EXHIBIT 99.1
SOURCE INTERLINK ANNOUNCES FISCAL 2006 FIRST QUARTER RESULTS
ADDITION OF ALLIANCE ENTERTAINMENT DRIVES IMPROVED PERFORMANCE
COMPANY AFFIRMS FISCAL 2006 GUIDANCE
BONITA SPRINGS, FL, JUNE 6, 2005 - SOURCE INTERLINK COMPANIES, INC. (NASDAQ:
SORC), a premier provider of family entertainment content products and marketing
services, today announced financial results for the fiscal 2006 first quarter
ended April 30, 2005.
The company uses both GAAP and non-GAAP or pro-forma financial measures to
evaluate and report the results of its business. A reconciliation of the
pro-forma financial measures to the GAAP financial measure appears later in the
release.
Pro-forma net income for the fiscal 2006 first quarter totaled $6.3 million, or
$0.12 per diluted share, on total revenue of $307.6 million. Pro-forma Earnings
Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the quarter
totaled $14.0 million.
Pro-forma results for the fiscal 2006 first quarter exclude merger-related
expenses and non-cash, non-tax deductible amortization of intangible assets
resulting from the Alliance transaction, which was completed on February 28,
2005. These results also assume the transaction was completed at the beginning
of Source Interlink's fiscal year on February 1, 2005, and an effective tax rate
of approximately 40%. Pro forma revenue for the quarter ended April 30, 2005
includes the revenue of the company plus the revenue of Alliance for the month
of February 2005 of $73.2 million.
For the first quarter of last year, Source Interlink reported GAAP revenue from
continuing operations of $82.2 million and pro-forma net income from continuing
operations before charges of $2.7 million, or $0.11 per diluted share, computed
on a tax rate of 32%. Pro-forma EBITDA from continuing operations totaled $5.5
million. The results for last year do not include Alliance, which reported
pro-forma revenue of $226.0 million and operating income of $6.7 million in the
comparable three months of fiscal 2005. These results from continuing operations
also exclude the Deyco business, which was sold in the fourth quarter of last
year, as well as relocation charges and the write-off of deferred financing
costs.
GAAP earnings per share in the fiscal 2005 first quarter was calculated on a
base of 23.9 million diluted shares outstanding, compared with 44.4 million
diluted shares outstanding in fiscal 2006 first quarter.
"We had an excellent start to fiscal 2006, coming in at the high end of our
previously communicated outlook," said Leslie Flegel, Source Interlink chairman
and chief executive officer. "Our Alliance merger is already accretive to the
company's earnings on a pro forma basis in just one quarter of operations, and
we are already seeing the benefit of both revenue and cost synergies from this
transaction. Historically, our performance strength comes in the second half of
the fiscal year. We are looking forward to an outstanding fiscal 2006 and are on
track to meet our expectations for the fiscal year of $85 to $90 million in
pro-forma EBITDA."
RECONCILIATION OF FINANCIAL MEASURES
We provide non-GAAP or pro-forma financial information in order to provide
meaningful supplemental information regarding our operational performance and to
enhance our investors' overall understanding of our current financial
performance and our prospects for the future. We believe that our investors
benefit from seeing our results "through the eyes" of management in addition to
the GAAP presentation. Management measures segment and enterprise performance
using measures such as are disclosed in this release. This information
facilitates management's internal comparisons to the company's historical
operating results.
Non-GAAP or pro-forma 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, generally accepted accounting principles in the United States. It excludes
items, such as merger and acquisition charges and relocation expenses, 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 our GAAP results are
correctly stated but does not use them to measure the ongoing operating
performance of the company. The non-GAAP or pro-forma information we provide may
be different from the non-GAAP or pro-forma information provided by other
companies.
See table below for reconciliation of GAAP financial results to pro-forma
amounts:
<Table>
<Caption>
(in thousands, except earnings per share data) QUARTER ENDED
--------------------------------
4/30/2005 4/30/2004
-----------------------------------------------------------------------------------------
Income from continuing operations, net of taxes $ 1,671 $ 632
Relocation charges* - 1,055
Write off of deferred financing costs* - 1,016
Merger and acquisition charges* 1,856 -
Non-cash, non-tax deductible amortization 1,257 -
Alliance's net income for February 2005* 1,488 -
---------------- --------------
Pro-forma net income $ 6,272 $ 2,703
================ ==============
Diluted shares 52,933** 23,857
EPS $ 0.12 $ 0.11
* Amounts shown net of tax using 1) 40% effective
tax rate for the quarter ended April 30, 2005 and
2) 32% effective tax rate for the quarter ended
April 30, 2004
* * Pro-forma diluted shares
-----------------------------------------------------------------------------------------
</Table>
SEGMENT RESULTS
To reflect the effect of the Alliance merger, the company is reporting that
business's results as a separate segment. Additionally, beginning with this
reporting period the company is consolidating results from its Custom Wood
Manufacturing division with those of its In-Store Services segment to better
reflect the alignment of Source Interlink's operating activities.
