EXHIBIT 99.1
FOR IMMEDIATE RELEASE
SOURCE INTERLINK REPORTS FISCAL 2007 THIRD QUARTER EARNINGS RESULTS
BONITA SPRINGS, FL, DECEMBER 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 third quarter
ended October 31, 2006.
Adjusted pro forma net income for the fiscal 2007 third quarter totaled $8.2
million, or $0.16 per diluted share on consolidated revenue of $475.8 million,
compared to prior year third quarter pro forma net income of $8.8 million or
$0.17 per share on consolidated revenue of $425.9 million. Adjusted pro forma
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the
third quarter totaled $20.7 million, a 9.2% or $1.7 million increase from the
prior year period. Adjusted pro forma operating income for the third quarter
totaled $17.2 million, an increase of 7.9% or $1.3 million over the prior year
same quarter. Adjusted pro forma operating income for the Company's operating
segments improved 14.7%, 2.7% and 7.3% for Magazine Fulfillment, CD and DVD
Fulfillment and In-Store Services, respectively, over the prior year third
quarter.
GAAP net income for the fiscal 2007 third quarter totaled $4.8 million, or $0.09
per diluted share, compared to fiscal 2006 third quarter income from continuing
operations of $6.1 million, or $0.11 per diluted share. GAAP earnings for the
fiscal 2007 third quarter were impacted by charges incurred to consolidate and
integrate distribution facilities of recently acquired businesses and the
interest expense on the debt associated with these acquisitions. The fiscal 2007
third quarter earnings were computed using a tax rate of 40.0% compared to a
43.9% tax rate in the fiscal 2006 third quarter.
Adjusted pro forma net income for the nine month period ending October 31, 2006
totaled $19.8 million, or $0.37 per diluted share, on total revenue of $1.37
billion, compared to the prior year nine month period pro forma net income of
$21.1 million or $0.40 per share on total consolidated revenue of $1.13 billion.
Adjusted pro forma EBITDA for the nine month period totaled $51.7 million as
compared to $47.0 million for the prior year nine month period, a 10.0%
increase.
GAAP net income for the nine month period ended October 31, 2006 increased $0.4
million or 3.0% to $12.2 million or $0.23 per diluted share as compared to
income from continuing operations of $11.8 million or $0.24 per diluted share
for the same period last year. GAAP revenue in the current nine month period
increased $317.8 million or 30.2% to $1.37 billion compared to prior year nine
month total revenue of $1.05 billion. GAAP earnings for the nine month period
ending October 31, 2006 were impacted by consolidation and integration of
distribution facilities of recently acquired businesses and the interest expense
on the debt associated with these acquisitions.
Michael R. Duckworth, Chairman of Source Interlink, commented, "We posted solid
year-over-year revenue and EBITDA growth despite a challenging market
environment at retail. While we continue to make progress, I believe we can do
better. Overall, our strategy remains unchanged; however, we are focused on
doing more faster in order to drive revenue and reduce costs."
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 and acquisition
costs, amortization of acquired intangible assets and non-cash stock based
compensation charges related to the adoption of FAS 123R. These items 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 third quarter ended October 31, 2006
exclude amortization of intangible assets resulting from acquired companies and
consolidation and integration charges related to those acquisitions. Net loss on
sale of assets was also excluded in the adjusted pro forma view.
GAAP earnings per share in the fiscal 2006 third quarter were calculated on 53.0
million diluted shares outstanding, compared with 53.1 million diluted shares
outstanding in fiscal 2007 third quarter.
See table below for reconciliation of GAAP financial results to pro forma
amounts:
QUARTER ENDED NINE MONTHS ENDED
------------------------- ---------------------------
(in thousands, except earnings per share data) 10/31/2006* 10/31/2005* 10/31/2006** 10/31/2005**
----------- ----------- ------------ ------------
Income from continuing operations 4,831 6,083 12,184 11,830
Amortization of acquired intangible assets 1,745 2,069 5,164 4,910
Integration, relocation and severance charges 1,555 -- 2,301 --
Merger and acquisition costs* -- -- -- 1,840
Net loss on sales of property, plant and equipment 117 -- 117 --
Tax impact -- -- (160) 426
Alliance's net income for February 2005 -- -- -- 1,476
Compensation charge related to FAS 123R -- -- 240 --
Insurance proceeds from hurricane -- 620 -- 623
------ ------ ------ ------
Pro forma income from continuing operations 8,248 8,772 19,846 21,105
====== ====== ====== ======
Diluted shares 53,120 53,012 53,190 52,947***
EPS 0.16 0.17 0.37 0.40
* Amounts shown net of tax using 40% and 38% effective tax rates for the
three months ended October 31, 2006 and 2005, respectively.
** Amounts shown net of tax using 40% and 37.7% effective tax rates for the
nine months ended October 31, 2006 and 2005, respectively.
