Navarre Corporation Reports Financial Results for Third Quarter of Fiscal Year 2009
Company will host a conference call on Friday, February 6, 2009 at 11:00 a.m. ET
MINNEAPOLIS, Feb. 5 /PRNewswire-FirstCall/ -- Navarre Corporation (Nasdaq: NAVR), a publisher and distributor of physical and digital home entertainment and multimedia products, today reported financial results for its third quarter of fiscal year 2009 ended December 31, 2008.
-- Net sales were $171.6 million, as compared to net sales of $217.5
million for the same period last year, a decrease of $46.0 million or
21.1%.
-- Operating loss during the quarter was $32.0 million, as compared to
operating income of $8.6 million in the prior year. Operating income
before restructuring charges (discussed below) was $2.6 million during
the quarter. See "Use of Non-GAAP Financial Information" below.
-- Net loss from continuing operations was $47.7 million during the
quarter, a loss of $1.32 per diluted share; as compared to net income
of $4.0 million, or $0.11 per diluted share in the prior year.
-- Earnings from continuing operations, before interest, taxes,
depreciation, amortization, share-based compensation expense, and
restructuring charges was $4.4 million; as compared to EBITDA from
continuing operations of $11.4 million for the same quarter last year.
See "Use of Non-GAAP Financial Information" below.
-- Debt, net of cash, on December 31, 2008 was $48.6 million, as compared
to debt, net of cash, of $54.5 million on December 31, 2007.
"During the third quarter, we experienced a revenue decline due primarily to the impact of the economic downturn. In response, we have taken a number of steps to protect future earnings, including a reduction to the Company's workforce. This resulted in a $1.1 million cash restructuring charge for severance and is anticipated to result in approximately $4.2 million in cost savings in fiscal year 2010.
We have withdrawn from two businesses that have had a significant drag on earnings and asset utilization. The Company exited BCI's budget content licensing operations and will take a non-cash restructuring charge of $18.4 million in connection with the write-off of assets associated with that business. We have also exited the children's DVD market and will take a non- cash restructuring charge of approximately $8.8 million related to older licenses of children's properties. In addition, we recognized a non-cash restructuring charge of $6.2 million in connection with the impairment of goodwill and other intangible assets," commented Cary Deacon, Chief Executive Officer.
Deacon continued, "We continue to manage our balance sheet through these troubled economic times. Our year over year debt, net of cash, was reduced 11% and working capital has been reduced in line with current market conditions. We have coordinated with our lender to address these restructuring charges and have modified our credit agreement to provide adequate working capital and liquidity."
Business Segment Highlights
Publishing Segment
The publishing segment includes the results of the wholly-owned subsidiaries FUNimation, Encore and BCI. For the third quarter ended December 31, 2008, the publishing segment's net sales, before inter-company eliminations, were $24.6 million; as compared to net sales of $31.4 million in net sales, before inter-company eliminations, for the same period last year, a decrease of $6.8 million or 21.6%. See "Use of Non-GAAP Financial Information" below. On a fiscal year to date basis, the publishing segment's net sales, before inter-company eliminations, were $80.8 million; as compared to net sales of $88.0 million in net sales before inter-company eliminations for the same period last year. See "Use of Non-GAAP Financial Information" below.
During the third quarter, the Company ceased BCI's budget content licensing operations in connection with the implementation of a restructuring plan. This restructuring included a workforce reduction and the integration of BCI's exclusively distributed DVD content into the distribution segment. Additionally, the company determined that prepaid royalties, production costs and inventories in connection with several children's properties that had been licensed by FUNimation were impaired. The company took these actions in order to respond to rapidly changing retail conditions and consumer buying trends in the DVD market during the 2008 holiday sales season. This resulted in the publishing segment's recognition of approximately $34.0 million in restructuring charges during the quarter.
As BCI's remaining operations wind down, the publishing segment's financial results will primarily relate to FUNimation and Encore. Net sales, before intercompany eliminations, at FUNimation and Encore during the third quarter were $23.4 million, as compared to $26.6 million in the prior fiscal year, a decrease of 12%. Operating income before restructuring charges at FUNimation and Encore for the third quarter was approximately $5.0 million; as compared to operating income at FUNimation and Encore of $6.1 million in the third quarter of fiscal year 2008.
