FOR IMMEDIATE RELEASE
SOURCE INTERLINK ANNOUNCES
FISCAL 2006 FOURTH QUARTER AND FULL-YEAR RESULTS
BONITA SPRINGS, FL, APRIL 17, 2006 - SOURCE INTERLINK COMPANIES, INC. (NASDAQ:
SORC), a leading provider of home entertainment products and marketing services,
today announced financial results for the fiscal 2006 fourth quarter and
full-year ending January 31, 2006.
Pro-forma income from continuing operations for the fiscal 2006 fourth quarter
totaled $10.0 million, or $0.19 per diluted share, on total revenue of $473.4
million. Pro-forma Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) for the quarter totaled $21.2 million which was $14.7
million or 226% better than for the same period last year. GAAP income from
continuing operations for the fiscal 2006 fourth quarter totaled $2.5 million,
or $0.05 per diluted share.
For fiscal year 2006, pro-forma net income totaled $31.1 million or $0.59 per
diluted share, on total revenue of $1.6 billion. Pro-forma EBITDA for the year
totaled $68.3 million which was $41.3 million or 156% better than for fiscal
year 2005. GAAP income from continuing operations for the fiscal year 2006
totaled $14.3 million, or $0.28 per diluted share, on total revenue of $1.5
billion.
"While performance was strong, as I had cautioned last quarter, a number of
unforeseen events in the third and fourth quarters including hurricanes, high
fuel prices and the bankruptcy of a large retail customer, kept our pro-forma
results below original plans. Nonetheless it was a year of significant
achievement for the Company. In less than 12 months, we moved from run rate
revenues of about $400 million to almost $2 billion. Market cap increased from
$303 million as of January 31, 2005 to $591 million as of January 31, 2006. We
grew from about 1,200 employees to 7,500. And free cash flow on a GAAP basis
increased from ($18.6) million at the end of last year to $45.8 million at the
end of fiscal year 2006."
Mr. Flegel added, "Entering fiscal 2007 Source has built a powerful nationwide
distribution platform for home entertainment products and services. We have
successfully integrated our Alliance and Levy acquisitions, and we have expanded
our leading customer footprint by adding key clients such as Costco and
expanding relationships with major chains like Walgreens. Our recent strategic
acquisitions of additional magazine and book distribution in Southern California
and Washington D.C./Baltimore strengthen this platform by increasing density in
two of the nation's largest markets as well as enlarging the footprint and scale
of our magazine and book distribution operations. We have begun fiscal 2007 with
considerable momentum and we are optimistic about the prospects of our business
looking forward."
FINANCIAL HIGHLIGHTS
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 measures to the GAAP financial
measure appears later in the release.
The Company provides non-GAAP or pro-forma 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 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 amortization of
intangible assets, and includes items, such as anticipated insurance proceeds,
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 pro-forma information provided by
the Company may be different from the non-GAAP or pro-forma information provided
by other companies.
Pro-forma results for fiscal year 2006 exclude merger-related expenses and
amortization of intangible assets resulting from the Alliance and Levy
transactions. Also excluded from the year-end pro-forma results is a write-off,
the majority of which is related to the bankruptcy of a major retail client.
Pro-forma results for the fiscal year include approximately $0.01 per diluted
share of earnings from anticipated insurance proceeds relating to disruption of
the Company's Alliance distribution operations at Coral Springs caused by
Hurricane Wilma in October 2005. Pro-forma results also assume the Alliance
transaction was completed at the beginning of Source Interlink's fiscal year on
February 1, 2005, and an effective tax rate of approximately 38% for fiscal year
2006.
GAAP earnings per share in the fiscal 2005 year were calculated on 24.8 million
diluted shares outstanding, compared with 50.9 million diluted shares
outstanding in fiscal year 2006.
For the fiscal 2005 year, Source Interlink reported GAAP revenue from continuing
operations of $356.6 million and income from continuing operations before
charges of $13.1 million, or $0.53 per diluted share, computed on a tax rate of
14.6%. EBITDA from continuing operations totaled $26.8 million. The GAAP results
for fiscal 2005 do not include Alliance and Levy. Results from continuing
operations for the prior year period exclude the Deyco business, which was sold
in the fiscal 2005 fourth quarter.
