NAVARRE REPORTS FINANCIAL RESULTS FOR
FOURTH QUARTER AND FISCAL YEAR 2012
Company Announces Completion of Successful Restructuring Program and
Issues Fiscal Year 2013 Guidance Anticipating Significant EBITDA Expansion
MINNEAPOLIS – May 22, 2012 – Navarre (Nasdaq: NAVR), a leading distributor, provider of e-commerce fulfillment solutions, and publisher of computer software, today announced its financial results for the fourth quarter and 2012 fiscal year ended March 31, 2012.
Fourth Quarter Fiscal Year 2012 Results
| | · | Net sales from continuing operations were $116.7 million and at the high end of the Company’s expectations, as compared to net sales from continuing operations of $124.3 million during the fourth quarter of the prior year. Net sales gains in consumer electronics and accessories more than offset declines in computer software products during the quarter. The total net sales shortfall as compared to the prior year’s fourth quarter was attributed to the home video category as the Company and its customers continue to deemphasize these products. |
| | · | Adjusted pro forma operating expenses from continuing operations were reduced by 28% or $4.5 million to $11.5 million during the fourth quarter, as compared to operating expenses from continuing operations of $16.1 million in the prior year. (See “Use of Non-GAAP Financial Information” below.) |
| | · | Adjusted pro forma income from continuing operations increased by $1.0 million during the fourth quarter to $562,000, as compared to a $433,000 loss from continuing operations before income tax in the prior year. (See “Use of Non-GAAP Financial Information” below.) |
| | · | Net loss from continuing operations for the fourth quarter of fiscal year 2012 was $3.3 million, or a loss of $0.09 per diluted share, versus net income from continuing operations of $9.8 million, or $0.26 per diluted share in the same period of the prior year. This year’s fourth quarter results include pre-tax restructuring and other charges in the amount of $6.7 million. The prior year’s fourth quarter included a $9.7 million, or $0.26 per diluted share, income tax benefit arising out of the reversal of a valuation allowance recorded against deferred tax assets. |
| | · | Adjusted pro forma EBITDA from continuing operations increased by 91% to $1.6 million for the fourth quarter, as compared to adjusted pro forma EBITDA from continuing operations of $860,000 in the prior year. (See “Use of Non-GAAP Financial Information” below.) |
| | · | The Company had no debt and a cash balance of $5.6 million at March 31, 2012, versus no debt and a zero cash balance at the prior fiscal year end. |
Fiscal Year 2012 Results
| | · | Net sales from continuing operations for the 2012 fiscal year were $480.8 million, as compared to net sales of $490.9 million for the prior year. During the 2012 fiscal year net sales gains in consumer electronics and accessories more than offset declines in computer software products. |
| | · | Adjusted pro forma operating expenses from continuing operations were reduced by 13% or $7.5 million to $51.8 million during the 2012 fiscal year, as compared to operating expenses from continuing operations of $59.2 million in the prior year. (See “Use of Non-GAAP Financial Information” below.) |
| | · | Adjusted pro forma income from continuing operations during the 2012 fiscal year was $3.1 million, as compared to operating income of $6.0 million from continuing operations before income tax in the prior year. (See “Use of Non-GAAP Financial Information” below.) |
| | · | Net loss from continuing operations for the 2012 fiscal year was $34.3 million, or a loss of $0.93 per diluted share, as compared to net income from continuing operations of $12.5 million, or $0.34 per diluted share, in the prior fiscal year. Fiscal year 2012 net income includes pre-tax restructuring and other charges in the amount of $19.6 million and a non-cash write-off of goodwill and intangibles in the amount of $6.0 million. The prior year also included a $9.7 million, or $0.26 per diluted share, income tax benefit arising out of the reversal of a valuation allowance recorded against deferred tax assets. |
| | · | Adjusted pro forma EBITDA from continuing operations for the 2012 fiscal year was $7.7 million, as compared to adjusted pro forma EBITDA from continuing operations of $10.9 million in the prior fiscal year. (See “Use of Non-GAAP Financial Information” below.) |
Richard Willis, Chief Executive Officer, commented, “I’m pleased to have achieved our revenue and EBITDA goals for the 2012 fiscal year while carrying out a significant restructuring initiative. Over the past two quarters our management team kept on task and delivered solid operating results while driving major changes in our business processes and personnel. Our ability to perform under these demanding circumstances gives me confidence that we will achieve meaningful EBITDA growth in the 2013 fiscal year.