Distribution Segment
The distribution segment distributes PC software, DVD video and video games from third party publishers and studios, as well as from the company's publishing segment. The results of operations related to the independent music distribution business, which was sold May 31, 2007, are now reflected in discontinued operations.
For the third quarter of fiscal year 2009, the distribution segment's net sales, before inter-company eliminations, decreased by 20.6% to $162.9 million, as compared to net sales of $205.2 million for the same period last year. See "Use of Non-GAAP Financial Information" below. During the first nine months of fiscal year 2009, the distribution segment's net sales, before inter-company eliminations, were $454.5 million, as compared to net sales of $462.5 million in net sales before inter-company eliminations for the same period last year, a decrease of $8.0 million or 1.7%. See "Use of Non-GAAP Financial Information" below.
Sales of software products in the distribution segment declined by 22% in the third quarter, compared to the prior fiscal year. This resulted from reduced sell through at retail, as well as retail customers reducing inventory levels in this product category through a difficult holiday sales season. Net sales during the quarter were also adversely impacted by lost sales volume as a result of the bankruptcy of Circuit City. The Company anticipates that a portion of Circuit City's historical sales volume will migrate to its other retail customers in future periods.
"With the strategic restructuring steps that the Company has undertaken, we are well positioned to face this difficult economic environment. We expect to generate cash from earnings and to continue reducing debt during the fourth quarter of the 2009 fiscal year," concluded Cary Deacon.
Conference Call
The Company will host a conference call at 11:00 a.m. ET, Friday, February 6, 2009, to discuss its fiscal year 2009 third quarter, and year to date, financial results. The conference call can be accessed by dialing (800) 597- 7231, conference participant passcode "45977245", ten minutes prior to the scheduled start time. In addition, this call will be simultaneously broadcast live over the internet and can be accessed in the "Investors" section of the Company's web site located at http://www.navarre.com. Those wishing to access the call through the internet should go to the Company's web site fifteen minutes prior to the start time to register and download any necessary software needed to listen to the call. A replay of the conference call will be available at the Company's web site following the call's completion.
Use of Non-GAAP Financial Information
In evaluating our financial performance and operating trends, management considers information concerning our net sales before inter-company eliminations, operating income before restructuring and other charges, net income before restructuring and other charges, and earnings before interest, taxes, depreciation and amortization, and before restructuring and other charges that are not calculated in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The Company's management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method the Company uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these preliminary non-GAAP financial measures to the comparable preliminary GAAP results, which is attached to this release and can also be found on the Company's web site at http://www.navarre.com.
About Navarre Corporation
Navarre(R) Corporation (Nasdaq: NAVR) is a publisher and distributor of physical and digital home entertainment and multimedia products, including PC software, DVD video, video games and accessories. Navarre licenses and publishes home entertainment and multimedia content through its Encore and FUNimation subsidiaries and has established distribution relationships with customers across a wide spectrum of retail channels. Navarre was founded in 1983 and is headquartered in New Hope, Minnesota. Additional information regarding Navarre can be found at http://www.navarre.com.
Safe Harbor
The statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors provided therein. The forward-looking statements are subject to risks and uncertainties, and the actual results that the Company achieves may differ materially from these forward-looking statements due to such risks and uncertainties, including, but not limited to: difficult economic conditions that adversely affect the Company's customers and vendors; the Company's revenues being derived from a small group of customers; a pending investigation by the U.S. Securities and Exchange Commission (the "SEC") or litigation may subject the Company to significant costs; the seasonal nature of the Company's business; the potential for the Company to incur significant additional costs and to experience operational and logistical difficulties in connection with its new ERP system; the Company's dependence on significant vendors; uncertain growth in the publishing segment; the Company's ability to meet significant working capital requirements related to distributing products; and the Company's ability to compete effectively in the highly competitive distribution and publishing industries. In addition to these, a detailed statement of risks and uncertainties is contained in the Company's reports to the Securities and Exchange Commission, including in particular the Company's Form 10-K filings, as well as its other SEC filings and public disclosures.
