EX-99.1 2 exhibit991.htm DECEMBER 10, 2008 PRESS RELEASE OF SOURCE INTERLINK COMPANIES, INC. exhibit991.htm
SOURCE INTERLINK COMPANIES REPORTS
FISCAL THIRD QUARTER 2009 RESULTS

 
Bonita Springs, Florida (December 10, 2009) – Source Interlink Companies, Inc. (NASDAQ: SORC) one of the largest publishers of magazines and online content for enthusiast audiences and a leading distributor of DVDs, CDs, magazines, video games and books, today announced financial results for the fiscal 2009 third quarter ending October 31, 2008.
 

The following table presents its summary consolidated results of operations (in millions):


 
Adjusted Results
    
GAAP Results
  
 
3Q09
3Q08
% Change
  
3Q09
3Q08
% Change
               
 Revenues, net
 $    592.6
 $    640.1
(7.4)%
  
 $    591.7
 $    639.1
(7.4)%
 Operating Income (Loss)
 $      40.2
 $      45.9
(12.4)%
  
 $      (6.5)
 $      29.5
(122.0)%
 EBITDA
 $      47.9
 $      52.5
(8.8)%
  
 N/A
 N/A
  
 Income from Continuing
              
 Operations
 $        9.7
 $      12.6
(22.5)%
  
 $    (36.6)
 $      (4.5)
(720.4)%
 EPS - Diluted
 $      0.19
 $      0.24
(20.8)%
  
 $    (0.70)
 $    (0.09)
(677.8)%
               
 
Adjusted Results
    
GAAP Results
  
 
YTD 09
YTD 08
% Change
  
YTD 09
YTD 08
% Change
               
 Revenues, net
 $ 1,785.3
 $ 1,549.7
15.2 %
  
 $ 1,782.8
 $ 1,548.7
15.1 %
 Operating Income (Loss)
 $    110.0
 $      68.5
60.6 %
  
 $  (243.0)
 $      44.9
(641.4)%
 EBITDA
 $    133.1
 $      82.4
61.5 %
  
 N/A
 N/A
  
 Income from Continuing
              
 Operations
 $      24.7
 $      22.5
10.0 %
  
 $  (333.3)
 $        1.2
NM
 EPS - Diluted
 $      0.47
 $      0.43
9.3 %
  
 $    (6.37)
 $      0.02
NM
               
 NM - Result of calculation is not meaningful.
          


Greg Mays, Source Interlink Chairman and CEO commented on the quarter, “In the face of a very challenging macro-economic environment, Source’s performance in the third quarter was especially satisfying.  The concerted effort by our management team allowed us to execute on accelerating critically needed consolidations of our distribution and sales operations, streamlining our publishing business, and re-engineering certain functions within  our shared services organization; all of which will yield significant cost savings and better position Source  to take advantage of future opportunities in the months and years ahead.”

“We are extremely focused on improving performance and building the value in each of our individual businesses.  We believe we can gain greater efficiencies and build scale to develop an even stronger distribution system.  To that end, we are aggressively pursuing vendors and customers to gain market share with both traditional brick and mortar and digital retailers.  Our publishing business is concentrating on managing editorial and production costs, capturing new advertisers intent on reaching our demographics, and expanding our digital platform,” continued Mays.

“As we work toward these goals, our business fundamentals remain strong and we expect to see improved financial performance.  We believe that the aggressive actions taken thus far, and the potential for yet additional cost savings, will better enable us to compete most effectively and ensure our long-term success,” Mays concluded.

ABOUT ADJUSTED FINANCIAL MEASURES

The Company uses both Generally Accepted Accounting Principles (GAAP), and non-GAAP or adjusted financial measures, to evaluate and report the results of its business.  A reconciliation of the non-GAAP financial measures to the comparable GAAP financial measure is available on the Company’s home page at www.sourceinterlink.com by selecting “Reconciliation of Non-GAAP Financial Measures.”

The Company provides non-GAAP or adjusted 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 those disclosed in this release. This information facilitates management's internal comparisons to the Company's historical operating results.

Non-GAAP or adjusted 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 acquired intangible assets, impairment charges, certain reserves for the Circuit City Chapter 11 bankruptcy filing, charges incurred to consolidate and integrate distribution facilities of recently acquired businesses and non-cash stock-based compensation 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 information provided by the Company may be different from the non-GAAP or adjusted information provided by other companies.

