Navarre Corporation Reports Financial Results for First Quarter of Fiscal Year 2010

Navarre Corporation Reports Financial Results for First Quarter of Fiscal Year 2010

Company reports record first quarter operating income and EBITDA with significant debt reduction To host conference call on July 30, 2009 at 11:00 a.m. ET

MINNEAPOLIS, July 29 /PRNewswire-FirstCall/ -- Navarre Corporation (NASDAQ:NAVR) , a publisher and distributor of physical and digital home entertainment and multimedia products, today reported its financial results for the first quarter of its fiscal year 2010, ended June 30, 2009.

   Financial Results for Fiscal Year 2010 First Quarter    --  Net sales were $134.3 million, as compared to net sales of $142.0       million for the same period last year, a decrease of 5%.   --  Earnings before interest, taxes, depreciation, amortization, and       share-based compensation expense (EBITDA) was a first quarter record       for the Company at $9.0 million; as compared to EBITDA of $5.3 million       in the prior year's first quarter, or an increase of 71%.  (See "Use       of Non-GAAP Financial Information" below)   --  Operating income of $6.5 million was an all-time high for the Company       during the first quarter, as compared to operating income of $2.8       million in the prior year, an increase of 137%.  (See "Use of Non-GAAP       Financial Information" below)   --  Net income increased to $4.2 million, or $0.11 per diluted share, as       compared to net income of $627,000, or $0.02 per diluted share, in the       prior fiscal year.    --  Debt, net of cash, on June 30, 2009 was $23.2 million; as compared to       debt, net of cash, of $48.7 million on June 30, 2008, a reduction of       $25.5 million or 52%.    

Cary Deacon, Chief Executive Officer, commented, "While our industry continues to be impacted by the global economic crisis, we are extremely pleased to be able to report record first quarter operating income and EBITDA. Gross margins improved across all divisions of the company and were coupled with strong expense management. We achieved an excellent first quarter."

Deacon continued, "The quarter beat our expectations in part due to FUNimation's stronger than anticipated sales of anime DVD's as well as a $1.75 million agency fee resulting from a royalty advance paid for the licensing of Dragon Ball Video Game rights to Bandai."

Publishing Segment

The publishing segment includes the results of the wholly-owned subsidiaries FUNimation Entertainment, Encore and BCI. For the first quarter ended June 30, 2009, the publishing segment had net sales, before inter-company eliminations, of $24.9 million, a decrease of 9.3%, as compared to net sales of $27.4 million in the first quarter of the prior fiscal year. BCI, whose operations have been winding down since the third quarter of fiscal year 2009, generated nominal sales in the first quarter as compared to $4.4 million in net sales during the first quarter of the prior fiscal year. (See "Use of Non-GAAP Financial Information" below)

Operating income during the first quarter for the publishing segment was $6.1 million, as compared to operating income of $3.4 million in the first quarter of the prior year. The publishing segment's operating income was positively impacted by FUNimation revenue from the licensing of North American video game rights to Bandai Namco in connection with the Dragon Ball Z brand.

Distribution Segment

The distribution segment includes the results of the wholly-owned subsidiary Navarre Distribution Services, which distributes PC software, DVD video, video games and accessories. For the first quarter ended June 30, 2009, the distribution segment's net sales, before inter-company eliminations, were $121.4 million, as compared to net sales of $133.1 million for the same period last year, a decrease of 9%. (See "Use of Non-GAAP Financial Information" below)

Operating income in the distribution segment for the first quarter was $364,000, as compared to an operating loss of $691,000 in the first quarter of the prior fiscal year. Reduced operating expenses allowed the distribution segment to realize positive operating results despite the reduced sales volume.

Reid Porter, Chief Financial Officer, commented, "The work done last year in systems improvements and eliminating unprofitable product lines contributed to the gross margin expansion and lower operating expenses achieved in the quarter. Good working capital management, which included strong cash collections in the quarter, led to a significant debt reduction and interest expense savings versus the prior year. While we anticipate difficult market conditions and year-over-year sales shortfalls to continue for some time, we expect that our expense initiatives and stronger balance sheet will continue to offset much of the impact of lower sales."

