DOTHAN, Ala., Nov. 10 /PRNewswire-FirstCall/ -- Movie Gallery, Inc.
(Nasdaq: MOVI), today announced financial results for the third quarter of
2005, which ended October 2, 2005.
Movie Gallery's third quarter revenues, which include the revenues of
Movie Gallery's wholly-owned subsidiary, Hollywood Entertainment Corporation
("Hollywood"), which it acquired on April 27, 2005, totaled $572.4 million.
On a GAAP basis, the net loss for the 2005 third quarter was $12.5 million, or
a loss of $0.39 per share.
On a non-GAAP basis, the Company's third quarter adjusted net loss was
$5.2 million, or $0.16 per share, after excluding the purchase accounting
adjustments related to the acquisition of Hollywood, the losses related to
Hurricane Katrina, and non-cash charges related to stock based compensation.
These charges include the following items on an after-tax basis:
(i) a non-cash charge of $1.9 million, or $0.06 per share, for
depreciation expense relating to the second quarter of 2005 to
conform the lives of Hollywood's long lived assets to Movie
Gallery's policy and to record the increase in depreciation expense
generated by recording Hollywood's long lived assets at their
increased fair value in accordance with generally accepted
accounting principles for business combinations. The Company
completed this policy change and booked the year-to-date impact in
the third quarter.
(ii) an adverse impact of $4.7 million, or $0.15 per share, to conform
Hollywood's method of recording extended viewing fees to Movie
Gallery's method;
(iii) a non-cash charge of $0.3 million, or $0.01 per share to account for
three stores destroyed by Hurricane Katrina: and,
(iv) non-cash charges of $0.4 million, or $0.01 per share, related to
stock based compensation.
Movie Gallery has presented adjusted net loss, which excludes these
charges to provide investors with a more meaningful view of the current period
operating results. Management uses this information to analyze results from
continuing operations and to view trends and changes in these results.
"Rental revenues have continued to decline over the last several months,
and the market weakness we are currently experiencing has been more severe and
longer lasting than anticipated," said Joe Malugen, Chairman, President and
Chief Executive Officer of Movie Gallery. "In response, we have taken, and
will continue to take, decisive action to reduce our cost structure, leverage
the Company's purchasing power and streamline the organization to drive
improved earnings. In addition, Movie Gallery has accelerated its efforts to
explore new initiatives to drive future growth, and to better leverage our
existing real estate investment. For example, we have been testing a DVD
vending machine program, which will give our customers the ability to rent or
buy both movies and games 24/7. We strongly believe that this program will
further improve the consumer's experience in our stores and extend the reach
of our brand as we introduce the concept into grocery and convenience stores.
We will also continue to explore new technologies and alternative delivery
opportunities to meet the evolving needs of our market. Despite the
challenges we face, Movie Gallery is a strong company with talented employees
and solid prospects for growth as industry conditions improve."
Third Quarter Results
Revenue. For the third quarter of 2005, Movie Gallery's consolidated
total revenues were $572.4 million. Same-store total revenues for the
combined company declined 9.0% from the same period in the prior year. Same-
store rental revenue declined 10.3 % and product same-store revenue declined
2.2% in the third quarter of 2005 as compared to the same period last year.
For the thirteen weeks ended October 2, 2005, the Movie Gallery operating
segment total revenues increased 3.9% from the comparable period in 2004.
This was the result of an increase of approximately 14.5% in the average
number of stores operated during the quarter as compared to the same period
last year, partially offset by a decline of 9.8% in same-store revenues.
Same-store rental revenues for the Movie Gallery segment declined 10.8% from
the same period in the prior year. Same-store product sales increased 2.5% in
the third quarter.
The Hollywood segment total same-store revenues declined 8.6% for the
third quarter compared to the same period in the prior year. Same-store
rental revenue declined 10.1% for the quarter, and same-store product sales
decreased 3.0% compared to the same period last year.
The Company believes the following factors contributed to a decrease in
total same-store revenues for the Company in the third quarter:
- Movie rental revenue, including previously viewed sales, was adversely
impacted by the continued weak home video release schedule, the
maturation of the DVD life cycle and the overabundance of DVD titles
available in the marketplace.
