Exhibit 99.1
FOR IMMEDIATE RELEASE
SOURCE INTERLINK REPORTS FISCAL 2007 SECOND QUARTER EARNINGS RESULTS
ADJUSTED PRO-FORMA OPERATING INCOME INCREASES 20% YEAR OVER YEAR
BONITA SPRINGS, FL, SEPTEMBER 11, 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 second quarter
ended July 31, 2006.
Adjusted pro-forma net income for the fiscal 2007 second quarter totaled $6.3
million, or $0.12 per diluted share on total consolidated revenue of $441.5
million. Adjusted pro-forma Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) for the second quarter totaled $16.6 million, an 18.5% or
$2.6 million increase from the prior year period. Adjusted pro-forma operating
income for the second quarter totaled $13.2 million, an increase of $2.2 million
or 20.0% over the prior year same quarter. Adjusted pro-forma operating income
for the Company's operating segments improved 30.4%, 5.1% and 26.8% for Magazine
Fulfillment, CD and DVD Fulfillment and In-Store Services, respectively, over
the prior year second quarter. GAAP net income for the fiscal 2007 second
quarter totaled $4.1 million, or $0.08 per diluted share, compared to fiscal
2006 second quarter income from continuing operations of $4.1 million, or $0.08
per diluted share.
Adjusted pro-forma income for the six month period ending July 31, 2006 totaled
$11.6 million, or $0.22 per diluted share, on total revenue of $896.1 million.
Adjusted pro-forma EBITDA for the six month period totaled $31.0 million as
compared to $28.1 million for the prior year six month period, a 10.2% increase.
GAAP net income for the six month period ended July 31, 2006 increased $1.6
million or 27.9% to $7.4 million or $0.14 per diluted share as compared to net
income from continuing operations of $5.7 million or $0.12 per diluted share for
the same period last year. GAAP revenue in the current six month period
increased $267.9 million or 42.6% to $896.1 million compared to prior year first
half total revenue of $628.2 million.
"Our second quarter results illustrate the leverage embedded in our operating
model, as we continued to maximize efficiencies in our businesses to drive solid
profits in an otherwise soft retail environment," commented Leslie Flegel,
Source Interlink chairman and chief executive officer. "We posted healthy
revenue and EBITDA growth over last year, and continued to execute on the
integration of our businesses which will lead to gross and operating margin
improvement overall."
Flegel added, "In accordance with our financial objectives, we were able to
improve gross margin percentages in all three of our operating divisions. The
Magazine division achieved its most profitable quarter in its history despite
the lack of material profit contribution from our most recent service area
acquisitions which will build over time. Our Alliance division continues to post
meaningful market share gains, picking up about 4,200 new chain drugstores for
CD and DVD distribution and vendor managed inventory. This strengthens our
position and demonstrates the positive future we see for the home entertainment
content category at retail. We anticipate an improved CD and DVD release
schedule for the remainder of the year, and will continue to pursue new customer
opportunities across our business lines that will allow us to leverage our
operating platform."
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 merger-related
expenses, amortization of acquired intangible assets, acquisition charges and
non-cash compensation charges related to the adoption of 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 second quarter ended July 31, 2006
exclude amortization of intangible assets resulting from recently acquired
companies and relocation and severance charges related to Levy.
For the fiscal 2006 second quarter, Source Interlink reported GAAP revenue of
$393.8 million, $4.1 million of income from continuing operations or $0.08 per
diluted share, computed on a tax rate of 47.7% compared to a 40.0% tax rate in
the current year. Adjusted pro-forma EBITDA totaled $14.0 million. The GAAP
results for fiscal 2006 second quarter reflect the Levy acquisition as of May
10, 2005.
GAAP earnings per share in the fiscal 2006 second quarter were calculated on
53.0 million diluted shares outstanding, compared with 53.3 million diluted
shares outstanding in fiscal 2007 second quarter.
See table below for reconciliation of GAAP financial results to pro-forma
amounts:
(in thousands, except earnings per share data) QUARTER ENDED SIX MONTHS ENDED
7/31/2006* 7/31/2005* 7/31/2006** 7/31/2005**
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Income from continuing operations .......................... $ 4,094 $ 4,076 $ 7,353 $ 5,747
Amortization of acquired intangible assets ................. 1,746 1,582 3,419 2,839
Relocation and severance charges ........................... 429 -- 429 --
Merger and acquisition costs* .............................. -- -- -- 1,856
Tax impact ................................................. -- 465 (160) 465
Alliance's net income for February 2005 .................... -- -- -- 1,488
Compensation charge related to FAS 123R .................... -- -- 240 --
Plant closing and disposal costs ........................... -- -- 317 --
-------- -------- -------- --------
Pro-forma income from continuing operations ................ $ 6,269 $ 6,150 $ 11,598 $ 12,395
======== ======== ======== ========
Diluted shares ............................................. $ 53,291 $ 52,960 $ 53,223 $ 52,946***
EPS ........................................................ $ 0.12 $ 0.12 $ 0.22 $ 0.23
* Amounts shown net of tax using 40% and 35% effective tax rates for the
three months ended July 31, 2006 and 2005, respectively.
