SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the third quarter ended January 31, 2000 Commission File Number 1-7923
Handleman Company
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1242806
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 KIRTS BOULEVARD TROY, MICHIGAN 48084-4142 Area Code 248 362-4400
- --------------------------------------- ------------ --------------------------------
(Address of principal executive offices) (Zip code) (Registrant's telephone number)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
YES X NO ____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS DATE SHARES OUTSTANDING
- ----------------------------- --------------- -----------------------------
Common Stock - $.01 Par Value March 3, 2000 28,444,922
HANDLEMAN COMPANY
INDEX
PAGE NUMBER
-----------
PART I - FINANCIAL INFORMATION
Consolidated Statement of Operations 1
Consolidated Balance Sheet 2
Consolidated Statement of Shareholders' Equity 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 9
Management's Discussion and Analysis of Operations 10 - 13
PART II - OTHER INFORMATION AND SIGNATURES 14
HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(amounts in thousands except per share data)
Three Months (13 Weeks) Ended Nine Months (39 Weeks) Ended
---------------------------------------- ----------------------------------------
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
Revenues $343,246 $290,115 $858,458 $801,557
Costs and expenses:
Direct product costs 262,652 219,889 644,931 605,983
Selling, general and
administrative expenses 54,375 51,281 160,798 158,095
Interest expense, net 1,088 1,853 2,425 6,769
Repositioning and related charges -- 6,939 -- 123,901
Gain on sale of subsidiary -- -- -- (31,000)
------------------ ---------------- ----------------- -----------------
Income (loss) before income
taxes and minority interest 25,131 10,153 50,304 (62,191)
Income tax (expense) benefit (10,175) (3,559) (20,378) 16,798
Minority interest (296) (966) (1,106) (1,932)
----------------- ----------------- ----------------- -----------------
Net income (loss) $14,660 $5,628 $28,820 ($47,325)
================= ================= ================= =================
Net income (loss) per share:
Basic $0.50 $0.18 $0.97 ($1.49)
================= ================= ================= =================
Diluted $0.50 $0.18 $0.95 ($1.49)
================= ================= ================= =================
Weighted average number of shares
outstanding during the period:
Basic 29,034 31,584 29,863 31,658
================= ================= ================= =================
Diluted 29,383 31,853 30,186 31,847
================= ================= ================= =================
The accompanying notes are an integral part of the consolidated financial
statements.
1
HANDLEMAN COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(amounts in thousands except share data)
January 31, May 1,
2000 1999
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $1,689 $27,405
Accounts receivable, less allowance of $16,337 at
January 31, 2000 and $13,760 at May 1, 1999 for
the gross profit impact of estimated future returns 238,839 217,968
Merchandise inventories 115,108 102,589
Other current assets 16,456 21,560
----------- -----------
Total current assets 372,092 369,522
----------- -----------
Property and equipment:
Land 3,093 3,354
Buildings and improvements 20,021 16,227
Display fixtures 50,392 45,486
Equipment, furniture and other 50,958 43,830
----------- -----------
124,464 108,897
Less accumulated depreciation and amortization 67,271 55,478
----------- -----------
57,193 53,419
----------- -----------
Other assets, net 87,965 64,915
----------- -----------
Total assets $517,250 $487,856
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $189,840 $156,300
Debt, current portion 18,571 18,571
Accrued and other liabilities 38,912 41,930
----------- -----------
Total current liabilities 247,323 216,801
----------- -----------
Debt, non-current 34,357 39,857
Other liabilities 14,172 5,512
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 28,469,000 and 31,049,000 shares
issued at January 31, 2000 and May 1, 1999, respectively 285 310
Paid-in capital -- 6,828
Foreign currency translation adjustment (5,801) (5,220)
Unearned compensation (802) (1,557)
Retained earnings 227,716 225,325
----------- -----------
Total shareholders' equity 221,398 225,686
----------- -----------
Total liabilities and shareholders' equity $517,250 $487,856
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
2
HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(amounts in thousands)
Nine Months (39 Weeks) Ended January 31, 2000
-------------------------------------------------------------------------------------------------
Common Stock
------------------------ Foreign
Currency Total
Shares Paid-in Translation Unearned Retained Shareholders'
Issued Amount Capital Adjustment Compensation Earnings Equity
----------- ----------- ----------- ----------- ------------ ----------- -------------
May 1, 1999 31,049 $310 $6,828 ($5,220) ($1,557) $225,325 $225,686
Net income 28,820 28,820
Adjustment for foreign
currency translation (581) (581)
-------------
Comprehensive income, net of tax 28,239
-------------
Common stock issuances, net
of forfeitures, in connection
with employee benefit plans 181 2 1,559 755 2,316
Common stock repurchased (2,761) (27) ( 8,387) (26,429) (34,843)
----------- ----------- ----------- ----------- ------------ ----------- -------------
January 31, 2000 28,469 $285 $0 ($5,801) ($ 802) $227,716 $221,398
=========== =========== =========== =========== ============ =========== =============
The accompanying notes are an integral part of the consolidated financial
statements.