- Game revenue also declined, reflecting the weakness of the new game
titles currently being released and the industry softness that has
occurred in anticipation of the introduction of new game platforms
currently scheduled for late 2005 and 2006 release.
Gross Margins. The gross margin on rental revenue for the third quarter
of 2005 was 71.2% versus 71.0% for the comparable quarter of 2004. This
slight year-over-year improvement is an indication of the Company's success in
adjusting purchasing levels consistent with the decline in same store
revenues.
The gross margin on product sales was 29.5% for the third quarter of 2005.
This compares to 37.1% for the comparable quarter of 2004. The decrease in
product sales margin was primarily caused by the significantly higher
penetration of the sales of new and used video game hardware, software and
accessories caused by the acquisition of Hollywood's Game Crazy business, as
well as a higher penetration of new movie sales.
Operating Costs and Expenses. Store operating expense as a percentage of
total revenue was 55.9% for the third quarter of 2005 versus 51.6% in the
comparable period last year. Store operating expense increased 226.6% for the
third quarter versus the comparable period in 2004, primarily as a result of
the acquisition of Hollywood, and a 14.5% increase in year-over-year store
counts in the Movie Gallery segment. In addition, these expenses include a
$2.7 million pre-tax depreciation increase related to conforming Hollywood's
depreciation policies to Movie Gallery's, and to the increased asset fair
value as part of purchase accounting.
The increase in the expense rate to sales is primarily attributable to the
increased spending on new stores, normal increases in occupancy costs in
existing stores, and the higher depreciation expense, all in an environment of
significant declines in same store revenues.
General and administrative expenses. General and administrative expenses
as a percentage of total revenue were 6.9% for the third quarter of 2005 as
compared to 7.6% in the third quarter of 2004. General and administrative
expenses as a percentage of revenue have decreased versus comparable periods
last year due to the acquisition of Hollywood and the continued reductions in
duplicate general and administrative functions.
Other. Adjusted EBITDA, which is defined as net cash provided by
operating activities before changes in operating assets and liabilities,
interest, taxes and non-recurring special items, was $51.9 million for the
third quarter of 2005, an increase of $28.0 million, or 117.0%, compared to
adjusted EBITDA for the third quarter of 2004.
Readers should refer to the portion of this press release captioned
"Disclosures Regarding Non-GAAP Financial Information" for an explanation of
how we compute adjusted EBITDA, reconciliations of Adjusted EBITDA to
operating income and net cash provided by operating activities, and a
description of the purposes for which we use adjusted EBITDA.
Movie Gallery ended the third quarter of 2005 with available cash and cash
equivalents of $68.8 million and available borrowings under its $75 million
revolving credit facility of $46.9 million, and is in full compliance with all
of its debt covenants.
Integration Update
As announced on October 25, 2005 Movie Gallery continues to make
significant progress in its integration of Hollywood and the Company expects
to realize cash savings of approximately $20 million in 2005 and up to
approximately $50 million by the end of 2007 as a result of the Hollywood
transaction. The following table summarizes certain cash synergies that the
Company expects to realize through its ongoing efforts to integrate support
functions, leverage the company's purchasing power, and reduce Movie Gallery's
cost structure.
Expected Cash Synergies 2005 ($ in mil)
2005
-------------------------------------
Realized Annualized
=====================================
EBITDA Related
COGS $2.4 $7.7
Store Operating Expenses 0.5 1.8
Operating and G&A Expenses 5.7 10.2
-----------------------------------------------------------
EBITDA Impact $7.9 $19.7
===========================================================
Balance Sheet Related
Real Estate /
Construction Consol.
(Capitalized) $3.9 $7.4
New "Sell-Through"
Inventory Optimization 7.7 7.7
------------------------------------
11.6 15.1
-----------------------------------------------------------
Total Cash Impact $19.5 $34.8
==============================================================
"With the Hollywood integration process ahead of schedule, we are
confident in our ability to continue reducing expenses and realizing
substantial cash savings," concluded Mr. Malugen.
