Image Entertainment, Inc. (NASDAQ: DISK), a leading independent
licensee and distributor of entertainment programming in North
America, today reported financial results for its second fiscal
quarter ended September 30, 2009.
“We are pleased to have delivered operating income in spite of
the economic slow down and Image’s capital challenges. Our efforts
to reduce costs have contributed stronger results while robust
demand for our exclusive Criterion programming and the success of
our feature film Management drove revenues.” said Jeff M. Framer,
President and Chief Financial Officer of Image Entertainment. “We
continue to work with our financial advisors to explore our
strategic alternatives. However, the holder of our Senior Secured
Convertible Note in the principal amount of $15.7 million has
exercised its right to demand a payment of $4,043,767 on November
15, 2009. We do not have the funds necessary to make the payment.
Failure to make the payment would constitute an event of default
under the Note and entitle the holder to accelerate the Note. It
would also constitute default under our other debt agreements,
including a Loan and Security Agreement with Wachovia Capital
Finance Corporation (Western). We are in discussion with the holder
of the Note but cannot predict whether we will be successful in
avoiding a default under the Note.”
Financial Summary - Second Quarter of Fiscal 2010, Ended
September 30, 2009
- Net revenues decreased 7.9% to
$29,840,000, from net revenues of $32,389,000 for the three months
ended September 30, 2008. The reduction in revenues was due to a
weaker new release schedule and what we believe to a continuing
negative impact on the Company’s revenues from the current economic
slowdown.
- Domestic DVD revenues decreased
12.6% to $24,393,000, from $27,909,000 for the three months ended
September 30, 2008.
- Domestic Blu-ray revenues
increased 150.6% to $2,561,000, from $1,022,000 for the three
months ended September 30, 2008.
- Digital distribution revenues
increased 8.7% to $1,060,000, from $975,000 for the three months
ended September 30, 2008.
- Broadcast revenues decreased
47.9% to $612,000, from $1,174,000 for the three months ended
September 30, 2008.
- Gross profit margins were 25.5%,
up from 24.8% for the three months ended September 30, 2008.
- Selling expenses were 8.3% of
net revenues, down from 12.5% of net revenues for the three months
ended September 30, 2008, primarily due to reduced advertising and
promotional expenditures as well as reduced personnel costs.
- General and administrative
expenses decreased 1.7% to $3,533,000, from $3,594,000, for the
three months ended September 30, 2008. Costs incurred evaluating
strategic alternatives during the September 2009 quarter totaled
$346,000.
- Earnings from operations were
$1,582,000, up from $396,000 for the three months ended September
30, 2008.
- Net interest expense was
$606,000, down from $863,000 for the three months ended September
30, 2008.
- Loss on extinguishment of debt
was $2,181,000. Results from the July 30, 2009 amendment of the
Company’s senior secured convertible note, which, among other
things, increased the outstanding principal under the convertible
note to $15,701,000, from $13,000,000, increased the interest rate
to 8.875%, from 7.875% and provided for a minimum 90-day extension
to the $4 million bi-annual principal payment originally due on
July 30, 2009.
- Other expense of $405,000
represents a noncash expense resulting from the change in fair
value of a warrant and embedded derivatives.
- Net loss was $1,614,000 ($.07
per diluted share), compared to net loss of $465,000 ($.02 per
diluted share), for the three months ended September 30, 2008.
- On October 28, 2009, the Company
further amended its debt senior secured convertible note with
Portside extending the next $4 million principal installment from
October 30, 2009 to November 15, 2009 or, in certain circumstances,
November 30, 2009.
Best-selling DVD releases for the quarter included Management,
Terry Fator: Live from Las Vegas, Edge of Love, and Shark Week: The
Great Bites Collection.
Financial Summary -Fiscal 2010 Six Months Ended September 30,
2009
- Net revenues decreased 17.6% to
$53.5 million, compared to $65.0 million for the first six months
of fiscal 2009.
- Gross margins were 23.1%,
compared to 23.6% for the first six months of fiscal 2009.
- Selling expenses were $6.9
million, or 12.9% of net revenues, compared to $7.8 million, or
12.0% of net revenues, for first six months of fiscal 2009.
- General and administrative
expenses increased 2.8% to $7.8 million, from $7.6 million for the
first six months of fiscal 2009.
- Loss from operations was ($2.3
million), compared to earnings from operations of $15,000 for the
first six months of fiscal 2009.
- Net interest expense decreased
to $1.2 million, compared to $1.7 million for the first six months
of fiscal 2009.
- Other income was $1.1 million,
compared to $3.0 million for the first six months of fiscal 2009.
- $1.5 million in business
interruption fees received in accordance with a merger agreement
that was terminated in April 2009; and
- $333,000 in noncash expense
resulting from the change in fair value of a warrant and embedded
derivatives for the six months ended September 30, 2009.