Pro-forma results for the fiscal 2006 fourth quarter ended January 31, 2006
exclude amortization of intangible assets resulting from the Alliance and Levy
transactions. Also excluded from the year-end pro-forma results is the write-off
relating primarily to the
bankruptcy of a major retail client. Pro-forma results assume an effective tax
rate of approximately 38%.
For the fourth quarter of fiscal year 2005, Source Interlink reported GAAP
revenue from continuing operations of $96.8 million and income from continuing
operations of $4.3 million, or $0.17 per diluted share, computed on a tax rate
of (69.9)%. EBITDA from continuing operations totaled $6.5 million. The GAAP
results for last year do not include Alliance and Levy. Results from continuing
operations for the prior year period exclude the Deyco business, which was sold
in the fiscal 2005 fourth quarter.
GAAP earnings per share in the fiscal 2005 fourth quarter were calculated on
25.5 million diluted shares outstanding, compared with 53.0 million diluted
shares outstanding in fiscal 2006 fourth quarter.
See table below for reconciliation of GAAP financial results to pro-forma
amounts:
(in thousands, except earnings per share data)
QUARTER ENDED YEAR ENDED
--------------------- ---------------------
1/31/2006 1/31/2005 1/31/2006 1/31/2005
--------- --------- --------- ---------
Income from continuing operations, net
of taxes $ 2,495 $ 4,337 $ 14,325 $13,062
Non-tax deductible amortization from
Alliance transaction 1,925 -- 6,467 --
Amortization from Levy transaction* 838 -- 1,207 --
Merger and acquisition costs* 140 -- 2,058 --
Write-off, a majority of which is
bankruptcy related* 3,651 -- 3,651 --
Tax impact 922 -- 1,118 --
Insurance proceeds from hurricane* -- -- 620 --
Alliance's net income for February 2005* -- -- 1,600 --
Write off of deferred financing costs* -- -- -- 1,277
Loss on sale of property* -- 959 -- 959
Relocation charges* -- 854 -- 2,180
------- ------- -------- -------
Pro-forma income from continuing
operations, net of taxes $ 9,971 $ 6,150 $ 31,046 $17,478
======= ======= ======== =======
Diluted shares 52,988 25,498 **52,973 24,833
EPS $ 0.19 $ 0.24 $ 0.59 $ 0.70
* Amounts shown net of tax using approximately 38% and 14.6% effective tax
rates for the three month and twelve month periods ended January 31, 2006
and 2005, respectively.
** Pro-forma diluted shares
SEGMENT RESULTS
CD AND DVD FULFILLMENT SEGMENT - The CD and DVD Fulfillment segment, comprised
of the Alliance business, reported record annual revenue and profits despite the
impact of a number of unexpected events including the bankruptcy of a major
retail client during the fourth quarter and the impact of Hurricane Wilma on
operations in October 2005.
For the 2006 fiscal fourth quarter, the segment produced GAAP revenue of $305.9
million, gross margin of 17.0% and operating income of $11.6 million. Pro-forma
revenue for the fiscal 2006 fourth quarter was $305.9 million, compared with
$274.9 million in the fiscal 2005 fourth quarter. Pro-forma gross margin
decreased from 18.2% in the prior year period to 17.0% in the current period.
Pro-forma operating margins increased from 5.2% in the prior year fourth quarter
to 5.3% in the current year period.
For the fiscal year 2006, the CD and DVD Fulfillment segment produced GAAP
revenue of $889.4 million, operating income of $34.5 million, and a gross margin
of 17.6%. Pro-forma revenue for the fiscal year 2006 was $962.6 million,
compared with $941.1 million in the fiscal year 2005. Pro-forma gross margin
remained constant at 17.5% as compared to the prior year. Pro-forma operating
margins increased from 3.8% in the prior year period to 4.9% in the current
period. The margin improvement reflects Alliance's efforts to align its business
mix toward more profitable accounts.
