EXHIBIT 99.1
SOURCE INTERLINK ANNOUNCES FISCAL 2006 SECOND QUARTER RESULTS
- COMPLETES LEVY ACQUISITION; REAFFIRMS FISCAL 2006 GUIDANCE -
BONITA SPRINGS, FL, SEPTEMBER 8, 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 second
quarter ended July 31, 2005.
The company uses both generally accepted accounting principles (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 results to the GAAP
financial results appears later in the release.
Pro-forma income from continuing operations for the fiscal 2006 second quarter
totaled $6.1 million, or $0.12 per diluted share, on total revenue from
continuing operations of $393.8 million. Pro-forma Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) from continuing operations for the
quarter totaled $14.0 million.
Pro-forma income from continuing operations for the six month period ending July
31, 2005 totaled $12.4 million, or $0.23 per diluted share, on total revenue
from continuing operations of $701.4 million. Pro-forma EBITDA from continuing
operations for the six month period totaled $28.0 million.
GAAP income from continuing operations for the fiscal 2006 second quarter
totaled $4.1 million, or $0.08 per diluted share, on total revenue from
continuing operations of $393.8 million. GAAP income from continuing operations
for the six month period ended July 31, 2005 totaled $5.7 million, or $0.12 per
diluted share, on total revenue from continuing operations of $628.2 million.
Pro-forma results from continuing operations for fiscal 2006 will exclude
merger-related expenses and amortization of intangible assets resulting from the
Alliance and Levy transactions. These results also assume the Alliance
transaction was completed at the beginning of Source Interlink's fiscal year on
February 1, 2005.
For the second quarter of last year, Source Interlink reported GAAP revenue from
continuing operations of $86.9 million and income from continuing operations of
$4.1 million, or $0.16 per diluted share. EBITDA from continuing operations
totaled $7.3 million. The results for last year do not include Alliance and
Levy.
GAAP earnings per share in the fiscal 2005 second quarter was calculated on a
base of 25.0 million diluted shares outstanding, compared with 53.0 million
diluted shares outstanding in fiscal 2006 second quarter.
"We had a strong quarter highlighted by positive results from our Alliance
division" commented Leslie Flegel, Source Interlink chairman and chief executive
officer. "The achievement of bringing together Source Interlink, Alliance, and
Chas. Levy which, in effect, more than quadrupled the size of the original
company, is significant and has completely changed the landscape for us as we
move forward. We are now a totally unique Home Entertainment Content fulfillment
solution for all segments of retail. While our financial performance in the
second quarter and for the first six months of the fiscal year is strong and on
target, it does not fully reflect the true earnings potential for the long-term.
Our business segments have been together for less than one quarter and despite
inclusion of internal costs associated with two significant acquisitions, each
larger than our original company, we achieved results that have thus far
continued to meet our internal expectations. We are on track to accomplish our
pro-forma EBITDA guidance of $85 to $90 million this year. While that would be a
very strong financial performance under any circumstances in this year of
enormous change, we believe that the story of this unique company continues to
be the future."
RECONCILIATION OF FINANCIAL RESULT
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, GAAP 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:
(in thousands, except earnings per share data) QUARTER ENDED
------------------------------------
7/31/2005 7/31/2004
---------------- --------------
Income from continuing operations, net of taxes $ 4,076 $ 4,064
Non-cash, non-tax deductible amortization 1,582 -
Prior period foreign tax rate adjustments 465 -
---------------- --------------
Pro-forma income from continuing operations, net of taxes $ 6,123 $ 4,064
================ ==============
Diluted shares 52,960 25,026
EPS $ 0.12 $ 0.16
See table below for reconciliation of GAAP financial results to pro-forma
amounts:
(in thousands, except earnings per share data) SIX MONTHS ENDED
------------------------------------
7/31/2005 7/31/2004
---------------- --------------
Income from continuing operations, net of taxes $ 5,747 $ 4,696
Relocation charges - 1,055
Write off of deferred financing costs - 1,016
Merger and acquisition charges 1,934 -
Non-cash, non-tax deductible amortization 2,839 -
Alliance's net income for February 2005 1,411 -
Prior period foreign tax rate adjustments 465
---------------- --------------
Pro-forma net income $ 12,396 $ 6,767
================ ==============
Diluted shares 52,947* 25,026
EPS $ 0.23 $ 0.27
* Proforma diluted shares
SEGMENT RESULTS
CD AND DVD FULFILLMENT SEGMENT - The CD and DVD fulfillment segment, comprised
of the Alliance business, reported GAAP revenue of $208.6 million, pro forma
operating income of $6.8 million, and the gross margin was 17.5%. For
comparative purposes, revenue for the second quarter last year was $207.7
million, operating income of $5.5 million, and the gross margin was 17.7%.