 
 
 

SEGMENT FINANCIAL PERFORMANCE

The following tables present the Company’s summary segment results of operations (in millions):


   
Three Months Ended October 31,
    
Change
    
Nine Months Ended October 31,
    
Change
  
   
2008
    
2007
    
Amount
    
Percent
    
2008
    
2007
    
Amount
    
Percent
  
                                                 
 GAAP Operating Results:
                                                
                                                 
 Source Interlink Media
                                                
 Revenues, net
   $ 115.2     $ 132.9     $ (17.7 )     (13.4 )%   $ 363.0     $ 132.9     $ 230.1       173.1 %
 Operating Income (Loss)
   $ 10.6     $ 15.6     $ (5.0 )     (32.0 )%   $ (234.5 )   $ 15.6     $ (250.0 )     (1607.8 )%
                                                                 
 Source Interlink Distribution
                                                                
 Periodical Fulfillment Services
                                                                
 Revenues, net
   $ 244.5     $ 253.2     $ (8.7 )     (3.4 )%   $ 765.7     $ 736.7     $ 29.0       3.9 %
 Operating (Loss) Income
   $ (12.9 )   $ 9.6     $ (22.4 )     (234.4 )%   $ (0.9 )   $ 23.4     $ (24.3 )     (103.8 )%
                                                                 
 DVD/CD Fulfillment
                                                                
 Revenues, net
   $ 239.1     $ 261.1     $ (22.0 )     (8.4 )%   $ 675.5     $ 687.1     $ (11.6 )     (1.7 )%
 Operating Income
   $ 1.1     $ 9.2     $ (8.1 )     (88.2 )%   $ 9.3     $ 19.6     $ (10.4 )     (52.8 )%
                                                                 
 Shared Services
                                                                
 Operating Loss
   $ (5.3 )   $ (4.8 )   $ (0.5 )     (9.5 )%   $ (16.9 )   $ (13.7 )   $ (3.2 )     (23.4 )%
                                                                 
 Consolidated
                                                                
 Revenues, net
   $ 591.7     $ 639.1     $ (47.4 )     (7.4 )%   $ 1,782.8     $ 1,548.7     $ 234.1       15.1 %
 Operating (Loss) Income
   $ (6.5 )   $ 29.5     $ (36.0 )     (122.0 )%   $ (243.0 )   $ 44.9     $ (287.9 )     (641.4 )%
                                                                 
 Adjusted Operating Results:
                                                                
                                                                 
 Source Interlink Media
                                                                
 Revenues, net
   $ 116.0     $ 133.9     $ (17.9 )     (13.4 )%   $ 365.5     $ 133.9     $ 231.7       173.0 %
 Operating Income
   $ 21.8     $ 26.5     $ (4.7 )     (17.7 )%   $ 69.5     $ 26.5     $ 43.0       162.3 %
 EBITDA
   $ 24.7     $ 30.0     $ (5.3 )     (17.7 )%   $ 78.4     $ 30.0     $ 48.4       161.2 %
                                                                 
 Source Interlink Distribution
                                                                
 Periodical Fulfillment Services
                                                                
 Revenues, net
   $ 244.5     $ 253.2     $ (8.7 )     (3.4 )%   $ 765.7     $ 736.7     $ 29.0       3.9 %
 Operating Income
   $ 9.4     $ 12.1     $ (2.7 )     (22.0 )%   $ 29.3     $ 28.4     $ 0.9       3.2 %
 EBITDA
   $ 11.4     $ 13.0     $ (1.6 )     (12.0 )%   $ 34.6     $ 31.8     $ 2.8       8.9 %
                                                                 
 DVD/CD Fulfillment
                                                                
 Revenues, net
   $ 239.1     $ 261.1     $ (22.0 )     (8.4 )%   $ 675.5     $ 687.1     $ (11.6 )     (1.7 )%
 Operating Income
   $ 12.6     $ 11.8     $ 0.8       6.8 %   $ 24.4     $ 26.7     $ (2.3 )     (8.6 )%
 EBITDA
   $ 14.7     $ 13.5     $ 1.3       9.4 %   $ 31.0     $ 32.1     $ (1.1 )     (3.5 )%
                                                                 
 Shared Services
                                                                
 Operating Loss
   $ (3.6 )   $ (4.4 )   $ 0.8       17.3 %   $ (13.2 )   $ (13.1 )   $ (0.1 )     (0.4 )%
 EBITDA
   $ (2.9 )   $ (3.9 )   $ 1.0       25.9 %   $ (10.9 )   $ (11.5 )   $ 0.6       5.4 %
                                                                 
 Consolidated
                                                                
 Revenues, net
   $ 592.6     $ 640.1     $ (47.5 )     (7.4 )%   $ 1,785.3     $ 1,549.7     $ 235.6       15.2 %
 Operating Income
   $ 40.2     $ 45.9     $ (5.7 )     (12.4 )%   $ 110.0     $ 68.5     $ 41.5       60.6 %
 EBITDA
   $ 47.9     $ 52.5     $ (4.6 )     (8.8 )%   $ 133.1     $ 82.4     $ 50.7       61.5 %