Business Outlook
The Company anticipates that the cumulative weakness of movie releases in
the second and third quarters of 2005 will continue to adversely impact its
fourth quarter results. In addition to the weakness of available movie
titles, the video game business has been similarly soft due in part to the
maturation of game platforms. While we remain excited about the Xbox 360
launch later this month, Movie Gallery has recently learned that, its initial
allocation of the new X-Box360 consoles will be below original expectations,
further reducing the Company's projections. We believe this issue to be
industry-wide. As a result of these factors, coupled with some pricing
promotions targeted to drive traffic into the stores during the holiday
season, Movie Gallery currently anticipates revenues in the fourth quarter of
2005 will be between $675 million and $705 million and same-store revenues in
the range of -5% to -9% as compared to the fourth quarter of 2004.
In June of 2005 management revised the new store development plan for the
recently merged companies, decreasing their individual plans which totaled
approximately 500 stores to a combined target of approximately 300 stores for
fiscal 2005. The Company is on track to meet this objective. In light of the
current industry conditions, Movie Gallery intends to further reduce its
annual capital expenditures for new store development and open approximately
150 new stores in 2006, primarily in rural and secondary markets.
Evaluating Strategic Alternatives for Its Game Crazy Business
The Company also announced today that it is exploring various strategic
alternatives for its Game Crazy business, which may include a potential sale,
strategic partnership, or joint venture.
"We are committed to taking the appropriate and necessary actions to
maximize value for all Movie Gallery shareholders. Accordingly, we are
exploring a wide range of strategic alternatives for our Game Crazy business,"
said Malugen.
Movie Gallery noted that there can be no assurance that any transaction
will result from this effort and that it does not expect to disclose
developments with respect to the exploration of strategic alternatives unless
and until its Board of Directors has approved a definitive transaction.
Conference Call Information
Management will have a conference call today (November 10, 2005) at 11:00
a.m. eastern time to discuss the quarterly financial results. To listen to
the conference, please call 1-877-340-MOVI ten minutes prior to the scheduled
start time and reference passcode MOVIE GALLERY. The call may also be
accessed on the Investor Relations section of the Company's website at:
http://www.moviegallery.com
A replay of the call can be accessed by dialing 334-323-7226, replay
passcode 50900075 beginning immediately after the call on November 10 and
continuing through January 10. The conference call webcast will also be
archived on the Investor Relations section of the web site.
About Movie Gallery
Movie Gallery is the second largest North American video rental company
with annual revenue of approximately $2.6 billion and nearly 4,800 stores
located in all 50 U.S. states, Mexico and Canada. Since the Company's initial
public offering in August 1994, Movie Gallery has grown from 97 stores to its
present size through acquisitions and new store openings.
Forward-Looking Statements
To take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, you are hereby cautioned that this
release contains forward-looking statements that are based upon the Company's
current intent, estimates, expectations and projections and involve a number
of risks and uncertainties. These statements include descriptions of the
estimated costs and benefits associated with the continuing integration of
Hollywood Entertainment, and projections relating to the performance of the
Company for the remainder of the 2005 fiscal year and its industry generally,
and the description of various strategic alternatives being explored for the
Company's Game Crazy business. Various factors exist which may cause results
to differ from these expectations. These risks and uncertainties include, but
are not limited to, the risk factors that are discussed from time to time in
the Company's SEC reports, including, but not limited to, the annual report on
Form 10-K for the fiscal year ended January 2, 2005. In addition to the
potential effect of these ongoing factors, the Company's operations and
financial performance may be adversely effected if, among other factors, (i)
same-store revenues are less than projected; (ii) the availability of new
movie releases priced for sale negatively impacts consumers' desire to rent
movies; (iii) the number of new store openings during the year is less than
expected; (iv) unforeseen issues with the continued integration of the
Hollywood Entertainment business; (v) the Company's actual expenses or
liquidity requirements differ from estimates and expectations; (vi) consumer
demand for movies and games is less than expected; (vii) the availability of
movies and games is less than expected, including as a result of changes in
movie studios' distribution policies; (viii) competitive pressures, including
technological advances, are greater than anticipated; (ix) the Company expands
its investment in existing strategic initiatives for alternative delivery of
media content or chooses to invest in significant new strategic initiatives,
(x) the effects of Hurricanes Katrina and Rita and other hurricanes are
greater than expected on the Company's overall operations or (xi) video game
hardware and software manufacturers fail to introduce new products. The
Company undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events, or otherwise.
