Harry & David Holdings, Inc. News
Harry & David Holdings, Inc. Reports Third Quarter Fiscal 2008 Results
Net sales for the thirteen-week period ended
Gross profit margin was 29.0% in the third quarter of fiscal 2008, down 11.1 percentage points from 40.1% in the same period last year. Approximately one half of the margin decline was primarily a result of certain one-time favorable inventory related and other adjustments last year, higher variable costs, including increases in markdowns and freight expenses, higher fixed costs, and unfavorable inventory adjustments in conjunction with the Company's ERP implementation in
For the third quarter of fiscal 2008, selling, general and administrative expenses increased
For the third quarter of fiscal 2008, EBITDA from continuing operations, which the Company defines as earnings (loss) before net interest expense, income taxes, depreciation and amortization, was
Net loss from continuing operations for the third quarter of 2008 was
Net sales for the thirty-nine week period ended
EBITDA from continuing operations for the thirty-nine week period ended
Pre-tax income from continuing operations for the thirty-nine week period ended
"While our third quarter results did not meet our expectations, when normalized for one-time events, they were generally consistent with the retail environment and broader economic trends impacting our customers," said
The full interim results for the third fiscal quarter ended
Non-GAAP Financial Measures
This press release presents EBITDA, which is a non-GAAP financial measure within the meaning of applicable SEC rules and regulations. The Company believes that EBITDA is a useful financial measure for assessing operating performance and liquidity. For an explanation of why management believes EBITDA is a useful measure for understanding the Company's results of operations, a discussion of the limitations of using such measure and a reconciliation of EBITDA to the most comparable GAAP measure, see the discussion following the attached financial information.
Forward-Looking Statements
Certain of the statements in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These statements relate to future events or future financial performance and involve known and unknown risks and other factors that may cause the Company's actual or our industry's results, levels of activity or achievement to be materially different from those expressed or implied by any forward-looking statements. These risks and uncertainties include, but are not limited to risks relating to market demand for the Company's products, production capabilities, relationships with customers, implementation of the Company's business and marketing strategies, competition, continued rising fuel energy and other commodity costs, financial leverage, postal rate increases, increase in labor costs and the availability of a seasonal workforce and changes in federal and state tax laws. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "could" "would", "should", "expect", "plan", "anticipate", "intend", "believe", "estimate", "predict", "potential", or "continue" or the negative of those terms or other comparable terminology. These statements are present expectations. Actual events or results may differ materially. We undertake no obligation to update or revise any forward-looking statement, except as required by law. All of the forward looking statements are expressly qualified by the risk factors discussed in the Company's filings with the SEC.
Conference Call
Harry & David Holdings, Inc. will host a conference call today,
About Harry & David Holdings, Inc.
Harry & David Holdings, Inc., headquartered in
- Financial Tables Follow - Harry & David Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in Thousands, Except Share and per Share Data) March 29, June 30, March 31, 2008 2007 2007 Unaudited Unaudited Assets Current assets: Cash and cash equivalents $90,132 $49,408 $41,580 Short-term investments - 24,816 37,363 Trade accounts receivable, net 3,201 2,100 5,328 Other receivables 4,816 10,907 1,208 Inventories, net 48,293 62,406 47,204 Deferred catalog expenses 5,328 4,198 5,671 Deferred income taxes 2,771 - - Prepaid income taxes - 774 - Other current assets 10,234 9,852 6,754 Assets held for sale - - 41,455 Total current assets 164,775 164,461 186,563 Fixed assets, net 162,950 163,273 158,151 Goodwill 3,454 - - Intangibles, net 46,267 29,089 31,210 Deferred financing costs, net 9,914 12,144 12,803 Deferred income taxes - - 1,484 Other assets 4,005 1,551 721 Total assets $391,365 $370,518 $390,932 Liabilities and stockholders' equity Current liabilities: Accounts payable $13,272 $22,900 $15,001 Accrued payroll and benefits 14,611 21,175 13,695 Income taxes payable 40,444 - 14 Deferred revenue 21,105 12,914 22,100 Deferred income taxes - 18,670 43,485 Accrued interest 1,856 5,921 1,941 Other accrued liabilities 6,787 7,409 6,665 Current portion of capital lease obligations 318 1,366 1,571 Liabilities related to assets held for sale - - 8,228 Total current liabilities 98,393 90,355 112,700 Long-term debt and capital lease obligations 235,351 245,669 245,000 Deferred income taxes 1,528 8,422 - Accrued pension liability 15,416 15,504 18,128 Other long-term liabilities 10,751 6,304 4,285 Total liabilities 361,439 366,254 380,113 Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value, 1,500,000 shares authorized; issued and outstanding: 1,032,614, 1,032,241 and 1,031,816 shares at March 29, 2008, June 30, 2007 and March 31, 