updated: 11/3/2008 9:39:28 AM

Fisher's Distribution Company Sold To Sony

InsideINdianaBusiness.com Report

New York-based EDCI Holdings, Inc. has announced the sale of its distribution operations in Fishers to Sony DADC US Inc. Sony will pay $26 million cash for the Fishers facility, as well as manufacturing equipment in North Carolina. EDCI is preparing to shut down its North American manufacturing and distribution facilities by February 2009.

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Press Release

New York -- EDCI Holdings, Inc., the holding company for Entertainment Distribution Company, Inc., 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 announced that it has entered into a definitive asset purchase agreement for the sale of EDC, LLC's distribution operations located in Fishers, Indiana, U.S. supply agreements with Universal Music Group ("UMG"), the equipment located in its Fishers, Indiana distribution facility and certain manufacturing equipment located in its Kings Mountain, North Carolina facility, as well as the transfer of U.S. customer relationships to Sony DADC US Inc. ("Sony DADC") for $26.0 million in cash.

The transaction includes potential contingent consideration of up to $2.0 million in cash related to the transferred operations achieving certain additional criteria. The transaction, which is subject to certain consents and closing conditions, is currently expected to close on or about December 31, 2008. EDCI also announced today third quarter financial results for the period ending September 30, 2008.

Clarke Bailey, Chairman and Interim Chief Executive Officer of EDCI, commented, "This transaction is a significant step in the strategic alternative process for EDC, LLC, which we outlined approximately a year ago. EDC, LLC's overall business has been impacted by the substantial changes in consumer consumption habits that have in turn driven consolidation across the industry. We expect these consolidation trends will continue and we are open to additional strategic alternatives for the remaining EDC, LLC assets. The sale allows EDC, LLC to focus on its international business."

EDC, LLC will continue to serve all of its customers through the close of the transaction, at which point it will begin shutting down its remaining North American manufacturing and distribution facilities, which is expected to be completed by the end of February 2009. Sony DADC is a highly respected leader in the industry and under the sale transition plan, EDC, LLC's customers that continue working with Sony DADC should expect a smooth transition.

Sony DADC will continue distribution operations at the Fishers, Indiana facility and manufacturing services for any transferred customers will be provided from existing Sony DADC facilities in the U.S. In connection with the sale, EDC, LLC and Sony DADC have agreed to provide certain transition services for up to approximately two months following the closing.

Upon completion of the transition services period, EDC, LLC will no longer operate manufacturing or distribution facilities in North America. EDC, LLC will continue to operate and serve its international customers through its facilities in Hannover, Germany and Blackburn, United Kingdom.

Proceeds from the sale, along with cash on hand, will be utilized to pay down a significant amount of EDC, LLC's outstanding debt, which was $38.8 million at September 30, 2008. Upon closing of this transaction, EDC, LLC is expected to have total debt of approximately $12.3 million, including $9.0 million under a term-loan due in installments through December 2010, $3.1 million in international rebate obligations to UMG and $0.2 million for capital leases.

In connection with the transaction, EDC entered into an amendment to its credit facility, which will be effective upon the closing of the transaction, in order to permit the sale, provide for the modified payment terms described above and amend certain other provisions. Upon the closing of the sale, completion of the transition period and the sale of the remaining manufacturing equipment and facility, EDC, LLC expects to record a gain on the transaction.

"We are pleased with our results for the third quarter, which were in line with our internal expectations," Bailey added. "Our management team remains focused on improving and right-sizing our operations to meet demand which will ensure we are maximizing our cash flows."

Share Buyback Program
EDCI announced on June 4, 2008 a share buyback program that authorized the repurchase of up to 10 million shares of common stock over the next 12 months. As a result of the plan of reorganization, approved by shareholders on August 26, 2008, which had the effect of a 1:10 reverse stock split, the share buyback program was adjusted to 1 million shares. All share repurchase figures have been adjusted to reflect the plan of reorganization. During the third quarter of 2008, EDCI repurchased a total of 143,574 shares. Since implementing the program EDCI has repurchased a total of 174,794 shares for an aggregate purchase price of $752,000. The share buyback program does not include the 150,000 shares the Company purchased in a single privately negotiated transaction in the first quarter 2008.

Summary of Third Quarter 2008
For the third quarter of 2008, the Company reported revenue of $87.8 million compared to $96.6 million for the third quarter of 2007. The decrease is primarily attributable to a decrease in volumes from U.S. and central European operations, offset by the impact of favorable exchange rate fluctuations and improved pricing.

The Company had EBITDA from continuing operations of $5.5 million in the third quarter of 2008, as compared to EBITDA from continuing operations of $6.9 million in the third quarter of 2007. The EBITDA from continuing operations for the third quarter of 2008 includes $1.0 million of severance costs primarily related to the restructuring of our European operations. EBITDA is a non-GAAP financial measure. 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 net income from continuing operations of $0.9 million for the third quarter of 2008, or $0.13 per diluted share. This compares to a net income from continuing operations of $0.6 million, or $0.09 per diluted share, for the third quarter of 2007. The 2008 period includes a net gain of $2.1 million, compared to a net loss of $1.0 million in the 2007 period, related to the impact of the devaluation of the Euro against the U.S. dollar on a foreign currency swap and inter-company balances. The third quarter of 2007 included a benefit of $1.8 million relating to an adjustment to the Company's deferred tax assets and liabilities due to tax rate changes in the UK and Germany.

For the third quarter, the Company reported net income of $1.0 million, or $0.15 per diluted share, which compares to a net income of $0.3 million, or $0.04 per diluted share, for the third quarter of 2007.

Nine Months Ended September 30, 2008
For the nine months ended September 30, 2008, the Company reported revenue of $250.4 million compared to $260.8 million for the first nine months of 2007. The decrease is primarily attributable to a decrease in volumes from U.S. and central European operations, offset in part by the impact of favorable exchange rates and improved pricing.

The Company had EBITDA from continuing operations of $8.3 million in the first nine months of 2008, as compared to EBITDA from continuing operations of $6.6 million in the first nine months of 2007. The EBITDA from continuing operations for the first nine months of 2008 includes $1.9 million of severance costs primarily related to the restructuring of our European operations. EBITDA from continuing operations in the first nine months of 2007 included approximately $2.5 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 $(11.9) million for the first nine months of 2008, or $(1.72) per diluted share. This compares to a net loss from continuing operations of $(10.8) million, or $(1.55) per diluted share, for the first nine months of 2007, which included a benefit of $1.8 million relating to an adjustment to the Company's deferred tax assets and liabilities due to tax rate changes in the UK and Germany.
For the first nine months of 2008, the Company reported a net loss of $(10.7) million, or $(1.55) per diluted share, which compares to a net loss of $(9.8) million, or $(1.40) per diluted share, for the first nine months of 2007.

About EDCI Holdings, Inc.
EDCI Holdings, Inc. is the holding company of Entertainment Distribution Company, Inc., which 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.

Source: EDCI Holdings, Inc.

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