3
HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Nine Months (39 Weeks) Ended
-----------------------------------------
January 31, January 31,
2000 1999
----------------- -----------------
Cash flows from operating activities:
Net income (loss) $28,820 ($47,325)
----------------- -----------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 11,615 12,638
Amortization of acquisition costs 2,820 2,799
Recoupment of license advances and acquired rights 8,488 6,527
(Increase) decrease in accounts receivable (13,257) 6,323
(Increase) decrease in merchandise inventories (8,994) 34,707
(Increase) decrease in other operating assets 3,667 (14,751)
Increase (decrease) in accounts payable 23,614 (3,797)
Increase (decrease) in other operating liabilities 5,307 (41,474)
Repositioning charge -- 110,000
Gain on sale of subsidiary -- (31,000)
Loss on sale of book business -- 1,291
----------------- -----------------
Total adjustments 33,260 83,263
----------------- -----------------
Net cash provided from operating activities 62,080 35,938
----------------- -----------------
Cash flows from investing activities:
Additions to property and equipment (15,546) (11,848)
Retirements of property and equipment 777 6,881
License advances and acquired rights (27,987) (11,417)
Acquisitions, net of cash acquired (6,432) (4,754)
Proceeds from sale of subsidiary, book business and other -- 47,665
----------------- -----------------
Net cash (used by) provided from investing activities (49,188) 26,527
----------------- -----------------
Cash flows from financing activities:
Issuances of debt 881,321 1,849,475
Repayments of debt (886,821) (1,916,815)
Repurchase of common stock (34,843) (13,387)
Other changes in shareholders' equity, net 1,735 1,480
----------------- -----------------
Net cash used by financing activities (38,608) (79,247)
----------------- -----------------
Net decrease in cash and cash equivalents (25,716) (16,782)
Cash and cash equivalents at beginning of period 27,405 25,562
----------------- -----------------
Cash and cash equivalents at end of period $1,689 $8,780
================= =================
The accompanying notes are an integral part of the consolidated financial
statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying consolidated balance sheet
and consolidated statements of operations, shareholders' equity and cash
flows contain all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position of the
Company as of January 31, 2000, and the results of operations and changes
in cash flows for the nine months then ended. Because of the seasonal
nature of the Company's business, sales and earnings results for the nine
months ended January 31, 2000 are not necessarily indicative of what the
results will be for the full year. The consolidated balance sheet as of May
1, 1999 included in this Form 10-Q was derived from the audited
consolidated financial statements of the Company included in the Company's
1999 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Reference should be made to the Company's Form 10-K for the
year ended May 1, 1999.
2. On June 2, 1998, the Company's Board of Directors approved a comprehensive
strategic repositioning program designed to focus the Company on its core
music distribution business. The repositioning program resulted in a $110
million charge to earnings in the first quarter of fiscal 1999,
representing asset adjustments and cost accruals directly related to the
repositioning program, other than those costs actually incurred and charged
to earnings in fiscal 1998 and certain costs that were required to be
expensed as incurred. The repositioning activities, including employee
severance programs, were all completed during fiscal 1999. Reference should
be made to the Company's Form 10-K for the year ended May 1, 1999 for
additional discussion regarding repositioning and related charges.
A component of the $110 million charge was a $31.6 million provision for
merchandise inventory write-downs required to liquidate inventory through
non-traditional channels as a result of the Company exiting certain product
lines (video, book and software) and no longer servicing certain customers.