 
 
 


 
Three Months Ended October 31,
  
Nine Months Ended October 31,
 
 2008
 2007
     Change
 
  
 2008
 2007
 Change
                 
 Adjusted Key Operating Measures:
                
                 
 Source Interlink Media
                
 Segment Revenue % of
                
 Consolidated Revenues, net
19.6 %
20.9 %
(1.3)%
    
20.5 %
8.6 %
11.8 %
 Gross Profit Margin
72.5 %
73.4 %
(0.9)%
    
72.8 %
73.4 %
(0.7)%
 Operating Income Margin
18.1 %
19.8 %
(1.7)%
    
18.8 %
19.8 %
(1.0)%
                 
 Source Interlink Distribution
                
 Periodical Fulfillment Services
                
 Segment Revenue % of
                
 Consolidated Revenues, net
41.3 %
39.6 %
1.7 %
    
42.9 %
47.5 %
(4.7)%
 Gross Profit Margin
24.3 %
24.1 %
0.2 %
    
24.0 %
24.1 %
(0.1)%
 Operating Income Margin
1.6 %
1.9 %
(0.3)%
    
1.6 %
1.8 %
(0.2)%
                 
 DVD/CD Fulfillment
                
 Segment Revenue % of
                
 Consolidated Revenues, net
40.4 %
40.8 %
(0.4)%
    
37.8 %
44.3 %
(6.5)%
 Gross Profit Margin
17.6 %
17.1 %
0.4 %
    
17.3 %
17.6 %
(0.3)%
 Operating Income Margin
1.4 %
4.5 %
(3.2)%
    
2.2 %
3.9 %
(1.7)%
                 
 Shared Services
                
 Shared Services Operating
                
 Expenses % of Consolidated
                
 Revenues, net
0.6 %
0.7 %
(0.1)%
    
0.7 %
0.8 %
(0.1)%

 
Source Interlink Media Segment

·  
Q309:
·  
Segment Adjusted Revenue declined primarily due to weakness in the print advertising markets, particularly within the automotive and marine sectors.
·  
Segment Adjusted Operating Income and Adjusted EBITDA declined due to the effects of declining advertising revenues, partially offset by the effects of the Company’s cost structure rationalization initiatives.  These initiatives are expected to result in approximately $11 million in cost savings on an annual run-rate basis.
·  
YTD 09:
·  
Segment results increased over the prior year due to the inclusion of results in the prior year period beginning on August 1, 2007. For comparative purposes proforma adjusted revenue and adjusted EBITDA for the nine-month period ending October 31, 2007 was $412.1 million and $95.7 million, respectively.

Periodical Fulfillment Services Segment

·  
Q309:
·  
Segment Revenue declined due in part to economic conditions which have reduced the amount of discretionary income available to our trading partners’ customers, leading to an overall reduction in net revenues compared with the same quarter last year.  Declining distribution revenue due to economic conditions has been partially offset by higher volume in manufacturing.
·  
Segment Adjusted Operating Income and Adjusted EBITDA declined primarily due to the decrease in revenue noted above.



·  
YTD 09:
·  
Segment Revenue increased due in part to the impact of the segment winning an exclusive distribution agreement with a major bookstore customer in the third quarter of the prior year as well as increased manufacturing revenues of $8.0 million.
·  
Segment Adjusted Operating Income and Adjusted EBITDA increased primarily due to the impact of increased revenues.  This increase was partially offset by increased Information Technology expenses associated with our continued integration.
 
 
 
DVD and CD Fulfillment Segment

·  
Q309:
·  
Segment Revenue declined primarily due in part to weakness in consumer demand for pre-recorded music.  Sales of CDs were $107.4 million, or 45% of total segment revenues in third quarter versus $136.2 million, or 52% of revenues in the prior year’s period.  Sales of DVDs were $126.9 million, or 53% of total segment revenues in the third quarter versus $121.1 million, or 46% of revenues in the prior year’s period.
·  
Segment Adjusted Operating Income and Adjusted EBITDA increased due in part to the effects of the Company’s cost structure rationalization initiatives.  Gross margin increased due in part to favorable purchasing terms within the third quarter of fiscal 2009.
·  
YTD 09:
·  
Segment Revenue declined slightly due in part to weakness in consumer demand for pre-recorded music.  Sales of CDs were $318.5 million, or 47% of total segment revenues in third quarter versus $345.0 million, or 50% of revenues in the prior year’s period.  Sales of DVDs were $341.2 million, or 51% of total segment revenues in the third quarter versus $330.5 million, or 48% of revenues in the prior year’s period.
·  
Segment Adjusted Operating Income and Adjusted EBITDA declined due in part to declining revenue.  Gross margin decreased due in part to a larger portion of revenues being derived from DVD sales over the same period of the prior year.

