Nexcen Brands, the parent of The Athlete’s Foot, reported total revenues in the fourth quarter of 2009 decreased 17% to $10.6
million from $12.6 million in the fourth quarter of 2008. The decrease
is primarily due to current economic conditions, including continued
weak credit markets for franchisees and softness in consumer spending
and retail traffic.
Additionally, total revenues in this period reflect
the elimination of approximately $0.2 million of royalty revenue as a
result of the TAF licensing transaction for Australia and New Zealand
whereby the Company received a one-time, non-refundable payment of $6.2
million in August 2009 in lieu of recurring royalties.
— Adjusted operating income for the full year ended December 31, 2009
increased 257%, or $11.1 million, to $6.8 million from an adjusted
operating loss of $4.3 million in 2008. Adjusted loss from continuing
operations for the full year ended December 31, 2009 narrowed to $2.7
million, or ($0.05) per diluted share, from an adjusted loss from
continuing operations of $17.0 million, or ($0.30) per diluted share in
2008. See Table 4 for details regarding these non-GAAP adjustments.
Other highlights in the quarter:
— Total operating expenses in the fourth quarter of 2009 decreased 37%
to $9.4 million from $15.0 million in the fourth quarter of 2008.
Operating income in the fourth quarter of 2009 increased to $1.1 million
from an operating loss of $2.4 million in the fourth quarter of 2008.
Loss from continuing operations in the fourth quarter of 2009 narrowed
to $0.8 million, or ($0.02) per diluted share, from $2.1 million, or
($0.04) per diluted share, in the fourth quarter of 2008.
— Cash generated from operations was $0.9 million in the fourth quarter
of 2009 compared to cash used in operations of $1.0 million in the
fourth quarter of 2008.
— The Company had cash and cash equivalents of $7.8 million as of
December 31, 2009, compared to cash and cash equivalents of $8.3 million
at September 30, 2009. The Company also had short-term restricted cash
of $1.4 million and long-term restricted cash of $1.0 million at
December 31, 2009.
— The Company’s outstanding debt balance was $138.2 million at December
31, 2009, compared to $137.9 million at September 30, 2009 and $142.3
million at December 31, 2008. The Company used $5.0 million of the net
proceeds from the TAF licensing transaction (discussed above) to pay
down a portion of its debt in August 2009.
— The Company’s average effective interest rate for its credit facility
was 6.4% in the fourth quarter of 2009, compared to 6.5% in the third
quarter of 2009 and 8.7% in fourth quarter of 2008. The Company’s
interest expense was $2.6 million in the fourth quarter of 2009,
compared to $2.7 million in the third quarter of 2009 and $3.1 million
in fourth quarter of 2008.
— Total franchised locations were 1,713 stores at December 31, 2009
versus 1,826 stores at December 31, 2008. The net decrease of 113
stores, or 6%, reflects closures, initiated either by the franchisee or
the Company, of underperforming and non-compliant stores.
— The Company executed franchise agreements for 71 new franchise units
during the fourth quarter of 2009, versus franchise agreements for 65
new franchise units in the third quarter of 2009.
— Deferred revenue related to the pipeline for franchise stores to be
opened pursuant to executed letters of intent and franchise agreements
remained constant at approximately $2.9 million at December 31, 2009 and
September 30, 2009. Total deferred revenue related to vendor rebates
also remained constant at $0.3 million at December 31, 2009 and
September 30, 2009.
Full Year Operating Results
The operating results for the full year ended December 31, 2009 are as
follows:
— Total revenues for the full year ended December 31, 2009 decreased 4%
to $45.1 million from $47.0 million in 2008. The decrease in revenues
is primarily the result of reduced royalty revenues related to lower
year-over-year store count, reduced consumer spending as well as a
decline in TAF revenue due to the TAF licensing transaction (discussed
above). This was partly offset by the additional revenues from the Great
American Cookies brand and manufacturing facility acquired on January
29, 2008. Total operating expenses for the full year ended December 31,
2009 decreased 80% to $38.9 million from $194.2 million in 2008.
— Operating income for the full year ended December 31, 2009 increased
to $6.2 million from an operating loss of $147.2 million in 2008. Loss
from continuing operations for the full year ended December 31, 2009
narrowed to $3.3 million, or ($0.06) per diluted share, from $153.6
million, or ($2.71) per diluted share, in 2008.
— The results for the full year ended December 31, 2009 included $0.1
million of professional fees related to special investigations and $0.5
million of restructuring costs. The results for the full year ended
December 31, 2008 included $137.9 million of impairment charges related
to intangible assets, $3.9 million of professional fees related to
special investigations, and $1.1 million of restructuring costs.