** Amounts shown net of tax using 40% and 37.5% effective tax rates for the
six months ended July 31, 2006 and 2005, respectively.
*** Pro-forma diluted shares
FISCAL 2007 SECOND QUARTER SEGMENT RESULTS
CD AND DVD FULFILLMENT SEGMENT - The CD and DVD Fulfillment segment reported
GAAP revenue of $198.2 million. Revenue decreased 5.0% or $10.5 million from the
prior year period due to the loss of Musicland revenue and a soft CD and DVD new
release schedule during the quarter. GAAP operating income totaled $7.0 million.
GAAP gross margins increased to 19.0% from 17.5% in the prior year period,
primarily due to increased vendor managed inventory sales and improved terms
from suppliers in the quarter. On an adjusted pro forma basis, operating income
increased $0.4 million from the prior year period to $8.8 million. Higher
operating expenses in the quarter were due primarily to higher freight expense.
Adjusted pro-forma operating margins increased to 4.5% in the current year
second quarter from 4.0% in the prior year period, due primarily to the items
discussed above.
For the six month period ended July 31, 2006, the CD and DVD fulfillment segment
reported GAAP revenue of $438.9 million, operating income of $14.2 million, and
gross margin of 18.0%. For comparative purposes, revenue for the first half of
last year was $357.1 million, operating income was $14.1 million, and gross
margin was 17.9%. Pro-forma revenue for the six month period ended July 31, 2005
was $430.3 million. Gross margin for the six month period ended July 31, 2006
was 18.0% compared to the adjusted pro-forma gross margin of 17.6% for the prior
year six month period. Pro-forma operating margins decreased from 4.6% in the
prior period to 4.1% in the current period.
MAGAZINE FULFILLMENT SEGMENT - The Company's Magazine Fulfillment segment, which
includes the acquisition of distribution service areas in Southern California
and Washington D.C./Baltimore from the Anderson News Company effective March 30,
2006, reported GAAP revenue of $223.2 million compared with $166.8 million in
the prior year period, an increase of
33.9%. Higher revenues reflect a full-quarter of Levy magazine distribution
business, acquired May 10, 2005, and a full-quarter of business from the
recently acquired Anderson service areas. GAAP gross margins increased from
21.9% in the prior year period to 22.9% in the current period as a result of
improved pricing from certain suppliers. Adjusted pro-forma operating income
increased to $6.1 million in the fiscal 2007 second quarter from $4.7 million in
the prior year period, a 30.4% increase. Adjusted pro-forma operating margins
decreased slightly from 2.8% in the prior year period to 2.7% in the current
period.
For the six month period ended July 31, 2006, the Magazine Fulfillment segment
reported GAAP revenue of $418.2 million, compared with $238.4 million in the
prior year period, an increase of 75.4% due primarily to a full six month impact
of the Levy magazine distribution business and four months of the Anderson
service areas in the current year. Gross margin decreased from 23.3% in the
prior year period to 22.5% in the current period. Adjusted pro-forma operating
income was $11.0 million, compared with $8.5 million in the prior year period.
Pro-forma operating margins decreased from 3.6% in the prior year period to 2.6%
in the current period primarily due to the increase in our domestic mainstream
distribution, which historically has had lower operating margins and expenses
related to operating duplicative distribution centers in both the Mid-Atlantic
and Southwest United States attributable to recent acquisitions. The Company
expects to consolidate its distribution centers in these territories in the
third quarter of the current fiscal year.
IN-STORE SERVICES SEGMENT - The In-Store Services segment recorded GAAP revenue
of $20.1 million in the fiscal 2007 second quarter, compared with $18.4 million
in the year-ago quarter, primarily due to the production of larger jobs in the
wire division. Operating income for the fiscal 2007 second quarter was $4.6
million, versus $3.6 million in the prior year period.
For the six month period ended July 31, 2006, In-Store Services segment reported
GAAP revenue of $39.0 million, compared with $32.7 million in the prior year
period. Operating income for the six month period ended July 31, 2006, was $8.1
million, versus $5.6 million in 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 an adjusted pro-forma operating loss in the fiscal 2007 second
quarter of $6.3 million, compared with $5.7 million in the prior year period.
Shared Services as a percentage of consolidated revenue remained at 1.4% for the
fiscal 2007 second quarter. For the six month period ended July 31, 2006, shared
services as a percentage of revenue decreased from 1.6% to 1.4% as compared to
the prior year six month period.
FISCAL 2007 SECOND QUARTER CONFERENCE CALL
Source Interlink Companies, Inc. will host a teleconference to discuss its
fiscal 2007 second quarter results today, Monday, September 11, 2006 at 4:30
p.m. Eastern Time. To access the teleconference, please dial 888-694-4702 (U.S.
callers) and 973-582-2741 (Int'l callers) ten minutes prior to the start time.