Investors and shareholders are urged to read this press release carefully. The Company can offer no assurances that any projections, assumptions or forecasts made or discussed in this press release will be met, and investors should understand the risks of investing solely due to such projections. The forward-looking statements included in this press release are made only as of the date of this report and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.
Investors and shareholders may obtain free copies of the public filings through the website maintained by the SEC at http://www.sec.gov/ or at one of the SEC's other public reference rooms in Washington D.C., New York, New York or Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information with respect to the SEC's public reference rooms.
NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2008 2007 2008 2007
Net sales $171,580 $217,547 $483,901 $498,284
Cost of sales
(exclusive of
depreciation
and amortization) 172,734 185,913 438,699 420,606
Gross profit (loss) (1,154) 31,634 45,202 77,678
Operating expenses:
Selling and marketing 7,536 7,323 20,457 20,923
Distribution and
warehousing 3,538 3,592 9,468 9,648
General and
administrative 9,198 9,591 25,832 25,125
Bad debt expense - - 200 85
Depreciation and
amortization 4,330 2,506 9,027 7,047
Goodwill and
intangible impairment 6,209 - 79,621 -
Total operating
expenses 30,811 23,012 144,605 62,828
Income (loss) from
operations (31,965) 8,622 (99,403) 14,850
Other income
(expense):
Interest
expense (1) (1,427) (1,778) (3,875) (4,857)
Interest income 20 43 49 167
Other income
(expense), net (766) 60 (1,087) 431
Income (loss) from
continuing operations
before tax (34,138) 6.947 (104,316) 10,591
Income tax benefit
(expense) (13,586) (2,938) 12,711 (4,454)
Net income (loss)
from continuing
operations (47,724) 4,009 (91,605) 6,137
Discontinued
operations, net
of tax
Gain on sale of
discontinued
operations - 70 - 4,714
Loss from
discontinued
operations - (176) - (1,879)
Net income (loss) $(47,724) $3,903 $(91,605) $8,972
Basic earnings (loss)
per common share:
Continuing
operations $(1.32) $0.11 $(2.53) $0.17
Discontinued
operations - - - 0.08
Net income (loss) $(1.32) $0.11 $(2.53) $0.25
Diluted earnings
(loss) per common
share:
Continuing
operations $(1.32) $0.11 $(2.53) $0.17
Discontinued
operations - - - 0.08
Net income (loss) $(1.32) $0.11 $(2.53) $0.25
Weighted average
shares outstanding:
Basic 36,216 36,143 36,198 36,080
Diluted 36,216 36,257 36,198 36,281
(1) Fiscal year 2009 nine months interest expense includes approximately
$950,000 of a non-cash write off of debt acquisition costs.
NAVARRE CORPORATION
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited) (Unaudited)
December 31, December 31, March 31,
2008 2007 2008
Assets
Current assets:
Cash and cash equivalents $132 $4,248 $4,445
Accounts receivables, net 89,149 116,171 76,806
Inventories 34,602 50,823 32,654
Assets of discontinued
operations - 210 -
Other 22,679 23,636 23,661
Total current assets 146,562 195,088 137,566
Property and equipment, net 16,994 17,342 17,181
Goodwill 3,109 81,697 81,697
Other assets 47,055 45,037 47,018
Total assets $213,720 $339,164 $283,462
Liabilities and shareholders'
equity
Current liabilities:
Note payable - line of
credit $48,689 $48,917 $31,314
Note payable - short-term - 150 150
Accounts payable 109,068 129,741 92,199
Liabilities of discontinued
operations - 846 -
Other 19,551 17,992 18,257
Total current liabilities 177,308 197,646 141,920
Long-term liabilities:
Note payable - long-term - 9,632 9,594
Other 2,818 8,463 7,537
Total liabilities 180,126 215,741 159,051
Shareholders' equity 33,594 123,423 124,411
Total liabilities and
shareholders' equity $213,720 $339,164 $283,462
NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
December 31,
2008 2007
Net cash used in operating activities $(8,826) $(3,020)