“Our strategy to expand the consumer electronics and accessory business showed continued progress in the fourth quarter as we saw a more than 110% increase in net sales of these products from the prior year. This product category accounted for more than $77 million in sales during the 2012 fiscal year, a 150% increase from the prior fiscal year. Our continued acquisition of market share in Canada provided a 37% increase in Canadian net sales during the fourth quarter. Additionally, our net sales in the e-commerce channel experienced a 50% growth during the fourth quarter. I look forward to seeing these high-growth areas contribute to a healthy and profitable fiscal year 2013.”
Progress of the Past Two Quarters
The Company’s previously announced restructuring initiative was completed during the third and fourth quarters of fiscal year 2012. This process involved the closure of two facilities, a thorough review and disposition of non-core assets, and a 27% reduction to headcount. Those changes allow the Company to leverage its infrastructure to focus on high-growth opportunities in the distribution of consumer electronics and accessories, the expansion of e-commerce fulfillment and increasing its market presence in Canada. In addition to the expense savings realized in fiscal year 2012, the restructuring is expected to provide additional operating expense savings of $5.5-$6.5 million in fiscal year 2013.
During the last six months of fiscal year 2012, the restructuring initiative and the Company’s increased focus on high-growth opportunities contributed significantly to the Company’s financial results. As compared to the third and fourth quarters of the prior year, adjusted pro forma operating expenses were reduced by 21%, a savings of $6.7 million; adjusted pro forma income from continuing operations improved by more than 200%; and adjusted pro forma EBITDA from continuing operations increased by 35%. The Company believes that the progress made during the past six months provides an opportunity to competitively price its products and services, while increasing its investments in sales and customer service to support its growth initiatives.
FY 2013 Outlook
In light of the progress made through the Company’s now completed restructuring program and its decision to deemphasize the distribution of exclusive home video content (which contributed $22.6 million in net sales during fiscal year 2012), guidance for fiscal year 2013 is as follows:
| | · | Net sales are anticipated to be between $460.0 million and $480.0 million; and |
| | · | Adjusted pro forma EBITDA is expected to be between $9.0 and $11.0 million. (See “Use of Non-GAAP Financial Information” below.) |
Conference Call
The Company will host a conference call on Wednesday, May 23, 2012, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). This conference call can be accessed by dialing (866) 700-0161, and utilizing the passcode “81015848”, ten minutes prior to the scheduled start time. In addition, a live broadcast of this call will be available by going to the “Investors” section of the Company’s website located at www.navarre.com. Those wishing to access this live broadcast of the call should go to the Company’s website fifteen minutes prior to the start time to register and download any necessary software. A replay of the conference call will be available at the Company’s website following its completion.
Use of Non-GAAP Information
The Company has provided non-GAAP adjusted pro forma information for the six months ended at March 31, 2011 and March 31, 2012. This information is provided as a convenience to the reader and to supplement their understanding of how management of the Company evaluates the financial results of the Company as it relates to the restructuring that took place during the 2012 fiscal year. This information is not typically provided by the Company and similar information may not be provided in future periods.
The Company provides non-GAAP adjusted pro forma information and references to “adjusted pro forma” information are references to non-GAAP adjusted pro forma measures. The Company provides adjusted pro forma information to assist investors in assessing its current and future operations in the way that its management evaluates those operations. Adjusted pro forma operating expenses, adjusted pro forma income from continuing operations before income tax, and adjusted pro forma EBITDA are supplemental measures of the Company’s performance that are not required by, and are not presented in accordance with GAAP. Adjusted pro forma information is not a substitute for any performance measure derived in accordance with GAAP. The Company’s management has evaluated and made operating decisions about its business operations primarily based upon these adjusted pro forma financial metrics. Therefore, the Company presents these adjusted pro forma measures along with GAAP measures. For each such adjusted pro forma financial measure, the adjustment provides the Company’s management with information about the Company’s underlying operating performance that enables a more meaningful comparison of its financial results in different reporting periods.