Shared Services Segment

·  
Q309:
·  
Segment Adjusted Operating Loss and Adjusted EBITDA improved due in part to the effects of the Company’s cost structure rationalization initiatives.  These initiatives resulted in cost savings in the Shared Services segment of approximately $1.0 million in the quarter.

·  
YTD 09:
·  
Segment Adjusted Operating Loss and Adjusted EBITDA remained relatively consistent with the same period of the prior year.

 
CASH & LIQUIDITY
 
·  
Cash Flow – Cash Flow from operations in the third quarter 2009 was $7.7 million and on a year-to-date basis was $19.9 million compared with $47.5 million and $57.0 million in the comparable periods of the prior year.  Free Cash Flow for the third quarter 2009 was  $(1.9) million compared with $30.3 million in the same quarter of the prior year.  The decline in free cash flow is primarily related to the timing of payments between the second and third quarters of the prior year.
·  
Average Cash and Revolver Balances – The Average Cash Balance for the third quarter was $11.1 million, while the average revolver balance for the third quarter was $76.0 million.  The revolver balance fluctuates based on the timing of vendor payments particularly within the Periodical Fulfillment Services segment, as well as the seasonal build-up and sell-off of inventory within the DVD and CD Fulfillment segment.
·  
Long-Term Debt – The Company had $1,399.4 million of Long-Term Debt at October 31, 2008.  This balance consisted of $50.3 million drawn on the Company’s revolving credit facility, $860.2 on the Company’s Term Loan B facility, $465.0 million of 11.25% Senior Notes due 2015, and $23.9 million of other debt, which consists primarily of a $18.0 million mortgage on its Coral Springs distribution facility.

 
CONFERENCE CALL
 
Source Interlink management will host a conference call with the financial community today, Wednesday, December 10, 2009 at 4:30 p.m. EST (1:30 p.m. PST).  Greg Mays, Chairman and CEO, and Marc Fierman, Chief Financial Officer, will review the fiscal third quarter results, including a discussion of our businesses' results presented in accordance with our segments. A question and answer session will follow.
 
The conference call will be available on conference call lines and will be Web cast.  Investors and analysts may connect to the call by dialing 800-952-4972 (North American callers) or 416-695-9701 (International callers) and reference “Source Interlink Companies” ten minutes prior to the start time.  The call will also be available via live webcast on the Company’s Web site at www.sourceinterlink.com.
 

Replay of the conference call will be available through Saturday, January 10, 2009. It can be accessed by dialing (800) 408-3053 (North America) or (416) 695-5800 (International) using pass code 3275605. The webcast will also be archived on www.sourceinterlink.com for 30 days.

 

 
ABOUT SOURCE INTERLINK COMPANIES, INC.
Source Interlink Companies, Inc. (NASDAQ: SORC), a $2.2 Billion media and marketing services company operating in 25 states, is a leading U.S. distributor of home entertainment products and services and one of the largest publishers of magazines and online content for enthusiast audiences.  Source Interlink Media, LLC publishes over 75 magazines and 90 related web sites.  Source Interlink Distribution services tens of thousands of retail store locations throughout North America distributing DVDs, music CDs, magazines, video games, books, and related items. In addition to distributing over 6,000 distinct magazine titles annually, the Company maintains the largest in-stock catalog of CDs and DVDs in the U.S. -- a combined total of more than 260,000 titles. Supply chain relationships include consumer goods advertisers, subscribers, movie studios, record labels, magazine and newspaper publishers, confectionary companies and manufacturers of general merchandise.

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) adverse trends in advertising spending; (ii) interest rate volatility and the consequences of significantly increased debt obligations (iii) price  volatility in fuel, paper and other raw materials used in our businesses; (iv) market acceptance of and continuing retail demand for physical copies of magazines, books, DVDs, CDs and other home entertainment products; (v) our ability to realize additional operating efficiencies, cost savings and other benefits from recent acquisitions, (iii) an evolving market for entertainment media, (vi) the ability to obtain product in sufficient quantities; (vii) adverse changes in general economic or market conditions; (viii) the ability to attract and retain employees; (ix) intense competition in the marketplace and (x) 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/A filed with the Securities and Exchange Commission on May 30, 2008. 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.

