EX-99.2 3 a08-16177_1ex99d2.htm EX-99.2

Exhibit 99.2

 

Source Interlink Reports Fiscal 2009 First Quarter Results

 

– Fulfillment Businesses Continue to Build Scale, Gain Market Share;

Digital Platform Gaining Traction for Media Segment –

 

BONITA SPRINGS, FL, June 5, 2008 – 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, games and books, today announced financial results for the fiscal 2009 first quarter ending April 30, 2008.  Adjusted income from continuing operations for the fiscal 2009 first quarter totaled $9.6 million, or $0.18 per diluted share, up 80 percent over the prior year on a per share basis.

 

 

 

Adjusted Results* ($ in millions)

 

GAAP Results ($ in millions)

 

 

 

1Q09

 

1Q08

 

% Change

 

1Q09

 

1Q08

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

615.2

 

$

475.4

 

29.4

%

$

614.4

 

$

475.4

 

29.2

%

Periodical Fulfillment

 

269.5

 

244.6

 

10.2

%

269.5

 

244.6

 

10.2

%

DVD/CD Fulfillment

 

228.6

 

230.8

 

(1.0

)%

228.6

 

230.8

 

(1.0

)%

Source Interlink Media

 

124.2

 

—

 

—

 

123.3

 

—

 

—

 

Eliminations

 

(7.1

)

—

 

—

 

(7.1

)

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

$

36.9

 

$

12.2

 

203.9

%

$

(251.2

)

$

8.8

 

(2950.4

)%

Income from continuing operations

 

$

9.6

 

$

5.2

 

84.9

%

$

(280.8

)

$

3.2

 

(8838.1

)%

EPS - Diluted

 

$

0.18

 

$

0.10

 

80.0

%

$

(5.37

)

$

0.06

 

(9050.0

)%

 

*Please see “Financial Highlights” section of this press release for definition and reconciliation of non-GAAP financial measures.

 

“Source delivered solid first quarter results as we continue to execute our strategy amidst a challenging economic environment. We are gaining market share in our fulfillment businesses and the synergies we are recognizing across our platform are contributing to improving EBITDA margins. Gains from these efforts and continued growth in our digital platform were offset by the soft advertising market affecting our publishing division,” said Michael R. Duckworth, Chairman of Source Interlink. “Overall, the Company is executing to plan and is positioned for improvement when the economy rebounds.”

 

Financial Highlights

 

Adjusted income from continuing operations for the fiscal 2009 first quarter totaled $9.6 million, or $0.18 per diluted share. Adjusted revenue totaled $615.2 million.  Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the quarter totaled $44.4 million, a 175.3% increase over the same period last year. Adjusted operating income for the first quarter totaled $36.9 million, an increase of 203.9% over the prior year quarter. Adjusted operating margins increased to 6.0% from 2.6%.  GAAP loss from continuing operations for the fiscal 2009 first quarter totaled ($280.8) million, or ($5.37) per diluted share, compared to a fiscal 2008 first quarter income of $3.2 million, or $0.06 per diluted share.

 


 

The reported GAAP loss from continuing operations in the quarter includes a non-cash impairment charge of $270.8 million, or $5.18 per share, for goodwill and indefinite-lived tradenames related to certain reporting units of our SIM operating segment.  This impairment charge was a result of our fiscal year 2009 FAS 142 first quarter impairment analysis. This determination was based largely on management’s projections regarding the revenues and profitability of the Media reportable segment as well as the effects of the recent credit market changes, the continued economic downturn and the related effects on advertising and consumer discretionary spending. The charge was measured on the basis of comparison of estimated fair values with corresponding book values and relates primarily to goodwill and tradenames recorded in connection with our acquisition of SIM.  These fair values were determined in accordance with Company policy as well as FAS 142 and other relevant guidance

 

GAAP revenue for fiscal 2009 first quarter increased $139.0 million or 29.2% to $614.4 million compared to the prior year total GAAP revenue of $475.4 million. The increase in revenue year-over-year is due, in large part, to the SIM acquisition and an exclusive deal inside the Periodical Fulfillment Segment.

 

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, 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.

 

GAAP and adjusted earnings per share were calculated on 52.6 million and 52.3 million diluted shares outstanding in the fiscal 2008 and 2009 first quarters, respectively.

 


 

See table below for reconciliation of GAAP financial results to adjusted amounts for the three month period ended April 30.  Adjusted Income from Continuing Operations was calculated utilizing a tax rate of three percent and 40 percent for the three months ended April 30, 2008 and April 30, 2007, respectively.

