Exhibit 99.1
Image Entertainment Reports Financial Results for Fiscal 2007
Second Quarter and Six Months Ended September 30, 2006
CHATSWORTH, Calif.--(BUSINESS WIRE)--Nov. 14, 2006--Image
Entertainment, Inc. (Nasdaq: DISK), a leading independent licensee,
producer and distributor of home entertainment programming in North
America, today reported financial results for its second quarter and
six months ended September 30, 2006.
Fiscal 2007 Second Quarter Financial Highlights
-- Net revenues were $22.8 million, compared to $23.7 million for
September 2005 quarter.
-- Digital revenues increased to $205,000, compared to $29,000
for the September 2005 quarter.
-- Gross margins were 17.5%, compared to 25.0% for September 2005
quarter.
-- Selling expenses were 11.8% of net revenues, up from 11.3% of
net revenues for the second quarter of fiscal 2005, due in
part to the spreading of fixed costs over lower quarterly
revenues.
-- General and administrative expenses were up 24.7%, or
$911,000, for the second quarter of fiscal 2007, due to
incremental expenses during the quarter of $939,000 which
included a net expense charge of $496,000 as a result of the
Tower bankruptcy filing and $443,000 in expenses related to
the Lions Gate contested proxy vote, the special committee of
our board of directors' process and investment banker analysis
of the Relativity agreement.
-- Net loss of ($3,791,000), or ($0.18) per diluted share, which
includes $496,000 associated with the Tower bankruptcy filing
and $443,000 associated with the Lions Gate, special committee
and Relativity, or ($0.04) per diluted share, compared to net
loss of ($613,000), or ($0.03) per diluted share for the
second quarter of fiscal 2006.
-- Current assets less current liabilities were $21.5 million, up
from $4 million at March 31, 2006 due to our long-term debt
financings during the last two quarters.
-- At September 30, 2006, we had cash of $1.9 million, no
borrowings outstanding under our bank revolving line of credit
and had borrowing availability of $11.6 million.
Fiscal 2007 Six Months Ended September 30, 2006 Highlights
-- Net revenues were up slightly to $45.2 million, compared to
$42.3 million for the first six months of fiscal 2006.
-- Digital revenues increased to $465,000, compared to $44,000
for the first six months of fiscal 2006.
-- Gross margins were 18.0%, compared to 24.3% for the first six
months of fiscal 2006.
-- Selling expenses were 11.2% of net revenues, down from 12.7%
of net revenues for first six months of fiscal 2006, due in
part to reductions in advertising expenditures.
-- General and administrative expenses were up $1,431,000, or
20.4%, from that for the first six months of fiscal 2006, with
$1,144,000 of the increase attributable to the Tower
bankruptcy charge and the expenses related to the Lions Gate
contested proxy vote, the special committee of our board of
directors' process and investment banker analysis of the
Relativity agreement.
-- Net loss of ($6,105,000), or ($0.29) per diluted share,
compared to net loss of ($2,265,000), or ($0.11) per diluted
share for the first six months of fiscal 2006.
Best selling DVD releases for the quarter included Bob & Tom
Comedy Tour, Yanni Live (DVD & CD), Katt Williams Live, Black Magic,
and Criterion's reissues of Seven Samurai and Brazil.
Martin W. Greenwald, president and chief executive officer of
Image Entertainment, commented, "This past quarter was a difficult
one. The DVD market continues to mature with significant changes
occurring in the retail environment. During the year we saw two
bankruptcy filings and closures of two significant Image customers,
Musicland in January and Tower Records in August. As a result of this
and other market factors, DVD shelf space is contracting at brick and
mortar retailers across the country. This market shift is affecting
independents and major studios alike. We are adapting to these changes
by stepping up our sales efforts to online retailers and the
distributors who support them, such as Amazon, Netflix, Critic's
Choice, AEC and Baker & Taylor. We are beginning to see results from
our efforts as sales to this class of customers significantly
increased compared to the same six-month period last year."