MAGAZINE FULFILLMENT SEGMENT - The Company's Magazine Fulfillment segment
witnessed rapid growth in 2005. The acquisition of Chas. Levy Circulating Co. in
May 2005 created a wide range of synergies for the segment and led to the
development of a hybrid national magazine distribution model which combines
third-party shipping, local trucking on high density routes and in-store
service.
The segment recorded GAAP revenue of $151.3 million compared with $78.8 million
in the prior year period, an increase of 92.0%. GAAP gross margin decreased from
24.5% in the prior year period to 22.5% in the current period. Pro-forma gross
margins decreased to 24.2% from 24.5%. Pro-forma operating income decreased to
$4.7 million in the fiscal 2006 fourth quarter from $5.0 million in the prior
year period. Pro-forma operating margins decreased from 6.4% in the prior year
period to 3.1% in the current period. Lower overall margins in the magazine
segment reflect the addition of sales from the Levy acquisition, which carry
lower incremental margins in advance of achieving acquisition synergies.
For fiscal year 2006, the Magazine Fulfillment segment recorded GAAP revenue of
$566.4 million compared with $280.2 million for the prior year period, an
increase of 102.1%. GAAP gross margin decreased from 24.8% for the prior year
period to 22.7% in the current period. Pro-forma operating income increased to
$18.9 million in the fiscal 2006 fourth quarter from $18.6 million in the prior
year period. Pro-forma operating margins decreased from 6.6% for the prior year
period to 3.3% in the current period. Lower overall margins in the magazine
segment reflect the addition of sales from the Levy acquisition, which carry
lower incremental margins in advance of achieving acquisition synergies.
IN-STORE SERVICES SEGMENT - The In-Store Services segment recorded GAAP revenue
of $16.2 million in the fiscal 2006 fourth quarter, compared with $18.0 million
in the year-ago quarter. Operating income for the fiscal 2006 fourth quarter for
the segment was $3.3 million, versus $3.9 million a year ago.
For fiscal year 2006, the In-Store Services segment recorded GAAP revenue of
$71.6 million, compared with $76.5 million in the prior year period. Operating
income for the fiscal year 2006 for the segment was $13.2 million, versus $18.2
million for the prior year period.
SHARED SERVICES SEGMENT - The Shared Services segment consists of shared
overhead functions associated with the individual operating segments. Shared
Services recorded a pro-forma operating loss in the fiscal 2006 fourth quarter
of $6.2 million, compared with $4.2 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 consolidated revenue decreased from 4.3% to 1.3% for the fourth
quarter, a trend that is expected to continue.
For the fiscal year 2006, the Shared Services segment recorded a pro-forma
operating loss of $23.3 million, compared with $15.6 million for the prior year
period. Shared Services as a percentage of consolidated pro-forma revenue
decreased from 4.4% to 1.7% for the fiscal year 2006.
RECENT BUSINESS HIGHLIGHTS
- The Company was named exclusive provider of all international magazine
titles at Barnes & Noble's U.S. stores.
- The Company renewed full distribution and marketing services
agreements with Playboy Enterprises International, Inc. and Scientific
American, Inc. for the international marketplace.
- The Company's Board of Directors, in consultation with its strategic
advisor, The Yucaipa Companies, LLC, hired Deutsche Bank Securities
Inc. to act as its exclusive financial advisor in its previously
announced process of evaluating strategic alternatives to enhance
stockholder value.
- Source Interlink acquired in separate cash transactions magazine and
book distribution markets in the southern California and Washington
D.C./Baltimore markets from the Anderson News Company.
FISCAL 2006 FOURTH QUARTER AND FULL-YEAR CONFERENCE CALL
Source Interlink Companies, Inc. will host a teleconference to discuss its
fiscal 2006 fourth quarter and full-year results today, Monday, April 17, 2006
at 4:30 p.m. Eastern Time. To access the teleconference, please dial
800-231-5571 (U.S. callers) or 973-582-2822 (Int'l callers) ten minutes prior to
the start time. The teleconference will also be available via live webcast on
Source Interlink's website, located at www.sourceinterlink.com. If you cannot
listen to the teleconference at its scheduled time, there will be a replay
available through April 24, 2006 that can be accessed by dialing 877-519-4471
(U.S. callers) or 973-341-3080 (Int'l callers), passcode: 7239555. The webcast
will also be archived on www.sourceinterlink.com for 30 days.