2007, respectively 10 10 10 Additional paid-in capital 5,996 5,548 5,373 Accumulated other comprehensive income (loss) (2,004) 1,119 - Retained earnings (accumulated deficit) 25,924 (2,413) 5,436 Total stockholders' equity 29,926 4,264 10,819 Total liabilities and stockholders' equity $391,365 $370,518 $390,932 Harry & David Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in Thousands, Except Share and per Share Data) (Unaudited) Thirteen Thirteen Thirty-nine Forty weeks ended weeks ended weeks ended weeks ended March 29, March 31, March 29, March 31, 2008 2007 2008 2007 Net sales $68,315 $73,329 $487,747 $498,112 Costs of goods sold 48,546 43,929 252,149 252,932 Gross profit 19,769 29,400 235,598 245,180 Operating expenses: Selling, general and administrative 46,969 45,766 171,676 168,050 Selling, general and administrative - related party 250 250 750 750 47,219 46,016 172,426 168,800 Operating income (loss) (27,450) (16,616) 63,172 76,380 Other (income) expense: Interest income (1,292) (1,205) (2,157) (1,642) Interest expense 6,059 6,504 19,363 21,634 Pension curtailment gain - - - (15,844) Gain on debt prepayment - - (303) - Other (income) expense 7 (270) 55 (347) 4,774 5,029 16,958 3,801 Income (loss) from continuing operations before income taxes (32,224) (21,645) 46,214 72,579 Provision (benefit) for income taxes (11,227) (8,671) 17,333 28,330 Net income (loss) from continuing operations (20,997) (12,974) 28,881 44,249 Discontinued operations: Gain (loss) on sale of Jackson & Perkins 42 (7,406) 242 (7,406) Operating income (loss) 274 962 (28) 109 Provision (benefit) for income taxes 110 (2,582) 72 (2,898) Net income (loss) from discontinued operations 206 (3,862) 142 (4,399) Net income (loss) $(20,791) $(16,836) $29,023 $39,850 Basic net income (loss) per share: Continuing operations (20.33) (12.58) 27.97 43.18 Discontinued operations 0.20 (3.74) 0.14 (4.29) Total basic net income (loss) per share $(20.14) $(16.32) $28.11 $38.88 Diluted net income (loss) per share: Continuing operations (20.33) (12.58) 27.69 43.18 Discontinued operations 0.20 (3.74) 0.14 (4.29) Total diluted net income (loss) per share $(20.14) $(16.32) $27.82 $38.88 Weighted-average shares used in per share calculations: Basic 1,032,576 1,031,713 1,032,455 1,024,861 Diluted 1,032,576 1,031,713 1,043,111 1,024,861 Harry & David Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in Thousands) (Unaudited) Thirty-nine Forty weeks ended weeks ended March 29, 2008 March 31, 2007 Operating activities Net income $29,023 $39,850 Less: Net income (loss) from discontinued operations 142 (4,399) Net income from continuing operations 28,881 44,249 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations: Depreciation and amortization of fixed assets 13,464 12,702 Amortization of intangible assets 1,532 1,447 Amortization of deferred financing costs 1,956 2,010 Stock option compensation expense 414 437 Loss on disposal and impairment of fixed assets and other long-lived assets 1,700 218 Gain on short-term investments (162) (188) Deferred income taxes (27,362) 27,750 Gain on debt prepayment (303) - Pension curtailment gain - (15,844) Changes in operating assets and liabilities: Trade accounts receivable and other receivables (1,978) (2,863) Inventories 15,791 8,565 Deferred catalog expenses and other assets (785) (201) Accounts payable (10,586) (3,759) Accrued liabilities 27,495 (7,342) Deferred revenue 7,910 5,663 Net cash provided by operating activities from continuing operations 57,967 72,844 Net cash provided by (used in) operating activities from discontinued operations 3,086 (1,644) Net cash provided by operating activities 61,053 71,200 Investing activities Acquisition of fixed assets (14,638) (11,389) Acquisition of Wolferman's business (23,104) - Proceeds from the sale of fixed assets 21 76 Proceeds from the sale of short-term investments 24,978 - Purchases of short-term investments - (37,175) Net cash used in investing activities from continuing operations (12,743) (48,488) Net cash provided by (used in) investing activities from discontinued operations 3,161 (178) Net cash used in investing activities (9,582) (48,666) Financing activities Borrowings of revolving debt 63,000 108,500 Repayments of revolving debt (63,000) (108,500) Repayments of capital lease obligations (1,366) (573) Repayments of long-term debt (9,405) - Payments for deferred financing costs (10) - Proceeds from exercise of stock options 34 982 Net cash provided by (used in) financing activities from continuing operations (10,747) 409 Increase in cash and cash equivalents 40,724 22,943 Cash and cash equivalents, beginning of period 49,408 18,637 Cash and cash equivalents, end of period $90,132 $41,580
EBITDA
Our earnings before income taxes, interest, and depreciation and amortization (EBITDA) from continuing operations for the thirteen-week period ended
For an explanation of why management believes EBITDA is a useful measure for understanding our results of operations and a reconciliation of EBITDA to the most comparable GAAP measure, see note below, Non-GAAP Financial Measure: EBITDA. The following table reconciles EBITDA from continuing operations to net cash provided by operating activities, which we believe to be the closest GAAP liquidity measure to EBITDA, and net income, which we believe to be the closest GAAP performance measure to EBITDA. Certain rounded amounts below have been adjusted in order to agree to net income (loss) from continuing operations or year-to-date amounts (dollars are in millions).