Contact:
Robert L. Carl
Vice President, Investor Relations
Source Interlink Companies, Inc.                                                                           
239-949-4450


###

Financial Tables Follow
 

 
 
 


 


SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

   
Three months ended October 31,
    
Nine months ended October 31,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Revenues, net:
                        
    Distribution
  
$
462,954
    
$
500,974
    
$
1,393,482
    
$
1,380,619
  
    Advertising
    
56,297
      
67,471
      
180,933
      
67,471
  
    Circulation
    
29,102
      
32,132
      
90,492
      
32,132
  
    Manufacturing
    
10,601
      
8,315
      
30,365
      
22,325
  
    Claiming and information
    
2,428
      
3,429
      
9,127
      
10,542
  
    Other
    
30,350
      
26,828
      
78,368
      
35,612
  
Total revenues, net
    
591,732
      
639,149
      
1,782,767
      
1,548,701
  
Cost of goods sold
    
407,027
      
436,034
      
1,218,540
      
1,152,602
  
                                 
Gross profit
    
184,705
      
203,115
      
564,227
      
396,099
  
Distribution, circulation and fulfillment
    
54,828
      
55,801
      
164,709
      
138,832
  
Selling, general and administrative expenses
    
84,142
      
96,194
      
272,834
      
176,755
  
Depreciation and amortization
    
18,088
      
20,354
      
54,190
      
34,176
  
Integration, consolidation and relocation expense
    
23,919
      
1,185
      
27,966
      
1,269
  
Provision for customer bankruptcy
    
10,208
      
-
      
10,208
      
-
  
Write off of acquisition-related assets
    
-
      
-
      
6,503
      
-
  
Disposal of land, building and equipment, net
    
-
      
94
      
-
      
174
  
Impairment of goodwill and intangible assets
    
-
      
-
      
270,847
      
-
  
                                 
Operating (loss) income
    
(6,480
)
    
29,487
      
(243,030
)
    
44,893
  
                                 
Other expenses:
                                
Interest expense
    
(30,204
)
    
(36,079
)
    
(88,184
)
    
(42,539
)
Interest income
    
131
      
519
      
403
      
797
  
Write off of deferred financing fees
    
-
      
(1,313
)
    
(1,048
)
    
(1,313
)
Other (expense) income
    
(61
)
    
(49
)
    
(450
)
    
150
  
                                 
Total other expense
    
(30,134
)
    
(36,922
)
    
(89,279
)
    
(42,905
)
                                 
(Loss) income from continuing operations, before income taxes
    
(36,614
)
    
(7,435
)
    
(332,309
)
    
1,988
  
Income tax (benefit) expense
    
(16
)
    
(2,974
)
    
-
      
795
  
Minority interest in income of subsidiary
    
-
      
-
      
(1,035
)
    
-
  
(Loss) income from continuing operations
    
(36,598
)
    
(4,461
)
    
(333,344
)
    
1,193
  
Loss from discontinued operations, net of taxes
    
-
      
-
      
-
      
(1,608
)
Net loss
  
$
(36,598
)
  
$
(4,461
)
  
$
(333,344
)
  
$
(415
)
                                 
(Loss) earnings per share – Basic and diluted
                                
   Continuing operations
  
$
(0.70
)
  
$
(0.09
)
  
$
(6.37
)
  
$
0.02
  
   Discontinued operations
    
-
      
-
      
-
      
(0.03
)
Total
  
$
(0.70
)
  
$
(0.09
)
  
$
(6.37
)
  
$
(0.01
)
                                 
Weighted average shares outstanding – Basic and diluted
    
52,321
      
52,321
      
52,321
      
52,261
  
                                 
 
 
 
 
 
 
 
 

SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

             
   
October 31,
    
January 31,
  
   
2008
    
2008
  
   
(unaudited)
        
             
Assets
            
Current assets
            
Cash
  
$
5,782
    
$
35,650
  
Trade receivables, net
    
184,408
      
183,475
  
Purchased claims receivable
    
17,628
      
14,412
  
Inventories
    
382,711
      
290,507
  
Deferred tax asset
    
22,928
      
23,107
  
Other
    
21,325
      
20,679
  
                 
Total current assets
    
634,782
      
567,830
  
                 
Property, plants and equipment
    
165,688
      
150,612
  
Less accumulated depreciation and amortization
    
(58,429
)
    
(42,708
)
                 
Net property, plants and equipment
    
107,259
      
107,904
  
                 
Other assets
                
Goodwill, net
    
873,619
      
1,069,835
  
Intangibles, net
    
528,245
      
637,082
  
Other
    
59,202
      
53,354
  
                 
Total other assets
    
1,461,066
      
1,760,271
  
                 
Total assets
  
$
2,203,107
    
$
2,436,005
  
                 

 
 
 
 
 
 
 


SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
(in thousands, except per share amounts)
 
   
October 31,
    
January 31,
  
   
2008
    
2008
  
   
(unaudited)
        