— Excluding these special items, adjusted operating expenses for the
full year ended December 31, 2009 decreased 25%, or $13.0 million, to
$38.3 million from adjusted operating expenses of $51.3 million in 2008.
— Cash flow from operations for the full year ended December 31, 2009
improved by $12.5 million to $2.1 million of cash generated from
operations, compared to cash used in operations of $10.4 million for the
full year ended December 31, 2008.
Kenneth J. Hall, Chief Executive Officer of NexCen Brands, stated, “We are pleased with the milestones we reached in 2009 in our efforts to improve and stabilize the business. As we closed out the year, we recorded our fourth consecutive quarter of operating income and positive cash flow from operations; we right-sized our expense structure; we remediated all material weaknesses in internal controls; and we made investments in our business for future organic revenue growth. I believe that we have demonstrated that our multi-concept, vertically-integrated franchise model is sound, even in a challenging economic environment. We recognize, however, that the Company’s current debt and capital structure does not support the Company’s long-term growth, viability and shareholder value. Addressing this issue continues to be our priority for the near future.”
Debt Structure
As of December 31, 2009, the Company has classified all of the debt outstanding under its credit facility with BTMU Capital Corporation as a current liability. As previously reported, the Company is in the process of evaluating alternatives to its debt and capital structure. NexCen has retained an investment bank to assist it with identifying and evaluating various strategic alternatives, and the Company continues to be in discussions with its lender as the Company needs the lender’s consent to proceed with any strategic transaction or debt restructuring.
Hall concluded, “We have made significant progress in our turnaround strategy, refining our business to one that generates positive cash flow and operating profits. At the same time, we are exploring alternatives to our current capital and debt structure with the goal of maximizing long-term value for all of the Company’s stakeholders. Importantly, we also remain focused on growing and enhancing our franchise business. We are committed to prudently managing our business, maintaining a lean operational structure and driving further improvements in our operating profit over time.”
NEXCEN BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Year Ended
December 31, December 31,
2009 2008 2009 2008
Revenues:
Royalty revenues $ 5,297 $ 6,191 $ 23,158 $ 24,735
Factory revenues 4,569 4,976 17,369 17,310
Franchise fee revenues 456 1,182 3,490 3,616
Licensing and other revenues 229 294 1,102 1,295
Total revenues 10,551 12,643 45,119 46,956
Operating Expenses:
Cost of sales (2,927 ) (3,095 ) (10,921 ) (11,484 )
Selling, general and administrative expenses:
Franchising (3,467 ) (4,905 ) (13,025 ) (17,078 )
Corporate (1,770 ) (4,639 ) (7,412 ) (15,460 )
Professional fees:
Franchising (350 ) (557 ) (2,114 ) (1,685 )
Corporate (314 ) (617 ) (2,146 ) (2,696 )
Special investigations (1 ) (325 ) (91 ) (3,897 )
Impairment of intangible assets - - - (137,881 )
Depreciation and amortization (307 ) (880 ) (2,677 ) (2,896 )
Restructuring charges (305 ) - (527 ) (1,096 )
Total operating expenses (9,441 ) (15,018 ) (38,913 ) (194,173 )
Operating income (loss) 1,110 (2,375 ) 6,206 (147,217 )
Non-Operating income (expense):
Interest income 50 61 202 439
Interest expense (2,619 ) (3,146 ) (10,905 ) (10,690 )
Financing charges (81 ) (97 ) (146 ) (1,814 )
Other income (expense), net 831 152 1,690 (284 )
Total non-operating expense (1,819 ) (3,030 ) (9,159 ) (12,349 )
Loss from continuing operations before income taxes (709 ) (5,405 ) (2,953 ) (159,566 )
Income taxes:
Current (138 ) (81 ) (395 ) (337 )
Deferred - 3,395 - 6,331
Loss from continuing operations (847 ) (2,091 ) (3,348 ) (153,572 )
Income (loss) from discontinued operations, net of taxes of $233, 304 (14,180 ) 511 (102,207 )
$3,807, $233, and $19,923, respectively
Net loss $ (543 ) $ (16,271 ) $ (2,837 ) $ (255,779 )
Loss per share (basic and diluted) from continuing operations $ (0.02 ) $ (0.04 ) $ (0.06 ) $ (2.71 )
Income (loss) per share (basic and diluted) from discontinued 0.01 (0.25 ) 0.01 (1.81 )
operations
Net loss per share - basic and diluted $ (0.01 ) $ (0.29 ) $ (0.05 ) $ (4.52 )
Weighted average shares outstanding - basic and diluted 56,952 56,671 56,882 56,550
