EX-99.1 2 ex99-1.htm COMPANY NEWS RELEASE DATED AUGUST 5, 2008 ex99-1.htm
 
Exhibit 99.1
Contact: Brainerd Communicators, Inc.
Jennifer Gery (media)
Mike Smargiassi/Dianne Pascarella (investors)
212.986.6667

Entertainment Distribution Company Announces Second Quarter 2008 Results

- Commences Search for Permanent Chief Executive Officer -

NEW YORK – August 5, 2008 – Entertainment Distribution Company, Inc. (Nasdaq: EDCI) (“EDCI”), the majority shareholder of Entertainment Distribution Company, LLC (“EDC, LLC”) a global and independent provider of supply chain services to the home entertainment market, today reported second quarter financial results for the period ending June 30, 2008.  EDCI also announced today that as part of its plan to explore strategic opportunities for its cash and net operating loss carryforwards, it has commenced an executive search for a permanent Chief Executive Officer with a strong background in acquisitions and mergers.  Heidrick and Struggles, a world leader in senior executive search, has been chosen to lead the recruiting effort and will work with EDCI’s Governance and Nominating Committee.

Highlights (for EDCI and its subsidiaries (the “Company”) on a consolidated basis unless noted):
·      Revenue of $79.4 million for the second quarter compared to $80.2 million for the same quarter last year.
·      Revenue of $162.5 million for the first six months compared to $164.2 million for the same period last year.
·      Net loss from continuing operations of $(5.3) million, or $(0.08) per diluted share, for the second quarter compared to net loss from continuing operations of $(4.7) million, or $(0.07) per diluted share, for the same quarter last year.
·      Net loss from continuing operations of $(12.7) million, or $(0.18) per diluted share, for the first six months of 2008 compared to net loss from continuing operations of $(11.4) million, or $(0.16) per diluted share, for the same period last year.
·      Second quarter EBITDA from continuing operations of $0.7 million, compared to EBITDA from continuing operations of $0.9 million for the same quarter last year.
·      First six months EBITDA from continuing operations of $2.9 million, compared to EBITDA loss from continuing operations of $(0.3) million for the same period last year.
·      As of June 30, 2008, total unrestricted cash and short-term investments of $78.0 million, of which $53.8 million is held at EDCI and $24.2 million is held at EDC, LLC.
·      As of June 30, 2008, total long-term debt of $39.1 million, net of unamortized discount.

Jordan M. Copland, Interim Chief Executive Officer and Chief Financial Officer of EDCI, stated, “Overall results at EDC, LLC for the second quarter were in line with our internal plan and operating trends were similar to the first quarter of the year.  We continue to face a difficult industry and economic environment.  However, we have made significant progress in our efforts to control costs and right-size our business to ensure we are fully utilizing our assets and maximizing cash flows.  As a result of these efforts, we generated EBITDA of $2.9 million in the first six months of 2008, compared to an
 
-continued-
 
 
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EBITDA loss in the first half of 2007.  We believe we are well positioned as we enter the second half of the year, which is historically our most active and profitable period.  EDCI continues its search for a new business to utilize its $53.8 million in cash and short-term investments and $278 million in net operating loss carryforwards.  At our annual meeting on August 22, 2008, we are proposing a plan of reorganization which, if approved by shareholders, will protect EDCI’s net operating loss carryforwards and bring the Company into compliance with NASDAQ’s continued listing requirements.”

Conference Call

The Company will host a conference call to discuss its second quarter 2008 financial results today at 4:30 p.m. ET. To access the conference call, please dial 973-582-2854 and reference pass code 57941470. A live webcast of the conference call will also be available on the Company's corporate Web site, located at www.edcllc.com. A replay of the conference call will be available through midnight ET on Tuesday, August 12, 2008. The replay can be accessed by dialing 706-645-9291. The pass code for the replay is 57941470.

Summary of Second Quarter 2008

For the second quarter of 2008, the Company reported revenue of $79.4 million compared to $80.2 million for the second quarter of 2007. The decrease is primarily attributable to a decrease in volumes from our U.S. operations, offset by the impact of favorable exchange rate fluctuations.

The Company had EBITDA from continuing operations of $0.7 million in the second quarter of 2008, as compared to EBITDA from continuing operations of $0.9 million in the second quarter of 2007.  EBITDA is a non-GAAP financial measure.  A reconciliation between EBITDA and the most directly comparable GAAP financial measure is provided following the Consolidated Financial Statements included in this release. The reconciliation also includes a description of how the Company calculates EBITDA.

