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 )% $ 110.8 $ 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, � Change Nine Months Ended October 31, � Change � 2008
� � 2007 � Amount Percent � 2008 � � 2007 � Amount Percent 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 a 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 of fiscal 2009 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, confectionery
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. 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 income (expense): � (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 Continuing operations $ (0.70 ) $
(0.09 ) $ (6.37 ) $ 0.02 Discontinued operations � - � � - � � - �
� (0.03 ) Total $ (0.70 ) $ (0.09 ) $ (6.37 ) $ (0.01 ) � (Loss)
earnings per share � 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 52,321 52,321 52,321 52,261
Weighted average shares outstanding � Diluted 52,321 52,321 52,321
52,261 For additional information please see Notes to Consolidated
Financial Statements in Form-10Q. SOURCE INTERLINK COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) �
� 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 � For additional information
please see Notes to Consolidated Financial Statements in Form-10Q.
SOURCE INTERLINK COMPANIES, INC. CONSOLIDATED BALANCE SHEETS
(concluded) (in thousands) � � � 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 � For additional information
please see Notes to Consolidated Financial Statements in Form-10Q.
SOURCE INTERLINK COMPANIES, INC. CONSOLIDATED STATEMENT OF CASH
FLOWS (in thousands, except per share amounts) (unaudited) � 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 � For additional information please see Notes to
Consolidated Financial Statements in Form-10Q. 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 �
Income from Continuing Operations (in millions) Media � Periodical
Fulfillment Services � DVD and CD Fulfillment � Shared Services �
Consolidated � � 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 � Income from
Continuing Operations (in millions) Media � Periodical Fulfillment
Services � DVD and CD Fulfillment � Shared Services � Consolidated
� � � � � 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 � Income from
Continuing Operations (in millions) Media � Periodical Fulfillment
Services � DVD and CD Fulfillment � Shared Services � Consolidated
� � � � � 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 � Income from
Continuing Operations (in millions) Media � Periodical Fulfillment
Services � DVD and CD Fulfillment � Shared Services � Consolidated
� � � � � 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
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