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Navarre Corp. Reports Operating Results (10-Q)

August 16, 2010 | About:
10qk

10qk

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Navarre Corp. (NAVR) filed Quarterly Report for the period ended 2010-06-30.

Navarre Corp. has a market cap of $87.28 million; its shares were traded at around $2.4 with a P/E ratio of 12 and P/S ratio of 0.17. NAVR is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

At June 30, 2010 and March 31, 2010 we had $19.7 million and $6.6 million, respectively, outstanding on the Credit Facility and, based on the facilitys borrowing base and other requirements, we had excess availability of $13.5 million and $38.4 million, respectively. Amounts available under the Credit Facility are subject to a borrowing base formula. Changes in the assets within the borrowing base formula can impact the amount of availability. At June 30, 2010, we were in compliance with all covenants under the Credit Facility and currently believe we will be in compliance with all covenants over the next twelve months.

Net sales for the distribution segment were $96.7 million for the first quarter of fiscal 2011 compared to $121.4 million for the first quarter of fiscal 2010, a decrease of $24.7 million or 20.4%. Net sales decreased $17.1 million in the software product group to $83.9 million during the first quarter of fiscal 2011 from $101.0 million for the same period last year due to a shifting of restocking activity by retailers in the fourth quarter of fiscal 2010, which had been expected to occur in the first quarter of fiscal 2011, the departure of a low margin vendor (which accounted for an additional $10.7 million of sales in the first quarter of fiscal 2010) and a move to fee-based value-added services. These decreases in net sales were partially offset by increased sales to current customers by providing additional product offerings. Home video net sales decreased $2.4 million to $9.1 million in the first quarter of fiscal 2011 from $11.5 million in first quarter of fiscal 2010, due primarily to a stronger release schedule in first quarter of fiscal 2010. Video games net sales decreased $5.2 million to $3.7 million in the first quarter of fiscal 2011 from $8.9 million for the same period last year, due to the departure of a low margin vendor (which accounted for an additional $4.4 million of sales in first quarter of fiscal 2010). We believe future net sales will be dependent upon the ability to continue to add new, appealing content and upon the strength of the retail environment and overall economic conditions.

General and administrative expenses for the distribution segment consist principally of executive, accounting and administrative personnel and related expenses, including professional fees. General and administrative expenses for the distribution segment were $4.0 million or 4.1% of net sales for the first quarter of fiscal 2011 compared to $5.2 million or 4.3% of net sales for the first quarter of fiscal 2010. The $1.2 million decrease in the first quarter of fiscal 2011 was primarily a result of $1.0 million performance-based compensation expense recorded during the first quarter of fiscal 2010 compared to zero during the first quarter of fiscal 2011.

General and administrative expenses for the publishing segment consist principally of executive, accounting and administrative personnel and related expenses, including professional fees. General and administrative expenses for the publishing segment were $1.1 million or 15.9% of net sales for the first quarter of fiscal 2011 compared to $1.3 million or 18.6% of net sales for the first quarter of fiscal 2010. The $163,000 decrease was primarily due to $327,000 of performance-based compensation expense recorded during the first quarter of fiscal 2010 compared to zero recorded during the first quarter of fiscal 2011, offset by additional professional fees related to the Punch! acquisition.

We adopted the provisions of ASC 740-10 on April 1, 2007. We recognize interest accrued related to unrecognized income tax benefits (UTBs) in the provision for income taxes. As of April 1, 2010, interest accrued was approximately $147,000 which was net of federal and state tax benefits and total UTBs net of federal and state tax benefits that would impact the effective tax rate if recognized were $716,000. During the three months ended June 30, 2010, an additional $57,000 of UTBs were accrued, which was net of $12,000 of deferred federal and state income tax benefits. As of June 30, 2010, interest accrued was $162,000 and total UTBs, net of deferred federal and state income tax benefits that would impact the effective tax rate if recognized, were $773,000.

The net cash used in operating activities for the first three months of fiscal 2011 mainly reflected our net income, combined with various non-cash charges, including depreciation and amortization of $891,000, amortization of debt acquisition costs of $149,000, amortization of software development costs of $101,000, share-based compensation of $226,000, a decrease in deferred income taxes of $708,000, offset by our working capital demands. The following are changes in the operating assets and liabilities during the first three months of fiscal 2011: accounts receivable decreased $18.6 million, resulting from decreased sales; inventories increased $2.9 million, primarily reflecting $722,000 worth of inventory acquired with Punch! and additional inventory related to the opening of our Canadian warehouse facility; prepaid expenses increased $1.0 million, primarily resulting from prepaid royalty advances; income taxes receivable decreased $94,000, primarily due

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