Point.360 Announces Third Quarter and Nine Month Results

Point.360 Announces Third Quarter and Nine Month Results

BURBANK, Calif., Nov. 9 /PRNewswire-FirstCall/ -- Point.360 (NASDAQ:PTSX), a leading provider of integrated media management services, today announced results for the three and nine-month periods ended September 30, 2006.

Haig S. Bagerdjian, the Company's Chairman, President and Chief Executive Officer, said: "During the third quarter, we added further to our high definition capabilities as our markets continue to evolve. We completed a major remodel of our West Los Angeles facility and added approximately $.9 million of new equipment there and elsewhere. We believe these selective investments are important to satisfying our customer needs and giving us a sound base for future growth."

Revenues

Revenue for the quarter ended September 30, 2006, totaled $15.3 million compared to $16.7 million in the same quarter of 2005. Revenues for the nine months ended September 30, 2006 were $47.7 million, down 4% from $49.8 million in the 2005 period.

Gross Margin

In the third quarter of 2006, gross margin on sales was $5.0 million (33% of sales), compared to $6.0 million (36% of sales) in the prior year's third quarter.

For the first nine months of 2006, gross margin was 33% of sales, as compared to 34% in the 2005 period. The Company achieved $15.7 million of gross profit in 2006 compared to $17.0 million in 2005.

Selling, General and Administrative and Other Expenses

For the third quarter of 2006, SG&A expenses were $4.7 million, or 31% of sales, compared to $5.2 million, or 31% of sales in the third quarter of 2005. For the first nine months of 2006, SG&A was $14.8 million (31% of sales) compared to $16.0 million (32% of sales) in 2005.

Interest expense decreased $0.2 million in the third quarter and $0.3 million in first nine months of 2006 compared to the same periods of last year due to the effects of the sale/leaseback described below.

Operating Income

Operating income was $0.3 million in the third quarter of 2006 compared to $0.7 million in the same period last year due principally to lower sales. For the first nine months of 2006, operating income was to $0.9 million compared to $1.0 million in 2005.

Net Income

For the third quarter of 2006, the Company reported net income of $0.1 million ($0.01 per share) compared to net income of $0.2 million ($0.02 per share) in the same period last year. For the first nine months of 2006, the Company reported net income of $0.1 million ($0.01 per diluted share) compared to break oven results last year.

EBITDA (A)

In the third quarter, the Company's EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.7 million (11% of sales) compared to $2.2 million (13% of sales) in the 2005 period. For the first nine months of 2006, the Company's EBITDA was $5.0 million (11% of sales) compared to $5.7 million (11% of sales) in 2005.

Quarterly Financial Statistics (A)

The following table reconciles the Company's EBITDA to net income which is the most directly comparable financial measure under Generally Accepted Accounting Principles ("GAAP"), as well as selected balance sheet and income statement statistics (in thousands):

Computation of EBITDA (unaudited) (A)

Three Months Ended Nine Months Ended
September 30, September 30,
2005 2006 2005 2006
(in thousands)
Net Income $214 $65 $15 $90
Interest 378 146 999 690
Income taxes 142 72 10 89
Depreciation 1,510 1,386 4,652 4,130

EBITDA $2,244 $1,669 $5,676 $4,999

On March 29, 2006, the Company sold and leased back its Media Center real estate. In the three and nine-month periods ended September 30, 2006, the effect of the transaction was to lower depreciation and interest costs, and to increase rental expense. Assuming the sale/leaseback had not occurred in March 2006, EBITDA in the 2006 three and nine-month periods would have been (in thousands):

Three Nine
Months Months
(in thousands)
Non-GAAP income (see below) $28 $15
Interest 412 1,212
Income Taxes 31 14
Depreciation 1,432 4,222
EBITDA $1,903 $5,463

Selected Balance Sheet Statistics (unaudited) (1)(A)

December 31, September 30,
2005 2006

Working Capital $1,275 $6,745
Property and equipment, net 28,079 14,854
Total assets 75,459 62,657
Borrowings under revolving credit
agreement 4,054 2,439
Current portion of long term debt 2,373 1,190
Long-term debt, net of current
portion 13,790 3,771
Net debt (revolving credit, current
portion of notes payable and long-term debt,
minus cash on hand) 19,622 7,400
Shareholders equity 39,510 40,231

(1) Reductions due primarily to the sale/leaseback transaction.

