Alloy Reports Third Quarter Fiscal 2006 Results.* Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. Up 46% to a Record $9.5 Million * Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become Up 22% to a Record $11.1 Million * Free Cash Flow Up 21% to a Record $9.8 Million * Revenue Up 1% to a Record $63.7 Million * Payments Attributable to Conversion of Debentures Results in Loss From Continuing Operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Alloy alloy (ăl`oi, əloi`) [O. Fr.,=combine], substance with metallic properties that consists of a metal fused with one or more metals or nonmetals. , Inc. (Nasdaq: ALOY), a non-traditional media and marketing services company primarily targeting the 10 to 24 year old demographic group, today posted strong growth in operating income, Adjusted EBITDA and free cash flow for the three and nine-month periods ended October October: see month. 31, 2006. Alloy completed its spinoff Spinoff A new, independent company created through selling or distributing new shares for an existing part of another company. Notes: Spinoffs may be done through a rights offering. of dELiA The delia ['dεlja] was an item of male apparel worn over the żupan by szlachta (nobility) of the Polish-Lithuanian Commonwealth. It was usually of wool or velvet, finished with fur. *s, Inc. ("dELiA*s") on December December: see month. 19, 2005. The financial results of dELiA*s are presented in Alloy's financial statements as discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . Effective February February: see month. 1, 2006, the Company adopted SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123R, "Share-Based Payment" using the modified-prospective application method. Accordingly, prior period results have not been restated. Commenting on the third quarter financial results, Matt Diamond, Chairman and Chief Executive Officer stated, "This was a strong quarter with solid increases in Adjusted EBITDA in our Promotion and Media segments." Mr. Diamond added, "We have made significant strides in delivering on our commitment to effect a conversion of our convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. , with 82% of the issuance being converted through the end of the quarter. For 2007 and beyond, we are aggressively pursuing opportunities to continue to deliver year over year top and bottom line growth, as evidenced by our recent acquisition of the operations of an on campus marketing competitor and our recently announced strategic partnership with Mac-Gray Corporation to extend our out-of-home display board network to laundry rooms A laundry room (also called a utility room) is a room where clothes are washed. In a modern home, a laundry room would be equipped with an automatic washing machine and clothes dryer,and often a large basin, called a laundry tub, for hand-washing delicate articles of clothing such in over 550 college campuses." Results for the Third Quarter Ended October 31, 2006 Revenue in the third quarter of fiscal 2006 increased 1% to a record $63.7 million from $62.8 million in the third quarter of fiscal 2005, driven by growth in our Promotion and Media segments, partially offset by lower Placement segment revenue. Revenue in the third quarter of 2005 benefited from a mall-marketing program that was not renewed in 2006. Excluding the effect of the non-renewal of the mall-marketing program, revenue would have increased approximately 4%. Adjusted EBITDA for the third quarter of fiscal 2006, defined as operating income plus depreciation and amortization, special charges and non-cash stock-based compensation expense was $11.1 million compared with $9.1 million for the same period of fiscal 2005, an increase of $2.0 million, or 22%. Stock-based compensation includes the expense attributable to both stock option and restricted share grants. Free cash flow, defined as net income (loss) from continuing operations plus depreciation and amortization, special charges, stock-based compensation, debt conversion expense and amortization of deferred financing costs less capital expenditures, in the third quarter of fiscal 2006 was approximately $9.8 million, or $0.77 per share, compared with $8.1 million, or $0.69 per share, in the third quarter of fiscal 2005, an increase of $1.7 million, or 21%. Weighted average shares used in the computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of earnings per share increased approximately 9% due to the conversion of convertible debentures to common stock. Operating income increased approximately $3.0 million, or 46%, to $9.5 million in the third quarter of fiscal 2006 from $6.5 million in the third quarter of fiscal 2005 as a result of lower depreciation and amortization and special charges, partially offset by higher stock-based compensation expense. In the third quarter of 2006, holders of approximately $56.6 million of our convertible debentures converted their holdings under the terms of the Indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. into shares of Alloy and dELiA*s common stock. The Company also paid holders varying cash premiums for agreeing to convert their holdings. As a result, the Company recorded a $15.8 million expense in the quarter that was comprised of the cash premium paid to the holders, costs of the transactions and the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of the unamortized balance of deferred debt issuance costs. The conversions reduced our outstanding debt to $12.7 million from $69.3 million and also has the effect of reducing our future annual interest expense by $3 million. Loss from continuing operations increased $12.6 million to $7.1 million, or $0.55 per share, in the third quarter of fiscal 2006 from income from continuing