The adjusted pro forma measures presented by the Company provide comparable financial metrics to historical periods absent the impact of restructuring and other charges incurred during the Company’s 2012 fiscal year. The Company also excludes the impact of equity-based compensation from its non-GAAP adjusted pro forma EBITDA in order to help it compare current period operating expenses against the operating expenses for prior periods and to eliminate the effects of this non-cash item, which, because it is based upon estimates on the grant dates, may bear little resemblance to the actual values realized upon the future exercise, expiration, termination or forfeiture of the equity-based compensation, and which, as it relates to stock options, is required for GAAP purposes to be estimated under valuation models, including the Black-Scholes model used by the Company.
The Company is using adjusted pro forma measures to help it make budgeting decisions, including decisions that affect operating expenses and operating margin. Further, adjusted pro forma financial information helps the Company’s management track actual performance relative to financial targets.
The Company recognizes that the use of adjusted pro forma measures has limitations, including the need to exercise judgment in determining which types of charges should be excluded from the adjusted pro forma financial information. The Company provides adjusted pro forma financial information to the investment community, not as an alternative, but as an important supplement to GAAP financial information; to enable investors to evaluate the Company’s core operating performance in the same way that its management does. Reconciliations between historical pro forma and adjusted pro forma results of operations are provided in the tables below.
About Navarre Corporation
Navarre® is a distributor and provider of e-commerce fulfillment solutions for traditional and internet-based sales channels. Our solutions support both direct-to-consumer and business-to-business sales. We also publish computer software through our Encore® subsidiary. Navarre was founded in 1983 and is headquartered in Minneapolis, Minnesota.
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; pending or prospective litigation may subject the Company to significant costs; the seasonal nature of the Company’s business; the Company’s ability to adapt to the changing demands of its customers; the potential for the Company to incur significant costs and to experience operational and logistical difficulties in connection with its information technology systems and infrastructure; the Company’s dependence on significant vendors; the uncertain results of developing new software products; uncertain financial results 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 U.S. Securities and Exchange Commission (the “SEC”), 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 contact the SEC at 1-800-SEC-0330 for further information with respect to the SEC’s public reference rooms.
Additional Information
Navarre Investor Relations
763-535-8333
ir@navarre.com
| NAVARRE CORPORATION | |
| Consolidated Statements of Operations | |
| (In thousands, except per share amounts) | |
| | |
| | | (Unaudited) | | | | | | | |
| | | Three Months Ended March 31, | | | Twelve Months Ended March 31, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Net sales | | $ | 116,743 | | | $ | 124,304 | | | $ | 480,824 | | | $ | 490,897 | |
| Cost of sales (exclusive of depreciation) | | | 106,259 | | | | 108,686 | | | | 436,318 | | | | 425,729 | |
| Gross profit | | | 10,484 | | | | 15,618 | | | | 44,506 | | | | 65,168 | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Selling and marketing | | | 5,363 | | | | 5,028 | | | | 21,112 | | | | 21,099 | |
| Distribution and warehousing | | | 5,547 | | | | 2,614 | | | | 13,170 | | | | 10,694 | |
| General and administrative | | | 4,698 | | | | 7,426 | | | | 22,907 | | | | 23,573 | |
| Depreciation and amortization | | | 842 | | | | 983 | | | | 3,624 | | | | 3,848 | |
| Goodwill and intangible impairment | | | - | | | | - | | | | 5,996 | | | | - | |