The table below displays the proforma presentation for the consolidated
statement of operations for the quarters and nine-month periods ended
January 31, 2000 and 1999 as if the inventory write-downs had been
included in direct product costs (dollar amounts in thousands):
Third Quarter Ended
-----------------------------------------------------
Jan. 31, 2000
As Reported Jan. 31, 1999 Jan. 31, 1999
and Proforma As Reported Proforma
------------------ ------------- --------------
Revenues $343.2 $290.1 $290.1
Direct product costs 262.7 219.9 219.9
Repositioning and related costs -- 6.9 6.9
Nine Months Ended
-----------------------------------------------------
Jan. 31, 2000
As Reported Jan. 31, 1999 Jan. 31, 1999
and Proforma As Reported Proforma
------------------ ------------- --------------
Revenues $858.5 $801.6 $801.6
Direct product costs 644.9 606.0 637.6
Repositioning and related costs -- 123.9 92.3
5
Notes to Consolidated Financial Statements (continued)
In connection with the repositioning program announced on June 2, 1998, the
Board of Directors approved a common stock repurchase program that expired
on December 4, 1999. In December 1999, the Board of Directors approved a
new authorization, that expires in December 2000, for the repurchase of up
to $20 million of common stock. Under the current $20 million common stock
repurchase authorization, the Company can repurchase stock at a price no
greater than 75% of the most recent 60-day high as reported on the New York
Stock Exchange. During the quarter, the Company repurchased $9.5 million of
common stock, of which $2.7 million was repurchased under the Board
authorization that expired on December 4, 1999. The Company can purchase up
to $13.2 million in additional shares under the current Board authorization
that expires in December 2000. The Company repurchased 2,761,000 shares at
a cost of $34.8 million for the nine months ended January 31, 2000.
3. At each balance sheet date, management evaluates the carrying value and
remaining estimated lives of long-lived assets, including intangible
assets, for potential impairment by considering several factors, including
management's plans for future operations, recent operating results, market
trends and other economic factors relating to the operation to which the
assets apply. Recoverability of these assets is measured by a comparison of
the carrying amount of such assets to the future undiscounted net cash
flows expected to be generated by the assets. If such assets were deemed to
be impaired as a result of this measurement, the impairment that would be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets as determined on a discounted
basis.
4. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. This
statement will be adopted in fiscal 2002. The Company does not believe the
impact of SFAS 133 on reported earnings and financial position will be
material.
6
Notes to Consolidated Financial Statements (continued)
5. In fiscal 1999, the Company adopted SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information." In prior years the Company had
determined, using the industry segment approach, that it operated
principally in one business segment: selling music, video, book and
personal computer software products primarily to mass merchants. The
Company has determined, using the management approach, that it operates in
two business segments: Handleman Entertainment Resources (H.E.R.) is
responsible for music category management and distribution operations, and
North Coast Entertainment (NCE) is responsible for the Company's
proprietary operations, which include music, video and licensing
operations. Handleman International (music category management and
distribution operations in Mexico and Brazil), which was reported as a
separate segment for fiscal 1999, has been included within H.E.R. for both
this year and last year due to a change in H.E.R. responsibility for the
segment effective at the beginning of fiscal 2000.