Outlook

In light of the continued impact of macro-economic conditions on the retail industry and in light of first quarter results, the company is updating its guidance for fiscal year 2010 as follows:

   --  Projected net sales has been reduced to range between $525 million and       $575 million;   --  The Company has increased its anticipated EBITDA range and now expects       EBITDA to be between $21 million and $24 million; and    --  Cash flow from operations is anticipated to be positive for fiscal       year 2010 results.     Conference Call  

The Company will host a conference call at 11:00 a.m. ET, Thursday, July 30, 2009, to discuss its fiscal year 2010 first quarter financial results. The conference call can be accessed by dialing (866) 730-5765, conference participant passcode "55107254", ten minutes prior to the scheduled start time. In addition, this call will be simultaneously broadcast live over the internet and can be accessed in the "Investors" section of the Company's web site located at www.navarre.com. Those wishing to access the call through the internet should go to the Company's web site fifteen minutes prior to the start time to register and download any necessary software needed to listen to the call. A replay of the conference call will be available at the Company's web site following the call's completion.

Use of Non-GAAP Financial Information

In evaluating our financial performance and operating trends, management considers information concerning our net sales before inter-company eliminations, and earnings before interest, taxes, depreciation, amortization, and share-based compensation expense, are not calculated in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The Company's management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method the Company uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these preliminary non-GAAP financial measures to the comparable preliminary GAAP results, which is attached to this release and can also be found on the Company's web site at www.navarre.com.

About Navarre Corporation

Navarre Corporation is a publisher and distributor of physical and digital home entertainment and multimedia products, including PC software, DVD video, video games and accessories. Navarre licenses and publishes home entertainment and multimedia content through its wholly-owned FUNimation Entertainment and Encore subsidiaries and has established distribution relationships with customers across a wide spectrum of retail channels. Navarre was founded in 1983 and is headquartered in New Hope, Minnesota. Additional information regarding Navarre can be found at http://www.navarre.com/.

Safe Harbor

The statements in this press release that are not strictly historical are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors provided therein. The forward-looking statements are subject to risks and uncertainties, and the actual results that the Company achieves may differ materially from these forward-looking statements due to such risks and uncertainties, including, but not limited to: difficult economic conditions that adversely affect the Company's customers and vendors; the Company's revenues being derived from a small group of customers; a pending investigation by the U.S. Securities and Exchange Commission (the "SEC") or litigation arising out of this investigation may subject the Company to significant costs; the seasonal nature of the Company's business; the potential for the Company to incur significant additional costs and to experience operational and logistical difficulties in connection with its new ERP system; the Company's dependence on significant vendors; uncertain growth in the publishing segment; the Company's ability to meet significant working capital requirements related to distributing products; and the Company's ability to compete effectively in the highly competitive distribution and publishing industries. In addition to these, a detailed statement of risks and uncertainties is contained in the Company's reports to the Securities and Exchange Commission, including in particular the Company's Form 10-K filings, as well as its other SEC filings and public disclosures.

Investors and shareholders are urged to read this press release carefully. The Company can offer no assurances that any projections, assumptions or forecasts made or discussed in this press release will be met, and investors should understand the risks of investing solely due to such projections. The forward-looking statements included in this press release are made only as of the date of this report and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Investors and shareholders may obtain free copies of the public filings through the website maintained by the SEC at http://www.sec.gov/ or at one of the SEC's other public reference rooms in Washington D.C., New York, New York or Chicago, Illinois. Please contact the SEC at 1-800-SEC-0330 for further information with respect to the SEC's public reference rooms.