- Net loss was ($4.6 million), or
($0.21) per diluted share, compared to net earnings of $1.2
million, or $0.06 per diluted share for the first six months of
fiscal 2009.
Fiscal Year 2010
Guidance
At this time, the Company is not providing quarterly or annual
revenue guidance for fiscal 2010.
Corporate Conference
Call
Image Entertainment’s management will host a conference call
today, November 12, at 4:30 p.m. ET to review the fiscal 2010
second quarter financial results. Image executive management will
be on the call to discuss these results and take part in a
Q & A session. The call can be accessed by dialing
(877) 718-5092 and requesting to join the conference call by
stating the passcode 6834409, or by webcast at
www.image-entertainment.com. Dial-ins begin at approximately 4:20
p.m. Eastern time, or at any time during the conference call.
International participants please dial (719) 325-4817.
A replay of the conference call will be available until November
25, 2009 by dialing (888) 203-1112 and entering the
following passcode: 6834409. International participants
please dial (719) 457-0820 using the same passcode.
About Image Entertainment:
Image Entertainment, Inc. is a leading independent licensee and
distributor of entertainment programming in North America, with
approximately 3,200 exclusive DVD titles and approximately 340
exclusive CD titles in domestic release and approximately 400
programs internationally via sublicense agreements. For many of its
titles, the Company has exclusive audio and broadcast rights and,
through its subsidiary, Egami Media, Inc. has digital download
rights to approximately 2,000 video programs and over 300 audio
titles containing more than 5,100 individual tracks. The Company is
headquartered in Chatsworth, California. For more information about
Image Entertainment, Inc., please go to
www.image-entertainment.com.
Forward-Looking Statements:
This press release includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
relating to, among other things, the Company’s goals, plans and
projections regarding the Company’s financial position, results of
operations, market position, product development and business
strategy. These statements may be identified by the use of words
such as “will,” “may,” “estimate,” “expect,” “intend,” “plan,”
“believe,” and other terms of similar meaning in connection with
any discussion of future operating or financial performance or
other events or developments. All forward-looking statements are
based on management’s current expectations and involve inherent
risks and uncertainties, including factors that could delay, divert
or change any of them, and could cause actual outcomes and results
to differ materially from current expectations.
These factors include, but are not limited to, (a) the Company’s
ability to continue as a going concern, (b) the Company’s ability
to service its principal and interest obligations on its
outstanding debt or otherwise renegotiate or refinance such
outstanding debt, including the November 15, 2009 principal and
interest payment on its convertible note, which renegotiation may
not be successful and refinancing may not be available on
acceptable terms, if at all, which may trigger defaults under our
other debt agreements, create liquidity issues, potentially force
the Company to file for protection from its creditors under Chapter
11 of the U.S. Bankruptcy Code and prevent the Company from
continuing as a going concern, (c) the Company’s limited funds and
the Company’s inability to raise additional funds on acceptable
terms or at all, (d) the Company’s ability to borrow against the
Company’s revolving line of credit, (e) the Company’s ability to
secure media content on acceptable terms, (f) the Company’s DVD
manufacturer continuing to manufacture and fulfill orders to
Company customers while the Company is past due on its payables to
such manufacturer, (g) the ability of the Company’s common stock to
continue trading on The NASDAQ Stock Market, (h) the performance of
business partners upon whom the Company depends upon, (i) changes
in the retail DVD and digital media and entertainment industries,
(j) changing public and consumer taste and changes in customer
spending patterns, (k) decreasing retail shelf space for the
Company’s industry, (l) further sales or dilution of the Company’s
equity, which may adversely affect the market price of the
Company’s common stock, (m) changes in the Company’s business plan,
(n) heightened competition, including with respect to pricing,
entry of new competitors, the development of new products by new
and existing competitors, (o) changes in general economic
conditions, including the performance of financial markets and
interest rates, (p) difficult, adverse and volatile conditions in
the global and domestic capital and credit markets, (q) claims that
the Company infringed other parties’ intellectual property, (r)
changes in accounting standards, practices or policies, and (s)
adverse results or other consequences from litigation, arbitration
or regulatory investigations.
For further details and a discussion of these and other risks
and uncertainties, see “Forward-Looking Statements” and “Risk
Factors” in the Company’s most recent Annual Report on Form 10-K,
and the Company’s most recent Quarterly Reports on Form 10-Q. Many
of the factors that will determine the outcome of the subject
matter of this press release are beyond Image Entertainment’s
ability to control or predict. Actual results for the periods
identified may differ materially from management’s expectations.
Unless otherwise required by law, the Company undertakes no
obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or
otherwise.