CD AND DVD FULFILLMENT SEGMENT - The CD and DVD fulfillment segment, comprised
of the Alliance business, reported GAAP revenue of $148.5 million, operating
income of $7.2 million, and the gross margin was 18.4%. Pro-forma revenue for
fiscal 2006 first quarter was $221.7 million, compared with $226.0 million in
the prior year period. The revenue decrease is due to Alliance's efforts to
improve its business mix toward more profitable accounts. Pro-forma gross margin
increased from 16.9% in the prior year period to 17.7% in the current period.
Pro-forma operating margins increased from 3.0% in the prior year period to 5.1%
in the current period.
MAGAZINE FULFILLMENT SEGMENT - The Magazine fulfillment segment reported GAAP
revenue of $71.7 million compared with $65.8 million in the prior-year period,
an increase of 9%. In addition, pro-forma operating income of $3.8 million in
the fiscal 2006 first quarter compares with $3.9 million in the prior period.
Operating income in the prior period includes an add-back of $1.6 million
related to relocation charges. The fiscal 2006 quarter had higher revenue from
penetration of traditional retail accounts, which also contribute to higher
gross margins, offset during the quarter by start-up costs of this new business.
IN-STORE SERVICES SEGMENT - In-Store Services segment reported GAAP revenue of
$14.3 million in the fiscal 2006 first quarter, compared with $16.4 million in
the year-ago quarter. These figures include the former Custom Wood Manufacturing
division. pro forma operating income for the fiscal 2006 first quarter for the
segment was $2.0 million, versus $4.4 million a year ago. This decrease was
created primarily by lower but expected results from our Wire division as
compared to prior year first quarter.
SHARED SERVICES SEGMENT - The Shared Services segment consists of overhead
functions not allocated to other groups. Shared Services recorded a pro-forma
operating loss of $5.6 million, compared with $3.7 million in the prior-year
period. The comparison reflects higher overhead expenses to support the growth
of the larger company following the Alliance merger. Shared services as a
percentage of sales decreased from 4.5% to 2.4%, a trend that is expected to
continue.
RECENT BUSINESS HIGHLIGHTS
o On February 28, the company completed a merger with Alliance
Entertainment Corp. in a non-cash stock for stock transaction, forming
one of the nation's largest providers of family entertainment content
products and marketing services at retail.
o On April 18, Wells Fargo Foothill increased the maximum credit limit to
$250 million.
o On April 4, Source Interlink's Alliance Entertainment unit signed an
exclusive deal to provide music CDs for retail sale at approximately 400
Kmart locations nationwide. The agreement takes effect in June 2005.
o On April 11, Source Interlink reported that its Alliance Entertainment
unit reached agreements to distribute and market DVDs to approximately
1000 grocery stores representing 12 chains. The DVDs are being
merchandised through a combination of Source Interlink manufactured
front-end checkout displays totaling approximately 70,000 pocket
positions as well as inline displays and free-standing displays.
o On May 11, Source Interlink closed on its acquisition of Chas. Levy
Circulating Co., one of the nation's largest distributors of magazines.
The company purchased all of the equity interests in the Chicago-based
distributor. Founded in 1893, Chas. Levy Circulating Co. distributes
magazines from all leading publishers to more than 9,000 stores operated
by many of the largest retail chains throughout the United States.
Source Interlink signed a separate full line 10-year marketing and
service agreement with Levy Home Entertainment, LLC, one of the nation's
largest book distribution companies. Levy Home Entertainment is not
included in the acquisition.
o On May 18, the company reported that its Source-Huck division had
extended its supply agreement by four years with Borders, Inc. to
provide the majority of all wood display fixtures and related millwork
for new domestic Borders superstores. Borders has more than 460 book,
music and movie superstores in the United States.
FISCAL 2006 FIRST QUARTER CONFERENCE CALL
Source Interlink Companies, Inc. will hold a teleconference to discuss its
fiscal 2006 first quarter results on Monday, June 6, 2005 at 4:30 p.m. ET. To
access the teleconference, please dial 800-322-0079 (U.S. callers) or
973-935-2405 (Int'l callers) ten minutes prior to the start time. If you cannot
listen to the teleconference at its scheduled time, there will be a replay
available through June 13, 2005 that can be accessed by dialing 877-519-4471
(U.S. callers) or 973-341-3080 (Int'l callers), passcode: 6130057. The
teleconference will also be webcast live and archived for replay at
www.earnings.com.