operations of $5.6 million, or $0.47 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, in the third quarter of fiscal 2005 due principally to debt conversion expenses, partially offset by improved operating income and higher net interest income. On a per share basis, loss from continuing operations increased $1.02. Net loss attributable to common stockholders increased $14.3 million to $7.1 million, or $0.55 per share, in the third quarter of fiscal 2006 from net income of $7.2 million, or $0.62 per diluted share, in the comparable period of fiscal 2005. Results for the Nine Months Ended October 31, 2006 Revenue for the nine-month period ended October 31, 2006 increased 2% to $155.2 million from $152.1 million in the comparable period of fiscal 2005. Increases in Media and Promotion segment revenue were partially offset by a decrease in Placement segment revenue. Revenue in the nine-month period ended October 31, 2005 benefited from a mall marketing sponsorship program and royalties associated with the release of The Sisterhood sisterhood: see monasticism. of the Traveling Pants movie. Excluding the effect of these items, revenue would have increased approximately 6%. Adjusted EBITDA for the nine-month period ended October 31, 2006 increased $1.7 million, or 12%, to $16.0 million from $14.2 million in the comparable fiscal 2005 period. The benefit from the release of The Sisterhood of the Traveling Pants movie and the mall marketing program, if excluded from the nine-month period ended July July: see month. 31, 2005, would have resulted in an increase in Adjusted EBITDA in the 2006 period of approximately 23%. Free cash flow in the nine-month period ended October 31, 2006 was approximately $12.8 million, or $1.06 per share, compared with $11.1 million, or $0.98 per diluted share in the nine-month period ended October 31, 2005. The increase in free cash flow per share Free Cash Flow per Share A measure of a company's financial flexibility. It is calculated as net income plus all non-cash expenses less dividends and capital expenditures. The total is then divided by the number of shares outstanding. is attributable to higher free cash flow, partially offset by a 7% increase in weighted average shares in the 2006 period due principally to the conversion of convertible debentures and redeemable Redeemable Eligible for redemption under the terms of an indenture. convertible preferred stock Convertible Preferred Stock Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Also known as "convertible preferred shares". . In June June: see month. 2005, all of our outstanding shares of Series B Redeemable Convertible Preferred Stock were converted into shares of common stock. Operating income increased approximately $3.5 million, or 45%, to $11.3 million in the nine-month period of 2006 from $7.8 million in the nine-month period of 2005. Lower depreciation and amortization and special charges were partially offset by higher stock-based compensation expense. Loss from continuing operations increased $11.6 million to $6.6 million ($0.54 per share) in the nine-month period ended October 31, 2006 from income from continuing operations of $5.0 million ($0.44 per diluted share) in the nine-month period ended October 31, 2005. Net loss attributable to common stockholders decreased $5.8 million to $6.6 million ($0.54 per share) in the nine-month period ended October 31, 2006 from $12.3 million ($1.09 per diluted share) in the 2005 period. Consolidated and Segment Results The tables below present the Company's revenue, Adjusted EBITDA and operating income for the three-month periods ended October 31, 2006 and 2005: [TABLE OMITTED] Promotion revenue increased 17% to $30.4 million from $25.9 million in the prior year third fiscal quarter primarily due to increased on campus marketing sales and promotion activity partially offset by a reduction in mall marketing revenue. Adjusted EBITDA increased 43% primarily due to higher profitability of promotional and on campus marketing activities, partially offset by the termination of a mall marketing sponsorship program. Operating income increased $1.4 million as a result of higher adjusted EBITDA and lower depreciation and amortization, partially offset by higher stock-based compensation expense. Media revenue increased 2% to $16.3 million from $16.0 million in last year's third fiscal quarter primarily as a result of strong sales performance in the out-of-home and interactive businesses, partially offset by lower foreign royalties in our entertainment business. Adjusted EBITDA increased 13% driven by higher revenue, partially offset by lower royalties. Operating income rose 9% to $4.3 million from $4.0 million as a result of higher Adjusted EBITDA and lower depreciation and amortization, partially offset by higher stock-based compensation expense. Placement revenue decreased 19% to $17.0 million from $20.9 million in the third quarter of fiscal 2005 principally as a result of lower multicultural mul·ti·cul·tur·al adj. 1. Of, relating to, or including several cultures. 