Net cash used in investing activities (1,384) (11,252)
Net cash provided by financing activities 5,897 4,599
Net decrease in cash from continuing operations (4,313) (9,673)
Net cash provided by discontinued operations - 12,955
Net (decrease) increase in cash (4,313) 3,282
Cash at beginning of period 4,445 966
Cash at end of period $132 $4,248
NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net
Sales and Business Segment Information
Three Months Ended December 31,
2008 % 2007 %
Net sales:
Publishing $24,567 13.1% $31,354 13.3%
Distribution 162,904 86.9% 205,221 86.7%
Net sales before inter-
company eliminations 187,471 236,575
Inter-company
eliminations (15,891) (19,028)
Net sales as reported $171,580 $217,547
Income (loss) from
continuing operations:
Publishing $(30,940) $5,730
Distribution (1,025) 2,892
Consolidated income
(loss) from
continuing
operations $(31,965) $8,622
Nine Months Ended December 31,
2008 % 2007 %
Net sales:
Publishing $80,779 15.1% $88,020 16.0%
Distribution 454,457 84.9% 462,502 84.0%
Net sales before inter-
company eliminations 535,236 550,522
Inter-company
eliminations (51,335) (52,238)
Net sales as reported $483,901 $498,284
Income (loss) from
continuing operations:
Publishing $(97,801) $10,007
Distribution (1,602) 4,843
Consolidated income
(loss) from
continuing
operations $(99,924) $14,850
Reconciliation of GAAP Statement of Operations to Statement of Operations Before Restructuring and Other Charges For the Three Months Ended December 31,
2008
Consolidated % Publishing % Distribution %
Gross margin: $(1,154) (0.7%) $(15,351) (62.5%) $14,197 8.7%
Restructuring
and other
charges 25,264 14.7% 25,264 102.8% - -
Gross margin
before
restructuring
and other
charges $24,110 14.0% $9,913 40.3% $14,197 8.7%
Operating
expenses: $30,811 18.0% $15,589 63.5% $15,222 9.3%
Restructuring
and other
charges 9,318 5.4% 8,727 35.5% 591 0.3%
Operating
expenses before
restructuring
and other
charges $21,493 12.6% $6,862 28.0% $14,631 9.0%
Operating
income
(loss): $(31,965) $(30,940) $(1,025)
Restructuring
and other
charges 34,582 33,991 591
Operating income
(loss) before
restructuring
and other
charges $2,617 $3,051 $(434)
Reconciliation of GAAP Statement of Operations to Statement of Operations Before Restructuring and Other Charges For the Nine Months Ended December 31,
2008
Consolidated % Publishing % Distribution %
Gross margin: $45,202 9.3% $5,534 6.9% $39,668 8.7%
Restructuring
and other charges 25,264 5.2% 25,264 31.3% - -
Gross margin
before
restructuring
and other
charges $70,466 14.5% $30,798 38.2% $39,668 8.7%
Operating
expenses: $144,605 29.9% $103,335 127.9% $41,270 9.1%
Restructuring
and other
charges 82,731 17.1% 82,140 101.7% 591 0.1%
Operating
expenses
before
restructuring
and other
charges $61,874 12.8% $21,195 26.2% $40,679 9.0%
Operating income
(loss): $(99,403) $(97,801) $(1,602)
Restructuring
and other
charges 107,995 107,404 591
Operating income
(loss) before
restructuring
and other
charges $8,592 $9,603 $(1,011)
Reconciliation of Net Income from Continuing Operations to EBITDA Before
Restructuring and Other Charges
Three Months Ended Nine Months Ended
December 31, December 31,
2008 2007 2008 2007
Net income (loss)
from continuing
operations, as
reported $(47,724) $4,009 $(91,605) $6,137
Interest expense
(income), net 1,407 1,735 3,826 4,690
Income tax
(benefit) expense 13,586 2,938 (12,711) 4,454
Depreciation and
amortization 2,301 2,506 6,998 7,047
Share-based
compensation 286 259 787 826
Restructuring and
other charges 34,582 - 107,994 -
EBITDA before
restructuring and
other charges $4,438 $11,447 $15,289 $23,154
MINNEAPOLIS, Feb. 5 /PRNewswire-FirstCall/ -- Navarre Corporation (Nasdaq: NAVR), a publisher and distributor of physical and digital home entertainment and multimedia products, today reported financial results for its third quarter of fiscal year 2009 ended December 31, 2008.
