TROY, Mich., Dec. 5 /PRNewswire-FirstCall/ -- Handleman Company
(NYSE:HDL), http://www.handleman.com/ , today announced results for
its second quarter of fiscal year 2007, which ended October 28,
2006. Revenues for the second quarter of this year were $330.5
million, compared to $302.2 million for the second quarter of last
year. Net loss for the second quarter was $14.2 million or $.70 per
diluted share, compared to net income of $9.8 million or $.46 per
diluted share for the same quarter of last year. On a pro-forma
basis, the net loss for the second quarter of this fiscal year was
$1.4 million or $.07 per diluted share, compared to pro-forma net
income of $4.2 million or $.20 per diluted share for the same
quarter of last year. Pro-forma net loss for the second quarter of
this year excludes the impact on income tax expense resulting from
a revision in projected full year operating results, start up costs
related to new business initiatives in the United Kingdom, and
consulting and implementation expenses related to the Company's
cost savings initiatives. For the second quarter of last fiscal
year, pro-forma net income excludes a gain resulting from the sale
of an investment, and tax benefits, including benefits realized due
to the utilization of capital losses. The following table
reconciles GAAP net (loss) income to pro-forma amounts. The Company
believes the pro-forma amounts provide a meaningful comparison of
operating performance between the second quarters of fiscal 2007
and 2006. Three Months Ended * Six Months Ended * Oct. 28, Oct. 29,
Oct. 28, Oct. 29, 2006 2005 2006 2005 Net (loss) income $(14,237)
$9,774 $(20,180) $ 6,126 Gain on sale of investment in PRN --
(2,440) -- (2,440) Tax benefit due to utilization of capital losses
and other benefits -- (3,146) -- (3,146) Impact on income tax
resulting from a revision in projected full year operating results
8,840 -- -- -- Start up expenses related to new business
initiatives in the United Kingdom 1,707 -- 2,008 -- Consulting and
implementation expenses related to the Company's cost savings
initiatives 2,310 -- 4,290 -- Pro-forma net (loss) income $(1,380)
$4,188 $(13,882) $540 Net (loss) income per diluted share $(.07)
$.20 $(.69) $.03 * Amounts in thousands, except per share data.
Amounts are after tax. Stephen Strome, the Company's Chairman and
CEO stated, "While very disappointed with the overall results for
the first six months of this year, the Company has several
initiatives underway to improve results by leveraging our core
competencies into additional product categories and with additional
customers. In October we added greeting cards to our product
categories in the United Kingdom, and beginning April 2007 will
provide music, video and video games to Tesco PLC, the UK's largest
supermarket and general merchandise retailer. We also continue to
identify synergies with our recently acquired businesses, Crave
Entertainment Group, a distributor of console video game hardware,
software and accessories, and REPS, a provider of in-store
merchandising. Each of these initiatives leverages our strengths
and provides diversification from our current core music business."
Mr. Strome added, "The Company also continues to focus on
realigning its cost structure to reduce selling, general and
administrative (SG&A) expenses. Programs already implemented
include: freezing the Company's defined benefit pension plan,
adjusting employee health care benefits, and undertaking several
initiatives to improve service level efficiencies. The initiatives
already implemented will save the Company in excess of $10 million
annually. Additional cost savings programs identified are expected
to provide an additional annual savings of $10 - $15 million when
completed. This amount is prior to any one-time implementation
costs. We believe the Company will achieve at least $20 million in
annualized savings as we begin fiscal 2008." During the second
quarter of this year Crave Entertainment Group (Crave), which was
acquired during the Company's third fiscal quarter of last year,
added $45.2 million to revenues. Conversely, music revenues during
the second quarter of this year of $254.1 million were down $23.5
million, or 8.5%, from the second quarter of last year. Other
revenues, which primarily consist of REPS in-store service
revenues, and category management and distribution in the United
Kingdom (UK) of greeting cards and DVDs, were $31.3 million for the
second quarter of this year, up $6.6 million from the same period
of last year. The Company's gross profit margin, as a percentage of
revenues, was 15.7% for the second quarter of this year, compared
to 17.9% for the second quarter of last year. The decline in the
gross profit margin percentage was mostly the result of the
addition of Crave, whose products earned a lower gross profit
margin than the Company's consolidated gross profit margin,
together with a slightly lower music gross profit margin. SG&A
expenses for the second quarter of this year were $58.9 million or
17.8% of revenues, compared to $47.4 million or 15.7% of revenues
last year. The dollar increase this year was due to SG&A
expenses at Crave ($4.8 million), the amortization of identified
intangible assets established at the time of the Crave acquisition
($1.7 million), and startup expenses related to the Company's new
business initiatives in the UK ($3.1 million). In addition, during
the second quarter of this year the Company incurred consulting
costs and implementation expenses related to its cost savings
initiatives of $3.5 million. Interest expense for the second
quarter of this year was $1.5 million, compared to $.2 million in
the second quarter of last year. The higher expense this year was
primarily related to interest on borrowings to fund the acquisition