Consolidated Statements of Income (unaudited)(A)

The table below summarizes results for the three-and nine-periods ended September 30, 2005 and 2006, showing the effects of the Media Center sale/leaseback in 2006 (in thousands except per share amounts):

Quarter Ended
September 30,
2005 September 30, 2006
GAAP (1) GAAP

Revenues $16,748 $15,313 $-- $15,313
Cost of services (10,783) (10,162) (173) (10,335)

Gross profit 5,965 5,151 (173) 4,978
Selling, general and
administrative expense (5,229) (4,680) (14) (4,694)
Operating income 736 471 (187) 284
Interest expense, net (379) (413) 266 (147)
Income
before income taxes 357 58 79 137
Provision for
income taxes (143) (31) (41) (72)
Net income $214 $27 $38 $65

Earnings per share:
Basic: $0.02 $-- $0.01 $0.01
Diluted: $0.02 $-- $0.01 $0.01

Nine Months Ended
September 30,
2005 September 30, 2006
GAAP Proforma (1) GAAP

Revenues $49,821 $47,654 $-- $47,654
Cost of services (32,813) $(31,642) (346) (31,988)

Gross profit 17,008 16,012 (346) 15,666
Selling, general and
administrative expense (15,984) (14,771) (28) (14,799)
Operating income 1,024 1,241 (374) 867
Interest expense, net (999) (1,212) 524 (688)
Income
before income taxes 25 29 150 179
Provision for
income taxes (10) (14) (75) (89)
Net income $15 $15 $75 $90

Earnings per share:
Basic: $-- $-- $0.01 $0.01
Diluted: $-- $-- $0.01 $0.01

(1) Effect of sale/leaseback transaction. The adjustments reflect the
decrease in depreciation and the increase in rent associated with the
real estate and lower interest expense resulting from the pay off
approximately $13.9 million of the mortgage and other debt with the
sale proceeds.

(A) The consolidated statements of income, computation of EBITDA and
presentation of balance sheet statistics do not represent the results
of operations or the financial position of the Company in accordance
with generally accepted accounting principles (GAAP), and are not to
be considered as alternatives to the balance sheet or statement of
income, operating income, net income or any other GAAP measurements
as an indicator of operating performance or financial position. Not
all companies calculate such statistics in the same fashion and,
therefore, the statistics may not be comparable to other similarly
titled measures of other companies. Management believes that these
computations provide useful information to investors.

About Point.360

Point.360 is one of the largest providers of high definition and standard definition digital mastering, data conversion and video and film asset management services to owners, producers and distributors of entertainment and advertising content. Point.360 provides the services necessary to edit, master, reformat, archive and ultimately distribute its clients' film and video content, including television programming, spot advertising, feature films and movie trailers.

The Company delivers commercials, movie trailers, electronic press kits, infomercials and syndicated programming, by both physical and electronic means, to hundreds of broadcast outlets worldwide.

The Company provides worldwide electronic distribution, using fiber optics, satellites, and the Internet.

Point.360's interconnected facilities in Los Angeles, New York, Chicago, Dallas and San Francisco provide service coverage in each of the major U.S. media centers. Clients include major motion picture studios, advertising agencies and corporations.

Forward-looking Statements

Certain statements in Point.360 press releases may contain "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation (i) statements concerning the Company's projected revenues, earnings, cash flow and EBITDA; (ii) statements of the Company's management relating to the planned focus on internal growth and acquisitions; (iii) statements concerning reduction of facilities and actions to streamline operations; (iv) statements on actions being taken to reduce costs and improve customer service; and (v) statements regarding new business and new acquisitions. Such statements are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from those expected or anticipated in the forward looking statements. In addition to the factors described in the Company's SEC filings, including its quarterly reports on Form 10-Q and its annual reports on Form 10-K, the following factors, among others, could cause actual results to differ materially from those expressed herein: (a) lower than expected net sales, operating income and earnings; (b) less than expected growth; (c) actions of competitors including business combinations, technological breakthroughs, new product offerings and marketing and promotional successes; (d) the risk that anticipated new business may not occur or be delayed; (e) the risk of inefficiencies that could arise due to top-level management changes and (f) general economic and political conditions that adversely impact the Company's customers' willingness or ability to purchase or pay for services from the Company. The Company has no responsibility to update forward-looking statements contained herein to reflect events or circumstances occurring after the date of this release.

First Call Analyst:
FCMN Contact: cthomas@point360.com

Source: Point.360

CONTACT: Alan Steel, Executive Vice President of Point.360,
+1-818-565-1444

Web site: http://www.point360.com/

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