-- Net sales were $171.6 million, as compared to net sales of $217.5
million for the same period last year, a decrease of $46.0 million or
21.1%.
-- Operating loss during the quarter was $32.0 million, as compared to
operating income of $8.6 million in the prior year. Operating income
before restructuring charges (discussed below) was $2.6 million during
the quarter. See "Use of Non-GAAP Financial Information" below.
-- Net loss from continuing operations was $47.7 million during the
quarter, a loss of $1.32 per diluted share; as compared to net income
of $4.0 million, or $0.11 per diluted share in the prior year.
-- Earnings from continuing operations, before interest, taxes,
depreciation, amortization, share-based compensation expense, and
restructuring charges was $4.4 million; as compared to EBITDA from
continuing operations of $11.4 million for the same quarter last year.
See "Use of Non-GAAP Financial Information" below.
-- Debt, net of cash, on December 31, 2008 was $48.6 million, as compared
to debt, net of cash, of $54.5 million on December 31, 2007.
"During the third quarter, we experienced a revenue decline due primarily to the impact of the economic downturn. In response, we have taken a number of steps to protect future earnings, including a reduction to the Company's workforce. This resulted in a $1.1 million cash restructuring charge for severance and is anticipated to result in approximately $4.2 million in cost savings in fiscal year 2010.
We have withdrawn from two businesses that have had a significant drag on earnings and asset utilization. The Company exited BCI's budget content licensing operations and will take a non-cash restructuring charge of $18.4 million in connection with the write-off of assets associated with that business. We have also exited the children's DVD market and will take a non- cash restructuring charge of approximately $8.8 million related to older licenses of children's properties. In addition, we recognized a non-cash restructuring charge of $6.2 million in connection with the impairment of goodwill and other intangible assets," commented Cary Deacon, Chief Executive Officer.
Deacon continued, "We continue to manage our balance sheet through these troubled economic times. Our year over year debt, net of cash, was reduced 11% and working capital has been reduced in line with current market conditions. We have coordinated with our lender to address these restructuring charges and have modified our credit agreement to provide adequate working capital and liquidity."
Business Segment Highlights
Publishing Segment
The publishing segment includes the results of the wholly-owned subsidiaries FUNimation, Encore and BCI. For the third quarter ended December 31, 2008, the publishing segment's net sales, before inter-company eliminations, were $24.6 million; as compared to net sales of $31.4 million in net sales, before inter-company eliminations, for the same period last year, a decrease of $6.8 million or 21.6%. See "Use of Non-GAAP Financial Information" below. On a fiscal year to date basis, the publishing segment's net sales, before inter-company eliminations, were $80.8 million; as compared to net sales of $88.0 million in net sales before inter-company eliminations for the same period last year. See "Use of Non-GAAP Financial Information" below.
During the third quarter, the Company ceased BCI's budget content licensing operations in connection with the implementation of a restructuring plan. This restructuring included a workforce reduction and the integration of BCI's exclusively distributed DVD content into the distribution segment. Additionally, the company determined that prepaid royalties, production costs and inventories in connection with several children's properties that had been licensed by FUNimation were impaired. The company took these actions in order to respond to rapidly changing retail conditions and consumer buying trends in the DVD market during the 2008 holiday sales season. This resulted in the publishing segment's recognition of approximately $34.0 million in restructuring charges during the quarter.
As BCI's remaining operations wind down, the publishing segment's financial results will primarily relate to FUNimation and Encore. Net sales, before intercompany eliminations, at FUNimation and Encore during the third quarter were $23.4 million, as compared to $26.6 million in the prior fiscal year, a decrease of 12%. Operating income before restructuring charges at FUNimation and Encore for the third quarter was approximately $5.0 million; as compared to operating income at FUNimation and Encore of $6.1 million in the third quarter of fiscal year 2008.