The Company reported a net loss from continuing operations of $(5.3) million for the second quarter of 2008, or $(0.08) per diluted share.  This compares to a net loss from continuing operations of $(4.7) million, or $(0.07) per diluted share, for the second quarter of 2007.

For the second quarter, the Company reported a net loss of $(5.5) million, or ($0.08) per diluted share, which compares to a net loss of $(4.1) million, or $(0.06) per diluted share, for the second quarter of 2007.

Six Months Ended June 30, 2008

For the six months ended June 30, 2008, the Company reported revenue of $162.5 million compared to $164.2 million for the first six months of 2007. The decrease is primarily attributable to a decrease in volumes from our U.S. operations, offset by the impact of favorable exchange rates.

 
 
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The Company had EBITDA from continuing operations of $2.9 million in the first six months of 2008, as compared to an EBITDA loss from continuing operations of $(0.3) million in the first six months of 2007.  EBITDA from continuing operations in the first six months of 2007 included approximately $2.3 million of non-recurring costs associated with stock option investigation and litigation legal expenses and consulting costs.

The Company reported a net loss from continuing operations of $(12.7) million for the first six months of 2008, or $(0.18) per diluted share.  This compares to a net loss from continuing operations of $(11.4) million, or $(0.16) per diluted share, for the first six months of 2007.

For the first six months of 2008, the Company reported a net loss of $(11.7) million, or ($0.17) per diluted share, which compares to a net loss of $(10.0) million, or $(0.14) per diluted share, for the first six months of 2007.


Guidance

The Company is reconfirming its previously issued guidance for the full-year 2008.  For 2008 the Company expects EBITDA to be at the same level or slightly higher than 2007 Adjusted EBITDA.  The Company’s guidance assumes global industry decline rates for the full-year to be approximately 10%-12%.  In addition, this guidance is largely based on the current release schedules from customers and the Company’s expectation that current cost initiatives will deliver savings of approximately $10 million in 2008.  Any changes in these assumptions could materially impact the Company’s ability to achieve its expectations.

###

About Entertainment Distribution Company
Entertainment Distribution Company, Inc. (NASDAQ: EDCI) is the majority shareholder of Entertainment Distribution Company, LLC (“EDC, LLC”), a global and independent provider of supply chain services to the home entertainment market. EDC, LLC serves every aspect of the manufacturing and distribution process and is one of the largest providers in the industry. Its clients include some of the world’s best-known music, movies and gaming companies. Headquartered in New York, EDC, LLC’s operations include manufacturing and distribution facilities throughout North America and in Hannover, Germany, and a manufacturing facility in Blackburn, UK. For more information, please visit www.edcllc.com.

Safe Harbor Statement
This news release contains statements that may be forward looking within the meaning of applicable securities laws. The statements may include projections regarding future revenues and earnings results, and are based upon the Company’s current forecasts, expectations and assumptions, which are subject to a number of risks and uncertainties that could cause the actual outcomes and results to differ materially. Some of these results and uncertainties are discussed in the Company’s most recently filed Annual

 
 
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Report on Form 10-K, as amended. These factors include, but are not limited to restructuring activities; potential intellectual property infringement claims; potential acquisitions and strategic investments; volatility of stock price; ability to attract and retain key personnel; competition; variability of quarterly results and dependence on key customers; potential market changes resulting from rapid technological advances; proprietary technology; potential changes in government regulation; international business risks; continuation and expansion of third party agreements; sensitivity to economic trends and customer preferences; increased costs or shortages of raw materials or energy; dependence on Universal Music Group; potential inability to manage successful production; advances in technology and changes in customer demands; variability in production levels; and development of digital distribution alternatives including copying and distribution of music and video files.  The Company assumes no obligation to update any forward-looking statements and does not intend to do so except where legally required.
 
 
 
 
 
 
 

 
 
 
 
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ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED BALANCE SHEETS
  
             
   
June 30,
    
December 31,
  
   
2008
    
2007
  
   
(unaudited)
        
ASSETS
  
(In thousands, except share data)
  
Current Assets:
            
   Cash and cash equivalents
   $ 62,629     $ 63,850  
   Restricted cash
     2,003       1,940  
   Investments
     15,365       29,589  
   Accounts receivable, net of allowances for doubtful accounts of
                