 

Q1 2009

 

 

 

Operating Income

 

Income from

 

 

 

 

 

DVD/CD

 

Periodical Fulfillment

 

Shared

 

 

 

Continuing

 

(in thousands)

 

Media

 

Fulfillment

 

Services

 

Services

 

Consolidated

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

$

(260.1

)

$

5.8

 

$

9.8

 

$

(6.7

)

$

(251.2

)

$

(280.8

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired intangibles

 

9.3

 

1.2

 

1.4

 

—

 

11.8

 

11.8

 

Deferred revenue

 

0.8

 

—

 

—

 

—

 

0.8

 

0.8

 

Integration, consolidation and relocation expenses

 

2.0

 

0.2

 

0.5

 

0.1

 

2.7

 

2.7

 

Write off of goodwill and tradename intangibles

 

270.8

 

—

 

—

 

—

 

270.8

 

270.8

 

Minority interest / accretion of A.com liability

 

—

 

—

 

—

 

—

 

—

 

0.4

 

Amortization of Bridge Facility fees

 

—

 

—

 

—

 

—

 

—

 

2.3

 

Write off of dead deal costs

 

—

 

—

 

—

 

1.9

 

1.9

 

1.9

 

Difference between GAAP and Adjusted tax rate

 

—

 

—

 

—

 

—

 

—

 

(0.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted

 

$

22.9

 

$

7.1

 

$

11.7

 

$

(4.7

)

$

36.9

 

$

9.6

 

 

 

 

 

 

DVD/CD

 

Periodical Fulfillment

 

Shared

 

 

 

 

 

(in thousands)

 

Media

 

Fulfillment

 

Services

 

Services

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating income

 

$

22.9

 

$

7.1

 

$

11.7

 

$

(4.7

)

$

36.9

 

 

 

Depreciation and other amortization

 

2.9

 

2.2

 

1.9

 

0.9

 

7.8

 

 

 

Other income (expense)

 

—

 

—

 

(0.3

)

(0.1

)

(0.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

25.8

 

$

9.3

 

$

13.2

 

$

(3.9

)

$

44.4

 

 

 

 

Q1 2008

 

 

 

Operating Income

 

Income from

 

 

 

 

 

DVD/CD

 

Periodical Fulfillment

 

Shared

 

 

 

Continuing

 

(in thousands)

 

Media

 

Fulfillment

 

Services

 

Services

 

Consolidated

 

Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

$

—

 

$

6.6

 

$

7.0

 

$

(4.8

)

$

8.8

 

$

3.2

 

Adjustments:

 

—

 

—

 

—

 

—

 

 

 

—

 

Amortization of acquired intangibles

 

—

 

1.9

 

1.3

 

—

 

3.2

 

1.9

 

Stock compensation expense

 

—

 

—

 

—

 

0.2

 

0.2

 

0.1

 

 

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted

 

$

—

 

$

8.5

 

$

8.3

 

$

(4.6

)

$

12.2

 

$

5.2

 

 

 

 

 

 

DVD/CD

 

Periodical Fulfillment

 

Shared

 

 

 

 

 

(in thousands)

 

Media

 

Fulfillment

 

Services

 

Services

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating income

 

$

—

 

$

8.5

 

$

8.3

 

$

(4.6

)

$

12.2

 

 

 

Depreciation and other amortization

 

—

 

2.2

 

1.2

 

0.6

 

3.9

 

 

 

Other income

 

—

 

—

 

0.0

 

0.0

 

0.1

 

 

 

Adjusted EBITDA

 

$

—

 

$

10.6

 

$

9.5

 

$

(4.0

)

$

16.1

 

 

 

 

The table below reports free cash flow results on a comparative basis for the three month periods ended April 30 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.

 

Free Cash Flow

 

 

 

Three Months ended April 30,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Cash provided by (used in) operating activities

 

$

(12.4

)

$

6.9

 

Net claiming activity

 

$

2.1

 

$

4.3

 

Capital expenditures

 

$

(8.6

)

$

(4.0

)

 

 

 

 

 

 

Free cash flow

 

$

(18.9

)

$

7.2

 

 

Segment Results

 

Source Interlink Media Segment – Source Interlink Media, formerly Enthusiast Media, was acquired on August 1, 2007. Results provided for prior periods are for comparative purposes only.

 

The Company’s Media segment reported adjusted revenue of $124.2 million, adjusted EBITDA of $25.8 million, gross margin of 73.1% and adjusted operating income of $22.9 million for the first quarter.  For comparative purposes only, revenue for the first quarter of last year was $134.5 million, adjusted EBITDA was $30.6 million and gross margin was 66.7%.