             
Liabilities and Stockholders’ Equity
            
Current liabilities
            
Accounts payable (net of allowance for returns of $197,913 and $174,751 at October 31, 2008 and January 31, 2008, respectively)
  
$
495,034
    
$
372,429
  
Accrued expenses
    
106,100
      
123,973
  
Deferred revenue
    
81,984
      
79,918
  
Current portion of obligations under capital leases
    
1,432
      
1,406
  
Current maturities of debt
    
13,568
      
15,369
  
                 
Total current liabilities
    
698,118
      
593,095
  
                 
Deferred tax liability
    
8,597
      
8,944
  
Obligations under capital leases, less current portion
    
1,447
      
1,826
  
Debt, less current maturities
    
1,399,393
      
1,359,210
  
Other
    
14,809
      
32,429
  
                 
Total liabilities
    
2,122,364
      
1,995,504
  
                 
Minority interest
    
-
      
25,978
  
                 
Commitments and contingencies
                
                 
Stockholders’ equity
                
Contributed capital:
                
Preferred stock, $0.01 par (2,000 shares authorized; none issued)
    
-
      
-
  
Common stock, $0.01 par (100,000 shares authorized; 52,321 shares issued and outstanding at October 31, 2008 and January 31, 2008)
    
523
      
523
  
Additional paid-in-capital
    
477,032
      
476,099
  
                 
Total contributed capital
    
477,555
      
476,622
  
Accumulated deficit
    
(399,003
)
    
(65,659
)
Accumulated other comprehensive income
    
2,191
      
3,560
  
                 
Total stockholders’ equity
    
80,743
      
414,523
  
                 
Total liabilities and stockholders’ equity
  
$
2,203,107
    
$
2,436,005
  
                 


 
 
 
 
 



SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

   
Nine months ended October 31,
  
   
2008
    
2007
  
             
Operating Activities
            
Net loss
  
$
(333,344
)
  
$
(415
)
Adjustments to reconcile net loss to net cash provided by operating activities:
                
Depreciation and amortization
    
57,671
      
38,566
  
Amortization of deferred financing costs
    
6,886
      
1,313
  
Provision for losses on accounts receivable
    
14,570
      
2,035
  
Stock compensation expense
    
188
      
179
  
Loss on sale of discontinued operation
    
-
      
730
  
Impairment of goodwill and intangible assets
    
270,847
      
-
  
Other
    
8,687
      
(2,699
)
Changes in assets and liabilities (excluding business acquisitions):
                
Increase in accounts receivable
    
(18,357
)
    
(26,171
)
Increase in inventories
    
(92,262
)
    
(104,429
)
Increase in other current and non-current assets
    
(7,843
)
    
(1,991
)
Increase in deferred revenue
    
2,067
      
1,164
  
Increase in accounts payable and other liabilities
    
110,740
      
148,731
  
Cash provided by operating activities
    
19,850
      
57,013
  
                 
Investment Activities
                
Capital expenditures
    
(25,033
)
    
(20,486
)
Purchase of claims
    
(71,010
)
    
(76,752
)
Payments received on purchased claims
    
67,795
      
82,584
  
Proceeds from sale of Wood Manufacturing division, net of cash transferred
    
-
      
9,828
  
Acquisition of the remainder of Automotive.com, Inc.
    
(42,000
)
    
-
  
Acquisition of Primedia Enthusiast Media, Inc., net of cash acquired
    
4,355
      
(1,195,017
)
Other
    
(1,953
)
    
170
  
Cash used for investing activities
    
(67,846
)
    
(1,199,673
)
                 
Financing Activities
                
Decrease in checks issued against revolving credit facility
    
-
      
(11,952
)
Borrowings under credit facilities
    
50,300
      
1,228,541
  
Payment of deferred purchase price liabilities
    
(7,319
)
    
(2,662
)
Deferred financing costs
    
(12,430
)
    
(33,581
)
Payments on notes payable and capital leases
    
(12,667
)
    
(5,092
)
Proceeds from the issuance of common stock
    
-
      
716
  
Excess tax benefit from exercise of stock options
    
745
      
389
  
Other
    
(501
)
    
(651
)
Cash provided by financing activities
    
18,128
      
1,175,708
  
                 
(Decrease) increase in cash
    
(29,868
)
    
33,048
  
Cash, beginning of period
    
35,650
      
-
  
Cash, end of period
  
$
5,782
    
$
33,048
  


 
 
 

FREE CASH FLOW
The table below reports free cash flow results on a comparative basis for the three month and nine month periods ended October 31 for fiscal years 2008 and 2009.  Free cash flow is comprised of cash flow from operations on a GAAP basis, which includes changes in working capital, the net claiming activity relating to our RDA Advance Pay Program, less capital expenditures.