Contacts
Financial - Thomas D. Johnson, Jr., Movie Gallery, Inc., (503) 570-1950
Media - Andrew B. Siegel, Joele Frank, Wilkinson Brimmer Katcher,
(212) 355-4449 ext. 127
Movie Gallery, Inc.
Unaudited Financial Highlights
and Supplemental Information
(amounts in thousands, except per share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------- -----------------------
October 3, October 2, October 3, October 2,
2004 2005 2004 2005
--------- --------- --------- ---------
Total revenue $189,855 $572,442 $582,748 $1,310,962
Net income (loss) $ 9,214 $(12,469) $ 38,100 $ (6,265)
Net income (loss) per
diluted share $ 0.29 $ (0.39) $ 1.16 $ (0.20)
Adjusted net income (loss)
per diluted share $ 0.32 $ (0.16) $ 1.26 $ 0.48
Weighted average diluted
shares outstanding: 31,807 31,640 32,933 31,471
Net cash provided by
operating activities $ 11,523 $ 16,274 $ 60,696 65,309
Adjusted EBITDA $ 23,902 $ 51,873 $ 83,479 $ 149,297
Margin data:
Rental margin 71.0% 71.2% 71.6% 68.9%
Product sales margin 37.1% 29.5% 33.4% 29.5%
Total gross margin 68.5% 64.0% 68.7% 62.8%
Percent of total revenue:
Rental revenue 92.7% 82.6% 92.3% 84.6%
Product sales 7.3% 17.4% 7.7% 15.4%
Store operating expenses 51.6% 55.9% 49.4% 52.7%
General and administrative
expenses 7.6% 6.9% 7.2% 7.0%
Stock compensation 0.4% 0.1% 0.1% 0.1%
Operating income 8.6% 0.9% 11.6% 2.9%
Interest expense, net 0.1% 4.3% 0.1% 3.2%
Net income (loss) 4.9% (2.2%) 6.5% (0.5%)
Total same-store revenues (2.3%) (9.0%) (0.3%) (3.1%)
Movie Gallery same-store
revenues (2.3%) (9.8%) (0.3%) (5.3%)
Hollywood same-store revenues (2.4%) (8.6%) 1.3% (2.2%)
Total same-store rental
revenues (2.1%) (10.3%) (0.1%) (5.2%)
Movie Gallery same-store
revenues (2.1%) (10.8%) (0.1%) (5.5%)
Hollywood same-store
revenues (8.0%) (10.1%) (4.8%) (5.1%)
Total same-store product
sales (4.5%) (2.2%) (2.3%) 7.8%
Movie Gallery same-store
sales (4.5%) 2.5% (2.3%) (3.1%)
Hollywood same-store sales 26.8% (3.0%) 37.6% 10.0%
Movie Gallery, Inc.