 

Periodical Fulfillment Services Segment – The Company’s Periodical Fulfillment Services segment, which includes segments previously referred to as Magazine Fulfillment and In-Store Services segments, reported GAAP revenue of $269.5 million compared with $244.6 million in the prior year first quarter, an increase of approximately 10.2%. GAAP gross profit margins remained consistent, decreasing slightly from 24.3% in the prior year period to 24.2% in the current period. Adjusted operating income increased 41.3% to $11.7 million in the fiscal 2009 first quarter. Adjusted EBITDA for the segment during the first quarter was $13.2 million, an increase of $3.8 million or 39.6% as compared to the prior year first quarter.

 

DVD and CD Fulfillment Segment – The DVD and CD Fulfillment segment reported GAAP revenue of $228.6 million, gross margin of 17.1% and adjusted operating income of $7.1 million for the first quarter. Net revenue for the fiscal 2009 first quarter was $228.6 million, a decrease of 1.0% compared to the same quarter last year. Adjusted EBITDA for the quarter was $9.3 million, a decrease of 12.4% compared to the prior year quarter. Sales of DVDs decreased 6.1% to approximately $112.0 million, and CD revenue increased 2.8% to $111.0 million. Adjusted operating margins decreased from 3.7% in the prior year first quarter to 3.1% in the current year period. Gross profit margins for the first quarter decreased slightly to 17.1% from 17.3%.

 

Shared Services Segment – The Shared Services segment consists of corporate and shared overhead functions associated with the individual operating segments. The Adjusted EBITDA loss attributed to Shared Services decreased slightly to ($3.9) million from ($4.0) million in the prior year.

 


 

Fiscal 2009 First Quarter Conference Call

 

Source Interlink Companies, Inc. will host a teleconference to discuss its fiscal 2009 first quarter on Thursday, June 5, 2008 at 4:30 p.m. Eastern Time. To access the teleconference, please dial 800-952-4972 (U.S. callers) and 416-641-2140 (Int’l callers), referencing Source Interlink Companies, ten minutes prior to the start time. The teleconference will also be available via live webcast on the Company’s Web site at www.sourceinterlink.com. A slide presentation, titled “Fiscal 2009 First Quarter Financial Presentation,” that corresponds with the financial portion of management’s presentation of 2009 results has been posted on the Company’s Web site. You can find the presentation by going to the Investor Relations homepage and by selecting “Corporate Materials.” A replay of the conference call will be available through Thursday, June 12, 2008. It can be accessed by dialing 800-408-3053 (U.S. callers) or 416-695-5800 (Int’l callers), passcode 3261808. 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 media and marketing services company, is one of the largest publishers of magazines and online content for enthusiast audiences and is also a leading distributor of home entertainment products, including DVDs, music CDs, magazines, video games, books, and related items. Source Interlink serves over 100,000 retail store locations throughout North America. Supply chain relationships include consumer goods advertisers, subscribers, movie studios, record labels, magazine and newspaper publishers, confectionary companies and manufacturers of general merchandise.

 

The Company’s fully integrated businesses and activities include:

 

·                  Publishing and providing enthusiast media content including television and radio programs, more than 75 magazines, over 100 events, 90 related Web sites and 400 branded products for automobile, marine, equine, outdoor sports, home tech and daytime television

·                  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 to more than 100 markets worldwide

·                  Managing product selection and placement of impulse items at checkout counters

·                  Processing and collection of rebate claims and management of point-of-purchase sales data

·                  Design, manufacture and installation of wire fixtures and displays in major retail chains

·                  Licensing of children’s and family-friendly home entertainment products

 

For more information, please visit the Company’s Web site at http://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) 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.

 

Contacts:

 

 

 

 

Investors:

 

 

 

Media:

Dean Heine

 

Denise Roche

 

Nancy Zakhary

Investor Relations

 

Brainerd Communicators

 

Brainerd Communicators

Source Interlink Companies, Inc.