Mr. Greenwald continued, "In light of our recent financial
performance, we have began a restructuring of our company, which we
believe will help return us to profitability. On November 9, we
reduced our workforce by approximately 17%. This move, in addition to
other cost-saving measures related to our Las Vegas distribution
operation and the pending closure of our London content acquisitions
office, should cut annual expenses by approximately $3.8 million."
Mr. Greenwald concluded, "In the past, as the market for DVDs was
growing, Image was well-positioned to take advantage of that growth.
Now, we are faced with a brand new landscape. As a result, we are
responding with a leaner, more efficient and effective Image. We
remain confident in our strong and diverse catalogue, our cutting-edge
digital rights initiative, our feature films initiative and other
excellent programming that we will be releasing in the near future.
Although the currently market environment remains difficult we believe
that Image remains a strong independent presence in both the home
video and digital distribution marketplace. We remain optimistic about
the future and will continue to adjust our business model to the
changing environment accordingly."
Management's Plan to Reduce Operating Costs
In an effort to reduce operating costs and achieve profitability,
management has embarked on several cost reducing initiatives that
should initially reduce annual expenses by approximately $3.8 million.
-- On November 9, 2006, we laid off 27 employees spread
throughout various departments of the company, who along with
an additional six employees who recently left us through
attrition and were not replaced, reduces our personnel
headcount by 33, resulting in a reduction in our workforce of
approximately 16%. Annual expense savings from this cost
savings initiative, including salary and benefits, total an
estimated $2.2 million. The expense savings will be reflected
primarily in selling and general and administrative expenses
and amortization of non-recoupable production costs (cost of
sales) on a go-forward basis.
-- We plan to close our Image UK content acquisitions office by
November 30, 2006, saving annual expenses of approximately
$400,000. Of the $400,000 in savings, $235,000 is compensation
related and is not included in the $2.2 million in annual
expense savings from reduced head count discussed above. The
expense savings will be reflected in general and
administrative expenses on a go-forward basis. The UK office
was used primarily as a focal point for the acquisition of
programming not available in North America. We believe that
the realignment of our acquisition efforts should allow us to
close this satellite office.
-- We are making changes in our freight policy and reducing
distribution facility expenses, such as temporary labor,
employee overtime, utilities and cost of supplies. We expect
an immediate annual expense savings from these initiatives of
approximately $500,000. The expense savings will be reflected
in cost of sales on a go-forward basis.
-- Our successfully-implemented vendor management inventory (VMI)
system is affording us approximately $200,000 in annual
savings based upon net expense savings generated by reduced
freight costs. The expense savings will be reflected in cost
of sales on a go-forward basis.
-- We plan to increase the number of new release shipments
directly from our new disc manufacturer, Sonopress. This will
result in net expense freight savings of approximately
$100,000. The expense savings will be reflected in cost of
sales on a go-forward basis.
-- We are planning to reduce third-party professional services
that will save approximately $180,000 annually beginning
January 1, 2007.
-- We have implemented our content rights management system and
expect future comparative savings from outside consultants to
be approximately $300,000 annually beginning January 1, 2007.
-- We expect to record one-time charges for severance associated
with the involuntary termination of our employees and to
accrue for the remaining rent of our Image UK office totaling
approximately $530,000 in our third quarter ending December
31, 2006.
Although management believes these cost reducing initiatives
appropriately balance the need to cut expenses with the current
demands of our daily operations, we plan to monitor ongoing expenses
aggressively and proactively.
Fiscal Year 2007 Guidance
The following statements are based on the Company's current
expectations. These statements are forward-looking, and actual results
may differ materially.
Annual Guidance
The Company expects that revenues for fiscal 2007 will be in the
range of $98 million to $103 million, lower than the previously
projected guidance, which had been in the range of $112 million to
$120 million. The Company has not provided specific earnings guidance
but anticipates that it will incur a net loss for fiscal 2007, lower
than the previously projected guidance, which had been profitability.
