K-tel International Inc. Reports Fourth Quarter and Fiscal 1998 Results; Revenues Increase 13.2 Percent to $86 Million
from $76 Million for Fiscal 1997
Business Wire - September 29, 1998 17:17
CALABASAS, Calif.--(BUSINESS WIRE)--Sept. 29, 1998--K-tel International Inc. (Nasdaq:KTEL) Tuesday reported financial results for its 1998 fiscal year and fourth quarter, ended June 30, 1998.
Net revenues for the 1998 fiscal year rose 13.2 percent to $86 million from $76 million for the same period last year. The company reported a net loss for fiscal year 1998 of $2.4 million, or 31 cents per
basic and diluted share, compared with net income of $3.2 million, or 43 cents per basic and 41 cents per diluted share, for the previous fiscal year.
Contributing to the 1998 loss were a $2.3 million loss related to the company's recently curtailed U.S. third-party media-buying operation, a fourth-quarter loss of $1.2 million resulting from soft sales and an
overall decrease in gross margins on sales of the company's domestic mid-line and budget-priced music product lines, $400,000 in start-up costs incurred by the launch of the company's new online service,
K-tel Express (www.ktel.com), as well as a noncash loss of $500,000 recognized on the revaluation of certain securities received in connection with a previous settlement.
For the fourth quarter of fiscal 1998 the company reported revenues of $21 million and a loss of $3.1 million, or 40 cents per basic and diluted share. This compares with fiscal 1997 fourth-quarter revenues
of $24 million, and a profit of $90,000, or 1 cent per basic and diluted share.
On May 1, 1998, the company launched its new online music service, K-tel Express, featuring a wide spectrum of music and entertainment products for purchase by the public across the globe. Open for
commerce 24 hours a day, 365 days a year, K-tel Express features more than 250,000 music titles and 35,000 home-video titles available at value prices.
Philip Kives, K-tel's chairman and chief executive officer, said: "During fiscal 1998, K-tel continued to expand its presence and business activities across the globe and into new arenas of commerce, such as
the Internet, with the recently launched K-tel Express Web site.
"In doing so, the company made a decision to curtail certain unprofitable operations and focus on building synergies between existing core businesses and our new e-commerce operations. K-tel's marketing
strategy for K-tel Express is to leverage its proprietary music content and its worldwide television expenditures to drive traffic to the site and gain market share.
"The company's brand-name recognition, along with its international presence and direct access to consumers through alternative media channels, are expected to create strong synergies between the existing
core operations of K-tel and its expansion into the e-commerce arena.
"In fiscal 1999, the company's objective is to continue its focus on developing K-tel Express as a synergistic asset to its music business and related marketing operations.
"As a result of our strategic direction, we are now able to introduce a custom compilation system that will offer online shoppers the ability to create compilations from any of our 3,500, Top-100, titles from
our master music catalog.
"This compilation system is just one example of how our synergies create new opportunities to expand our product breadth and consumer reach. Over the coming year, we will continue to analyze and explore
the best strategy for the exploitation of our new e-commerce marketplace," said Kives.
K-tel has provided additional enhancements to K-tel Express since the online service launched in May. These actions include entering into a partnership agreement with RealNetworks Inc. to develop user-
friendly technology enabling consumers to create customized CD compilations and artwork online; and an agreement with Liquid Audio to license digital-music-delivery technology that will allow K-tel
Express customers to download up to 3,500 songs from the company's master music catalog in Liquid Track format.
K-tel Express, which posts Billboard Magazine's music-industry charts, has expanded its products and service offerings on the site through an agreement with Muze Inc. to integrate its home-video-
information content of 35,000 titles, as well as its music and movie reviews.
In order to provide a secure and convenient shopping environment for K-tel Express customers, the company reached an agreement with CyberSource to integrate its scalable payment-processing
infrastructure. K-tel also entered into a comprehensive Internet- marketing and -services agreement with @Home Network.
"Although Internet sales are not yet a significant part of our business revenue, we do believe the prospects for K-tel Express and e-commerce in general are encouraging. However, the success of our online
marketing cannot be currently determined, and further participation in this market will require substantial additional financial resources, development and acquisition of technology, investments in marketing, and
contractual relationships with third parties.
"Results will also be affected by existing competition, which the company anticipates will intensify, and by additional entrants to the market who may already have the necessary technology and expertise, many
of whom may have substantially greater resources than the company," added Kives.
In the company's core business, K-tel expanded its global reach by acquiring certain media assets of the U.K.-based Regal Shops, a direct-response marketing firm. The acquisition will allow K-tel to market
products, as well as promote its Internet site throughout 12 European countries including France, Belgium, Germany, Luxembourg, Austria and Switzerland.
K-tel also added to its music portfolio by entering into new distribution agreements with seven music labels. In addition, the company's Club Mix '98 and Club Mix '97 releases were certified platinum status
by the Record Industry Association of America (RIAA).
K-tel International is a vertically integrated developer, marketer and distributor of entertainment and consumer products worldwide.
The company markets its product lines either to retailers, wholesalers, distributors or licensees throughout the world, or directly to the consumer via television and other forms of direct- response media,
including the Internet, which was introduced on May 1, 1998. K-tel has active operations in the United States, Canada, the United Kingdom, Germany and Finland.
The statements in this news release may contain forward-looking statements relating to future results of the company (including certain projections and business trends) that are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projections as a result of certain risks and uncertainties, including but not limited to, changes in
political and economic conditions, demand for and market acceptance of new and existing products, the impact from competition for Internet content, merchandise and recorded music, dependence on
strategic-alliance partners, suppliers and distributors, market acceptance of the Internet for commerce and as a medium for advertising, technological changes and difficulties, availability of financing and other
risks detailed in the company's Securities and Exchange Commission filings. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements.
K-tel International Inc.
Summary of Consolidated Financial Information
(In thousands, except for share data)
Fiscal Year Ended Fourth Quarter Ended
June 30, June 30,
1998 1997 1998 1997
NET SALES $ 85,626 $ 75,501 $ 20,849 $ 24,271
Total Costs and
Expenses 88,161 71,919 24,280 24,093
OPERATING INCOME
(LOSS) $ (2,535) $ 3,582 $ (3,431) $ 178
Total Nonoperating
Income (Expense) 156 (160) 447 (74)
Income (Loss) Before
Provision for Taxes (2,379) 3,422 (2,984) 104
(Provision) for
Income Taxes (28) (218) (116) (14)
NET INCOME (LOSS) $ (2,407) $ 3,204 $ (3,100) $ 90
NET INCOME (LOSS)
PER SHARE
Basic (31 cents) 43 cents (40 cents) 1 cent
Diluted (31 cents) 41 cents (40 cents) 1 cent
SHARES USED IN THE CALCULATION OF
INCOME (LOSS) PER SHARE
Basic 7,736 7,527 7,746 7,575
Diluted 7,736 7,908 7,746 8,186 |