   
Three months ended
    
Nine months ended
  
   
October 31,
    
October 31,
  
 (in millions)
  
2008
    
2007
    
2008
    
2007
  
                         
 Cash provided by operations
   $ 7.7     $ 47.5     $ 19.9     $ 57.0  
 Capital expenditures
     (6.1 )     (11.1 )     (25.0 )     (20.5 )
 Net claiming activity
     (3.5 )     (6.1 )     (3.2 )     5.8  
                                 
 Free cash flow
   $ (1.9 )   $ 30.3     $ (8.4 )   $ 42.3  
                                 


GAAP to ADJUSTED RECONCILIATION

See table below for reconciliation of GAAP financial results to adjusted amounts for the three month periods and nine month periods ended October 31, 2008 and 2007.


   
Three months ended October 31, 2008
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Eliminations
    
Consolidated
  
                               
 GAAP Revenues
   $ 115.2     $ 244.5     $ 239.1     $ (7.0 )   $ 591.7  
 Opening balance sheet deferred revenue adjustment
     0.8       -       -       -       0.8  
                                         
 Adjusted Revenues
   $ 116.0     $ 244.5     $ 239.1     $ (7.0 )   $ 592.6  
                                         



   
Three months ended October 31, 2007
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Eliminations
    
Consolidated
  
                               
 GAAP Revenues
   $ 132.9     $ 253.2     $ 261.1     $ (8.0 )   $ 639.1  
 Opening balance sheet deferred revenue adjustment
     1.0       -       -       -       1.0  
                                         
 Adjusted Revenues
   $ 133.9     $ 253.2     $ 261.1     $ (8.0 )   $ 640.1  
                                         



   
Nine months ended October 31, 2008
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Eliminations
    
Consolidated
  
                               
 GAAP Revenues
   $ 363.0     $ 765.7     $ 675.5     $ (21.4 )   $ 1,782.8  
 Opening balance sheet deferred revenue adjustment
     2.5       -       -       -       2.5  
                                         
 Adjusted Revenues
   $ 365.5     $ 765.7     $ 675.5     $ (21.4 )   $ 1,785.3  
                                         



   
Nine months ended October 31, 2007
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Eliminations
    
Consolidated
  
                               
 GAAP Revenues
   $ 132.9     $ 736.7     $ 687.1     $ (8.0 )   $ 1,548.7  
 Opening balance sheet deferred revenue adjustment
     1.0       -       -       -       1.0  
                                         
 Adjusted Revenues
   $ 133.9     $ 736.7     $ 687.1     $ (8.0 )   $ 1,549.7  
                                         



   
Three months ended October 31, 2008
   
Operating Income
      
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
      
Income from Continuing Operations
  
                                     
 GAAP
   $ 10.6     $ (12.9 )   $ 1.1     $ (5.3 )   $ (6.5 )   $ (36.6 )
 Amortization of acquired intangibles
     9.1       1.4       1.1       -       11.6       11.6  
 Opening balance sheet deferred revenue adjustment
     0.8       -       -       -       0.8       0.8  
 Integration, relocation and consolidation expense
     0.4       20.8       1.1       1.6       23.9       23.9  
 Stock compensation expense
     -       -       -       0.1       0.1       0.1  
 Provision for customer bankruptcy
     0.9       -       9.3       -       10.2       10.2  
 Difference in GAAP and adjusted tax rate
     -       -       -       -       -       (0.3 )
                                                 
 Adjusted
   $ 21.8     $ 9.4     $ 12.6     $ (3.6 )   $ 40.2     $ 9.7  
                                                 
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
          
                                                 
 Adjusted Operating Income
   $ 21.8     $ 9.4     $ 12.6     $ (3.6 )   $ 40.2          
 Depreciation and other amortization
     2.9       2.0       2.1       0.8       7.8          
 Other income (expense)
     (0.0 )     0.1       -       (0.1 )     (0.0 )        
                                                 
 Adjusted EBITDA
   $ 24.7     $ 11.4     $ 14.7     $ (2.9 )   $ 47.9          
                                                 



   
Three months ended October 31, 2007
   
Operating Income
    
 
  
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
      
Income from Continuing Operations
  
                                     
 GAAP
   $ 15.6     $ 9.6     $ 9.2     $ (4.8 )   $ 29.5     $ (4.5 )
 Amortization of acquired intangibles
     9.8       1.8       2.6       -       14.2       8.5  
 Opening balance sheet deferred revenue adjustment
     1.0       -       -       -       1.0       0.6  
 Integration, relocation and consolidation expense
     0.2       0.6       -       0.4       1.2       0.7  
 Disposal of land, building and equipment, net
     -       0.1       -       -       0.1       0.1  
 Accretion of Automotive.com liability
     -       -       -       -       -       0.2  
 Amortization of Bridge Facility fees
     -       -       -       -       -       1.3  
 Write off of deferred financing fees
     -       -       -       -       -       0.8  
 Difference in GAAP and adjusted tax rate
     -       -       -       -       -       4.8  
                                                 