Third Quarter of Fiscal 2007 Ending December 31, 2006 Guidance
The Company believes that net revenues for the third quarter
ending December 31, 2006, will be in the range between $26 million to
$28 million, which, will result in a net loss for the quarter. The
Company expects the anticipated net loss to be primarily attributable
to the one-time charges for severance and UK office closure costs of
approximately $530,000 and noncash interest expenses associated with
amortization of the warrant issued in its recent debt financing and
amortization of related deferred financing costs together totaling an
additional $225,000.
Corporate Conference Call
Image Entertainment's management will host a conference call
today, November 14, at 4:30 p.m. ET to review the fiscal 2007 second
quarter financial results. Martin W. Greenwald, CEO, Jeff Framer, CFO,
and David Borshell, COO, will be on-line to discuss these results and
take part in a Q & A session. The call can be accessed by dialing
800-946-0745 and requesting to join the conference call by stating the
confirmation code 8810746, or by webcast at
www.image-entertainment.com. Dial-ins begin at approximately 4:20 PM
EASTERN, or at any time during the conference call. International
participants please dial (719) 457-2652.
A replay of the conference call will be available beginning two
hours after the call and for the following five business days by
dialing 888-203-1112 and entering the following pass code: 8810746.
International participants please dial (719) 457-0820 using the same
pass code.
About Image Entertainment:
Image Entertainment, Inc. is a leading independent licensee,
producer and distributor of home entertainment programming in North
America, with over 3,000 exclusive DVD titles and approximately 200
exclusive CD titles in domestic release and approximately 300 programs
internationally via sublicense agreements. For many of its titles, the
Company has exclusive audio and broadcast rights and, through its
subsidiary Egami Media, Inc., has digital download rights to more than
1,700 video programs and over 170 audio programs containing more than
2,500 tracks. The Company is headquartered in Chatsworth, California,
and has a domestic distribution facility in Las Vegas, Nevada. For
more information about Image Entertainment, Inc., please go to
www.image-entertainment.com.
Forward-Looking Statements:
This press release includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
relating to, among other things, our goals, plans and projections
regarding our financial position, results of operations, market
position, product development and business strategy. These statements
may be identified by the use of words such as "will," "may,"
"estimate," "expect," "intend," "plan," "believe," and other terms of
similar meaning in connection with any discussion of future operating
or financial performance. All forward-looking statements are based on
management's current expectations and involve inherent risks and
uncertainties, including factors that could delay, divert or change
any of them, and could cause action outcomes and results to differ
materially from current expectations.
These factors include, among other things, our inability to raise
additional working capital, changes in debt and equity markets,
increased competitive pressures, changes in our business plan, and
changes in the retail DVD and entertainment industries. For further
details and a discussion of these and other risks and uncertainties,
see "Forward-Looking Statements" and "Risk Factors" in our most recent
Annual Report on Form 10-K, and our most recent Quarterly Report on
Form 10-Q. Unless otherwise required by law, we undertake no
obligation to publicly update any forward-looking statement, whether
as a result of new information, future events or otherwise.