The teleconference will also be available via live webcast on the Company's
website at www.sourceinterlink.com. A replay of the conference call will be
available through Monday, September 18, 2006 by dialing 877-519-4471 (U.S.
callers) or 973-341-3080 (Int'l callers), passcode: 7789289. 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:
o Distribution and fulfillment of entertainment products to major retail
chains throughout North America and directly to consumers of
entertainment products ordered through the Internet
o Import and export of periodicals sold in more than 100 markets
worldwide
o Coordination of product selection and placement of 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
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)
JULY 31,
2006 JANUARY 31,
(UNAUDITED) 2006
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ASSETS
CURRENT ASSETS
Cash ....................................... $ 2,397 $ 23,239
Trade receivables, net ..................... 118,814 129,782
Purchased claims receivable ................ 10,623 9,922
Inventories ................................ 209,802 198,483
Income tax receivable ...................... 438 2,180
Deferred tax asset ......................... 18,963 16,403
Other ...................................... 7,166 6,058
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TOTAL CURRENT ASSETS ......................... 368,203 386,067
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Property, plants and equipment ............... 96,565 89,971
Less accumulated depreciation and amortization (26,666) (23,255)
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NET PROPERTY, PLANTS AND EQUIPMENT ........... 69,899 66,716
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OTHER ASSETS
Goodwill, net .............................. 429,119 302,293
Intangibles, net ........................... 127,110 118,988
Other ...................................... 9,293 10,408
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TOTAL OTHER ASSETS ........................... 565,522 431,689
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TOTAL ASSETS ................................... $ 1,003,624 $ 884,472
=============================================================================
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
July 31,
2006 January 31,
(unaudited) 2006
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued against future advances on revolving credit facility ... $ -- $ --
Accounts payable and accrued expenses (net of allowance for returns of
$168,234 and
$167,423 at July 31, 2006 and January 31, 2006, respectively) ...... 317,601 321,074
Deferred revenue ..................................................... 2,374 3,226
Current portion of obligations under capital leases .................. 852 476
Current maturities of debt ........................................... 18,335 6,508
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TOTAL CURRENT LIABILITIES .............................................. 339,162 331,284
Deferred tax liability ................................................. 36,531 4,526
Obligations under capital leases ....................................... 1,502 1,118
Debt, less current maturities .......................................... 151,055 80,727
Other .................................................................. 6,534 7,224
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TOTAL LIABILITIES ...................................................... 534,784 424,879
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TOTAL STOCKHOLDERS' EQUITY ............................................. 468,840 459,593
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $1,003,624 $ 884,472
=====================================================================================================
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three months ended July 31, Six months ended July 31,
--------------------------------------------------------
2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
REVENUES .................................................... $ 441,507 $ 393,790 $ 896,107 $ 628,211
Cost of revenues (including depreciation of $263, $306, $541, 345,667 314,801 710,327 498,677
and $596, respectively) ...................................
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GROSS PROFIT ................................................ 95,840 78,989 185,780 129,534
Selling, general and administrative expense ................. 54,427 46,958 108,747 76,633
Fulfillment freight ......................................... 25,092 18,354 47,027 28,690
Depreciation and amortization ............................... 6,012 4,241 11,817 7,344
Merger and acquisition charges .............................. -- -- -- 3,094
Relocation expense .......................................... 715 -- 715 --
Impairment of land and building held for sale ............... -- -- 529 --
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OPERATING INCOME ............................................ 9,594 9,436 16,945 13,773
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OTHER INCOME (EXPENSE):
Interest expense (including amortization of deferred
financing fees of $150, $168, $306, and $302,
respectively) ........................................... (2,869) (1,744) (5,137) (2,678)
Interest income ........................................... 44 44 112 90
Other ..................................................... 56 61 70 135
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TOTAL OTHER EXPENSE ......................................... (2,769) (1,639) (4,955) (2,453)
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INCOME FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES ...... 6,825 7,797 11,990 11,320
Income tax expense .......................................... 2,731 3,721 4,637 5,573
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INCOME FROM CONTINUING OPERATIONS ........................... 4,094 4,076 7,353 5,747
Loss from discontinued operations, net of tax................ -- (1,446) -- (1,446)
NET INCOME .................................................. $ 4,094 $ 2,630 $ 7,353 $ 4,301
========================================================================================================================
EARNINGS PER SHARE - BASIC:
Continuing operations ..................................... $ 0.08 $ 0.08 $ 0.14 $ 0.12
Discontinued operations ................................... -- (0.03) -- (0.03)
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TOTAL $ 0.08 $ 0.05 $ 0.14 $ 0.09
========================================================================================================================
EARNINGS PER SHARE - DILUTED:
Continuing operations ..................................... $ 0.08 $ 0.08 $ 0.14 $ 0.12
Discontinued operations ................................... -- (0.03) -- (0.03)
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TOTAL $ 0.08 $ 0.05 $ 0.14 $ 0.09
========================================================================================================================
Weighted average common shares outstanding - basic .......... 51,811 51,140 51,760 46,800
Weighted average common shares outstanding - diluted ........ 53,291 52,960 53,223 48,751
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