2. Of or relating to a social or educational theory that encourages interest in many cultures within a society rather than in only a mainstream culture. and military newspaper revenue. Adjusted EBITDA decreased 9% as a result of lower revenue, partially offset by a reduction in operating costs operating costs npl → gastos mpl operacionales in our newspaper business. Operating income decreased 11% due to the reduction in Adjusted EBITDA, partially offset by lower depreciation and amortization. Corporate Adjusted EBITDA increased 11% to $(1.7) million from $(1.9) million in last year's third quarter due principally to lower insurance and legal costs. Operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. decreased 41% principally as a result of lower special charges and higher Adjusted EBITDA, partially offset by higher stock-based compensation expense. The tables below present the Company's revenue, Adjusted EBITDA and operating income for the nine-month periods ended October 31, 2006 and 2005: [TABLE OMITTED] Promotion revenue increased 5% to $73.7 million in the nine-month period ended October 31, 2006 from $70.4 million in the prior year primarily due to increased on campus marketing sales and promotion activity, partially offset by a reduction in mall marketing revenue. Adjusted EBITDA decreased 5% primarily due to lower sales in our spring break promotion and the termination of a mall marketing sponsorship program, partially offset by higher on campus marketing profitability. Operating income decreased $0.4 million as a result of stock-based compensation expense and lower Adjusted EBITDA, partially offset by lower depreciation and amortization. Media revenue increased 15% to $40.5 million in the nine-month period ended October 31, 2006 from $35.4 million in last year's comparable period primarily as a result of strong sales performance in our out-of-home and interactive businesses, partially offset by lower royalties in our entertainment business as a result of higher royalties in the 2005 period associated with the non-recurring release of The Sisterhood of the Traveling Pants movie. Adjusted EBITDA increased 24% driven by higher revenue, partially offset by lower royalties. Operating income rose 29% to $7.6 million from $5.9 million as a result of higher Adjusted EBITDA and lower depreciation and amortization, partially offset by higher stock-based compensation expense. Placement revenue decreased 12% to $41.0 million in the nine-month period ended October 31, 2006 from $46.3 million in the comparable nine-month period of fiscal 2005 principally as a result of lower multicultural and military newspaper revenue. Adjusted EBITDA increased 1% as a result of a reduction in operating costs in our newspaper business. Operating income increased 9% due to the adjusted EBITDA improvement and lower depreciation and amortization. Corporate Adjusted EBITDA was $(6.1) million in the nine-month period ended October 31, 2006 compared with $(6.3) million in the same period of 2005. Operating loss decreased 19% principally as a result of lower special charges, partially offset by higher stock-based compensation expense. Fiscal 2006 Outlook For its full fiscal year ending January January: see month. 31, 2007, the Company expects its Adjusted EBITDA to increase single digit A single character in a numbering system. In decimal, digits are 0 through 9. In binary, digits are 0 and 1. digit - An employee of Digital Equipment Corporation. See also VAX, VMS, PDP-10, TOPS-10, DEChead, double DECkers, field circus. percentages from fiscal 2005's Adjusted EBITDA. About Alloy Alloy, Inc., under the banner of Alloy Media + Marketing (AM+M), is a widely recognized pioneer in nontraditional Adj. 1. nontraditional - not conforming to or in accord with tradition; "nontraditional designs"; "nontraditional practices" untraditional traditional - consisting of or derived from tradition; "traditional history"; "traditional morality" marketing. Working with AM+M, marketers reach consumers through a host of programs incorporating Alloy's diverse array of media and marketing assets and expertise in direct mail, college and high school media, interactive, display media, college guides, promotional and social network marketing. For further information regarding Alloy, please visit our corporate website at (www.alloymarketing.com). Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This announcement may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations and beliefs regarding our future results or performance. Because these statements apply to future events, they are subject to risks and uncertainties. When used in this announcement, the words "anticipate", "believe", "estimate", "expect", "expectation", "project" and "intend" and similar expressions are intended to identify such forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements. Additionally, you should not consider past results to be an indication of our future performance. Factors that might cause or contribute to such differences include, among others, our ability to: increase revenues; generate high margin sponsorship and multiple revenue streams; increase visitors to our Web sites (www.alloy.com, www.delias.com, and www.ccs.com) and build customer loyalty; develop our sales and marketing teams and capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. these efforts; develop commercial relationships with advertisers and the continued resilience resilience (r  ·zilˑ·yens),n in advertising spending to reach the teen market; manage the risks and challenges associated with integrating newly acquired businesses; and identify and take advantage of strategic, synergistic synergistic /syn·er·gis·tic/ (sin?er-jis´tik) 1. acting together. 2. enhancing the effect of another force or agent. syn·er·gis·tic adj. 1. acquisitions and other revenue opportunities. Other relevant factors include, without limitation: our competition; seasonal sales fluctuations; the uncertain economic and political climate in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and throughout the rest of the world, and the potential that such climate may deteriorate de·te·ri·o·rate v. 1. To grow worse in function or condition. 