ABOUT SOURCE INTERLINK
Source Interlink Companies is a premier marketing, merchandising and fulfillment
company of entertainment products including DVDs, music CDs, magazines, books
and related items. The company's fully integrated businesses include:
o Distribution and fulfillment of entertainment products to major retail
chains throughout North America and direct-to-consumers via the Internet
o Import and export of periodicals sold in more than 60 countries
worldwide
o Coordination of product selection and placement for impulse items sold
at checkout counters o Processing and collection of rebate claims as
well as management of sales data obtained at the point-of-purchase
o Design, manufacture and installation of wire fixtures and custom wood
displays in major retail chains
With approximately $1.7 billion in annual revenue, Source Interlink serves
approximately 110,000 retail store locations throughout North America. Supply
chain relationships include movie studios, record labels, magazine and newspaper
publishers, confectionary companies and manufacturers of general merchandise.
For more information, please visit the company's website at
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) market acceptance of and
continuing retail demand for magazines, books, DVDs, CDs and other home
entertainment products; (ii) our ability to realize operating efficiencies, cost
savings and other benefits from recent and pending acquisitions, (iii) an
evolving market entertainment media, (iv) the ability to obtain product in
sufficient quantities; (v) adverse changes in general economic or market
conditions; (v) the ability to attract and retain employees; (vi) intense
competition in the marketplace and (vii) 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 18, 2005.
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 Todd St.Onge Kim Holt
Investor Relations Brainerd Communicators Brainerd Communicators
Source Interlink Companies, Inc. 212-986-6667 212-986-6667
212-683-0376 stonge@braincomm.com holt@braincomm.com
dheine@sourceinterlink.com
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
(unaudited)
April 30, 2005 January 31, 2005
- -------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,394 $ 1,387
Trade receivables, net 87,997 48,078
Purchased claims receivable 14,671 2,006
Inventories 134,906 16,868
Income tax receivable 3,697 2,275
Deferred tax asset 11,202 2,302
Prepaid expenses and other 8,129 3,349
- -------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 261,996 76,265
- -------------------------------------------------------------------------------------------------------
Property and equipment 82,690 36,706
Less accumulated depreciation and amortization (16,165) (14,375)
- -------------------------------------------------------------------------------------------------------
Net Property and equipment 66,525 22,331
- -------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net 124,230 71,600
Intangibles, net 228,369 16,126
Deferred tax asset 5,205 2,903
Other 8,535 8,528
- -------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 366,339 99,157
- -------------------------------------------------------------------------------------------------------
$ 694,860 $ 197,753
======================================================================================================
</Table>
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<Table>
<Caption>
(unaudited)
April 30, 2005 January 31, 2005
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued against future advances on revolving credit
facility $ 5,486 $ 1,951
Accounts payable and accrued expenses, net of allowances for
returns of $111,677 and $70,292, respectively 164,073 25,274
Deferred revenue 2,631 2,205
Other 1,752 19
Current maturities of long-term debt 12,873 5,630
Current portion of obligations under capital leases 321 -
- -------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 187,136 35,079
Long-term debt 57,604 34,139
Obligations under capital leases 144 -
Other 4,853 852
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 249,737 70,070
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 445,123 127,683
- -------------------------------------------------------------------------------------------------------
$ 694,860 $ 197,753
======================================================================================================
</Table>
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
(unaudited)
(in thousands, except per share data)
Three months ended April 30, 2005 2004
- -------------------------------------------------------------------------------------------------------
Revenues $ 234,421 $ 82,181
Cost of revenues 183,876 60,102
- -------------------------------------------------------------------------------------------------------
Gross profit 50,545 22,079
Selling, general and administrative expenses 29,674 12,626
Fulfillment freight 10,336 4,874
Depreciation and amortization 3,103 -
Merger and acquisition charges 3,094 -
Relocation expenses - 1,552
- -------------------------------------------------------------------------------------------------------
Operating income 4,338 3,027
- -------------------------------------------------------------------------------------------------------
Other income (expense)
Interest expense (935) (536)
Interest income 46 67
Write off of deferred financing costs and original issue
discount - (1,494)
Other 74 (108)
- -------------------------------------------------------------------------------------------------------
Total other income (expense) (815) (2,071)
- -------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and 3,523 956
discontinued operation
Income tax expense 1,852 324
- -------------------------------------------------------------------------------------------------------
Income from continuing operations before discontinued operation 1,671 632
Loss from discontinued operation, net of tax - (135)
- -------------------------------------------------------------------------------------------------------
Net income $ 1,671 $ 497
=======================================================================================================
Earnings (loss) per share - basic
Continuing operations $ 0.04 $ 0.03
Discontinued operation - (0.01)
------------ -------------
Total 0.04 0.02
============ =============
Earnings per share - diluted
Continuing operations 0.04 0.03
Discontinued operation - (0.01)
------------ -------------
Total $ 0.04 $ 0.02
============ =============
Weighted Average of Shares Outstanding - Basic 42,314 21,506
Weighted Average of Shares Outstanding - Diluted 44,395 23,857
=======================================================================================================
</Table>