Pro-forma operating margins increased from 2.7% in the prior year period to 4.0%
in the current period.
For the six month period ended July 31, 2005, the CD and DVD fulfillment
segment, comprised of the Alliance business, reported GAAP revenue of $357.1
million, operating income of $14.1 million, and the gross margin was 17.9%. For
comparative purposes, revenue of the first half last year was $433.7 million,
operating income of $13.2 million, and the gross margin was 17.3%. Pro-forma
revenue for the six month period ended July 31, 2005 was $430.3 million,
compared with $433.7 million in the prior period. Pro-forma operating margins
increased from 3.0% in the prior period to 4.5% in the current period.
MAGAZINE FULFILLMENT SEGMENT - The results for Levy are included in the Magazine
Fulfillment segment and are effective May 10, 2005. The Magazine fulfillment
segment reported GAAP revenue of $166.8 million for fiscal 2006 second quarter
compared with $65.7 million in the prior-year period, an increase of 154.0%.
Gross margin decreased from 25.0% in the prior year period to 21.9% in the
current period. Operating income increased to $4.7 million in the fiscal 2006
second quarter from $4.6 million in the prior year period. Operating margins
decreased from 7.0% in the prior year period to 2.8% in the current period
primarily due to the increase in our domestic mainstream distribution, which
historically has had lower operating margins.
For the six month period ended July 31, 2005, the Magazine fulfillment segment
reported GAAP revenue of $238.4 million compared with $131.4 million in the
prior period, an increase of 81.4%. Gross margin decreased from 24.2% in the
prior year period to 23.3% in the current period. Operating income remained at
$8.5 million for the six month period ended July 31, 2005 as compared to the
prior year period. Pro-forma operating margins decreased from 6.5% in the prior
period to 3.6% in the current period primarily due to the increase in our
domestic mainstream distribution, which historically has had lower operating
margins.
IN-STORE SERVICES SEGMENT - In-Store Services segment reported GAAP revenue of
$18.4 million in the fiscal 2006 second quarter, compared with $21.2 million in
the year-ago quarter. Operating income for the fiscal 2006 second quarter for
the segment was $3.6 million, versus $5.0 million a year ago. This decrease was
created primarily by lower but expected results from our wire division as
compared to prior year second quarter.
For the six month period ended July 31, 2005, In-Store Services segment reported
GAAP revenue of $32.7 million in the fiscal 2006 second quarter, compared with
$37.6 million in the year-ago quarter. Pro-forma operating income for the six
month period ended July 31, 2005, was $5.6 million, versus $9.4 million a year
ago.
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 $5.7 million, compared with $3.8 million in the prior-year
period. The comparison reflects higher overhead expenses to support the growth
of the larger company following the Alliance merger and Levy acquisition. Shared
services as a percentage of revenue decreased from 4.3% to 1.5% for the second
quarter, a trend that is expected to continue. For the six month period ended
July 31, 2005, shared services as a percentage of revenue decreased from 4.4% to
1.6%.
RECENT BUSINESS HIGHLIGHTS
- On May 11, Source Interlink closed on its acquisition of Chas. Levy
Circulating Co., one of the nation's largest distributors of
magazines. 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.
- 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.
- On June 6, the company announced that its Alliance Entertainment
division entered into an agreement with Walgreen Co. to become the
exclusive distributor of compact discs and DVDs at 2,500 Walgreens
locations.
- On August 14, the company's Alliance division received the Large
Wholesaler of the Year Award from the National Association of
Recording Merchandisers (NARM).
- During the quarter, Source signed a three year third party
distribution agreement with United Parcel Service, Inc. (UPS).
FISCAL 2006 SECOND QUARTER CONFERENCE CALL
Source Interlink Companies, Inc. will host a teleconference to discuss its
second quarter results today, Thursday, September 8, 2005 at 4:30 p.m. Eastern
Time. 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. The
teleconference will also be available via live webcast on the investor relations
portion of the company's website, located at www.sourceinterlink.com, as well as
on www.earnings.com. If you cannot listen to the teleconference at its scheduled
time, there will be a replay available through September 15, 2005 that can be
accessed by dialing 877-519-4471 (U.S. callers) or 973-341-3080 (Int'l callers),
passcode: 6434894. The webcast will also be archived on the investor relations
portion of the company's website as well as www.earnings.com for 30 days.
