Exhibit 99.1
FOR IMMEDIATE RELEASE
SOURCE INTERLINK REPORTS FISCAL 2007 FIRST QUARTER EARNINGS RESULTS
- - Solid revenue and profit performance underscores strength across all business
units -
BONITA SPRINGS, FL, JUNE 8, 2006 - SOURCE INTERLINK COMPANIES, INC. (NASDAQ:
SORC), a leading provider of home entertainment products and marketing services,
today announced financial results for the fiscal 2007 first quarter ended April
30, 2006.
Adjusted pro-forma net income for the fiscal 2007 first quarter totaled $5.3
million, or $0.10 per diluted share computed on a tax rate of 40.0%, on total
consolidated revenue of $454.6 million. Adjusted pro-forma Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) for the first quarter
totaled $14.4 million, a 2.0% or $0.3 million increase from the prior year
period. GAAP net income for the fiscal 2007 first quarter totaled $3.3 million,
or $0.06 per diluted share, computed on a tax rate of 36.9%.
"We're off to an excellent start in fiscal 2007, producing operating results
across our business divisions that met or exceeded our expectations," commented
Leslie Flegel, Source Interlink chairman and chief executive officer. "Our
Alliance division continues to experience impressive sales momentum, posting
strong revenue growth and healthy profits against a difficult year-over-year
comparison base. Our magazine division leveraged the revenue and cost synergies
related to our Levy operations to post significant revenue growth and meaningful
EBITDA contribution in Q1, less than a year from the acquisition date. Together
with Levy and our recently-acquired magazine markets in Southern California and
Washington D.C./Baltimore, Source Interlink is now the largest magazine
distributor in the U.S. As we continue to integrate the Southern California and
D.C./Baltimore operations, we will drive further revenue and cost synergies that
we believe will have a positive effect on our operating margins over time.
Overall, we're very pleased with the performance of the Company and expect a
solidly profitable fiscal 2007."
FINANCIAL HIGHLIGHTS
The Company uses both generally accepted accounting principles (GAAP), and
non-GAAP or adjusted pro-forma financial measures to evaluate and report the
results of its business. A reconciliation of the adjusted pro-forma financial
measures to the GAAP financial measure appears later in the release.
The Company provides non-GAAP or adjusted 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 adjusted 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, acquisition charges and non-cash compensation charges related
to FAS 123R 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 pro-forma
information provided by the Company may be different from the non-GAAP or
adjusted pro-forma information provided by other companies.
Adjusted pro-forma results for fiscal 2007 first quarter ended April 30, 2006
exclude amortization of intangible assets resulting from acquired companies,
certain plant closing and disposal costs and non-cash compensation charges
related to FAS 123R.
For the fiscal 2006 first quarter, Source Interlink reported GAAP revenue of
$234.4 million or $0.04 per diluted share, computed on a tax rate of 52.6%.
EBITDA totaled $7.7 million. The GAAP results for fiscal 2006 first quarter
reflect the Alliance merger as of February 28, 2005, but do not include results
from the Levy acquisition, which was completed on May 11, 2005, or the
acquisition of magazine distribution markets in Southern California and
Washington D.C./Baltimore from Anderson News, which was completed on April 1,
2006.
GAAP earnings per share in the fiscal 2006 first quarter were calculated on 44.4
million diluted shares outstanding, compared with 53.2 million diluted shares
outstanding in fiscal 2007 first quarter.
Beginning in calendar year 2006, non-cash stock-based compensation is reported
to comply with Statement of Financial Accounting Standards ("SFAS") No. 123
(Revised 2005), "Share-Based Payment" ("SFAS 123R"). In accordance with SFAS
123R adoption, the Company recorded $400,302 in non-cash stock-based
compensation expense for the first quarter fiscal 2007. The Company expects to
report an immaterial amount of non-cash stock-based compensation expense for the
remainder of fiscal 2007.
See table below for reconciliation of GAAP financial results to pro-forma
amounts:
QUARTER ENDED
---------------------
(in thousands, except earnings per share data) 4/30/2006 4/30/2005
--------- ---------
Net income $ 3,259 $ 1,671
Merger and acquisition charges* -- 1,856
Amortization of acquired intangible assets 1,673 1,257
Compensation charge related to FAS 123R* 240 --
Plant closing and disposal costs* 317 --
Alliance's net income for February 2005* -- 1,488
Tax impact (160) --
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Pro-forma net income $ 5,329 $ 6,272
======= =======
Diluted shares 53,154 52,933**
EPS $ 0.10 $ 0.12
* Amounts shown net of tax using 40% effective tax rate for the quarter ended
April 30, 2006 and 2005
** Pro-forma diluted shares
FISCAL 2007 FIRST QUARTER SEGMENT RESULTS
CD AND DVD FULFILLMENT SEGMENT - The CD and DVD Fulfillment segment reported
GAAP revenue of $240.7 million. On an adjusted pro-forma basis, revenue grew
8.6% or $19.0 million from the prior year period due to increased sales
penetration of existing customers, the addition of new retail business that did
not exist in the year-ago period and higher Internet fulfillment revenue. GAAP
operating income totaled $7.2 million and GAAP gross margins were 17.1%.
Adjusted pro-forma gross margins decreased 0.6 percentage points from 17.7% in
the prior year period, primarily due to a change in the mix of CD and DVD sales
compared to the year-ago period. On an adjusted pro forma basis, operating
income decreased 19.5% or $2.2 million from the prior year period to $9.1
million, due primarily to higher freight expense and higher sales and marketing
expenses, as well as the year-over-year decrease in gross margins attributed to
product mix. Adjusted pro-forma operating margins decreased from 5.1% in the
prior year first quarter to 3.8% in the current year period, due primarily to
the items discussed above.