Unaudited Financial Highlights
and Supplemental Information Continued
(amounts in thousands, except per share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------- -----------------------
October 3, October 2, October 3, October 2,
2004 2005 2004 2005
--------- --------- --------- ---------
Total Store count:
Beginning of period 2,331 4,730 2,158 2,482
New store builds 65 80 221 234
Stores acquired 5 - 60 2,138
Stores closed (18) (25) (56) (69)
--------- --------- --------- ----------
End of period 2,383 4,785 2,383 4,785
========= ========= ========= ==========
Movie Gallery Store Count:
Beginning of period 2,331 2,669 2,158 2,482
New store builds 65 68 221 210
Stores acquired 5 - 60 87
Stores closed (18) (23) (56) (65)
--------- --------- --------- ----------
End of period 2,383 2,714 2,383 2,714
========= ========= ========= ==========
Hollywood Store Count included in Movie Gallery results as of 4/27/2005:
Beginning of period 1,957 2,061 1,923 2,026
New store builds 21 12 60 51
Stores acquired 4 - 4 -
Stores closed (6) (2) (11) (6)
--------- --------- --------- ----------
End of period 1,976 2,071 1,976 2,071
======== ======== ======== =========
Movie Gallery, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
-------------------------
January 2, October 2,
2005 2005
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 25,518 $ 68,755
Extended viewing fees receivable, net - 1,110
Merchandise inventory, net 27,419 143,209
Prepaid expenses 12,712 42,457
Store supplies and other 9,493 29,757
Deferred income taxes 3,358 15,813
----------- -----------
Total current assets 78,500 301,101
Rental inventory, net 126,541 342,227
Property, furnishings and equipment, net 128,182 355,436
Goodwill, net 143,761 625,885
Other intangibles, net 7,741 190,706
Deferred income taxes, net - 13,203
Deposits and other assets 7,417 41,530
----------- -----------
Total assets $ 492,142 $ 1,870,088
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term
obligations $ - $ 27,286
Current maturities of financing
obligations - 7,973
Accounts payable 68,977 159,814
Accrued liabilities 30,570 137,578
Accrued interest - 29,233
Deferred revenue 10,843 31,687
----------- ----------
Total current liabilities 110,390 393,571
Long-term obligations, less current
portion - 1,142,882
Deferred income taxes 50,618 -
Stockholders' equity:
Preferred stock, $.10 par value; 2,000
shares authorized, no shares issued
or outstanding - -
Common stock, $.001 par value; 65,000
shares authorized, 31,076 and 31,662
shares issued and outstanding,
respectively 31 32
Additional paid-in capital 188,098 202,542
Unearned compensation - (4,830)
Retained earnings 136,750 128,592
Accumulated other comprehensive income 6,255 7,299
----------- -----------
Total stockholders' equity 331,134 333,635
----------- -----------
Total liabilities and stockholders'
equity $ 492,142 $ 1,870,088
=========== ===========
Movie Gallery, Inc.
Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------- -----------------------
October 3, October 2, October 3, October 2,
2004 2005 2004 2005
--------- --------- --------- ---------
Revenue:
Rentals $ 176,058 $ 473,086 $ 538,054 $1,109,661
Product sales 13,797 99,356 44,694 201,301
--------- --------- --------- ---------
Total revenue 189,855 572,442 582,748 1,310,962
Cost of sales:
Cost of rental
revenue 51,110 136,236 152,763 345,159
Cost of product
sales 8,673 70,080 29,745 141,896
--------- --------- --------- ---------
Gross profit 130,072 366,126 400,240 823,907
Operating costs and expenses:
Store operating
expenses 97,962 319,919 287,788 690,592
General and
administrative 14,397 39,485 41,879 91,916
Amortization of
intangibles 673 1,163 1,962 2,718
Stock compensation 755 535 795 1,098
-------- -------- -------- --------
Operating income 16,285 5,024 67,816 37,583
Interest expense, net (225) (24,427) (390) (41,430)
Write-off of bridge
Financing costs - - - (4,234)
Equity in losses of
unconsolidated
entities (955) - (4,891) (806)
-------- -------- -------- --------
Income (loss) before
income taxes 15,105 (19,403) 62,535 (8,887)
Income taxes (benefit) 5,891 (6,934) 24,435 (2,622)
-------- -------- -------- --------
Net income (loss) $ 9,214 $(12,469) $ 38,100 $ (6,265)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.29 $ (0.39) $ 1.17 $ (0.20)
Diluted $ 0.29 $ (0.39) $ 1.16 $ (0.20)
Weighted average shares outstanding:
Basic 31,444 31,640 32,436 31,471
Diluted 31,807 31,640 32,933 31,471
Cash dividends per
common share $ 0.03 $ - $ 0.09 $ 0.06
Movie Gallery, Inc.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Thirty-Nine Weeks Ended
-----------------------
October 3, October 2,
2004 2005
--------- ----------
Operating activities:
Net income (loss) $ 38,100 $ (6,265)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Rental inventory amortization 107,690 206,134
Purchases of rental inventory (109,315) (174,251)
Depreciation and intangibles amortization 22,151 61,569