ABOUT SOURCE INTERLINK COMPANIES, INC.
Source Interlink Companies is a leading 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 directly to consumers of
entertainment products ordered through the Internet
- Import and export of periodicals sold in more than 100 markets
worldwide
- Coordination of product selection and placement of 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
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 acquisitions, (iii) an evolving market
for 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 17, 2006.
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:
SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Quarter ended January 31, 2006 2005
- ------------------------- -------- -------
Revenues $473,381 $96,849
Costs of revenues 381,555 70,522
-------- -------
Gross profit 91,826 26,327
Selling, general and administrative expense 52,864 14,352
Fulfillment freight 23,966 5,823
Depreciation and amortization 5,942 1,019
Relocation expenses -- 897
Loss on sale of land and building -- 1,122
Merger and acquisition costs 225 --
-------- -------
Operating income 8,829 3,114
-------- -------
Other income (expense)
Interest expense, net (2,090) (548)
Other (30) (12)
-------- -------
Total other income (expense) (2,120) (560)
-------- -------
Income from continuing operations before income taxes 6,709 2,554
Income tax expense (benefit) 4,213 (1,783)
-------- -------
Income from continuing operations 2,496 4,337
Loss from discontinued operation, net of tax (1,268)
-------- -------
Net income $ 2,496 $ 3,069
======== =======
Earnings per share - diluted
Continuing operations $ 0.05 $ 0.17
Discontinued operations -- (0.05)
-------- -------
Total 0.05 0.12
-------- -------
Weighted average of shares outstanding - diluted 52,988 25,498
======== =======
SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Fiscal year ended January 31, 2006 2005
- ----------------------------- ---------- --------
Revenues $1,527,451 $356,644
Costs of revenues 1,219,997 258,851
---------- --------
Gross profit 307,454 97,793
Selling, general and administrative expense 177,867 51,379
Fulfillment freight 72,806 21,067
Depreciation and amortization 18,213 3,751
Relocation expenses -- 2,450
Loss on sale of land and building -- 1,122
Merger and acquisition costs 3,319 --
---------- --------
Operating income 35,249 18,024
---------- --------
Other income (expense)
Interest expense, net (6,574) (2,895)
Other 203 161
---------- --------
Total other income (expense) (6,371) (2,734)
---------- --------
Income from continuing operations before income taxes 28,878 15,290
Income tax expense 14,553 2,228
---------- --------
Income from continuing operations 14,325 13,062
Loss from discontinued operation, net of tax (1,446) (980)
---------- --------
Net income $ 12,879 $ 12,082
========== ========
Earnings per share - diluted
Continuing operations $ 0.28 $ 0.53
Discontinued operations (0.03) (0.04)
---------- --------
Total $ 0.25 $ 0.49
---------- --------
Weighted average of shares outstanding - diluted 50,894 24,833
========== ========
SOURCE INTERLINK COMPANIES, INC.
Condensed Consolidated Balance Sheets
(in thousands)
January 31, 2006 2005
- ----------- -------- --------
Cash $ 23,239 $ 1,387
Trade receivables, net 129,782 48,078
Purchased claim receivable 9,922 2,006
Inventories 198,483 16,868
Income tax receivable 2,180 2,275
Deferred tax asset 16,403 2,302
Other 6,058 3,349
-------- --------
386,067 76,265
Property, Plant and Equipment, net 66,716 22,331
Goodwill, net 302,293 71,600
Intangibles 118,988 16,126
Other 10,408 11,431
-------- --------
Total Assets 884,472 197,753
======== ========
Checks issued against future advances on revolving
credit facilities -- 1,951
Accounts payable and accrued expenses 321,074 25,274
Deferred revenue 3,226 2,205
Other -- 19
Current maturities of debt, including capital leases 6,984 5,630
-------- --------
331,284 35,079
Debt, less current liabilities 81,845 34,139
Deferred tax liability 4,526 --
Other 7,224 852
-------- --------
Total Liabilities 424,879 70,070
Equity 459,593 127,683
-------- --------
Total Liabilities and Equity $884,472 $197,753
======== ========