| Total operating expenses | | | 16,450 | | | | 16,051 | | | | 66,809 | | | | 59,214 | |
| Income (loss) from operations | | | (5,966 | ) | | | (433 | ) | | | (22,303 | ) | | | 5,954 | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest income (expense), net | | | (95 | ) | | | (397 | ) | | | (968 | ) | | | (1,754 | ) |
| Other income (expense), net | | | 44 | | | | 386 | | | | (457 | ) | | | (153 | ) |
| Income (loss) from continuing operations before income tax | | | (6,017 | ) | | | (444 | ) | | | (23,728 | ) | | | 4,047 | |
| Income tax benefit (expense) | | | 2,670 | | | | 10,210 | | | | (10,572 | ) | | | 8,446 | |
| Net income (loss) from continuing operations | | | (3,347 | ) | | | 9,766 | | | | (34,300 | ) | | | 12,493 | |
| Discontinued operations: | | | | | | | | | | | | | | | | |
| Loss on sale of discontinued operations | | | - | | | | (5,198 | ) | | | - | | | | (5,198 | ) |
| Income from discontinued operations, net of tax | | | - | | | | (536 | ) | | | - | | | | 3,888 | |
| Net income (loss) | | $ | (3,347 | ) | | $ | 4,032 | | | $ | (34,300 | ) | | $ | 11,183 | |
| Basic earnings (loss) per common share: | | | | | | | | | | | | | | | | |
| Continued operations | | $ | (0.09 | ) | | $ | 0.26 | | | $ | (0.93 | ) | | $ | 0.34 | |
| Discontinued operations | | | - | | | | (0.15 | ) | | | - | | | | (0.03 | ) |
| Net income (loss) | | $ | (0.09 | ) | | $ | 0.11 | | | $ | (0.93 | ) | | $ | 0.31 | |
| Diluted earnings (loss) per common share: | | | | | | | | | | | | | | | | |
| Continued operations | | $ | (0.09 | ) | | $ | 0.26 | | | $ | (0.93 | ) | | $ | 0.34 | |
| Discontinued operations | | | - | | | | (0.16 | ) | | | - | | | | (0.04 | ) |
| Net income (loss) | | $ | (0.09 | ) | | $ | 0.10 | | | $ | (0.93 | ) | | $ | 0.30 | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 37,093 | | | | 36,572 | | | | 36,877 | | | | 36,446 | |
| Diluted | | | 37,093 | | | | 36,998 | | | | 36,877 | | | | 36,952 | |
| NAVARRE CORPORATION |
| Consolidated Condensed Balance Sheets |
| (In thousands) |
| | | | | | | |
| | | March 31, | |
| | | 2012 | | | 2011 | |
| Assets: | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 5,600 | | | $ | - | |
| Accounts receivable, net | | | 47,935 | | | | 57,833 | |
| Receivable from the sale of discontinued operations | | | - | | | | 24,000 | |
| Inventories | | | 28,850 | | | | 24,913 | |
| Deferred tax assets — current, net | | | 1,580 | | | | 6,436 | |
| Other | | | 2,211 | | | | 3,957 | |
| Total current assets | | | 86,176 | | | | 117,139 | |
| Property and equipment, net | | | 6,868 | | | | 9,299 | |
| Intangible assets, net | | | 1,547 | | | | 8,084 | |
| Deferred tax assets — non-current, net | | | 18,450 | | | | 24,320 | |
| Other assets | | | 8,335 | | | | 15,024 | |
| Total assets | | $ | 121,376 | | | $ | 173,866 | |
| Liabilities and shareholders’ equity: | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 73,421 | | | $ | 80,379 | |
| Other | | | 6,642 | | | | 18,189 | |
| Total current liabilities | | | 80,063 | | | | 98,568 | |
| Long-term liabilities: | | | | | | | | |
| Other liabilities | | | 1,497 | | | | 2,217 | |
| Total liabilities | | | 81,560 | | | | 100,785 | |
| | | | | | | | | |
| Shareholders’ equity | | | 39,816 | | | | 73,081 | |
| Total liabilities and shareholders’ equity | | $ | 121,376 | | | $ | 173,866 | |
| NAVARRE CORPORATION |
| Consolidated Condensed Statements of Cash Flows |
| (In thousands) |
| |
| | | | | | | |
| | | Twelve months ended March 31, | |
| | | 2012 | | | 2011 | |
| Net cash provided by (used in) operating activities | | | (5,453 | ) | | | 8,694 | |
| Net cash provided by (used in) investing activities | | | 19,892 | | | | (9,884 | ) |
| Net cash used in financing activities | | | (8,839 | ) | | | (3,989 | ) |
| Net cash provided by (used in) continuing operations | | | 5,600 | | | | (5,179 | ) |
| | | | | | | | | |
| Discontinued operations: | | | | | | | | |
| Net cash provided by operating activities | | | - | | | | 5,623 | |
| Net cash used in investing activities | | | - | | | | (435 | ) |
| Net cash used in financing activities | | | - | | | | (9 | ) |
| | | | | | | | | |