Thirteen Thirteen Thirty-nine Forty weeks ended weeks ended weeks ended weeks ended March 29, March 31, March 29, March 31, 2008 2007 2008 2007 Net income (loss) from continuing operations $(21.0) $(13.0) $28.9 $44.2 Interest expense, net from continuing operations 4.8 5.3 17.2 20.0 Provision (benefit) for income taxes from continuing operations (11.3) (8.7) 17.3 28.3 Depreciation and amortization from continuing operations 5.4 4.9 15.0 14.2 EBITDA from continuing operations $(22.1) $(11.5) $78.4 $106.7 Interest expense, net from continuing operations (4.8) (5.3) (17.2) (20.0) Provision for income taxes from continuing operations 11.3 8.7 (17.3) (28.3) Amortization of deferred financing costs 0.7 0.6 2.0 2.0 Stock option compensation expense 0.1 0.1 0.4 0.4 Loss on disposal and impairment of fixed assets and other long-lived assets 1.2 - 1.7 0.2 Gain on short-term investments - (0.2) (0.2) (0.2) Deferred income taxes (0.6) (8.9) (27.4) 27.7 Gain on debt prepayment - - (0.3) - Pension curtailment gain - - - (15.8) Changes in operating assets and liabilities from continuing operations (50.7) (54.6) 37.9 0.1 Net cash provided by (used in) discontinued operations 1.2 1.2 3.1 (1.6) Net cash provided (used in) by operating activities $(63.7) $(69.9) $61.1 $71.2
In the thirteen-week period ended
— $1.5 million of consulting fees associated with certain corporate strategic initiatives including acquisitions and information technology projects; — 0.1 million of employee executive recruiting charges; — $1.2 million loss on disposal and impairment of fixed assets and long-lived assets; — $0.3 million of fees paid to Wasserstein and Highfields under the management agreement; — $0.3 million of severance and re-organization payroll and benefits; — $0.2 million income from the application of FIN 48; — $0.4 million expense for certain inventory adjustments related to our ERP conversion in the third quarter; and — $0.2 million in inventory step-up purchase accounting adjustments.
In the thirteen-week period ended
— $0.4 million of consulting fees associated with the implementation of our ERP software project, and other information technology projects; — $0.3 million of fees paid to Wasserstein and Highfields under our management agreement; — $0.2 million of income recognized from vendor settlements; and — $1.9 favorable adjustment due to the reconciliation of aged unmatched inventory receipts identified in the ERP conversion process.
In the thirty-nine week period ended
— $3.3 million of consulting fees associated with certain corporate strategic initiatives including acquisitions and information technology projects; — $0.2 million of employee executive recruiting charges; — $1.7 million loss on disposal and impairment of fixed assets and long-lived assets; — $0.3 million net gain on prepayment of long-term debt; — $0.8 million of fees paid to Wasserstein and Highfields under the management agreement; — $0.3 million of costs associated with legal settlements; — $0.7 million of severance and re-organization payroll and benefits; — $0.2 million income from the application of FIN 48; — $0.4 million expense for certain inventory adjustments related to our ERP conversion; and — $0.2 million in inventory step-up purchase accounting adjustments.