*** Pro forma diluted shares
FISCAL 2007 THIRD QUARTER SEGMENT RESULTS
CD AND DVD FULFILLMENT SEGMENT - The CD and DVD Fulfillment segment reported
GAAP revenue of $233.3 million. Revenue increased 3.0% or $6.9 million from the
prior year period. The revenue increase is due primarily to higher DVD sales.
These sales gains were partially offset by a comparatively softer CD and DVD
release schedule in the current quarter relative to the third quarter of the
prior year. In addition, Hurricane Wilma struck Coral Springs during the third
quarter of fiscal year 2006, which significantly disrupted shipments during the
final week of the quarter. GAAP gross profit totaled $44.2 million. GAAP gross
margins increased to 18.9% from 17.8% 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 $0.3
million from the prior year period to $11.9 million. Higher operating expenses
in the quarter were due primarily to higher freight, field service and
depreciation and amortization. Adjusted pro forma operating margins were 5.1% in
the current year third quarter and the prior year period.
For the nine month period ended October 31, 2006, the CD and DVD fulfillment
segment reported GAAP revenue of $672.1 million, operating income of $23.9
million, and gross margin of 18.3%. For comparative purposes, revenue for the
first nine months of last year was $583.5 million, operating income was $22.9
million, and gross margin was 17.9%. Pro forma revenue for the nine month period
ended October 31, 2005 was $656.7 million. Gross margin for the nine month
period ended October 31, 2006 was 18.3% compared to the adjusted pro forma gross
margin of 17.7% for the prior year nine month period. Pro forma operating
margins decreased from 4.8% in the prior period to 4.4% in the current period.
MAGAZINE FULFILLMENT SEGMENT - The Company's Magazine Fulfillment segment, which
includes the distribution service areas in Southern California and Washington
D.C./Baltimore acquired as of March 30, 2006, reported GAAP revenue of $222.2
million compared with $176.7 million in the prior year period, an increase of
25.7%. Higher revenues reflect a full-quarter of business from the recently
acquired service areas. GAAP gross margins increased from 22.1% in the prior
year period to 24.2% in the current period as a result improved pricing from
certain suppliers. Adjusted pro forma operating income increased to $6.5 million
in the fiscal 2007 third quarter from $5.7 million in the prior year period, a
14.7% increase. Adjusted pro forma operating margins decreased slightly from
3.2% in the prior year period to 2.9% in the current period.
For the nine month period ended October 31, 2006, the Magazine Fulfillment
segment reported GAAP revenue of $640.5 million, compared with $415.2 million in
the prior year period, an increase of 54.3% due primarily to a full nine month
impact of the Levy magazine distribution business and seven months of the
Southern California and Washington D.C./Baltimore service areas in the current
year. Gross margin increased to 23.1% in the current period from 22.8% in the
prior year period. Adjusted pro forma operating income was $17.5 million,
compared with $14.2 million in the prior year period. Pro forma operating
margins decreased to 2.7% in the current period from 3.4% in the prior year
period primarily due to addition of sales from the Levy and the Southern
California and Washington D.C./Baltimore service area acquisitions, which carry
lower incremental margins in advance of the realization of synergies.
IN-STORE SERVICES SEGMENT - The In-Store Services segment recorded GAAP revenue
of $20.3 million in the fiscal 2007 third quarter, compared with $22.7 million
in the year-ago quarter, primarily due to comparatively fewer remodels and new
store openings performed by our major customers in our wood division. Operating
income for the fiscal 2007 third quarter was $4.9 million, versus $4.5 million
in the prior year period due to a higher proportion of revenue derived from
profitable wire business.
For the nine month period ended October 31, 2006, In-Store Services segment
reported GAAP revenue of $59.3 million, compared with $55.4 million in the prior
year period. Adjusted pro forma
operating income for the nine month period ended October 31, 2006, was $12.9
million, versus $10.0 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 third
quarter of $6.0 million, compared with $5.8 million in the prior year period.
Shared Services as a percentage of consolidated revenue was 1.3% for the fiscal
2007 third quarter. For the nine month period ended October 31, 2006, shared
services as a percentage of revenue decreased to 1.3% from 1.4% as compared to
the prior year nine month period.
RECENT BUSINESS DEVELOPMENTS
- On November 13, 2006, the Company announced the resignation of
Chairman and CEO S. Leslie Flegel. Michael R. Duckworth was named
Chairman, and James R. Gillis and Alan Tuchman were appointed Interim
Co-Chief Executive Officers. Source Interlink's Board of Directors
will commence a formal search for a permanent CEO.
- On November 30, 2006, the Company announced that it reduced the number
of Board members to nine, from 11 members previously. In addition to
S. Leslie Flegel's previously announced resignation, A. Clinton Allen
also announced his resignation from the Source Interlink Board.
- Source Interlink's fiscal 2006 Annual Meeting of Stockholders will be
held on January 29, 2007 at 9:00 a.m. Eastern Time, at the Company's
principal executive offices at 27500 Riverview Center Blvd., Bonita
Springs, Florida. Stockholders of record as of the close of business
on December 7, 2006 will be entitled to vote on matters considered at
the meeting.