Amortization of debt issuance cost - 2,235
Stock based compensation 28 1,098
Tax benefit of stock options exercised 4,689 3,301
Deferred income taxes 12,496 (11,557)
Changes in operating assets and liabilities,
net of business acquisitions:
Extended viewing fees receivable, net - 20,259
Merchandise inventory 1,281 8,516
Other current assets 985 (3,948)
Deposits and other assets 897 (2,053)
Accounts payable (15,785) (82,258)
Accrued interest - 29,193
Accrued liabilities and deferred revenue (2,521) 13,336
--------- ---------
Net cash provided by operating activities 60,696 65,309
Investing activities:
Business acquisitions, net of cash acquired (9,599) (1,096,265)
Purchases of rental inventory-base stock (11,085) (16,569)
Purchase of property, furnishings and
equipment (34,699) (48,873)
Proceeds from disposal of property,
furnishings and equipment - 2,107
Acquisition of construction phase
assets, net - 2,154
--------- ---------
Net cash used in investing activities (55,383) (1,157,446)
Financing activities:
Repayment of capital lease obligations - (265)
Decrease in financing obligations - (2,412)
Net borrowings on credit facilities - 9,046
Long term debt financing fees - (32,452)
Proceeds from issuance of long-term debt 20,000 1,166,120
Principal payments on long-term debt - (8,367)
Proceeds from exercise of stock options 5,516 5,318
Proceeds from employee stock purchase plan 168 169
Purchases and retirement of common stock (47,390) -
Payment of dividends (2,958) (2,827)
--------- ---------
Net cash (used in) provided by
financing activities (24,664) 1,134,330
Effect of exchange rate changes on cash
and cash equivalents 579 1,044
--------- ---------
(Decrease) increase in cash and
cash equivalents (18,772) 43,237
Cash and cash equivalents at
beginning of period 38,006 25,518
--------- ---------
Cash and cash equivalents
at end of period $ 19,234 $ 68,755
========= =========
Disclosures Regarding Non-GAAP Financial Information
Adjusted EBITDA is defined as operating income plus depreciation,
amortization, non-cash stock compensation and non-recurring special items,
less purchases of rental inventory and equity in losses of unconsolidated
entities. Adjusted EBITDA is presented as an alternative measure of operating
performance that is used in making business decisions and compensating our
executives and as a measure of liquidity. It is a widely accepted financial
indicator in the home video specialty retail industry of a company's ability
to incur and service debt, finance its operations and meet its growth plans.
However, our computation of Adjusted EBITDA is not necessarily identical to
similarly captioned measures presented by other companies in our industry. We
encourage you to compare the components of our reconciliation of Adjusted
EBITDA to operating income and our reconciliation of Adjusted EBITDA to cash
flows from operations in relation to similar reconciliations provided by other
companies in our industry. Our presentation of net cash provided by operating
activities and Adjusted EBITDA treats rental inventory as being expensed upon
purchase instead of being capitalized and amortized. We believe this
presentation is meaningful and appropriate because our annual cash investment
in rental inventory is substantial and in many respects is similar to
recurring merchandise inventory purchases considering our operating cycle and
the relatively short useful lives of our rental inventory. Adjusted EBITDA
excludes the impact of changes in operating assets and liabilities. This
adjustment eliminates temporary effects attributable to timing differences
between accrual accounting and actual cash receipts and disbursements, and
other normal, recurring and seasonal fluctuations in working capital that have
no long-term or continuing affect on our liquidity. Investors should consider
our presentation of Adjusted EBITDA in light of its relationship to operating
income and net income in our statements of operations. Investors should also
consider our presentation of Adjusted EBITDA in light of its relationship to
cash flows from operations, cash flows from investing activities and cash
flows from financing activities as shown in our statements of cash flows.
Adjusted EBITDA is not necessarily a measure of "free cash flow" because it
does not reflect periodic changes in the level of our working capital or our
investments in new store openings, business acquisitions, or other long-term
investments we may make. However, it is an important measure used internally
by executive management of our Company in making decisions about where to
allocate resources to grow our business. Because we use Adjusted EBITDA as a
measure of performance and as a measure of liquidity, the tables below
reconcile Adjusted EBITDA to both operating income and net cash flow provided
by operating activities, the most directly comparable amounts reported under
GAAP.
