Indigo Q2 Consolidated Revenue Up 1.7%

Indigo Agrees to Sell Kobo to Rakuten

TORONTO, Nov. 8, 2011 /CNW/ - Indigo Books & Music Inc. (TSX: IDG), Canada's largest book, gift and specialty toy retailer reported a 1.7% increase in net revenue for its second quarter ending October 1, 2011. Revenue for the quarter was $218.5 million, up $3.7 million from last year driven by growth in the digital, gift, lifestyle and toy businesses.

Commenting on the results, CEO Heather Reisman said, "We are pleased to see real growth in the businesses in which we have invested.  Consumers are clearly embracing our new product offerings.  Our objective moving forward is to further drive the growth of these businesses."

Sales from the Kobo division were up 219%.  On a comparable store basis, Indigo and Chapters superstores posted a 4.3% decrease in revenue, while Coles and IndigoSpirit small format stores were down 2.9%. Sales from Indigo's online channel, indigo.ca, were up 1.1% compared to last year.

The Company recorded a one-time goodwill impairment charge of $25.4 million for the period ending October 1, 2011.  This impairment charge is a non-cash item and does not affect the Company's operations, its liquidity or cash flows from operating activities.  This charge is the result of the decrease in the Company's common share price and the decline in the Company's earnings due to the accelerated transition from physical books to digital books and increased investment in its digital business.

Excluding the impairment charge, the Company's net loss was $9.7 millionMs. Reisman noted, "The results were expected as we continued to invest heavily in our rapidly growing global digital business and our transformation strategy to become the world's first cultural department store."

Indigo also announced today in a separate press release that Rakuten, Inc. (JASDAQ:4755), one of the world's leading Internet service companies, has agreed to acquire all of the outstanding shares of Kobo Inc. on a fully diluted basis for US$315 million.  Indigo expects to receive approximately US$140 million to US$150 million from the proceeds of the sale on a fully diluted basis.  The transaction is subject to customary closing conditions, including approval under the Investment Canada Act, and is expected to close in early 2012.

Commenting on the transaction, Ms. Reisman said "We are truly proud of the success that Kobo and Indigo have achieved.  Notwithstanding the sale, Indigo will maintain a very strong relationship with Kobo, supporting the products and the services both in store and online and directly benefiting from the growth of the Canadian eReading market.  The success of Kobo confirms that Indigo is a great brand and a strong platform on which we can innovate and grow."

Indigo is proud to be the first North American toy retailer to earn the Parent Tested Parent Approved seal of approval from North America's largest parent tester community based on the appeal of the IndigoKids merchandise assortment and in store experience to parents and their children.

In the quarter, Indigo launched six additional IndigoKids locations in Kingston (Chapters Kingston), Ottawa (Chapters Rideau, Chapters South Keys), Mississauga (Chapters Square One), St. Catharines (Chapters St. Catharines) and Winnipeg (Chapters Polo Festival) making its award-winning kids and toys destinations accessible to even more Canadian families.

Indigo's annual Adopt a School fundraising campaign, supporting the Indigo Love of Reading Foundation, had a successful run in 2011 with customer donations up 21% over last year.  The campaign's success will provide 154 public school libraries with 32,500 new books that will be purchased with the $391,000 raised between September 11 and October 1. These funds are in addition to the $1.5 million annual Love of Reading Grants provided this year to 20 schools.

The Board of Directors today also approved a quarterly dividend of 11 cents per common share to be paid on December 8, 2011, to all shareholders of record as of November 24, 2011.

Forward-Looking Statements
Statements contained in this news release that are not historical facts are forward-looking statements which involve risk and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. Among the key factors that could cause such differences are: general economic, market or business conditions in Canada; competitive actions by other companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company.

Non-IFRS Financial Measures
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards.  In order to provide additional insight into the business, the Company has also provided non-IFRS data, including comparative store sales growth, in the press release above. This measure does not have a standardized meaning prescribed by IFRS and is therefore specific to Indigo and may not be comparable to similar measures presented by other companies.  Comparative store sales growth is a key indicator used by the Company to measure performance against internal targets and prior period results. This measure is commonly used by financial analysts and investors to compare Indigo to other retailers. Comparable store sales are defined as sales generated by stores that have been open for more than 12 months on a 52-week basis.

About Indigo Books & Music Inc.
Indigo is a publicly traded Canadian company listed on the Toronto Stock Exchange (IDG) and the majority shareholder of the global eReading service Kobo Inc. As the largest book, gift and specialty toy retailer in Canada, Indigo operates in all provinces under different banners including Indigo Books & Music; Indigo Books, Gifts, Kids; IndigoSpirit, Chapters, The World's Biggest Bookstore, and Coles. The online channel, indigo.ca, features books, eBooks, toys, gifts and, and hosts the award winning Indigo Online Community.  In 2004, Indigo founded the Indigo Love of Reading Foundation, a registered charity that provides new books and education materials to high-needs Canadian elementary schools, to address the literacy crisis in Canada. To date the Foundation has contributed $10.5 million to schools in need. Visit loveofreading.org for more information.

To learn more about Indigo, please visit the About Our Company section of www.indigo.ca.