        $3,725 and $3,328 for 2008 and 2007, respectively
     28,697       35,577  
   Current portion of long-term receivable
     403       515  
   Inventories, net
     7,400       9,111  
   Prepaid expenses and other current assets
     17,586       16,180  
   Deferred income taxes
     268       277  
        Total Current Assets
     134,351       157,039  
Restricted cash
     28,232       26,015  
Property, plant and equipment, net
     51,718       55,245  
Long-term receivable
     4,385       4,244  
Intangible assets
     42,217       44,604  
Deferred income taxes
     1,724       1,934  
Other assets
     7,311       6,940  
 TOTAL ASSETS
   $ 269,938     $ 296,021  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
  
Current Liabilities:
                
   Accounts payable
   $ 24,928     $ 33,287  
   Accrued expenses and other liabilities
     34,165       37,503  
   Income taxes payable
     129       3,697  
   Deferred income taxes
     -       126  
   Loans from employees
     1,281       1,267  
   Current portion of long-term debt
     18,711       24,364  
        Total Current Liabilities
     79,214       100,244  
Other non-current liabilities
     13,886       12,185  
Loans from employees
     2,625       3,646  
Long-term debt
     20,390       21,589  
Pension and other defined benefit obligations
     40,160       36,155  
Deferred income taxes
     10,815       10,195  
        Total Liabilities
     167,090       184,014  
Minority interest in subsidiary company
     5,528       5,771  
Commitments and contingencies
                
Stockholders' Equity:
                
   Preferred stock, $.01 par value; authorized: 5,000,000 shares, no shares
                
        issued and outstanding
     -       -  
   Common stock, $.02 par value; authorized: 200,000,000 shares, issued:
                
        June 30, 2008 -- 70,194,358 shares; December 31, 2007 -- 70,155,940 shares
     1,404       1,403  
   Additional paid in capital
     369,743       369,665  
   Accumulated deficit
     (285,037 )     (273,333 )
   Accumulated other comprehensive income
     12,043       8,501  
   Treasury stock at cost: June 30, 2008 -- 1,811,700 shares; December 31, 2007 -- 0 shares
     (833 )     -  
        Total Stockholders' Equity
     97,320       106,236  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 269,938     $ 296,021  

 
 
 
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ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
(Unaudited)
  
       
   
Three Months Ended June 30,
  
   
2008
    
2007
  
   
(In thousands, except per share amounts)
  
REVENUES:
            
   Product revenues
   $ 60,495     $ 62,798  
   Service revenues
     18,921       17,358  
      Total Revenues
     79,416       80,156  
COST OF REVENUES:
                
   Cost of product revenues
     55,200       56,227  
   Cost of service revenues
     14,675       14,112  
      Total Cost of Revenues
     69,875       70,339  
GROSS PROFIT
     9,541       9,817  
OPERATING EXPENSES:
                
   Selling, general and administrative expense
     12,589       12,244  
   Amortization of intangible assets
     2,455       2,080  
      Total Operating Expenses
     15,044       14,324  
OPERATING LOSS
     (5,503 )     (4,507 )
OTHER INCOME (EXPENSE):
                
   Interest income
     935       1,195  
   Interest expense
     (973 )     (1,337 )
   Gain (loss) on currency swap, net
     32       (391 )
   Gain (loss) on currency transaction, net
     (33 )     230  
   Other income (expense), net
     (4 )     56  
     Total Other Expense
     (43 )     (247 )
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
                
   TAXES AND MINORITY INTEREST
     (5,546 )     (4,754 )
   Income tax benefit
     (115 )     (30 )
   Minority interest income
     (92 )     -  
LOSS FROM CONTINUING OPERATIONS
     (5,339 )     (4,724 )
DISCONTINUED OPERATIONS, NET OF TAX:
                
   INCOME (LOSS) FROM DISCONTINUED OPERATIONS
     (145 )     554  
   GAIN ON SALE OF MESSAGING BUSINESS
     -       88  
NET LOSS
   $ (5,484 )   $ (4,082 )
LOSS PER WEIGHTED AVERAGE COMMON SHARE (1):
                
   Loss from continuing operations
   $ (0.08 )   $ (0.07 )
   Discontinued Operations:
                
        Income (loss) from discontinued operations
     -       0.01  
        Gain on sale of Messaging business
     -       -  
Net loss per weighted average common share
   $ (0.08 )   $ (0.06 )
LOSS PER DILUTED COMMON SHARE:
                
   Loss from continuing operations
   $ (0.08 )   $ (0.07 )
   Discontinued Operations:
                
        Income (loss) from discontinued operations
     -       0.01  
        Gain on sale of Messaging business
     -       -  
Net loss per diluted weighted average common share
   $ (0.08 )   $ (0.06 )
                 
(1) Loss per weighted average common share amounts are rounded to the nearest $.01; therefore, such rounding may
  
       impact individual amounts presented.
                