The tables below present information about reported segments for the three
months ended January 31, 2000 and January 31, 1999 (in thousands of
dollars):
Three Months Ended January 31, 2000: H.E.R. NCE Total
------ --- -----
Revenues, external customers $312,144 $31,102 $343,246
Intersegment revenues -- 4,306 4,306
Segment income 22,708 3,180 25,888
Capital expenditures 2,696 1,865 4,561
Three Months Ended January 31, 1999: H.E.R. NCE Total
------ --- -----
Revenues, external customers $256,465 $33,650 $290,115
Intersegment revenues 200 3,210 3,410
Segment income 13,619 5,363 18,982
Capital expenditures 2,581 405 2,986
7
Notes to Consolidated Financial Statements (continued)
A reconciliation of total segment revenues to consolidated revenues and
total segment income to total consolidated income before income taxes and
minority interest for the three months ended January 31, 2000 and January
31, 1999 is as follows (in thousands of dollars):
Revenues Jan. 31, 2000 Jan. 31, 1999
-------- ------------- -------------
Total segment revenues $347,552 $293,428
Elimination of intersegment revenues (4,306) (3,313)
-------- --------
Consolidated revenues $343,246 $290,115
======== ========
Income Before Income Taxes and Minority Interest
------------------------------------------------------
Total segment income for reportable segments $ 25,888 $ 18,982
Interest revenue 435 281
Interest expense (1,523) (2,134)
Repositioning and related charges -- (6,939)
Intersegment profit elimination 331 (37)
-------- --------
Consolidated income before income taxes
and minority interest $ 25,131 $ 10,153
======== ========
The tables below present information about reported segments as of and for
the nine months ended January 31, 2000 and January 31, 1999 (in thousands
of dollars):
Nine Months Ended January 31, 2000: H.E.R. NCE Total
------ --- -----
Revenues, external customers $757,760 $100,698 $858,458
Intersegment revenues -- 9,955 9,955
Segment income 39,975 12,723 52,698
Segment assets 401,795 177,319 579,114
Capital expenditures 10,814 4,732 15,546
Nine Months Ended January 31, 1999: H.E.R. NCE Total
------ --- -----
Revenues, external customers $707,924 $ 90,892 $798,816
Intersegment revenues 3,678 10,058 13,736
Segment income 23,508 14,213 37,721
Segment assets 394,411 136,731 531,142
Capital expenditures 9,046 2,802 11,848
8
Notes to Consolidated Financial Statements (continued)
A reconciliation of total segment revenues to consolidated revenues, total
segment income to total consolidated income before income taxes and
minority interest, and total segment assets to total consolidated assets as
of and for the nine months ended January 31, 2000 and January 31, 1999 is
as follows (in thousands of dollars):
Revenues Jan. 31, 2000 Jan. 31, 1999
-------- ------------- -------------
Total segment revenues $868,413 $ 812,552
Revenue for sold operation (Sofsource) -- 2,692
Elimination of intersegment revenues (9,955) (13,687)
-------- ---------
Consolidated revenues $858,458 $ 801,557
======== =========
Income Before Income Taxes and Minority Interest
------------------------------------------------
Total segment income for reportable segments $ 52,698 $ 37,721
Operating loss for sold operation (Sofsource) -- (135)
Interest revenue 1,565 740
Interest expense (3,990) (7,509)
Repositioning and related charges -- (123,901)
Gain on sale of Sofsource subsidiary -- 31,000
Intersegment profit elimination 31 (107)
-------- ---------
Consolidated income (loss) before income taxes
and minority interest $ 50,304 $ (62,191)
======== =========
Assets
------
Total segment assets $579,114 $ 531,142
Elimination of intercompany receivables
and payables (61,864) (41,270)
-------- ---------
Total consolidated assets $517,250 $ 489,872
======== =========
6. A reconciliation of the weighted average shares used in the calculation of
basic and diluted shares is as follows (in thousands):
Three Months Ended Nine Months Ended
------------------------ ----------------------
Jan. 31, Jan. 31, Jan. 31, Jan. 31,
2000 1999 2000 1999
---- ---- ---- ----
Weighted average shares during the period-basic 29,034 31,584 29,863 31,658
Additional shares from assumed exercise of
stock options 349 269 323 189
------ ------ ------ ------
Weighted average shares adjusted for assumed
exercise of stock options-diluted 29,383 31,853 30,186 31,847
====== ====== ====== ======
9
Handleman Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Revenues for the third quarter ended January 31, 2000 increased 18% to $343.2
million from $290.1 million for the third quarter ended January 31, 1999.
Revenues last year included $1.3 million of sales related to the Argentina
business which was exited pursuant to the repositioning program announced and
completed in fiscal 1999. Net income for the third quarter of this year
increased to $14.7 million or $.50 per diluted share from $5.6 million or $.18
per diluted share for the third quarter of last year. The Company's third
quarter results last year included pre-tax repositioning and related charges of
$6.9 million.
Revenues were $858.5 million for the first nine months of this year, compared to
$801.6 million for the first nine months of last year, an increase of 7%.
Revenues last year included $47.9 million of sales of products (video, book and
software) and businesses (Sofsource and Argentina) exited pursuant to the
repositioning program. Net income for the nine months ended January 31, 2000
was $28.8 million or $.95 per diluted share, compared to a net loss of $47.3
million or a loss of $1.49 per diluted share for the comparable nine-month
period last year. The Company's results of operations for the first nine months
of last year included pre-tax repositioning and related charges of $123.9
million and a pre-tax gain on the sale of the Company's Sofsource subsidiary of
$31.0 million.