 Adjusted
   $ 26.5     $ 12.1     $ 11.8     $ (4.4 )   $ 45.9     $ 12.6  
                                                 
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
          
                                                 
 Adjusted Operating Income
   $ 26.5     $ 12.1     $ 11.8     $ (4.4 )   $ 45.9          
 Depreciation and other amortization
     3.5       1.0       1.7       0.5       6.6          
 Other income (expense)
     0.1       (0.1 )     -       (0.0 )     (0.0 )        
                                                 
 Adjusted EBITDA
   $ 30.0     $ 13.0     $ 13.5     $ (3.9 )   $ 52.5          
                                                 



   
Nine months ended October 31, 2008
   
Operating Income
    
 
  
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
      
Income from Continuing Operations
  
                                     
 GAAP
   $ (234.5 )   $ (0.9 )   $ 9.3     $ (16.9 )   $ (243.0 )   $ (332.3 )
 Amortization of acquired intangibles
     27.3       4.3       3.3       -       34.9       34.9  
 Opening balance sheet deferred revenue adjustment
     2.5       -       -       -       2.5       2.5  
 Integration, relocation and consolidation expense
     2.4       21.3       2.5       1.7       28.0       28.0  
 Stock compensation expense
     -       -       -       0.1       0.1       0.1  
 Provision for customer bankruptcy
     0.9       -       9.3       -       10.2       10.2  
 Impairment of goodwill and intangibles
     270.8       -       -       -       270.8       270.8  
 Write-off of acquisition-related assets
     -       4.6       -       1.9       6.5       6.5  
 Write-off of deferred financing fees
     -       -       -       -       -       1.0  
 Amortization of Bridge Facility fees
     -       -       -       -       -       3.7  
 Difference in GAAP and adjusted tax rate
     -       -       -       -       -       (0.8 )
                                                 
 Adjusted
   $ 69.5     $ 29.3     $ 24.4     $ (13.2 )   $ 110.0     $ 24.7  
                                                 
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
          
                                                 
 Adjusted Operating Income
   $ 69.5     $ 29.3     $ 24.4     $ (13.2 )   $ 110.0          
 Depreciation and other amortization
     8.9       5.4       6.6       2.6       23.5          
 Other income (expense)
     (0.0 )     (0.2 )     -       (0.3 )     (0.5 )        
                                                 
 Adjusted EBITDA
   $ 78.4     $ 34.6     $ 31.0     $ (10.9 )   $ 133.1          
                                                 

 

   
Nine months ended October 31, 2007
   
Operating Income
    
 
  
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
      
Income from Continuing Operations
  
                                     
 GAAP
   $ 15.6     $ 23.4     $ 19.6     $ (13.7 )   $ 44.9     $ 1.2  
 Amortization of acquired intangibles
     9.8       4.6       7.1       -       21.4       12.8  
 Opening balance sheet deferred revenue adjustment
     1.0       -       -       -       1.0       0.6  
 Integration, relocation and consolidation expense
     0.2       0.6       -       0.4       1.2       0.7  
 Stock compensation expense
     -       -       -       0.2       0.2       0.1  
 Disposal of land, building and equipment, net
     -       0.1       -       -       0.1       0.1  
 Gain on sale of assets
     -       (0.2 )     -       -       (0.2 )     (0.2 )
 Accretion of Automotive.com liability
     -       -       -       -       -       0.2  
 Write-off of deferred financing fees
     -       -       -       -       -       0.8  
 Amortization of Bridge Facility fees
     -       -       -       -       -       1.3  
 Difference in GAAP and adjusted tax rate
     -       -       -       -       -       4.8  
                                                 
 Adjusted
   $ 26.5     $ 28.5     $ 26.7     $ (13.1 )   $ 68.6     $ 22.5  
                                                 
 (in millions)
  
Media
    
Periodical Fulfillment Services
    
DVD and CD Fulfillment
    
Shared Services
    
Consolidated
          
                                                 
 Adjusted Operating Income
   $ 26.5     $ 28.5     $ 26.7     $ (13.1 )   $ 68.6          
 Depreciation and other amortization
     3.5       3.2       5.4       1.6       13.7          
 Other income (expense)
     0.1       0.1       -       (0.0 )     0.2          
                                                 
 Adjusted EBITDA
   $ 30.0     $ 31.8     $ 32.1     $ (11.5 )   $ 82.4