MAGAZINE FULFILLMENT SEGMENT - The Company's Magazine Fulfillment segment, which
includes the acquisition of distribution markets in Southern California and
Washington D.C./Baltimore from the Anderson News Company effective April 1,
2006, reported GAAP revenue of $195.0 million compared with $71.7 million in the
prior year period, an increase of 172.1%. Higher revenues reflect the Levy
magazine distribution business, acquired May 11, 2005, as well as modest
contribution from the newly acquired Anderson markets. GAAP gross margins
decreased from 26.4% in the prior year period to 22.0% in the current period.
This reflects increased contribution from Levy, whose mainstream distribution
model generally has lower gross margins than specialty distribution. Adjusted
pro-forma operating income increased to $4.8 million in the fiscal 2007 first
quarter from $3.8 million in the prior year period. Adjusted pro-forma operating
margins decreased from 5.3% in the prior year period to 2.5% in the current
period.
IN-STORE SERVICES SEGMENT - The In-Store Services segment recorded GAAP revenue
of $18.9 million in the fiscal 2007 first quarter, compared with $14.3 million
in the year-ago quarter, primarily due to increased wire production and wood
manufacturing orders from several large retail accounts. Adjusted pro forma
operating income for the fiscal 2007 first quarter was $3.5 million, versus $2.0
million a year ago.
SHARED SERVICES SEGMENT - The Shared Services segment consists of shared
overhead functions associated with the individual operating segments. Shared
Services recorded an adjusted pro-forma operating loss in the fiscal 2007 first
quarter of $6.3 million, compared with $5.6 million in the prior year period.
Shared Services as a percentage of consolidated revenue decreased from 1.8% to
1.4% for the fiscal 2007 first quarter.
RECENT BUSINESS HIGHLIGHTS
- 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 2007 FIRST QUARTER CONFERENCE CALL
Source Interlink Companies, Inc. will host a teleconference to discuss its
fiscal 2007 first quarter results today, Thursday, June 8th at 4:30 p.m. Eastern
Time. To access the teleconference, please dial 800-231-5571 (U.S. callers) and
973-582-2822 (Int'l callers) ten minutes prior to the start time. The
teleconference will also be available via live webcast on the Company's website
www.sourceinterlink.com. A replay of the conference call will be available
through Thursday, June 15, 2006 by dialing 877-519-4471 (U.S. callers) or
973-341-3080 (Int'l callers), passcode: 7411289. The webcast presentation 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 Nancy Zakhary
Investor Relations Brainerd Communicators Brainerd Communicators
Source Interlink Companies, Inc. 212-986-6667 212 986-6667
212-683-0376 stonge@braincomm.com nancy@braincomm.com
dheine@sourceinterlink.com
Tables follow:
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
April 30,
2006 January 31,
(unaudited) 2006
----------- -----------
ASSETS
Current assets
Cash $ -- $ 23,239
Trade receivables, net 137,657 129,782
Purchased claims receivable 10,169 9,922
Inventories 233,505 198,483
Income tax receivable 2,686 2,180
Deferred tax asset 16,563 16,403
Other 7,644 6,058
---------- --------
TOTAL CURRENT ASSETS 408,224 386,067
---------- --------
Property, plants and equipment 92,977 89,971
Less accumulated depreciation and amortization (23,808) (23,255)
---------- --------
NET PROPERTY, PLANTS AND EQUIPMENT 69,169 66,716
---------- --------
OTHER ASSETS
Goodwill, net 420,298 302,293
Intangibles, net 130,375 118,988
Other 9,873 10,408
---------- --------
TOTAL OTHER ASSETS 560,546 431,689
---------- --------
TOTAL ASSETS $1,037,939 $884,472
========== ========
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
April 30,
2006 January 31,
(unaudited) 2006
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued against future advances on revolving credit facility $ 5,965 $ --
Accounts payable and accrued expenses (net of allowance for returns of
$169,693 and $167,423 at April 30, 2006 and January 31, 2006,
respectively) 343,994 321,074
Deferred revenue 2,606 3,226
Current portion of obligations under capital leases 884 476
Current maturities of debt 21,849 6,508
---------- --------
Total current liabilities 375,298 331,284
Deferred tax liability 39,624 4,526
Obligations under capital leases 1,721 1,118
Debt, less current maturities 150,634 80,727
Other 7,083 7,224
---------- --------
TOTAL LIABILITIES 574,360 424,879
---------- --------
TOTAL STOCKHOLDERS' EQUITY 463,579 459,593
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,037,939 $884,472
========== ========
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three month ended
April 30,
-------------------
2006 2005
-------- --------
Revenues $454,600 $234,421
Cost of revenues (including depreciation of $278 and $193) 364,660 183,876
-------- --------
Gross profit 89,940 50,545
Selling, general and administrative expense 54,320 29,674
Fulfillment freight 21,935 10,336
Depreciation and amortization 5,805 3,103
Merger and acquisition charges -- 3,094
Impairment of land and building held for sale 529 --
-------- --------
Operating income 7,351 4,338
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Other income (expense):
Interest expense (including amortization of deferred financing
fees of $157 and $275) (2,268) (935)
Interest income 68 46
Other 14 74
-------- --------
Total other expense (2,186) (815)
-------- --------
Income before income taxes 5,165 3,523
Income tax expense 1,906 1,852
-------- --------
Net income $ 3,259 $ 1,671
======== ========
Earnings per share - basic $ 0.06 $ 0.04
Earnings per share - diluted $ 0.06 $ 0.04
Weighted average common shares outstanding - basic 51,708 42,314
Weighted average common shares outstanding - diluted 53,154 44,395
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