The Company has two business segments: Handleman Entertainment Resources
("H.E.R.") encompasses the Company's music category management and distribution
operations, and North Coast Entertainment ("NCE") is responsible for the
Company's proprietary operations, which include music and video products, as
well as licensing operations. Handleman International (which encompasses music
category management and distribution operations in Mexico and Brazil), which was
reported as a separate segment for fiscal 1999, has been included within H.E.R.
for both this year and last year due to a change in H.E.R. responsibility for
the segment effective at the beginning of fiscal 2000.
H.E.R. net sales for the third quarter of this year were $312.1 million,
compared to net sales of $256.7 million for the third quarter of last year.
H.E.R. net sales for the third quarter of last year included $1.3 million of net
sales related to the Argentina business which was exited pursuant to the
repositioning program. H.E.R. net sales for the nine months ended January 31,
2000 were $757.8 million, compared to $711.6 million for the comparable prior
year period. H.E.R. net sales last year included $45.2 million of sales of
products and businesses exited pursuant to the repositioning program. The
increases in H.E.R. net sales for both the third quarter and nine-month period
resulted from higher shipments to mass merchant customers. This was reflective
of the sales increases of H.E.R.'s customers that exceeded not only the overall
music industry growth, but also the growth rates for the mass merchant segment
of the music industry.
10
NCE net sales were $35.4 million for the third quarter of this year, compared to
$36.8 million for the third quarter of last year, a 4% decrease. The decrease in
sales for this period was principally due to the inclusion in the third quarter
last year of approximately $1.7 million in sales of slow-moving inventory that
was liquidated with minimal gross profit margin. Also contributing to the year-
over-year decline in NCE's third quarter sales was a $.6 million decrease in
revenues at The itsy bitsy Entertainment Company ("TibECo"). Net sales for the
first nine months of this year increased to $110.7 million from $101.0 million
for the nine-month period last year (excluding sales at the Sofsource
subsidiary). This increase was attributable to improved sales across all
business units.
Direct product costs as a percentage of revenues was 76.5% for the third quarter
ended January 31, 2000, compared to 75.8% for the third quarter ended January
31, 1999. Direct product costs as a percentage of revenues for the first nine
months of this year was 75.1%, compared to 75.6% for the comparable period last
year.
In the first quarter of fiscal 1999, the Company's Board of Directors approved a
repositioning program which resulted in a $110 million charge during that
quarter, representing asset adjustments and cost accruals directly related to
the repositioning program. A component of the $110 million charge was a $31.6
million provision for merchandise inventory write-downs required to liquidate
inventory through non-traditional channels as a result of the Company exiting
certain product lines (video, book and software) and no longer servicing certain
customers. The table below displays the proforma presentaion for the
consolidated statement of operations for the quarters and nine-month periods
ended January 31, 2000 and 1999 as if the inventory write-downs had been
included in direct product costs (dollar amounts in thousands):
Third Quarter Ended
---------------------------------------------------
Jan. 31, 2000
As Reported Jan. 31, 1999 Jan. 31, 1999
and Proforma As Reported Proforma
----------------- ------------- --------------
Revenues $343.2 $290.1 $290.1
Direct product costs 262.7 219.9 219.9
Repositioning and related costs -- 6.9 6.9
Nine Months Ended
---------------------------------------------------
Jan. 31, 2000
As Reported Jan. 31, 1999 Jan. 31, 1999
and Proforma As Reported Proforma
----------------- ------------- --------------
Revenues $858.5 $801.6 $801.6
Direct product costs 644.9 606.0 637.6
Repositioning and related costs -- 123.9 92.3
Direct product costs as a percentage of revenues on a proforma basis for the
first nine months of this year was 75.1%, compared to 79.5% for the comparable
period last year.
Consolidated selling, general and administrative ("SG&A") expenses were $54.4
million or 15.8% of revenues for the third quarter of fiscal 2000, compared to
$51.3 million or 17.7% of revenues for last year's third quarter. Consolidated
SG&A expenses for the nine months ended January 31, 2000 were $160.8 million or
18.7% of revenues, compared to $158.1 million or 19.7% of revenues for the nine
months ended January 31, 1999. SG&A expenses as a percentage of revenues for
both the third quarter and nine months ended this year were favorably impacted
by the spreading of fixed costs over a higher sales volume.