 

212-986-6667

 

212-986-6667

239-949-4450

 

roche@braincomm.com

 

nancy@braincomm.com

dheine@sourceinterlink.com

 

 

 

 

 

 


 

SOURCE INTERLINK COMPANIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three months ended April 30,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Revenues, net:

 

 

 

 

 

Distribution

 

$

487,795

 

$

464,751

 

Advertising

 

61,633

 

—

 

Circulation

 

30,162

 

—

 

Manufacturing

 

8,629

 

7,154

 

Claiming and information

 

3,762

 

3,500

 

Other

 

22,380

 

—

 

Total revenues, net

 

614,361

 

475,405

 

Cost of goods sold

 

420,222

 

375,911

 

 

 

 

 

 

 

Gross profit

 

194,139

 

99,494

 

Distribution, circulation and fulfillment

 

55,003

 

25,755

 

Selling, general and administrative expenses

 

96,632

 

58,091

 

Depreciation and amortization

 

18,224

 

6,836

 

Integration, consolidation and relocation expense

 

2,707

 

—

 

Write-off of capitalized acquisition costs

 

1,900

 

—

 

Impairment of goodwill and intangible assets

 

270,847

 

—

 

 

 

 

 

 

 

Operating (loss) income

 

(251,174

)

8,812

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

Interest expense

 

(29,009

)

(3,567

)

Interest income

 

158

 

41

 

Other (expense) income:

 

(412

)

71

 

 

 

 

 

 

 

Total other expense

 

(29,263

)

(3,455

)

 

 

 

 

 

 

(Loss) income from continuing operations, before income taxes

 

(280,437

)

5,357

 

Income tax expense

 

—

 

(2,143

)

Minority interest in income of subsidiary

 

(405

)

—

 

(Loss) income from continuing operations

 

(280,842

)

3,214

 

Loss from discontinued operations, net of taxes

 

—

 

(1,386

)

Net (loss) income

 

$

(280,842

)

$

1,828

 

 

 

 

 

 

 

(Loss) earnings per share – Basic

 

 

 

 

 

Continuing operations

 

$

(5.37

)

$

0.06

 

Discontinued operations

 

—

 

(0.02

)

Total

 

$

(5.37

)

$

0.04

 

 

 

 

 

 

 

(Loss) earnings per share – Diluted

 

 

 

 

 

Continuing operations

 

$

(5.37

)

$

0.06

 

Discontinued operations

 

—

 

(0.03

)

Total

 

$

(5.37

)

$

0.03

 

 

 

 

 

 

 

Weighted average shares outstanding – Basic

 

52,321

 

52,153

 

Weighted average shares outstanding – Diluted

 

52,321

 

52,632

 

 


 

SOURCE INTERLINK COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

April 30,

 

January 31,

 

 

 

2008

 

2008

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

$

3,273

 

$

35,650

 

Trade receivables, net

 

162,624

 

183,475

 

Purchased claims receivable

 

12,300

 

14,412

 

Inventories

 

301,793

 

290,507

 

Deferred tax asset

 

22,928

 

23,107

 

Other

 

21,032

 

20,679

 

 

 

 

 

 

 

Total current assets

 

523,950

 

567,830

 

 

 

 

 

 

 

Property, plants and equipment

 

157,578

 

150,612

 

Less accumulated depreciation and amortization

 

(49,092

)

(42,708

)

 

 

 

 

 

 

Net property, plants and equipment

 

108,486

 

107,904

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Goodwill, net

 

873,826

 

1,069,835

 

Intangibles, net

 

550,634

 

637,082

 

Other

 

51,235

 

53,354

 

 

 

 

 

 

 

Total other assets

 

1,475,695

 

1,760,271

 

 

 

 

 

 

 

Total assets

 

$

2,108,131

 

$

2,436,005

 

 


 

SOURCE INTERLINK COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

April 30,

 

January 31,

 

 

 

2008

 

2008

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable, net

 

$

351,939

 

$

372,429

 

Accrued expenses

 

102,172

 

123,973

 

Deferred revenue

 

80,768

 

79,918

 

Current portion of obligations under capital leases

 

1,327

 

1,406

 

Current maturities of debt

 

14,520

 

15,369

 

 

 

 

 

 

 

Total current liabilities

 

550,726

 

593,095

 

 

 

 

 

 

 

Deferred tax liability

 

8,573

 

8,944

 

Obligations under capital leases

 

1,514

 

1,826

 

Debt, less current maturities

 

1,355,435

 

1,359,210

 

Other

 

30,693

 

32,429

 

 

 

 

 

 

 

Total liabilities

 

1,946,941

 

1,995,504

 

 

 

 

 

 

 

Minority Interest

 

26,803

 

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 April 30, 2008 and January 31, 2008)

 

523

 

523

 

Additional paid-in-capital

 

475,744

 

476,099

 

 

 

 

 

 

 

Total contributed capital

 

476,267

 

476,622

 

Accumulated deficit

 

(346,501

)

(65,659

)

Accumulated other comprehensive income

 

4,621

 

3,560

 

 

 

 

 

 

 

Total stockholders’ equity

 

134,387

 

414,523

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,108,131

 

$

2,436,005