| Net increase in cash | | | 5,600 | | | | - | |
| Cash and cash equivalents at beginning of period | | | - | | | | - | |
| Cash and cash equivalents at end of period | | $ | 5,600 | | | $ | - | |
Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net Sales and Business Segment Information for the Three and Six Months Ended March 31,
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | 2012 | | | % | | | 2011 | | | % | | | 2012 | | | % | | | 2011 | | | % | |
| Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
| Software | | $ | 89,425 | | | | 76.6 | % | | $ | 95,703 | | | | 77.0 | % | | $ | 193,287 | | | | 71.5 | % | | $ | 207,960 | | | | 76.6 | % |
Consumer electronics and accessories | | | 18,125 | | | | 15.5 | % | | | 8,566 | | | | 6.9 | % | | | 50,765 | | | | 18.8 | % | | | 19,874 | | | | 7.3 | % |
| Video games | | | 4,697 | | | | 4.0 | % | | | 7,169 | | | | 5.8 | % | | | 15,482 | | | | 5.7 | % | | | 15,919 | | | | 5.9 | % |
| Home video | | | 2,666 | | | | 2.3 | % | | | 10,795 | | | | 8.7 | % | | | 6,180 | | | | 2.3 | % | | | 22,882 | | | | 8.4 | % |
| Distribution | | | 114,913 | | | | 98.4 | % | | | 122,233 | | | | 98.3 | % | | | 265,714 | | | | 98.3 | % | | | 266,635 | | | | 98.2 | % |
| Publishing | | | 5,665 | | | | 5.0 | % | | | 7,710 | | | | 6.2 | % | | | 13,326 | | | | 4.9 | % | | | 16,021 | | | | 5.9 | % |
Net sales before inter-company eliminations | | | 120,578 | | | | | | | | 129,943 | | | | | | | | 279,040 | | | | | | | | 282,656 | | | | | |
| Inter-company eliminations | | | (3,835 | ) | | | | | | | (5,639 | ) | | | | | | | (8,800 | ) | | | | | | | (11,027 | ) | | | | |
| Net sales as reported | | $ | 116,743 | | | | | | | $ | 124,304 | | | | | | | $ | 270,240 | | | | | | | $ | 271,629 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) from continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Distribution | | $ | (5,679 | ) | | | | | | $ | (1,324 | ) | | | | | | $ | (5,746 | ) | | | | | | $ | (522 | ) | | | | |
| Publishing | | | (287 | ) | | | | | | | 891 | | | | | | | | (14,377 | ) | | | | | | | 2,163 | | | | | |
Consolidated operating income (loss) from continuing operations | | $ | (5,966 | ) | | | | | | $ | (433 | ) | | | | | | $ | (20,123 | ) | | | | | | $ | 1,641 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales by Geographic Region | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 109,519 | | | | | | | $ | 121,875 | | | | | | | $ | 242,388 | | | | | | | $ | 259,268 | | | | | |
| International | | | 11,059 | | | | | | | | 8,068 | | | | | | | | 36,652 | | | | | | | | 23,388 | | | | | |
Net sales before inter-company eliminations | | | 120,578 | | | | | | | | 129,943 | | | | | | | | 279,040 | | | | | | | | 282,656 | | | | | |
| Inter-company eliminations | | | (3,835 | ) | | | | | | | (5,639 | ) | | | | | | | (8,800 | ) | | | | | | | (11,027 | ) | | | | |
| Net Sales as reported | | $ | 116,743 | | | | | | | $ | 124,304 | | | | | | | $ | 270,240 | | | | | | | $ | 271,629 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales by Sales Channel | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail | | $ | 102,044 | | | | | | | $ | 117,538 | | | | | | | $ | 233,826 | | | | | | | $ | 250,405 | | | | | |
| E-commerce | | | 18,534 | | | | | | | | 12,405 | | | | | | | | 45,214 | | | | | | | | 32,251 | | | | | |
Net sales before inter-company eliminations | | | 120,578 | | | | | | | | 129,943 | | | | | | | | 279,040 | | | | | | | | 282,656 | | | | | |
| Inter-company eliminations | | | (3,835 | ) | | | | | | | (5,639 | ) | | | | | | | (8,800 | ) | | | | | | | (11,027 | ) | | | | |
| Net Sales as reported | | $ | 116,743 | | | | | | | $ | 124,304 | | | | | | | $ | 270,240 | | | | | | | $ | 271,629 | | | | | |
Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net Sales and Business Segment Information for the Twelve Months Ended March 31,
| | | Twelve Months Ended March 31, | |
| | | 2012 | | | % | | | 2011 | | | % | |
| Net sales: | | | | | | | | | | | | |
| Software | | $ | 345,243 | | | | 71.8 | % | | $ | 380,757 | | | | 77.6 | % |
Consumer electronics and accessories | | | 77,807 | | | | 16.2 | % | | | 31,131 | | | | 6.3 | % |