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:
- Distribution and fulfillment of entertainment products to major
retail chains throughout North America and direct-to-consumers via
the Internet
- Import and export of periodicals sold in more than 60 countries
worldwide
- Coordination of product selection and placement for impulse items
sold at checkout counters
- Processing and collection of rebate claims as well as management of
sales data obtained at the point-of-purchase
- 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
Tables follow:
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SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended
July 31,
2005 2004*
---------- ----------
Revenues $ 393,790 $ 86,858
Costs of revenues 314,801 63,182
---------- ----------
Gross profit 78,989 23,676
Selling, general and administrative expense 46,958 12,079
Fulfillment freight 18,354 4,759
Depreciation and amortization 4,241 949
---------- ----------
Operating income 9,436 5,889
---------- ----------
Other income (expense)
Interest expense (1,744) (124)
Interest income 44 39
Other income 61 49
Total other income (expense) (1,639) 64
---------- ----------
Income from continuing operations before income taxes and
discontinued operation 7,797 5,953
Income tax expense 3,721 1,889
---------- ----------
Income from continuing operations before discontinued operation 4,076 4,064
Income (loss) from discontinued operation, net of tax (1,446) 74
---------- ----------
Net income $ 2,630 $ 4,138
========== ==========
Earnings (loss) per share - diluted
Continuing operations $ 0.08 $ 0.16
Discontinued operation (0.03) 0.00
---------- ----------
Total $ 0.05 $ 0.16
========== ==========
Weighted average of shares outstanding - diluted 52,960 25,026
========== ==========
* July 31, 2004 results have been restated to reflect the discontinued operation
completed in November 2004.
SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Six Months Ended
July 31,
2005 2004*
---------- ----------
Revenues $ 628,211 $ 169,039
Costs of revenues 498,677 123,284
---------- ----------
Gross profit 129,534 45,755
Selling, general and administrative expense 76,633 24,028
Fulfillment freight 28,690 9,632
Depreciation and amortization 7,344 1,626
Relocation charges - 1,552
Merger and acquisition charges 3,094 -
---------- ----------
Operating income 13,773 8,917
---------- ----------
Other income (expense)
Interest expense (2,678) (660)
Interest income 90 106
Deferred financing costs - (1,494)
Other income 135 40
---------- ----------
Total other expense (2,453) (2,008)
---------- ----------
Income from continuing operations before income taxes and discontinued operation 11,320 6,909
Income tax expense 5,573 2,213
---------- ----------
Income from continuing operations before discontinued operation 5,747 4,696
Loss from discontinued operation, net of tax (1,446) (61)
---------- ----------
Net income $ 4,301 $ 4,635
========== ==========
Earnings (loss) per share - diluted
Continuing operations $ 0.12 $ 0.19
Discontinued operation (0.03) 0.00
---------- ----------
Total $ 0.09 $ 0.19
========== ==========
Weighted average of shares outstanding - diluted 48,751 24,466
========== ==========
* July 31, 2004 results have been restated to reflect the discontinued operation
completed in November 2004.
SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
July 31, 2005 January 31, 2005
------------- ----------------
Cash $ 4,108 $ 1,387
Trade receivables 97,913 48,078
Purchased claims receivable 9,996 2,006
Inventories 172,038 16,868
Income tax receivable 1,477 2,275
Deferred tax asset 11,202 2,302
Advances under magazine export agreement - -
Other current assets 7,417 3,349
------------- ------------
304,151 76,265
Property and equipment, net 67,908 22,331
Goodwill, net 206,123 71,600
Intangibles, net 226,748 16,126
Deferred tax asset 5,204 2,903
Other 8,186 8,528
------------- ------------
Total Assets $ 818,320 $ 197,753
------------- ------------
Checks issued against future advances on revolving credit facilities $ 6,010 $ 1,951
Accounts payable and accrued expenses 252,024 25,274
Deferred revenue 2,254 2,205
Other 1,758 19
Current maturities of debt 4,601 5,630
Current portion of obligations under capital leases 196 -
------------- ------------
266,843 35,079
Debt, less current liabilities 96,889 34,139
Obligations under capital leases 345 -
Other 6,879 852
------------- ------------
Total Liabilities 370,956 70,070
------------- ------------
Equity 447,364 127,683
------------- ------------
Total Liabilities and Equity $ 818,320 $ 197,753
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