 
 
 
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ENTERTAINMENT DISTRIBUTION COMPANY, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  
(Unaudited)
  
             
   
Six Months Ended June 30,
  
   
2008
    
2007
  
   
(In thousands, except per share amounts)
  
REVENUES:
            
   Product revenues
   $ 122,823     $ 127,267  
   Service revenues
     39,723       36,899  
      Total Revenues
     162,546       164,166  
COST OF REVENUES:
                
   Cost of product revenues
     111,403       113,990  
   Cost of service revenues
     30,365       29,515  
      Total Cost of Revenues
     141,768       143,505  
GROSS PROFIT
     20,778       20,661  
OPERATING EXPENSES:
                
   Selling, general and administrative expense
     25,316       27,476  
   Amortization of intangible assets
     4,838       4,114  
      Total Operating Expenses
     30,154       31,590  
OPERATING LOSS
     (9,376 )     (10,929 )
OTHER INCOME (EXPENSE):
                
   Interest income
     2,047       2,352  
   Interest expense
     (2,092 )     (2,636 )
   Loss on currency swap, net
     (2,593 )     (748 )
   Gain (loss) on currency transaction, net
     (594 )     339  
   Other income, net
     8       67  
     Total Other Expense
     (3,224 )     (626 )
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
                
   TAXES AND MINORITY INTEREST
     (12,600 )     (11,555 )
   Income tax provision (benefit)
     368       (116 )
   Minority interest income
     (242 )     -  
LOSS FROM CONTINUING OPERATIONS
     (12,726 )     (11,439 )
DISCONTINUED OPERATIONS, NET OF TAX:
                
   INCOME FROM DISCONTINUED OPERATIONS
     1,022       250  
   GAIN ON SALE OF MESSAGING BUSINESS
     -       1,176  
NET LOSS
   $ (11,704 )   $ (10,013 )
LOSS PER WEIGHTED AVERAGE COMMON SHARE (1):
                
   Loss from continuing operations
   $ (0.18 )   $ (0.16 )
   Discontinued Operations:
                
        Income (loss) from discontinued operations
     0.01       -  
        Gain on sale of Messaging business
     -       0.02  
Net loss per weighted average common share
   $ (0.17 )   $ (0.14 )
LOSS PER DILUTED COMMON SHARE:
                
   Loss from continuing operations
   $ (0.18 )   $ (0.16 )
   Discontinued Operations:
                
        Income (loss) from discontinued operations
     0.01       -  
        Gain on sale of Messaging business
     -       0.02  
Net loss per diluted weighted average common share
   $ (0.17 )   $ (0.14 )
                 
(1) Loss per weighted average common share amounts are rounded to the nearest $.01; therefore, such rounding may
  
       impact individual amounts presented.
                

 
 
 
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Summary Schedule of Non-GAAP Financial Data
(In thousands) Unaudited
 
 
The following summary of financial data shows the reconciliation of loss from continuing operations, as determined in accordance with accounting principles generally accepted in the United States (GAAP), to EBITDA from continuing operations, a non-GAAP measure.
 
EBITDA is income (loss) from continuing operations before interest expense (income), net, income taxes, and depreciation and amortization and is presented because the Company believes that such information is commonly used in the entertainment industry as one measure of a company’s operating performance. EBITDA from continuing operations is not determined in accordance with generally accepted accounting principles, it is not indicative of cash provided by operating activities, should not be used as a measure of operating income and cash flows from operations as determined under GAAP, and should not be considered in isolation or as an alternative to, or to be more meaningful than, measures of performance determined in accordance with GAAP.  EBITDA, as calculated by the Company, may not be comparable to similarly titled measures reported by other companies and could be misleading unless all companies and analysts calculated EBITDA in the same manner.
 
 
 
   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2008
  
 
2007
    
2008
    
2007
  
                         
Loss from continuing operations
     (5,339 )     (4,724 )     (12,726 )     (11,439 )
                                 
Income tax provision (benefit)
     (115 )     (30 )     368       (116 )
(Gain) loss on currency swap, net
     (32 )     391       2,593       748  
(Gain) loss on currency transaction, net
     33       (230 )     594       (339 )
Interest expense, net
     38       142       45       284  
Depreciation and amortization
     6,104       5,385       11,986       10,653  
Other income, net
     4       (56 )     (8 )     (67 )
                                 
EBITDA from continuing operations
   $ 693     $ 878     $ 2,852     $ (276 )