| Video games | | | 25,834 | | | | 5.4 | % | | | 27,513 | | | | 5.6 | % |
| Home video | | | 22,601 | | | | 4.7 | % | | | 41,948 | | | | 8.5 | % |
| Distribution | | | 471,485 | | | | 98.0 | % | | | 481,349 | | | | 98.1 | % |
| Publishing | | | 26,848 | | | | 5.6 | % | | | 31,731 | | | | 6.5 | % |
Net sales before inter-company eliminations | | | 498,333 | | | | | | | | 513,080 | | | | | |
| Inter-company eliminations | | | (17,509 | ) | | | | | | | (22,183 | ) | | | | |
| Net sales as reported | | $ | 480,824 | | | | | | | $ | 490,897 | | | | | |
| | | | | | | | | | | | | | | | | |
| Operating income (loss) from continuing operations: | | | | | | | | | | | | | | | | |
| Distribution | | $ | (9,655 | ) | | | | | | $ | 1,186 | | | | | |
| Publishing | | | (12,648 | ) | | | | | | | 4,768 | | | | | |
| | | | | | | | | | | | | | | | | |
| Consolidated operating income (loss) from continuing operations | | $ | (22,303 | ) | | | | | | $ | 5,954 | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net Sales by Geographic Region | | | | | | | | | | | | | | | | |
| United States | | $ | 441,840 | | | | | | | $ | 471,479 | | | | | |
| International | | | 56,493 | | | | | | | | 41,601 | | | | | |
| Net sales before inter-company eliminations | | | 498,333 | | | | | | | | 513,080 | | | | | |
| Inter-company eliminations | | | (17,509 | ) | | | | | | | (22,183 | ) | | | | |
| Net Sales as reported | | $ | 480,824 | | | | | | | $ | 490,897 | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net Sales by Sales Channel | | | | | | | | | | | | | | | | |
| Retail | | $ | 422,910 | | | | | | | $ | 463,337 | | | | | |
| E-commerce | | | 75,423 | | | | | | | | 49,743 | | | | | |
| Net sales before inter-company eliminations | | | 498,333 | | | | | | | | 513,080 | | | | | |
| Inter-company eliminations | | | (17,509 | ) | | | | | | | (22,183 | ) | | | | |
| Net Sales as reported | | $ | 480,824 | | | | | | | $ | 490,897 | | | | | |
Reconciliation of Net Income (Loss) from Continuing Operations to Adjusted Pro Forma EBITDA for the Three and Six Months Ended March 31,
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Net income (loss) from continuing operations, as reported | | $ | (3,347 | ) | | $ | 9,766 | | | $ | (32,424 | ) | | $ | 10,833 | |
| Interest expense, net | | | 95 | | | | 397 | | | | 387 | | | | 903 | |
| Income tax expense (benefit) | | | (2,670 | ) | | | (10,210 | ) | | | 11,787 | | | | (9,817 | ) |
| Depreciation and amortization | | | 842 | | | | 983 | | | | 1,725 | | | | 1,966 | |
| Goodwill and intangible impairment | | | - | | | | - | | | | 5,996 | | | | - | |
| Restructuring and other charges | | | 6,650 | | | | - | | | | 17,705 | | | | - | |
| Foreign translation loss (gain) | | | (170 | ) | | | (386 | ) | | | 1 | | | | (302 | ) |
| Share-based compensation | | | 239 | | | | 310 | | | | 518 | | | | 628 | |
| Adjusted pro forma EBITDA | | $ | 1,639 | | | $ | 860 | | | $ | 5,695 | | | $ | 4,211 | |
Reconciliation of Net Income (Loss) from Continuing Operations to Adjusted Pro Forma EBITDA for the Twelve Months Ended March 31,
| | | Twelve Months Ended March 31, | |
| | | 2012 | | | 2011 | |
| Net income (loss) from continuing operations, as reported | | $ | (34,300 | ) | | $ | 12,493 | |
| Interest expense, net | | | 968 | | | | 1,754 | |
| Income tax expense (benefit) | | | 10,572 | | | | (8,446 | ) |
| Depreciation and amortization | | | 3,624 | | | | 3,848 | |
| Goodwill and intangible impairment | | | 5,996 | | | | - | |
| Restructuring and other charges | | | 19,562 | | | | - | |
| Foreign translation loss (gain) | | | 331 | | | | 129 | |
| Share-based compensation | | | 941 | | | | 1,096 | |
| Adjusted pro forma EBITDA | | $ | 7,694 | | | $ | 10,874 | |
Adjusted Pro Forma Income from Continuing Operations Before Income Tax for the Three Months Ended March 31,
| | | GAAP Information Three Months Ended March 31, | | | Adjusted Pro Forma Information Three Months Ended March 31, | |
| | | 2012 | | | % of sales | | | 2011 | | | % of sales | | | 2012 | | | % of sales | | | 2011 | | | % of sales | |
| Net sales (1) | | $ | 116,743 | | | | | | $ | 124,304 | | | | | | $ | 117,213 | | | | | | $ | 124,304 | | | | |