FISCAL 2007 THIRD QUARTER CONFERENCE CALL
Source Interlink Companies, Inc. will host a teleconference to discuss its
fiscal 2007 third quarter results on Monday, December 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, December 18, 2006 that can be accessed by dialing
877-519-4471 (U.S. callers) or 973-341-3080 (Int'l callers), passcode: 8126814.
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, (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:
Dean Heine
Investor Relations
Source Interlink Companies, Inc.
212-683-0376
dheine@sourceinterlink.com
Todd St.Onge
Brainerd Communicators
212-986-6667
stonge@braincomm.com
Media:
Nancy Zakhary
Brainerd Communicators
212 986-6667
nancy@braincomm.com
Tables follow:
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
October 31, January 31,
2006 2006
----------- -----------
(unaudited)
ASSETS
Current assets
Cash $ 1,200 $ 23,239
Trade receivables, net 161,434 129,782
Purchased claims receivable 12,463 9,922
Inventories 273,074 198,483
Income tax receivable -- 2,180
Deferred tax asset 18,963 16,403
Other 6,377 6,058
---------- --------
TOTAL CURRENT ASSETS 473,511 386,067
---------- --------
Property, plants and equipment 99,290 89,971
Less accumulated depreciation and amortization (27,951) (23,255)
---------- --------
NET PROPERTY, PLANTS AND EQUIPMENT 71,339 66,716
---------- --------
OTHER ASSETS
Goodwill, net 430,129 302,293
Intangibles, net 123,962 118,988
Other 10,108 10,408
---------- --------
TOTAL OTHER ASSETS 564,199 431,689
---------- --------
TOTAL ASSETS $1,109,049 $884,472
========== ========
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
October 31, January 31,
2006 2006
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses (net
of allowance for returns of $184,822 and
$167,423 at October 31, 2006 and January
31, 2006, respectively) $ 419,256 $321,074
Deferred revenue 2,433 3,226
Current portion of obligations under
capital leases 910 476
Current maturities of debt 7,591 6,508
Income taxes payable 209 --
---------- --------
TOTAL CURRENT LIABILITIES 430,399 331,284
Deferred tax liability 36,532 4,526
Obligations under capital leases 1,287 1,118
Debt, less current maturities 160,913 80,727
Other 6,107 7,224
---------- --------
TOTAL LIABILITIES 635,238 424,879
---------- --------
TOTAL STOCKHOLDERS' EQUITY 473,811 459,593
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,109,049 $884,472
========== ========
SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three months ended Nine months ended
October 31, October 31,
------------------- -----------------------
2006 2005 2006 2005
-------- -------- ---------- ----------
Revenues $475,775 $425,859 $1,371,882 $1,054,070
Cost of revenues (including depreciation of
$192, $311, $733, and $904, respectively) 370,852 339,765 1,081,179 838,442
-------- -------- ---------- ----------
Gross profit 104,923 86,094 290,703 215,628
Selling, general and administrative
expense 57,683 48,355 166,430 125,001
Fulfillment freight 26,752 20,151 73,779 48,841
Depreciation and amortization 6,174 4,926 17,991 12,271
Merger and acquisition charges -- -- -- 3,094
Integration and relocation expense 2,582 -- 3,297 --
Disposal of land, buildings and equipment, net 152 -- 681 --
-------- -------- ---------- ----------
Operating income 11,580 12,662 28,525 26,421
-------- -------- ---------- ----------
Other income (expense):
Interest expense (including amortization of
deferred financing fees of
$151, $184, $455, and $486, respectively) (3,561) (1,964) (8,698) (4,642)
Interest income 41 68 153 158
Other (8) 84 62 233
-------- -------- ---------- ----------
Total other expense (3,528) (1,812) (8,483) (4,251)
-------- -------- ---------- ----------
Income from continuing operations, before income
taxes 8,052 10,850 20,042 22,170
Income tax expense 3,221 4,767 7,858 10,340
-------- -------- ---------- ----------
Income from continuing operations 4,831 6,083 12,184 11,830
Loss from discontinued operations, net of tax -- -- -- (1,446)
-------- -------- ---------- ----------
Net income $ 4,831 $ 6,083 $ 12,184 $ 10,384
======== ======== ========== ==========
Earnings per share - basic:
Continuing operations $ 0.09 $ 0.12 $ 0.24 $ 0.24
Discontinued operations -- -- -- (0.03)
-------- -------- ---------- ----------
Total $ 0.09 $ 0.12 $ 0.24 $ 0.21
======== ======== ========== ==========
Earnings per share - diluted:
Continuing operations $ 0.09 $ 0.11 $ 0.23 $ 0.24
Discontinued operations -- -- -- (0.03)
-------- -------- ---------- ----------
Total $ 0.09 $ 0.11 $ 0.23 $ 0.21
======== ======== ========== ==========
Weighted average common shares outstanding - basic 51,914 51,305 51,812 48,318
Weighted average common shares outstanding - diluted 53,120 53,012 53,190 50,188