                 NAVARRE CORPORATION       Consolidated Statements of Operations      (In thousands, except per share amounts)                                         (Unaudited)                                       Three Months                                           Ended                                          June 30,                                          -------                                       2009      2008                                       ----      ----    Net sales                       $134,306   $142,025    Cost of sales (exclusive of     depreciation                    110,742    119,899     and amortization)               -------    -------     Gross profit                      23,564     22,126    Operating expenses:      Selling and marketing            5,155      5,715      Distribution and warehousing     2,076      2,884      General and administrative       8,028      8,453      Depreciation and amortization    1,789      2,321                                       -----      -----     Total operating expenses          17,048     19,373                                      ------     ------     Income from operations             6,516      2,753    Other income (expense):      Interest expense (1)              (719)    (1,615)      Interest income                      7         15      Other income (expense), net        451        (98)                                         ---        ---     Net income before income tax       6,255      1,055    Income tax expense                (2,094)      (428)                                       -----        ---    Net income                        $4,161       $627                                      ======       ====      Earnings per common share:      Basic                            $0.11      $0.02                                       =====      =====      Diluted                          $0.11      $0.02                                       =====      =====    Weighted average shares     outstanding:      Basic                           36,237     36,186      Diluted                         36,347     36,250    (1)  Fiscal year 2009 first quarter interest expense includes        approximately $490,000 of a non-cash write-off of debt        acquisition costs.                             NAVARRE CORPORATION                  Consolidated Condensed Balance Sheet                             (In thousands)                                    (Unaudited) (Unaudited)                                    June 30,    June 30,   March 31,                                      2009       2008        2009                                      ----       ----        ----    Assets    Current assets:      Accounts receivables, net      $57,314    $88,528    $72,817      Inventories                     34,427     42,046     26,732      Other                           20,976     26,129     23,199                                      ------     ------     ------     Total current assets             112,717    156,703    122,748    Property and equipment, net       14,959     18,525     15,957    Other assets                      44,975    127,961     44,464                                      ------    -------     ------     Total assets                    $172,651   $303,189   $183,169                                    ========   ========   ========      Liabilities and shareholders'     equity    Current liabilities:      Note payable - line of credit  $23,229    $48,731    $24,133      Accounts payable                91,880    106,390    106,708      Other                           14,755     15,612     14,040                                      ------     ------     ------     Total current liabilities        129,864    170,733    144,881    Long-term liabilities:      Other                            1,361      7,117      1,281                                       -----      -----      -----     Total liabilities                131,225    177,850    146,162      Shareholders' equity            41,426    125,339     37,007     Total liabilities and     shareholders' equity           $172,651   $303,189   $183,169                                    ========   ========   ========                        NAVARRE CORPORATION         Consolidated Condensed Statements of Cash Flows                         (In thousands)                                                 (Unaudited)                                            Three Months Ended                                                  June 30,                                                  -------                                              2009       2008    Net cash provided by (used in)     operating activities                   $1,836     $(9,947)    Net cash used in investing activities     (666)     (1,029)    Net cash (used in) provided by     financing activities                   (1,170)      6,531                                            ------       -----      Net decrease in cash                       -      (4,445)      Cash at beginning of period                -       4,445                                               ---       -----     Cash at end of period                       $-          $-                                                ==          ==                          NAVARRE CORPORATION                       Supplemental Information                            (In thousands)                             (Unaudited)       Reconciliation of Net Sales Before Inter-Company Eliminations              to GAAP Net Sales and Business Segment Information                                             Three Months Ended June 30,                                            --------------------------                                           2009       %      2008       %                                           ----      ---     ----      ---    Net sales:      Publishing                          $24,865   17.0 %  $27,418   17.1 %      Distribution                        121,396   83.0 %  133,095   82.9 %                                          -------           -------     Net sales before inter-company     eliminations                         146,261           160,513      Inter-company eliminations          (11,955)         (18,488)                                          -------           -------     Net sales as reported                $134,306          $142,025                                         ========          ========     Income (loss) from operations:      Publishing                           $6,152            $3,444      Distribution                            364              (691)                                              ---              ----     Consolidated income from operations   $6,516            $2,753                                           ======            ======          Reconciliation of Net Income to EBITDA                                    Three Months Ended                                         June 30,                                         -------                                       2009   2008                                       ----   ----    Net income, as reported          $4,161   $627      Interest expense (income), net    712  1,600      Income tax expense              2,094    428      Depreciation and amortization   1,789  2,321      Share-based compensation          257    288                                        ---    ---     EBITDA                           $9,013 $5,264                                     ====== ======  

First Call Analyst:
FCMN Contact: cschudi@navarre.com

Source: Navarre Corporation

CONTACT: Navarre Investor Relations, +1-763-535-8333, ir@navarre.com

Web Site: http://www.navarre.com/

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Profile: International Entertainment