of Crave. Investment income in the second quarter of this year was
$.5 million compared to last year's $4.0 million, which included
the $3.8 million gain on the sale of the PRN investment. During the
second quarter of this year, the Company incurred an income tax
expense of $6.1 million, despite a pre-tax loss, due to the impact
on income tax results from a revision in projected full year
operating results. In last year's second quarter, the Company
recorded tax expense of $.2 million on pre-tax income from
continuing operations of $10.3 million. The lower tax rate last
year was due to the utilization of losses recorded in prior years
for which a tax benefit was previously not recognized, together
with other tax benefits. Call Notice Handleman Company will host a
conference call to discuss the second quarter of fiscal year 2007
financial and operating results on Wednesday, December 6, 2006 at
11:00 a.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 web cast can be accessed and will be available for 30
days on the investor relations page of Handleman Company's web
site, http://www.handleman.com/ . A telephone replay of the
conference call will be available until Friday, December 8, 2006 at
midnight by calling 800-642-1687 (PIN Number 2831588). About
Handleman Company: Handleman Company is a category manager and
distributor of prerecorded music and console video game hardware,
software and accessories to leading retailers in the United States,
United Kingdom, and Canada. As a category manager, the Company
manages a broad assortment of titles to optimize sales and
inventory productivity in retail stores. Services offered include
product selection, 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 risks 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
achieving the business integration objectives expected with the
Crave Entertainment Group acquisition, changes in the music and
video game industries, continuation of satisfactory relationships
with existing customers and suppliers, establishing satisfactory
relationships with new customers, including Tesco, PLC, and
suppliers, effects of electronic commerce inclusive of digital
music distribution, success of new music and video game releases,
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 sustain existing businesses while investing in and
developing 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 risks 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. CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data) (unaudited) Three
Months Six Months (13 Weeks) Ended (26 Weeks) Ended Oct. 28, Oct.
29, Oct. 28, Oct. 29, 2006 2005 2006 2005 Revenues $330,509
$302,246 $570,915 $542,648 Costs and expenses: Direct product costs
(278,750) (248,281) (483,564) (448,003) Selling, general and
administrative expenses (58,907) (47,424) (115,123) (94,853)
Operating (loss) income (7,148) 6,541 (27,772) (208) Interest
expense (1,495) (220) (3,276) (248) Investment income 470 4,005 476
5,070 (Loss) income from continuing operations before income taxes
(8,173) 10,326 (30,572) 4,614 Income tax (expense) benefit (6,064)
(190) 10,392 1,874 (Loss) income from continuing operations
(14,237) 10,136 (20,180) 6,488 Loss from discontinued operations,
net of taxes -- (362) -- (362) Net (loss) income $(14,237) $9,774
$(20,180) $6,126 Basic net (loss) income per share: - From
continuing operations $(.70) $.48 $(1.00) $.31 - From discontinued
operations -- (.02) -- (.02) Total basic net (loss) income per
share $(.70) $.46 $(1.00) $.29 Diluted net (loss) income per share
- From continuing operations $(.70) $.48 $(1.00) $.31 - From
discontinued operations -- (.02) -- (.02) Total diluted net (loss)
income per share $(.70) $.46 $(1.00) $.29 Weighted average number
of shares outstanding - basic 20,268 21,027 20,197 21,240 - diluted
20,268 21,142 20,197 21,405 CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands) (unaudited) October 28, 2006 October 29,
2005 Assets Cash and cash equivalents $16,875 $27,096 Accounts
receivable 291,066 279,829 Merchandise inventories 211,395 212,669
Other current assets 17,390 12,232 Total current assets 536,726
531,826 Property and equipment, net of depreciation and
amortization 56,885 58,771 Other assets, net 110,527 39,478 Total
assets $704,138 $630,075 Liabilities Debt, current $96,560 $--
Notes payable -- 1,250 Accounts payable 289,074 270,227 Other
current liabilities 23,943 22,873 Total current liabilities 409,577
294,350 Debt, non-current -- 34,900 Other liabilities 15,901 14,553
Shareholders' equity 278,660 286,272 Total liabilities and
shareholders' equity $704,138 $630,075 ADDITIONAL INFORMATION FROM
CONTINUING OPERATIONS (amounts in thousands) Three Months Six
Months (13 Weeks) Ended (26 Weeks) Ended Oct. 28, 2006 Oct. 29,
2005 Oct. 28, 2006 Oct. 29, 2005 (Loss) income from continuing
operations $(14,237) $10,136 $(20,180) $6,488 Investment income
(470) (4,005) (476) (5,070) Interest expense 1,495 220 3,276 248
Income tax expense (benefit) 6,064 190 (10,392) (1,874)
Depreciation/ amortization expense 6,313 4,494 12,707 8,869
Recoupment of license advances 2,397 -- 3,021 -- Adjusted EBITDA*
$1,562 $11,035 $(12,044) $8,661 Additions to property and equipment
$6,645 $4,678 $10,925 $7,592 * Adjusted EBITDA is computed as
(loss) income from continuing operations, less investment income
and income tax benefit, plus interest expense, income tax expense,
depreciation and amortization expense and recoupment of license
advances. DATASOURCE: Handleman Company CONTACT: Thomas Braum,
Executive Vice President and CFO, +1-248-362-4400, Ext. 718, or
Greg Mize, Vice President, Investor Relations +1-248-362-4400, Ext.
211, both of Handleman Company Web site: http://www.handleman.com/
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