11
Income before interest, income taxes, minority interest, repositioning and
related charges and gain on sale of subsidiary ("operating income") for the
third quarter of fiscal 2000 was $26.2 million, compared to $18.9 million for
the third quarter of fiscal 1999. The $7.3 million improvement in operating
income was primarily attributable to the year-over-year increase in revenues.
H.E.R. operating income improved to $22.7 million for the third quarter of this
year from $13.6 million for the third quarter of last year, primarily
attributable to the year-over-year increase in revenues. NCE operating income
was $3.2 million for the third quarter of fiscal 2000, compared to $5.4 million
for the comparable period last year. The decrease in NCE operating income was
attributable to the operating results at TibECo, which not only experienced a
reduction in revenues, but also incurred incremental expenses for investments in
the development of future revenue producing projects.
Operating income for the first nine months of this year increased to $52.7
million from $37.5 million for the first nine months of last year. This increase
in operating income was attributable to increased revenues, slightly lower
direct product costs and lower SG&A expenses as a percentage of revenues. H.E.R.
operating income improved to $40.0 million for the first nine months of fiscal
2000 from $23.5 million for the comparable prior year period. Approximately 60%
of the improvement in H.E.R. operating income was attributable to increased
revenues. NCE operating income was $12.7 million for the first nine months of
this year, compared to $14.2 million for the first nine months of last year
(excluding the Sofsource subsidiary operating loss of $.3 million). The decrease
in NCE operating income was attributable to the third quarter results at TibECo
discussed previously.
Interest expense for the third quarter of fiscal 2000 was $1.1 million, compared
to $1.9 million for the third quarter of fiscal 1999. Interest expense for the
nine months ended January 31, 2000 decreased to $2.4 million from $6.8 million
for the nine months ended January 31, 1999. The decrease in interest expense for
both the quarter and nine-month period was attributable to lower borrowing
levels.
Accounts receivable increased to $238.8 million at January 31, 2000 from $218.0
million at May 1, 1999. This increase was primarily attributable to the
increased sales volume in the third quarter of this year, compared to the fourth
quarter of last year.
Merchandise inventories increased to $115.1 million at January 31, 2000 from
$102.6 million at May 1, 1999. This increase was primarily due to the
seasonality of product returns from customers in the third quarter versus the
fourth quarter.
Other assets, net at January 31, 2000, were $88.0 million, compared to $64.9
million at May 1, 1999. This increase was mainly due to license advances and
acquired rights.
Accounts payable at January 31, 2000 was $189.8 million, compared to $156.3
million at May 1, 1999. This increase principally related to the timing of
payments pertaining to inventory purchases made during the holiday season.
Other liabilities at January 31, 2000 were $14.2 million, compared to $5.5
million at May 1, 1999. This increase was principally due to an increase in
deferred revenue, which related to cash received for future revenue recognition
on certain new investments at itsy bitsy.
* * * * * * * * * * * *
12
As a result of the Company's Year2000 efforts and the timely completion of all
related projects, the Company did not experience any disruption in its business
operations in January 2000. In addition, the Company was not adversely affected
by any of its key business vendors, customers or other partners not being
Year2000 ready.
* * * * * * * * * * * *
This document contains forward-looking statements that are not historical facts
and involve risk and uncertainties. Actual results, events and performance could
differ materially from those contemplated by these forward-looking statements,
including, without limitations, conditions in the music industry, continuation
of satisfactory relationships with existing customers and suppliers,
relationships with the Company's lenders, certain global and regional economic
conditions, and other factors discussed in this Form 10-Q and those detailed
from time to time in the Company's other filings with the Securities and
Exchange Commission. The Company undertakes no obligation to update any forward-
looking statement to reflect events or circumstances after the date of this
document. Additional information that could cause actual results to differ
materially from any forward-looking statements may be contained in the Company's
Annual Report on Form 10-K.
13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter.
Item 6. Exhibits or Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
SIGNATURES: Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HANDLEMAN COMPANY
DATE: March 15, 2000 BY: /s/ Stephen Strome
------------------------------- --------------------------------
STEPHEN STROME
President and
Chief Executive Officer
DATE: March 15, 2000 BY: /s/ Leonard A. Brams
------------------------------- --------------------------------
LEONARD A. BRAMS
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
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