Exhibit 99.1
FOR IMMEDIATE RELEASE
HANDLEMAN COMPANY REPORTS THIRD QUARTER RESULTS
Earnings Per Share of $.94, Up 19% from $.79 Last Year
Troy, Michigan – February 23, 2005, Handleman Company (NYSE: HDL),www.handleman.com, today announced results for its third quarter of fiscal year 2005, which ended January 31, 2005.
Third Quarter Fiscal 2005
Revenues for the third quarter of this fiscal year were $459.3 million, an increase of 3% from $443.9 million for the third quarter of last year. The Company increased revenues in each of the major countries in which it operates: United States, United Kingdom and Canada. Net income for the third quarter of this fiscal year was $20.8 million or $.94 per diluted share compared to net income of $19.3 million or $.79 per diluted share last year, representing a 19% increase in diluted earnings per share.
The Company’s gross profit margin, as a percentage of revenues, was 19.0% for the third quarter of this year, compared to 19.6% for the third quarter of last year. The lower gross profit margin percentage this fiscal year was primarily due to a greater proportion of discounted sales to support customer promotions. Promotional products are generally sold by the Company’s customers at lower retail prices.
Selling, general and administrative (SG&A) expenses for the third quarter of this year were $54.8 million or 11.9% of revenues, compared to $56.7 million or 12.8% of revenues for the same quarter of last year. The decrease in SG&A expenses as a percentage of revenues is attributable to the Company’s continued focus on cost control and productivity.
Stock Repurchase
During the third quarter of this fiscal year, the Company repurchased 438,800 shares of its common stock. This brings the total number of shares repurchased under the Company’s 20% share repurchase authorization to 4.7 million, or 92% of the total authorization. As of January 31, 2005, the Company had 21,787,611 shares outstanding.
Nine Months Fiscal 2005
Revenues for the first nine months of this fiscal year were $986.7 million, compared to $919.1 million for the first nine months of last year, an increase of 7%. Net income for the first nine months of this year was $29.8 million or $1.31 per diluted share compared to $30.5 million or $1.23 per diluted share for the same period of last year. Income from continuing operations for the first nine months of fiscal 2005 was $30.3 million or $1.33 per diluted share, compared to $27.9 million or $1.13 per diluted share from continuing operations for the comparable period of last year.
Fourth Quarter Fiscal 2005 Guidance
Stephen Strome, the Company’s Chairman and CEO, said “Mass merchant retailers, the Company’s primary customer base, continue to increase their music sales and music industry market share. This increase results in higher sales for Handleman Company. In addition, we continue to actively focus on selling, general and administrative expense control. As we begin our fourth fiscal quarter, we expect our earnings per share for the quarter to be ahead of the same period last year. As a result, we are raising our fiscal 2005 earnings per share guidance from continuing operations to $1.63—$1.65 per share. Our previous guidance for fiscal 2005 earnings per share was $1.52—$1.58 per share. Earnings per share from continuing operations for fiscal 2004 were $1.38.”
Call Notice
Handleman Company will host a conference call to discuss the third quarter of fiscal year 2005 financial and operating results on Thursday, February 24, 2005 at 2:00 p.m. (Eastern Time). To participate in the teleconference call (in listen mode only), please dial 800-442-9683 at least five minutes before the start of the conference call. In addition, Handleman Company will simulcast the conference live via the Internet. The
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web cast can be accessed and will be available for 30 days on the investor relations page of Handleman Company’s web site,www.handleman.com. A telephone replay of the conference call will be available until Friday, February 25, 2005 at midnight by calling 800-642-1687 (PIN Number 3521308).
About Handleman Company
Handleman Company is a category manager and distributor of prerecorded music to mass merchants in the United States, United Kingdom, Canada, Brazil and Argentina. As a category manager, the Company manages a broad assortment of titles to optimize sales and inventory productivity in retail stores and also provides direct-to-store shipments, marketing and in-store merchandising.
Forward-Looking and Cautionary Statements
Information in this press release contains forward-looking statements, which are not historical facts. These statements involve risk and uncertainties and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results, events and performance could differ materially from those contemplated by these forward-looking statements including, without limitation, risks associated with changes in the music industry, continuation of satisfactory relationships with existing customers and suppliers, establishing satisfactory relationships with new customers and suppliers, effects of electronic commerce inclusive of digital music distribution, dependency on technology, ability to control costs, relationships with the Company’s lenders, pricing and competitive pressures, dependence on third-party carriers to deliver products to customers, the ability to secure funding or generate sufficient cash required to build and grow new businesses, the occurrence of catastrophic events or acts of terrorism, certain global and regional economic conditions, and other factors discussed in this press release and those detailed from time to time in the Company’s filings with the Securities and Exchange Commission. Handleman Company notes that the preceding conditions are not a complete list of risk and uncertainties. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.