2. To weaken or disintegrate. further; and general economic conditions. For a discussion of certain of the foregoing factors and other risk factors see the "Risk Factors That May Affect Future Results" section included in our annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended January 31, 2006, and in subsequent filings that we make with the Securities and Exchange Commission. We do not intend to update any of the forward-looking statements after the date of this announcement to conform these statements to actual results, to changes in management's expectations or otherwise, except as may be required by law. ALLOY, INC. SUPPLEMENTAL DISCLOSURES REGARDING NON-GAAP FINANCIAL INFORMATION (Unaudited; In millions) A. Adjusted EBITDA The following tables set forth the Company's Adjusted EBITDA for the three and nine-month periods ended October 31, 2006 and 2005. The Company defines Adjusted EBITDA as net income (loss) adjusted to exclude the following line items and amounts presented in its Statement of Operations See Income statement. : income (loss) from discontinued operations, income taxes, other items, interest income, debt conversion expense, interest expense, special charges, depreciation and amortization and stock-based compensation expense. The Company uses Adjusted EBITDA, among other things, to evaluate the Company's operating performance and to value prospective acquisitions. The measure is also one of several components of incentive compensation targets for certain management personnel, and this measure is among the primary measures used by management for planning and forecasting future periods. The Company believes that this measure is an important indicator of the Company's operational strength and performance of its business because it provides a link between profitability and operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. . The Company believes the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by the Company's management, helps improve their ability to understand the Company's operating performance and makes it easier to compare the Company's results with other companies that have different financing and capital structures or tax rates. In addition, this measure is also among the primary measures used externally by the Company's investors, analysts and peers in its industry for purposes of valuation and comparing the operating performance of the Company to other companies in the industry. Since Adjusted EBITDA is not a measure of performance calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). , it should not be considered in isolation from, or as a substitute for, net income as an indicator of operating performance. Adjusted EBITDA, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, this measure does not necessarily represent funds available for discretionary use, and is not necessarily a measure of the Company's ability to fund its cash needs. As Adjusted EBITDA excludes certain financial information compared with net income, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions that are excluded. As required by the Securities and Exchange Commission ("SEC"), the Company provides below a reconciliation of Adjusted EBITDA to net income and Adjusted EBITDA by segment to operating income (loss). [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] B. Free Cash Flow Free cash flow is defined by the Company as net income (loss) from continuing operations plus depreciation and amortization, special charges, stock-based compensation, debt conversion expense and amortization of deferred financing costs less capital expenditures. The Company uses free cash flow, among other measures, to evaluate its operating performance. Management believes free cash flow provides investors with an important perspective on the Company's cash available to service debt and the Company's ability to make strategic acquisitions and investments, maintain its capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) , repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. its common stock and fund ongoing operations. As a result, free cash flow is a significant measure of the Company's ability to generate long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. value. The Company believes that the presentation of free cash flow is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. In addition, free cash flow is also a primary measure used externally by the Company's investors, analysts and peers in its industry for purposes of valuation and comparing the operating performance of the Company to other companies in its industry. Free cash flow per weighted average shares outstanding is defined by the Company as free cash flow divided by the diluted weighted average shares outstanding used in the computation of net income (loss) per share. As free cash flow is not a measure of performance calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or a substitute for, net income as an indicator of operating performance or net cash flow provided by operating activities as a measure of liquidity. Free cash flow, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of operating cash flow Specifically, the Company adjusts operating cash flow (the most directly comparable GAAP financial measure) for capital expenditures, deferred taxes, non-recurring expenditures and certain other non-cash items in addition to removing the impact of sources and or uses of cash resulting from changes in operating assets Operating Assets Another term for working capital. and liabilities. Accordingly, users of this financial information should consider the types of events and transactions, which are not reflected. The Company provides below a reconciliation of free cash flow to the most directly comparable amount reported under GAAP, net cash flow provided by operating activities. 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