Consolidated Balance Sheets
(Unaudited)
                     
    As at     As at         As at
    October 1,     October 2,         April 2,
(thousands of Canadian dollars)   2011     2010         2011
ASSETS                    
Current                    
Cash and cash equivalents   45,491     61,822         83,661
Accounts receivable   21,831     10,535         12,684
Inventories   263,918     267,316         232,694
Income taxes recoverable   -     899         -
Prepaid expenses   15,285     22,152         7,941
Total current assets   346,525     362,724         336,980
                     
Property, plant and equipment   76,031     83,091         78,777
Intangible assets   31,251     26,780         30,614
Deferred tax assets   68,250     48,127         38,004
Goodwill   1,216     26,632         26,632
Total assets   523,273     547,354         511,007
LIABILITIES AND EQUITY                    
Current                    
Accounts payable and accrued liabilities   224,159     217,587         180,899
Unredeemed gift card liability   36,292     32,838         40,991
Provisions   -     130         -
Deferred revenue   12,401     23,619         11,528
Income taxes payable   650     -         657
Notes payable   5,168     -         -
Current portion of long-term debt   1,305     1,392         1,290
Total current liabilities   279,975     275,566         235,365
Long-term accrued liabilities   5,038     6,962         6,284
Long-term debt   1,623     2,347         1,995
Total liabilities   286,636     284,875         243,644
                     
Equity                    
Share capital   202,962     199,914         202,220
Contributed surplus   6,839     5,930         6,066
Retained earnings   4,882     52,740         48,629
Total equity attributable to shareholders of the Company   214,683     258,584         256,915
Non-controlling interest   21,954     3,895         10,448
Total equity   236,637     262,479         267,363
Total liabilities and equity   523,273     547,354         511,007

Consolidated Statements of Loss and Comprehensive Loss
(Unaudited)
         
  13-week 13-week 26-week 26-week
  period ended period ended period ended period ended
  October 1, October 2, October 1, October 2,
(thousands of Canadian dollars, except per share data) 2011 2010 2011 2010
         
Revenues 218,472 214,764 420,565 419,050
Cost of sales 130,064 124,362 255,459 242,117
Gross profit 88,408 90,402 165,106 176,933
Cost of operations 66,053 65,304 131,709 129,907
Selling and administrative expenses 29,056 21,894 59,822 44,848
Foreign currency translation 715 570 859 378
Operating earnings (loss) before the following (7,416) 2,634 (27,284) 1,800
Depreciation of property, plant and equipment 4,700 4,315 9,294 8,781
Amortization of intangible assets 3,874 2,518 7,499 4,930
Impairment of goodwill 25,416 - 25,416 -
Interest on long-term debt and financing charges 39 10 83 43
Interest expense (income) on cash and cash equivalents 20 (104) (139) (184)
Loss before income taxes (41,465) (4,105) (69,437) (11,770)
Income tax expense (recovery) (1,074) 498 (4,852) 87
Net loss and comprehensive loss for the period (40,391) (4,603) (64,585) (11,857)
         
Net loss and comprehensive loss attributable to:        
Shareholders of the Company (35,120) (1,768) (53,225) (7,128)
Non-controlling interest (5,271) (2,835) (11,360) (4,729)
Total net loss and comprehensive loss for the period (40,391) (4,603) (64,585) (11,857)
         
Net loss per common share        
Basic $(1.39) $(0.07) $(2.11) $(0.29)
Diluted $(1.39) $(0.07) $(2.11) $(0.29)

Consolidated Statements of Cash Flows
(Unaudited)
  13-week 13-week 26-week 26-week
  period ended period ended period ended period ended
  October 1, October 2, October 1, October 2,
(thousands of Canadian dollars) 2011 2010 2011 2010
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss for the period (40,391) (4,603) (64,585) (11,857)
Add (deduct) items not affecting cash        
 Depreciation of property, plant and equipment 4,700 4,315 9,294 8,781
 Amortization of intangible assets 3,874 2,518 7,499 4,930
 Impairment of goodwill 25,416 - 25,416 -
 Loss on disposal of capital assets 11 2 15 69
 Stock-based compensation 75 66 670 289
 Directors' compensation 118 204 267 316
 Deferred tax assets (1,250) 498 (4,852) 87
 Interest on long-term debt and financing charges 39 10 83 43
 Interest expense (income) on cash and cash equivalents 20 (104) (139) (184)
 Other (1,148) 1,510 (887) 639
         
Net change in non-cash working capital balances related to operations        
 Accounts receivable (7,451) 292 (9,147) (2,080)
 Inventories (48,172) (43,480) (31,224) (42,910)
 Prepaid expenses (8,445) (16,204) (7,344) (15,381)
 Income taxes payable (recoverable) 1 - (7) -
 Accounts payable and accrued liabilities 58,540 44,743 42,014 37,283
 Unredeemed gift card liability (5,308) (4,622) (4,699) (4,978)
 Provisions - - - (48)
 Deferred revenue 934 8,770 873 10,737
Cash flows used in operating activities (18,437) (6,085) (36,753) (14,264)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Acquisition of non-capital tax losses (450) - (10,559) -
Purchase of property, plant and equipment (3,893) (10,535) (6,246) (14,812)
Addition of intangible assets (4,505) (4,438) (8,136) (7,917)
Cash flows used in investing activities (8,848) (14,973) (24,941) (22,729)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Note payable 225 - 5,280 -
Repayment of long-term debt (393) (961) (712) (1,627)
Interest received 46 84 218 134
Proceeds from share issuances - 1,107 578 1,181
Repurchase of common shares - (74) - (387)
Issuance of equity securities by subsidiary to non-controlling interest - 1,190 21,345 1,190
Dividends paid (2,772) (2,729) (5,539) (5,451)
Cash flows from (used in) financing activities (2,894) (1,383) 21,170 (4,960)
         
Effect of foreign currency exchange rate changes on cash and cash equivalents 2,285 (1,247) 2,354 (123)
         
Net decrease in cash and cash equivalents during the period (27,894) (23,688) (38,170) (42,076)
Cash and cash equivalents, beginning of period 73,385 85,510 83,661 103,898
Cash and cash equivalents, end of period 45,491 61,822 45,491 61,822

 

SOURCE Indigo Books

For further information:

Janet Eger
Vice President, Public Relations
416 342 8561
jeger@indigo.ca


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