[Tables Follow]
IMAGE ENTERTAINMENT, INC. CONSOLIDATED
BALANCE SHEETS
September 30, 2009 and March 31,
2009
ASSETS (In thousands) September 30, 2009 March
31, 2009 Current assets: (unaudited) (audited) Cash and cash
equivalents $ 273 $ 802 Accounts receivable, net of allowances
of$8,701 – September 30, 2009;$10,217 – March 31, 2009 26,968
19,376 Inventories 13,417 14,629 Royalty and distribution fee
advances 12,785 16,570 Prepaid expenses and other assets
1,068 1,545 Total current assets 54,511 52,922
Noncurrent inventories, principally production costs 2,726 2,506
Noncurrent royalty and distribution advances 16,348 21,188
Property, equipment and improvements, net 1,633 2,161 Goodwill
5,715 5,715 Other assets 188 221 $ 81,121 $ 84,713
IMAGE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2009 and March 31,
2009
LIABILITIES AND SHAREHOLDERS' EQUITY (In
thousands, except share data) September 30, 2009 March 31, 2009
Current liabilities: (unaudited) (audited) Accounts payable $
12,662 $ 12,761 Accrued liabilities 4,914 5,626 Accrued royalties
and distribution fees 17,860 20,777 Accrued music publishing fees
6,242 6,222 Deferred revenue 6,654 5,035 Revolving credit facility
12,709 10,933 Current portion of long-term debt, net of debt
discount 10,026 10,094 Total current
liabilities 71,067 71,448 Long-term
debt, net of current portion 7,701 5,663 Other long-term
liabilities, less current portion 1,420 2,105
Total liabilities 80,188 79,216
Commitments and Contingencies Stockholders' equity: Preferred
stock, $.0001 par value, 25 million shares authorized; none issued
and outstanding — — Common stock, $.0001 par value, 100 million
shares authorized; 21,856,000 issued and outstanding at September
30, 2009 and March 31, 2009, respectively 2 2 Additional paid-in
capital 52,773 52,693 Accumulated deficit (51,842 )
(47,198 ) Net stockholders' equity 933 5,497
$ 81,121 $ 84,713
IMAGE
ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited)
For the Three Months Ended
September 30, 2009 and 2008
Three Months Ended (In thousands, except per share data)
September 30, 2009 September 30, 2008 NET REVENUES $ 29,840
100.0 % $ 32,389 100.0 % OPERATING
COSTS AND EXPENSES: Cost of sales 22,245 74.5 24,356 75.2 Selling
expenses 2,480 8.3 4,043 12.5 General and administrative expenses
3,533 11.8 3,594 11.1
28,258 94.7 31,993 98.8
EARNINGS FROM OPERATIONS 1,582 5.3 396 1.2 OTHER EXPENSES (INCOME):
Interest expense, net 606 2.0 863 2.7 Loss on extinguishment of
debt 2,181 7.3 — Other expense (income) 405 1.4
(46 ) (0.1 ) 3,192 10.7
817 2.5 LOSS BEFORE PROVISION FOR INCOME TAXES (1,610
) (5.4 ) (421 ) (1.3 ) PROVISION FOR INCOME TAXES 4
0.0 44 0.1 NET LOSS $ (1,614 ) (5.4 )%
$ (465 ) (1.4 )% NET LOSS PER SHARE: Net loss – basic and diluted $
(.07 ) $ (.02 ) WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: Basic
and diluted 21,856 21,856
IMAGE ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF
OPERATIONS (unaudited)
For the Six Months Ended September
30, 2009 and 2008
Six Months Ended (In thousands, except per share data)
September 30, 2009 September 30, 2008 NET REVENUES $ 53,524
100.0 % $ 64,966 100.0 % OPERATING
COSTS AND EXPENSES: Cost of sales 41,146 76.9 49,604 76.4 Selling
expenses 6,917 12.9 7,765 12.0 General and administrative expenses
7,796 14.6 7,582 11.7
55,859 104.4 64,951 100.0
EARNINGS (LOSS) FROM OPERATIONS (2,335 ) (4.4 ) 15 0.0 OTHER
EXPENSES (INCOME): Interest expense, net 1,235 2.3 1,738 2.7 Loss
on extinguishment of debt 2,181 4.1 — Other income (1,136 )
(2.1 ) (3,016 ) (4.6 ) 2,280 4.3
(1,278 ) (2.0 ) EARNINGS (LOSS) BEFORE PROVISION FOR INCOME TAXES
(4,615 ) (8.6 ) 1,293 2.0 PROVISION FOR INCOME TAXES 29
0.1 62 0.1 NET EARNINGS (LOSS) $
(4,644 ) (8.7 )% $ 1,231 1.9 % NET EARNINGS (LOSS) PER
SHARE: Net earnings (loss) – basic and diluted $ (.21 ) $ .06
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: Basic and
diluted 21,856 21,856
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