SORC Source Interlink Companies (MM)

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