Distribution Segment
The distribution segment distributes PC software, DVD video and video games from third party publishers and studios, as well as from the company's publishing segment. The results of operations related to the independent music distribution business, which was sold May 31, 2007, are now reflected in discontinued operations.
For the third quarter of fiscal year 2009, the distribution segment's net sales, before inter-company eliminations, decreased by 20.6% to $162.9 million, as compared to net sales of $205.2 million for the same period last year. See "Use of Non-GAAP Financial Information" below. During the first nine months of fiscal year 2009, the distribution segment's net sales, before inter-company eliminations, were $454.5 million, as compared to net sales of $462.5 million in net sales before inter-company eliminations for the same period last year, a decrease of $8.0 million or 1.7%. See "Use of Non-GAAP Financial Information" below.
Sales of software products in the distribution segment declined by 22% in the third quarter, compared to the prior fiscal year. This resulted from reduced sell through at retail, as well as retail customers reducing inventory levels in this product category through a difficult holiday sales season. Net sales during the quarter were also adversely impacted by lost sales volume as a result of the bankruptcy of Circuit City. The Company anticipates that a portion of Circuit City's historical sales volume will migrate to its other retail customers in future periods.
"With the strategic restructuring steps that the Company has undertaken, we are well positioned to face this difficult economic environment. We expect to generate cash from earnings and to continue reducing debt during the fourth quarter of the 2009 fiscal year," concluded Cary Deacon.
Conference Call
The Company will host a conference call at 11:00 a.m. ET, Friday, February 6, 2009, to discuss its fiscal year 2009 third quarter, and year to date, financial results. The conference call can be accessed by dialing (800) 597- 7231, conference participant passcode "45977245", ten minutes prior to the scheduled start time. In addition, this call will be simultaneously broadcast live over the internet and can be accessed in the "Investors" section of the Company's web site located at http://www.navarre.com. Those wishing to access the call through the internet should go to the Company's web site fifteen minutes prior to the start time to register and download any necessary software needed to listen to the call. A replay of the conference call will be available at the Company's web site following the call's completion.
Use of Non-GAAP Financial Information
In evaluating our financial performance and operating trends, management considers information concerning our net sales before inter-company eliminations, operating income before restructuring and other charges, net income before restructuring and other charges, and earnings before interest, taxes, depreciation and amortization, and before restructuring and other charges that are not calculated in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The Company's management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method the Company uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these preliminary non-GAAP financial measures to the comparable preliminary GAAP results, which is attached to this release and can also be found on the Company's web site at http://www.navarre.com.
About Navarre Corporation
Navarre(R) Corporation (Nasdaq: NAVR) is a publisher and distributor of physical and digital home entertainment and multimedia products, including PC software, DVD video, video games and accessories. Navarre licenses and publishes home entertainment and multimedia content through its Encore and FUNimation subsidiaries and has established distribution relationships with customers across a wide spectrum of retail channels. Navarre was founded in 1983 and is headquartered in New Hope, Minnesota. Additional information regarding Navarre can be found at http://www.navarre.com.
Safe Harbor
The statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors provided therein. The forward-looking statements are subject to risks and uncertainties, and the actual results that the Company achieves may differ materially from these forward-looking statements due to such risks and uncertainties, including, but not limited to: difficult economic conditions that adversely affect the Company's customers and vendors; the Company's revenues being derived from a small group of customers; a pending investigation by the U.S. Securities and Exchange Commission (the "SEC") or litigation may subject the Company to significant costs; the seasonal nature of the Company's business; the potential for the Company to incur significant additional costs and to experience operational and logistical difficulties in connection with its new ERP system; the Company's dependence on significant vendors; uncertain growth in the publishing segment; the Company's ability to meet significant working capital requirements related to distributing products; and the Company's ability to compete effectively in the highly competitive distribution and publishing industries. In addition to these, a detailed statement of risks and uncertainties is contained in the Company's reports to the Securities and Exchange Commission, including in particular the Company's Form 10-K filings, as well as its other SEC filings and public disclosures.