In the forty week period ended
— $15.8 million non-cash pension curtailment gain; — $2.8 million of consulting fees associated with the implementation of our ERP software project, other information technology projects; — $0.5 million of employee executive recruiting charges; — $0.8 million of severance; — $0.8 million of fees paid to Wasserstein and Highfields under our management agreement; — $0.2 million loss on disposal of fixed assets; — $0.5 million of income recognized from vendor settlements; and — $1.5 favorable adjustment due to the reconciliation of aged unmatched inventory receipts identified in the ERP conversion process.
Note: Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other provisions of the 1934 Act, define and prescribe the conditions of use of certain non-GAAP financial information. Our measure of EBITDA from continuing operations meets the definition of a non-GAAP financial measure.
We define EBITDA from continuing operations as earnings before net interest expense, income taxes, depreciation and amortization and is computed on a consistent method from quarter to quarter and year to year.
We use EBITDA, in conjunction with GAAP measures such as cash flows from operating activities, cash flows from investing activities and cash flows from financing activities, to assess our liquidity, financial leverage and ability to service our outstanding debt. For example, certain covenant and compliance ratios under our revolving credit facility and the indenture governing the outstanding notes use EBITDA, as further adjusted for certain items as defined in each agreement. If we are not able to comply with these covenants, we may not be able to borrow additional amounts, incur more debt to finance our ongoing operations and working capital or take other actions. In addition, the lenders could accelerate the outstanding amounts, which could materially and adversely affect our liquidity and financial position.
We use EBITDA, in conjunction with the other GAAP measures discussed above, to assess our debt to cash flow leverage, to plan and forecast overall expectations and to evaluate actual results against such expectations; to assess our ability to service existing debt and incur new debt; and to measure the rate of capital expenditure and cash outlays from year to year and to assess our ability to fund future capital and non-capital projects. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue to use) EBITDA to compare debt to cash flow leverage among companies.
EBITDA, when used as a liquidity measure, has limitations as an analytical tool. These limitations include:
— EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; — EBITDA does not reflect changes in, or cash requirements for, our working capital needs; — EBITDA is not a measure of discretionary cash available to us to pay down debt; — EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and — other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
To compensate for these limitations, we analyze EBITDA in conjunction with other GAAP financial measures impacting liquidity and cash flow, including depreciation and amortization, capital spending and net income in terms of the impact on depreciation and amortization, changes in net working capital, other non-operating income and losses that affect cash flow and liquidity, interest expense and taxes. Similarly, you should not consider EBITDA in isolation or as a substitute for these GAAP liquidity measures.
We also use EBITDA, in conjunction with GAAP measures such as operating income and net income, to assess our operating performance and that of each of our businesses and segments. Specifically, we use EBITDA, alongside the GAAP measures mentioned above, to measure profitability and profit margins and to make budgeting decisions relating to historical performance and future expectations of our operating segments and business as a whole, and to make performance comparisons of our company compared to other peer companies. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue to use) EBITDA to assess our operating performance and compare it to that of other peer companies.
Furthermore, we use EBITDA (in conjunction with other GAAP and non-GAAP measures such as operating income, capital expenditures, taxes and changes in working capital) to measure return on capital employed. EBITDA allows us to determine the cash return before taxes, capital spending and changes in working capital generated by the total equity employed in our company. We believe return on capital employed is a useful measure because it indicates the total returns generated by our business, which, when viewed together with profit margin information, allows us to better evaluate profitability and profit margin trends.
As a performance measure, we also use return on capital employed to assist us in making budgeting decisions related to how debt and equity capital is being employed and how it will be employed in the future. Historical measures of return on capital employed, which include the use of EBITDA, are used in estimating and predicting future return on capital trends. Combined with other GAAP financial measures, historical return on capital information helps us make decisions about how to employ capital effectively going forward. However, because EBITDA does not take into account certain of these non-cash items, which do affect our operations and performance, EBITDA has inherent limitations as an operating measure. These limitations include:
— EBITDA does not reflect the cash cost of acquiring assets or the non-cash depreciation and amortization of those assets over time, or the replacement of those assets in the future; — EBITDA does not reflect cash capital expenditures on an historical basis or in the current period, or address future requirements for capital expenditures or contractual commitments; — EBITDA is not a measure of discretionary cash available to us to invest in the growth of our business; — EBITDA does not reflect changes in working capital or cash needed to fund our business; — EBITDA does not reflect our tax expenses or the cash payments we are required to make to fulfill our tax liabilities; and — Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
To compensate for these limitations we analyze EBITDA alongside other GAAP financial measures of operating performance, including, operating income, net income and changes in working capital, in terms of the impact on other non-operating income and losses that affect profitability and return on capital. You should not consider EBITDA in isolation or as a substitute for these GAAP measures of operating performance.
SOURCE Harry & David Holdings, Inc.
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