new business and negotiate better pricing.
The performance of the division this quarter was enhanced by several factors. By
using available cash to reduce payables we were able to negotiate permanent
improved pricing which was largely responsible for the 7.6% improvement in
margins for the division. This increase in margins translated almost directly
into increased profits of approximately $1.4 million in the third quarter alone.
New business was added to our existing infrastructure and our international
business continues to grow.
"We have now demonstrated the ability to move our distribution model from the
specialty market into mainstream retail accounts. Since we announced the rollout
to mainstream earlier this year, we currently service about 2,000 stores and are
at an annual run rate of about $40 million. The acquisition of Empire News had
no material effect on the third quarter, but is expected to be profitable in the
fourth quarter, the first full quarter under our ownership. The integration of
this business into our organization has been virtually
seamless and has served as a good springboard for our expansion into the
mainstream market. We remain open to additional acquisitions of this type should
they present themselves."
The company's In-Store Services division reported revenue of $14.0 million
versus $17.4 million in the third quarter last year. Flegel noted, "Results in
our In-Store Services division in the third quarter were enhanced by record
performances in our information management and rebates services, but those gains
were more than offset by disappointing wire manufacturing sales. While the
business remains profitable, for the year-to-date, wire manufacturing sales are
$10.0 million below expectations. The front-end wire manufacturing business is
generally based on a three year build-and-replace cycle, but not all years are
equal in terms of replacement business. We believe, however, that sales in the
fourth quarter will be higher than the corresponding quarter last year, and
should return to historical norms next year. Our historical customer, Kmart, has
been dormant in building checkout fixtures for the past few years, but should
renew activity in 2005. Winn Dixie and other major chains are also scheduled for
re-racking in the coming year. The acquisition of PROMAG Retail Services in the
third quarter significantly strengthens our growth prospects in wire
manufacturing. PROMAG's client base of 200 retailers, totaling more than 10,000
stores, provides the ability to cross-sell our broad range of services which
includes distribution, fulfillment and display manufacturing to an increasing
number of retail stores. Our appointment of George Nobbe as Senior Vice
President, In-Store Services in the third quarter will generate enhanced
additional selling opportunities at retail.
We believe George's broad industry experience, including 20 years at Kroger
Company, will lead to improved results."
Wood Manufacturing revenue increased 1.5% to $6.8 million from $6.7 million in
the same period last year. Flegel noted, "In the third quarter, our wood
manufacturing business achieved $1.0 million in operating profits due to new
business agreements and improved operations. This division has now produced
combined results of $2.2 million in operating profits for the last two reporting
quarters. Fourth quarter is generally a weak quarter for this division, but we
anticipate this fourth quarter to be profitable and we are looking forward to a
strong performance in fiscal year 2006.
"Cash used by operations for the third quarter amounted to $18 million. This
deficit was a result of the company leveraging cash for improved margins from
magazine customers and suppliers as well as funding our initial penetration into
the mainstream magazine market. The result of this strategy is that during the
third quarter accounts receivable increased by $9 million and accounts payable
decreased by $12 million. Gross profit margins for the third quarter in the
Magazine Fulfillment segment increased by 7.6% to 25.4% from prior year third
quarter of 23.6%.
"The Magazine Fulfillment division has not yet maximized its potential either in
sales growth or bottom line performance on existing business. We still feel
there are greater efficiencies to be gained from operations. Our expansion into
the mainstream market with magazine fulfillment appears to have been successful.
In short order, the number of stores for service has grown from approximately
581 to approximately 2,000 stores. The
division's results in this quarter also indicate that we can make the transition
profitably. Our program of placing popular DVDs at the checkout is well under
way and the initial distribution is expected to take place in January. We expect
to achieve significant penetration into grocery stores with DVD sales in fiscal
2006.
"Due to a number of factors including lower sales and profits in wire
manufacturing, an increase in shares outstanding, and higher than anticipated
costs relative to Section 404 of the Sarbanes-Oxley Act, which we expect to run
approximately $900,000 for the full year (or about $.02 per share), we have
revised our earnings per share guidance for fiscal 2005 to approximately $0.65
to $0.70 per diluted share, exclusive of non-recurring charges. Our revenue
forecast for fiscal 2005 remains approximately $370 million. We are confident
management has taken the necessary measures to secure long-term growth and
provide shareholders with strong returns," Flegel concluded.
Source Interlink will broadcast live via the Internet its third quarter
conference call for fiscal year 2005 today at 4:30 p.m. Eastern Time to discuss
financial results, business developments and future outlook. To listen to the
call, please go to www.fulldisclosure.com. A replay of the web cast will be
available for 30 days.
ABOUT SOURCE INTERLINK COMPANIES
Source Interlink Companies is a leading provider of fulfillment and marketing
services to retail companies who collectively operate approximately 80,000
stores, most major magazine publishers and consumer product manufacturers of
confections and general merchandise. Its business consists of three interrelated
operating groups: Magazine Fulfillment, In-Store Services and Wood
Manufacturing.