The following table provides a reconciliation of Adjusted EBITDA to
operating income:
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
October 3, October 3, October 3, October 3,
2004 2005 2004 2005
--------- --------- --------- ---------
Operating income $ 16,285 $ 5,024 $ 67,816 $ 37,583
Rental amortization 37,853 75,319 107,690 206,134
Rental purchases (37,012) (66,072) (109,315) (174,251)
Depreciation and
intangible amortization 7,743 30,423 22,151 61,569
Stock compensation (12) 535 28 1,098
Equity in losses of
unconsolidated
entities (955) - (4,891) (806)
Extended viewing fee
adjustment - 6,644 - 17,970
--------- --------- --------- ---------
Adjusted EBITDA $ 23,902 $ 51,873 $ 83,479 $ 149,297
The following table provides a reconciliation of Adjusted EBITDA to net
cash provided by operating activities:
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
October 3, October 3, October 3, October 3,
2004 2005 2004 2005
--------- --------- --------- ---------
Net cash provided by
operating activities $ 11,523 $ 16,274 $ 60,696 $ 65,309
Changes in operating
assets and liabilities 10,504 3,966 15,143 16,955
Tax benefit of stock
options exercised (610) (355) (4,689) (3,301)
Deferred income taxes (3,631) 9,221 (12,496) 11,557
Amortization of debt
issuance cost - (1,370) - (2,235)
Interest expense 225 24,427 390 45,664
Income taxes 5,891 (6,934) 24,435 (2,622)
Extended viewing fee
adjustment - 6,644 - 17,970
--------- --------- --------- ---------
Adjusted EBITDA $ 23,902 $ 51,873 $ 83,479 $ 149,297
The Company disclosed a non-GAAP financial measure of Adjusted Net Income
(Loss) for the thirteen and thirty-nine weeks ended October 3, 2004 and
October 2, 2005. Adjusted Net Income (Loss) represents the Company's GAAP Net
Income (Loss) less adjustments for non-recurring special items and stock based
compensation. The adjustments to Net Income include adjustments for:
conforming Hollywood's method of accounting for extended viewing fees to Movie
Gallery's method; reducing the VHS residual value from $2.00 to $1.00;
transaction bonuses paid related to the merger and stock based compensation;
conforming Hollywood's fixed asset depreciable lives to Movie Gallery's and
the step up of Hollywood's fixed assets to fair value; and damage due to
Hurricane Katrina; equity in losses of unconsolidated entities. Movie Gallery
has presented adjusted net loss, which excludes these charges to provide
investors with a more accurate view of the current period operating results.
Management uses this information to analyze results from continuing operations
and to view trends and changes in these results. Investors should consider
our presentation of Adjusted Net Income in light of its relationship to Net
Income shown on the Consolidated Statements of Operations.
The following table provides a reconciliation of Adjusted Net Income to
Net Income:
Thirteen weeks ended Thirty-nine weeks ended
---------------------- ------------------------
October 3, October 2, October 3, October 2,
2004 2005 2004 2005
--------- --------- ---------- ----------
Net income $ 9,214 $ (12,469) $ 38,100 $ (6,265)
Earnings per diluted
Share 0.29 (0.39) 1.16 (0.20)
After tax adjustments:
VHS residual value
adjustment - - - 5,900
Extended viewing fee
adjustment - 4,652 - 12,688
Transaction bonuses - - - 1,057
Stock compensation 461 442 485 774
Depreciation lives
Adjustment - 1,917 - -
Hurricane write-offs - 282 - 282
Equity losses in
Unconsolidated
entities 583 - 2,982 568
--------- --------- ---------- ----------
Adjusted Net
Income $ 10,258 $ (5,176) $ 41,567 $ 15,004
Earnings per
diluted Share 0.32 (0.16) 1.26 0.48
========== ========= ========== ==========
SOURCE Movie Gallery, Inc.
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Related links:
http://www.moviegallery.com
CONTACT:
Financial - Thomas D. Johnson, Jr. of Movie
Gallery, Inc., +1-503-570-1950; or Media - Andrew B. Siegel,
Joele Frank of Wilkinson Brimmer Katcher, +1-212-355-4449 ext.
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