| Gross profit (1) (2) | | | 10,484 | | | | 9.0 | % | | | 15,618 | | | | 12.6 | % | | | 12,076 | | | | 10.3 | % | | | 15,618 | | | | 12.6 | % |
| Operating expenses (3) | | | 16,450 | | | | 14.1 | % | | | 16,051 | | | | 12.9 | % | | | 11,514 | | | | 9.8 | % | | | 16,051 | | | | 12.9 | % |
| Income (loss) from operations | | | (5,966 | ) | | | | | | | (433 | ) | | | | | | | 562 | | | | | | | | (433 | ) | | | | |
| Other (expense), net (4) | | | (51 | ) | | | | | | | (11 | ) | | | | | | | 71 | | | | | | | | (11 | ) | | | | |
| Income (loss) from continuing operations before income tax | | $ | (6,017 | ) | | | | | | $ | (444 | ) | | | | | | $ | 633 | | | | | | | $ | (444 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | | | | | | | | | | | | | | | | | | | | |
| | | 2012 | | | | | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
| (1) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer credit | | $ | 470 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 470 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Inventory write-downs | | $ | 891 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Prepaid royalties impairment | | | 231 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 1,122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) Pro forma adjustments to operating expenses consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Restructuring and other charges | | $ | (2,095 | ) | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Facility costs | | | (2,841 | ) | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | (4,936 | ) | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Loss on asset disposal | | $ | 122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
Adjusted Pro Forma Income from Continuing Operations Before Income Tax for the Six Months Ended March 31,
| | | GAAP Information Six Months Ended March 31, | | | Adjusted Pro Forma Information Six Months Ended March 31, | |
| | | 2012 | | | % of sales | | | 2011 | | | % of sales | | | 2012 | | | % of sales | | | 2011 | | | % of sales | |
| Net sales (1) | | $ | 270,240 | | | | | | $ | 271,629 | | | | | | $ | 270,710 | | | | | | $ | 271,629 | | | | |
| Gross profit (1) (2) | | | 18,124 | | | | 6.7 | % | | | 33,431 | | | | 12.3 | % | | | 28,510 | | | | 10.5 | % | | | 33,431 | | | | 12.3 | % |
| Operating expenses (3) | | | 38,247 | | | | 14.2 | % | | | 31,790 | | | | 11.7 | % | | | 25,054 | | | | 9.3 | % | | | 31,790 | | | | 11.7 | % |
| Income (loss) from operations | | | (20,123 | ) | | | | | | | 1,641 | | | | | | | | 3,456 | | | | | | | | 1,641 | | | | | |
| Other (expense), net (4) | | | (514 | ) | | | | | | | (625 | ) | | | | | | | (392 | ) | | | | | | | (625 | ) | | | | |
| Income (loss) from continuing operations before income tax | | $ | (20,637 | ) | | | | | | $ | 1,016 | | | | | | | $ | 3,064 | | | | | | | $ | 1,016 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended March 31, | | | | | | | | | | | | | | | | | | | | | |
| | | 2012 | | | | | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
| (1) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer credit | | $ | 470 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 470 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Inventory write-downs | | $ | 2,619 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Software development impairment | | | 1,238 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Prepaid royalties impairment | | | 6,057 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Restructuring and other charges | | | 2 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 9,916 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) Pro forma adjustments to operating expenses consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Restructuring and other charges | | $ | (4,356 | ) | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Goodwill and intangible impairment | | | (5,996 | ) | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Facility costs | | | (2,841 | ) | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | (13,193 | ) | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Loss on asset disposal | | $ | 122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