Investors and shareholders are urged to read this press release carefully. The Company can offer no assurances that any projections, assumptions or forecasts made or discussed in this press release will be met, and investors should understand the risks of investing solely due to such projections. The forward-looking statements included in this press release are made only as of the date of this report and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.
Investors and shareholders may obtain free copies of the public filings through the website maintained by the SEC at http://www.sec.gov/ or at one of the SEC's other public reference rooms in Washington D.C., New York, New York or Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information with respect to the SEC's public reference rooms.
NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2008 2007 2008 2007
Net sales $171,580 $217,547 $483,901 $498,284
Cost of sales
(exclusive of
depreciation
and amortization) 172,734 185,913 438,699 420,606
Gross profit (loss) (1,154) 31,634 45,202 77,678
Operating expenses:
Selling and marketing 7,536 7,323 20,457 20,923
Distribution and
warehousing 3,538 3,592 9,468 9,648
General and
administrative 9,198 9,591 25,832 25,125
Bad debt expense - - 200 85
Depreciation and
amortization 4,330 2,506 9,027 7,047
Goodwill and
intangible impairment 6,209 - 79,621 -
Total operating
expenses 30,811 23,012 144,605 62,828
Income (loss) from
operations (31,965) 8,622 (99,403) 14,850
Other income
(expense):
Interest
expense (1) (1,427) (1,778) (3,875) (4,857)
Interest income 20 43 49 167
Other income
(expense), net (766) 60 (1,087) 431
Income (loss) from
continuing operations
before tax (34,138) 6.947 (104,316) 10,591
Income tax benefit
(expense) (13,586) (2,938) 12,711 (4,454)
Net income (loss)
from continuing
operations (47,724) 4,009 (91,605) 6,137
Discontinued
operations, net
of tax
Gain on sale of
discontinued
operations - 70 - 4,714
Loss from
discontinued
operations - (176) - (1,879)
Net income (loss) $(47,724) $3,903 $(91,605) $8,972
Basic earnings (loss)
per common share:
Continuing
operations $(1.32) $0.11 $(2.53) $0.17
Discontinued
operations - - - 0.08
Net income (loss) $(1.32) $0.11 $(2.53) $0.25
Diluted earnings
(loss) per common
share:
Continuing
operations $(1.32) $0.11 $(2.53) $0.17
Discontinued
operations - - - 0.08
Net income (loss) $(1.32) $0.11 $(2.53) $0.25
Weighted average
shares outstanding:
Basic 36,216 36,143 36,198 36,080
Diluted 36,216 36,257 36,198 36,281
(1) Fiscal year 2009 nine months interest expense includes approximately
$950,000 of a non-cash write off of debt acquisition costs.
NAVARRE CORPORATION
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited) (Unaudited)
December 31, December 31, March 31,
2008 2007 2008
Assets
Current assets:
Cash and cash equivalents $132 $4,248 $4,445
Accounts receivables, net 89,149 116,171 76,806
Inventories 34,602 50,823 32,654
Assets of discontinued
operations - 210 -
Other 22,679 23,636 23,661
Total current assets 146,562 195,088 137,566
Property and equipment, net 16,994 17,342 17,181
Goodwill 3,109 81,697 81,697
Other assets 47,055 45,037 47,018
Total assets $213,720 $339,164 $283,462
Liabilities and shareholders'
equity
Current liabilities:
Note payable - line of
credit $48,689 $48,917 $31,314
Note payable - short-term - 150 150
Accounts payable 109,068 129,741 92,199
Liabilities of discontinued
operations - 846 -
Other 19,551 17,992 18,257
Total current liabilities 177,308 197,646 141,920
Long-term liabilities:
Note payable - long-term - 9,632 9,594
Other 2,818 8,463 7,537
Total liabilities 180,126 215,741 159,051
Shareholders' equity 33,594 123,423 124,411
Total liabilities and
shareholders' equity $213,720 $339,164 $283,462
NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