- - The Magazine Fulfillment group provides domestic and foreign titled magazines
to specialty retailers, such as bookstores and music stores, and to mainstream
retailers, such as supermarkets, discount stores, drug stores, convenience
stores and newsstands. This group also exports domestic titled magazines from
more than 100 publishers to foreign markets worldwide. We provide fulfillment
services to more than 23,000 retail stores, 7,000 of which also benefit from our
selection and logistical procurement services.
- - In-Store Services assists retailers in the mainstream retail market with the
design, manufacture and implementation of their front-end merchandising
programs. This group provides other value-added services to retailers,
publishers and other vendors, including assistance with publisher rebate and
other fee collection as well as access to real-time sales and marketing
information on more than 10,000 magazine titles, enabling customers to make more
informed decisions regarding product placement and distribution.
- - Custom Wood Manufacturing designs and manufactures wood displays and store
fixtures for leading specialty retailers.
For more information on Source Interlink Companies, please visit the company's
website, http://www.sourceinterlink.com/.
Some of the information in this release contains forward-looking statements that
involve risks and uncertainties. The words "believe," "expect," "anticipate,'
"estimate," "project," and similar expressions often characterize
forward-looking statements. These statements may include, but are not limited
to, projections of collections, revenues, income or loss, estimates of capital
expenditures, plans for future operations, products or services, and financing
needs or plans, as well as assumptions relating to these matters. These
statements are only predictions and you should not unduly rely on them. Our
actual results will differ, perhaps materially, from those anticipated in these
forward-looking statements as a result of a number of factors, including the
risks and uncertainties faced by us including: (i) market acceptance of our DVD
program; (ii) continuing demand for magazines at the retailers we service; (iii)
the impact of competitive services; (iv) the pricing and reimbursement policies
of magazine publishers; (v) capital improvement decisions by major retailers;
(vi) changing market conditions and other risks; and (vii) our ability to access
retailers' point-of-sales information needed to efficiently allocate
distribution.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The factors listed above
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you make an investment decision relating to
our common stock, you should be aware that the occurrence of the events
described in these risk factors could have a material adverse effect on our
business, operating results and financial condition.
Any forward-looking statement speaks only as of the date on which that
statement is made. Unless required by U.S. federal securities laws, we will not
update any forward-looking statement to reflect events or circumstances that
occur after the date on which the statement is made.
Tables follow:
SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Quarter ended October 31, 2004 2003
- ------------------------- ---- ----
Revenues $ 96,045 $ 92,229
Costs of revenues 69,621 67,291
-------- --------
Gross profit 26,424 24,938
Selling, general and administrative expense 14,135 13,028
Fulfillment freight 5,611 4,516
-------- --------
Operating income 6,678 7,394
Other income (expense)
Debt financing charge -- (865)
Interest expense (442) (844)
Interest income 34 69
Other 140 37
-------- --------
Total other income (expense) (268) (1,603)
-------- --------
Income before income taxes 6,410 5,791
Income tax expense 2,032 1,695
-------- --------
Net income $ 4,378 $ 4,096
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Earnings per share - diluted $ 0.18 $ 0.20
Weighted average of shares outstanding - diluted 24,924 20,285
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SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Nine Months Ended
October 31,
-----------
2004 2003
---- ----
Revenues $ 273,175 $ 258,687
Costs of Revenues 199,822 189,986
--------- ---------
Gross Profit 73,353 68,701
Selling, General and Administrative Expense 40,874 39,763
Fulfillment Freight 15,244 12,995
Relocation Expenses 1,552 1,730
--------- ---------
Operating Income 15,683 14,213
--------- ---------
Other Income (Expense)
Debt financing charge (1,494) (865)
Interest expense (1,319) (2,915)
Interest income 140 230
Other 207 168
--------- ---------
Total Other Income (Expense) (2,466) (3,382)
--------- ---------
Income Before Income Taxes 13,217 10,831
Income Tax Expense 4,204 3,115
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Net Income $ 9,013 $ 7,716
========= =========
Earnings per Share - Diluted $ 0.37 $ 0.40
Weighted Average of Shares Outstanding - Diluted 24,606 19,487
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SOURCE INTERLINK COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
October 31, January 31,
2004 2004
Cash $ 1,584 $ 4,963
Trade receivables 65,737 41,834
Purchased claims receivable 3,324 5,958
Inventories 14,114 17,241
Income tax receivable 1,049 2,067
Deferred tax asset 3,405 2,915
Advances under magazine export agreement 1,525 6,830
Other current assets 4,345 2,536
-------- --------
95,083 84,344
Property, Plants and Equipment, net 21,732 18,563
Goodwill and intangibles, net 76,266 53,238
Deferred tax asset 652 908
Other 6,652 7,048
Total Assets $200,385 $164,101
-------- --------
Checks issued against future advances on revolving credit facilities 2,951 14,129
Accounts payable and accrued expenses 35,994 44,741
Deferred revenue 1,738 1,680
Other 82 317
Current maturities of debt 2,491 4,059
-------- --------
43,256 64,926
Debt, less current maturities 31,570 31,541
Other 1,901 560
-------- --------
Total Liabilities 76,727 97,027
Equity 123,658 67,074
-------- --------
Total Liabilities and Equity $200,385 $164,101
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