Adjusted Pro Forma Income from Continuing Operations Before Income Tax for the Twelve Months Ended March 31,
| | | GAAP Information Twelve Months Ended March 31, | | | Adjusted Pro Forma Information Twelve Months Ended March 31, | |
| | | 2012 | | | % of sales | | | 2011 | | | % of sales | | | 2012 | | | % of sales | | | 2011 | | | % of sales | |
| Net sales (1) | | $ | 480,824 | | | | | | $ | 490,897 | | | | | | $ | 481,294 | | | | | | $ | 490,897 | | | | |
| Gross profit (1) (2) | | | 44,506 | | | | 9.3 | % | | | 65,168 | | | | 13.3 | % | | | 54,892 | | | | 11.4 | % | | | 65,168 | | | | 13.3 | % |
| Operating expenses (3) | | | 66,809 | | | | 13.9 | % | | | 59,214 | | | | 12.1 | % | | | 51,759 | | | | 10.8 | % | | | 59,214 | | | | 12.1 | % |
| Income (loss) from operations | | | (22,303 | ) | | | | | | | 5,954 | | | | | | | | 3,133 | | | | | | | | 5,954 | | | | | |
| Other (expense), net (4) | | | (1,425 | ) | | | | | | | (1,907 | ) | | | | | | | (1,303 | ) | | | | | | | (1,907 | ) | | | | |
| Income (loss) from continuing operations before income tax | | $ | (23,728 | ) | | | | | | $ | 4,047 | | | | | | | $ | 1,830 | | | | | | | $ | 4,047 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended March 31, | | | | | | | | | | | | | | | | | | | | | |
| | | 2012 | | | | | | | 2011 | | | | | | | | | | | | | | | | | | | | | |
| (1) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer credit | | $ | 470 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 470 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | |
| Inventory write-downs | | $ | 2,619 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Software development impairment | | | 1,238 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Prepaid royalties impairment | | | 6,057 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Restructuring and other charges | | | 2 | | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 9,916 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) Pro forma adjustments to operating expenses consist of the following: | | | | | | | | | | | | | | | | | | | | | |
| Restructuring and other charges | | $ | (6,213 | ) | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Goodwill and intangible impairment | | | (5,996 | ) | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Facility costs | | | (2,841 | ) | | | | | | | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | (15,050 | ) | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) Pro forma adjustments to gross profit consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on asset disposal | | $ | 122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
| Total adjustments | | $ | 122 | | | | | | | $ | - | | | | | | | | | | | | | | | | | | | | | |
Summary of Impairment and Other Charges by Business Segment
| | | Three Months Ended March 31, 2012 | | | Six Months Ended March 31, 2012 | | | Twelve Months Ended March 31, 2012 | |
| | | Distribution Segment | | | Publishing Segment | | | Distribution Segment | | | Publishing Segment | | | Distribution Segment | | | Publishing Segment | |
| | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | - | | | $ | 470 | | | $ | - | | | $ | 470 | | | $ | - | | | $ | 470 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | 603 | | | | 519 | | | | 1,044 | | | | 8,872 | | | | 1,044 | | | | 8,872 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 4,633 | | | | 303 | | | | 6,282 | | | | 915 | | | | 7,944 | | | | 1,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill and intangible impairment | | | - | | | | - | | | | - | | | | 5,996 | | | | - | | | | 5,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on disposal of assets | | | 119 | | | | 3 | | | | 119 | | | | 3 | | | | 119 | | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total impairment and other charges (1) | | $ | 5,355 | | | $ | 1,295 | | | $ | 7,445 | | | $ | 16,256 | | | $ | 9,107 | | | $ | 16,451 | |
(1) No impairment and other charges were incurred during the three, six and twelve months ended March 31, 2011.