December 31,
2008 2007
Net cash used in operating activities $(8,826) $(3,020)
Net cash used in investing activities (1,384) (11,252)
Net cash provided by financing activities 5,897 4,599
Net decrease in cash from continuing operations (4,313) (9,673)
Net cash provided by discontinued operations - 12,955
Net (decrease) increase in cash (4,313) 3,282
Cash at beginning of period 4,445 966
Cash at end of period $132 $4,248
NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)
Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net
Sales and Business Segment Information
Three Months Ended December 31,
2008 % 2007 %
Net sales:
Publishing $24,567 13.1% $31,354 13.3%
Distribution 162,904 86.9% 205,221 86.7%
Net sales before inter-
company eliminations 187,471 236,575
Inter-company
eliminations (15,891) (19,028)
Net sales as reported $171,580 $217,547
Income (loss) from
continuing operations:
Publishing $(30,940) $5,730
Distribution (1,025) 2,892
Consolidated income
(loss) from
continuing
operations $(31,965) $8,622
Nine Months Ended December 31,
2008 % 2007 %
Net sales:
Publishing $80,779 15.1% $88,020 16.0%
Distribution 454,457 84.9% 462,502 84.0%
Net sales before inter-
company eliminations 535,236 550,522
Inter-company
eliminations (51,335) (52,238)
Net sales as reported $483,901 $498,284
Income (loss) from
continuing operations:
Publishing $(97,801) $10,007
Distribution (1,602) 4,843
Consolidated income
(loss) from
continuing
operations $(99,924) $14,850
Reconciliation of GAAP Statement of Operations to Statement of Operations Before Restructuring and Other Charges For the Three Months Ended December 31,
2008
Consolidated % Publishing % Distribution %
Gross margin: $(1,154) (0.7%) $(15,351) (62.5%) $14,197 8.7%
Restructuring
and other
charges 25,264 14.7% 25,264 102.8% - -
Gross margin
before
restructuring
and other
charges $24,110 14.0% $9,913 40.3% $14,197 8.7%
Operating
expenses: $30,811 18.0% $15,589 63.5% $15,222 9.3%
Restructuring
and other
charges 9,318 5.4% 8,727 35.5% 591 0.3%
Operating
expenses before
restructuring
and other
charges $21,493 12.6% $6,862 28.0% $14,631 9.0%
Operating
income
(loss): $(31,965) $(30,940) $(1,025)
Restructuring
and other
charges 34,582 33,991 591
Operating income
(loss) before
restructuring
and other
charges $2,617 $3,051 $(434)
Reconciliation of GAAP Statement of Operations to Statement of Operations Before Restructuring and Other Charges For the Nine Months Ended December 31,
2008
Consolidated % Publishing % Distribution %
Gross margin: $45,202 9.3% $5,534 6.9% $39,668 8.7%
Restructuring
and other charges 25,264 5.2% 25,264 31.3% - -
Gross margin
before
restructuring
and other
charges $70,466 14.5% $30,798 38.2% $39,668 8.7%
Operating
expenses: $144,605 29.9% $103,335 127.9% $41,270 9.1%
Restructuring
and other
charges 82,731 17.1% 82,140 101.7% 591 0.1%
Operating
expenses
before
restructuring
and other
charges $61,874 12.8% $21,195 26.2% $40,679 9.0%
Operating income
(loss): $(99,403) $(97,801) $(1,602)
Restructuring
and other
charges 107,995 107,404 591
Operating income
(loss) before
restructuring
and other
charges $8,592 $9,603 $(1,011)
Reconciliation of Net Income from Continuing Operations to EBITDA Before
Restructuring and Other Charges
Three Months Ended Nine Months Ended
December 31, December 31,
2008 2007 2008 2007
Net income (loss)
from continuing
operations, as
reported $(47,724) $4,009 $(91,605) $6,137
Interest expense
(income), net 1,407 1,735 3,826 4,690
Income tax
(benefit) expense 13,586 2,938 (12,711) 4,454
Depreciation and
amortization 2,301 2,506 6,998 7,047
Share-based
compensation 286 259 787 826
Restructuring and
other charges 34,582 - 107,994 -
EBITDA before
restructuring and
other charges $4,438 $11,447 $15,289 $23,154
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