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, 2006 and March 31, 2006
ASSETS
(In thousands) September 30, 2006 March 31, 2006
------------------ --------------
Current assets:
Cash and cash equivalents $1,950 $1,079
Accounts receivable, net of
allowances of
$8,728 - September 30, 2006;
$9,172 - March 31, 2006 19,604 17,162
Inventories 17,738 17,498
Royalty and distribution fee
advances 13,928 13,366
Prepaid expenses and other assets 1,938 948
------------------ --------------
Total current assets 55,158 50,053
------------------ --------------
Noncurrent inventories, principally
production costs 2,912 2,805
Noncurrent royalty and distribution
advances 25,365 23,558
Property, equipment and improvements,
net 4,661 4,999
Goodwill 5,715 5,715
Other assets 1,418 545
------------------ --------------
$95,229 $87,675
================== ==============
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, 2006 and March 31, 2006
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share data) September 30, 2006 March 31, 2006
------------------ --------------
Current liabilities:
Accounts payable $7,854 $5,302
Accrued liabilities 4,378 4,234
Accrued royalties and distribution
fees 7,076 13,355
Accrued music publishing fees 6,085 5,890
Deferred revenue 6,859 5,751
Revolving credit facility -- 11,500
Current portion of long-term debt,
less debt discount 1,450 --
------------------ --------------
Total current liabilities 33,702 46,032
------------------ --------------
Long-term debt, less current portion,
less debt discount 21,935 --
------------------ --------------
Other long-term liabilities, less
current portion 3,507 --
------------------ --------------
Total liabilities 59,144 46,032
------------------ --------------
Stockholders' equity:
Preferred stock, $.0001 par value,
25 million shares authorized;
none issued and outstanding -- --
Common stock, $.0001 par value,
100 million shares authorized;
21,576,000 issued and outstanding
at September 30, 2006 and
21,296,000 at March 31, 2006 47,865 47,518
Additional paid-in capital 3,984 3,790
Accumulated other comprehensive
gain (loss) 2 (4)
Accumulated deficit (15,766) (9,661)
------------------ --------------
Net stockholders' equity 36,085 41,643
------------------ --------------
$95,229 $87,675
================== ==============
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended September 30, 2006 and 2005
(In thousands, except per share data) 2006 2005
--------------- ---------------
NET REVENUES $22,842 100.0 % $23,737 100.0 %
-------- ------ -------- ------
OPERATING COSTS AND EXPENSES:
Cost of sales 18,856 82.5 17,807 75.0
Selling expenses 2,701 11.8 2,675 11.3
General and administrative expenses 4,597 20.1 3,686 15.5
-------- ------ -------- ------
26,154 114.5 24,168 101.8
-------- ------ -------- ------
LOSS FROM OPERATIONS (3,312) (14.5) (431) (1.8)
OTHER EXPENSES (INCOME):
Interest expense, net 479 2.1 182 0.8
Other -- -- -- --
-------- ------ -------- ------
479 2.1 182 0.8
-------- ------ -------- ------
LOSS BEFORE INCOME TAXES (3,791) (16.6) (613) (2.6)
INCOME TAXES -- -- -- --
-------- ------ -------- ------
NET LOSS $(3,791) (16.6)% $(613) (2.6)%
======== ====== ======== ======
NET LOSS PER SHARE:
Net loss - basic and diluted $(.18) $(.03)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted 21,478 21,252
======== ========
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Six Months Ended September 30, 2006 and 2005
(In thousands, except per share data) 2006 2005
--------------- ---------------
NET REVENUES $45,189 100.0 % $42,323 100.0 %
-------- ------ -------- ------
OPERATING COSTS AND EXPENSES:
Cost of sales 37,048 82.0 32,020 75.7
Selling expenses 5,043 11.2 5,366 12.7
General and administrative expenses 8,443 18.7 7,012 16.6
-------- ------ -------- ------
50,534 111.8 44,398 104.9
-------- ------ -------- ------
LOSS FROM OPERATIONS (5,345) (11.8) (2,075) (4.9)
OTHER EXPENSES (INCOME):
Interest expense, net 760 1.7 194 0.5
Other -- (0.0) (4) (0.0)
-------- ------ -------- ------
760 1.7 190 0.4
-------- ------ -------- ------
LOSS BEFORE INCOME TAXES (6,105) (13.5) (2,265) (5.4)
INCOME TAXES -- -- -- --
-------- ------ -------- ------
NET LOSS $(6,105) (13.5)% $(2,265) (5.4)%
======== ====== ======== ======
NET LOSS PER SHARE:
Net loss - basic and diluted $(.29) $(.11)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted 21,387 21,252
======== ========
CONTACT: Image Entertainment, Inc.
Jeff Framer, 818-407-9100 ext. 299
jframer@image-entertainment.com
or
Investor Relations:
MKR Group, LLC
Charles Messman or Todd Kehrli, 818-556-3700
ir@mkr-group.com
or
Corporate/Press Contact:
THE HONIG COMPANY, INC.
Steve Honig, 310-246-1801
press@honigcompany.com