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Handleman Company Contact: Greg Mize
Vice President, Investor Relations
(248) 362-4400, Ext. 211 | | Media Relations: David Bassett
(248) 855-6777, Ext. 132 |
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Thomas Braum,
Sr. Vice President and CFO
(248) 362-4400, Ext. 718 | | Fred Marx
(248) 855-6777, Ext. 131 |
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CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(unaudited)
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| | | Three Months (13 Weeks) Ended
| | Nine Months (39 Weeks) Ended
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| | | Jan. 31, 2005
| | Jan. 31,
2004
(restated)
| | Jan. 31, 2005
| | | Jan. 31,
2004
(restated)
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Revenues | | $ | 459,270 | | $ | 443,902 | | $ | 986,669 | | | $ | 919,095 |
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Costs and expenses: | | | | | | | | | | | | | |
Direct product costs | | | 372,033 | | | 357,049 | | | 796,670 | | | | 732,682 |
Selling, general and administrative expenses | | | 54,770 | | | 56,661 | | | 145,219 | | | | 143,007 |
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Operating income | | | 32,467 | | | 30,192 | | | 44,780 | | | | 43,406 |
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Investment income, net | | | 145 | | | 248 | | | 2,192 | | | | 255 |
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Income from continuing operations before income taxes | | | 32,612 | | | 30,440 | | | 46,972 | | | | 43,661 |
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Income tax expense | | | 11,846 | | | 11,144 | | | 16,645 | | | | 15,735 |
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Income from continuing operations | | | 20,766 | | | 19,296 | | | 30,327 | | | | 27,926 |
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Income (loss) from discontinued operations, net of taxes | | | — | | | — | | | (483 | ) | | | 2,598 |
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Net income | | $ | 20,766 | | $ | 19,296 | | $ | 29,844 | | | $ | 30,524 |
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Basic net income per share: | | | | | | | | | | | | | |
- From continuing operations | | $ | .94 | | $ | .79 | | $ | 1.33 | | | $ | 1.13 |
- From discontinued operations | | | — | | | — | | | (.02 | ) | | | .10 |
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Total basic net income per share | | $ | .94 | | $ | .79 | | $ | 1.31 | | | $ | 1.23 |
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Diluted net income per share: | | | | | | | | | | | | | |
- From continuing operations | | $ | .94 | | $ | .79 | | $ | 1.33 | | | $ | 1.13 |
- From discontinued operations | | | — | | | — | | | (.02 | ) | | | .10 |
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Total diluted net income per share | | $ | .94 | | $ | .79 | | $ | 1.31 | | | $ | 1.23 |
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Weighted average number of | | | | | | | | | | | | | |
shares outstanding - basic | | | 22,092 | | | 24,292 | | | 22,719 | | | | 24,787 |
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- diluted | | | 22,143 | | | 24,437 | | | 22,775 | | | | 24,855 |
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CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands)
(unaudited)
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| | | January 31, 2005
| | January 31, 2004 (restated)
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Assets | | | | | | |
Cash and cash equivalents | | $ | 25,737 | | $ | 76,043 |
Accounts receivable | | | 278,112 | | | 249,336 |
Merchandise inventories | | | 147,751 | | | 132,286 |
Other current assets | | | 14,613 | | | 9,795 |
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Total current assets | | | 466,213 | | | 467,460 |
Property and equipment, net of depreciation and amortization | | | 60,566 | | | 61,210 |
Other assets, net | | | 24,170 | | | 24,833 |
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Total assets | | $ | 550,949 | | $ | 553,503 |
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Liabilities | | | | | | |
Accounts payable | | $ | 189,535 | | $ | 185,544 |
Other current liabilities | | | 43,665 | | | 39,385 |
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Total current liabilities | | | 233,200 | | | 224,929 |
Debt, non-current | | | — | | | — |
Other liabilities | | | 11,639 | | | 5,793 |
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Shareholders’ equity | | | 306,110 | | | 322,781 |
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Total liabilities and shareholders’ equity | | $ | 550,949 | | $ | 553,503 |
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ADDITIONAL INFORMATION FROM CONTINUING OPERATIONS (amounts in thousands)
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| | | Three Months (13 Weeks) Ended
| | | Nine Months (39 Weeks) Ended
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| | | Jan. 31, 2005
| | | Jan. 31, 2004 (restated)
| | | Jan. 31, 2005
| | | Jan. 31, 2004 (restated)
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Income from continuing operations | | $ | 20,766 | | | $ | 19,296 | | | $ | 30,327 | | | $ | 27,926 | |
Investment income, net | | | (145 | ) | | | (248 | ) | | | (2,192 | ) | | | (255 | ) |
Income tax expense | | | 11,846 | | | | 11,144 | | | | 16,645 | | | | 15,735 | |
Depreciation expense | | | 4,633 | | | | 4,807 | | | | 13,101 | | | | 11,777 | |
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Adjusted EBITDA* | | $ | 37,100 | | | $ | 34,999 | | | $ | 57,881 | | | $ | 55,183 | |
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Additions to property and equipment | | $ | 1,622 | | | $ | 10,805 | | | $ | 12,355 | | | $ | 17,489 | |
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| * | Adjusted EBITDA is computed as income from continuing operations, less net investment income, plus income expense and depreciation expense. |
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