SOURCE: Varsity Group Inc.

April 02, 2007 16:50 ET

Varsity Group Inc. Reports 2006 Fiscal Year Results and Sets Annual Shareholder Meeting Date

WASHINGTON, DC -- (MARKET WIRE) -- April 2, 2007 -- Varsity Group Inc. (NASDAQ: VSTY) today announced financial results for its fiscal year ended December 31, 2006 highlighted by revenue of $53.9 million, representing a 7.7% increase over the $50.1 million of revenues reported for its fiscal year 2005. Loss before taxes was approximately $12.8 million for the fiscal year ended December 31, 2006, compared to income before taxes of approximately $2.6 million reported in 2005. Included in the loss before taxes are non-cash charges of approximately $3.3 million for goodwill and intangible asset impairment charges related to the acquisitions of IQ Digital Studios and Campus Outfitters, LLC along with approximately $0.3 million to fully depreciate assets acquired from Lydia Learn.

Net loss for fiscal 2006 was approximately $28.4 million, or $1.59 per diluted share, compared to net income of $12.1 million, or $0.64 per diluted share, for the prior year. Included in the net loss for fiscal 2006 is a non-cash charge of approximately $15.5 million, representing the amount necessary to reserve fully all of the Company's deferred tax assets. Included in net income for the 2005 period was a non-cash income tax benefit of $9.5 million, also related to the Company's deferred tax assets.

"We have successfully implemented our cost reduction program geared to reduce our cost structure and focus on and grow our core book and uniform businesses," said Jim Craig, Interim CEO and President. "However, with our termination or suspension of non-book and uniform initiatives during the fourth quarter, plus disappointing execution in the uniform business in 2006, we have taken non-cash charges to write down assets related to acquisitions."

A conference call is scheduled at 5:00 P.M. EDT April 2 to discuss results. The participant dial-in number for the conference call is (877) 502-9272 and the participant code is 3143699. This conference call will be recorded and available for replay from the Investors section of our website located at http://www.varsitygroup.com.

Separately, the Company announced that its annual shareholder meeting will be held on June 14, 2007 at 10:00 A.M. local time at the Company's headquarters at 1300 19th Street, N.W. Washington, D.C.

ABOUT VARSITY GROUP INC.

Varsity Group Inc. is an outsource solution provider to education institutions nationwide. Under the brands Varsity Books and Campus Outfitters, Varsity provides solutions that enable schools to focus on their core educational mission. Varsity Group's solutions include online textbook, school supply and full-service school uniform services.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Varsity Group's business that are not historical facts are "Forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2005.

                            VARSITY GROUP INC.
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                  (in thousands, except per share data)


                                                Twelve Months Ended
                                                     December 31,
                                              --------------------------
                                                  2006          2005
                                              ------------  -------------
Net sales:
     Textbooks                                $     41,903  $      40,663
     Uniforms                                        7,855          5,768
     Solutions                                         308             --
     Shipping                                        3,840          3,638
                                              ------------  -------------
          Total net sales                           53,906         50,069
                                              ------------  -------------

Operating expenses:
     Cost of textbooks                              28,846         28,187
     Cost of uniforms                                4,433          2,645
     Cost of solutions                                 186             --
     Cost of shipping                                3,996          2,868
     Sales and marketing                            14,662          9,275
     General and administrative                     11,398          4,855
     Amortization of acquired intangibles              220             91
     Impairment of goodwill and acquired
      intangibles                                    3,257             --
                                              ------------  -------------
          Total operating expenses                  66,998         47,921
                                              ------------  -------------

(Loss) income from operations                      (13,092)         2,148

Other income, net                                      244            467
                                              ------------  -------------

(Loss) income before income taxes                  (12,848)         2,615

Income tax (expense) benefit                       (15,530)         9,514
                                              ------------  -------------

Net (loss) income                             $    (28,378) $      12,129
                                              ============  =============

Net (loss) income per share:
     Basic                                    $      (1.59) $        0.72
                                              ============  =============
     Diluted                                  $      (1.59) $        0.64
                                              ============  =============

Weighted average shares:
     Basic                                          17,809         16,947
                                              ============  =============
     Diluted                                        17,809         18,831
                                              ============  =============



                            VARSITY GROUP INC.
            CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                              (in thousands)



                                                December 31,  December 31,
                                                    2006          2005
                                                ------------  ------------
Assets
Current Assets:
     Cash and cash equivalents                  $        436  $      2,733
     Short-term investments                            2,498         3,336
     Accounts receivable, net                          1,673         2,188
     Inventory                                         8,636         4,476
     Deferred income taxes                                --           367
     Other                                             2,532         5,211
                                                ------------  ------------
         Total current assets                         15,775        18,311

Property, plant and equipment, net of
 depreciation                                          1,156           495
Software developed for internal use, net of
 amortization                                          2,090         1,188
Intangible assets, net of amortization                     8           719
Goodwill                                                 511         2,427
Deferred income taxes                                     --        15,157
Long term investments                                  3,949         6,406
Other assets                                             159           101
                                                ------------  ------------
         Total assets                                 23,648        44,804
                                                ============  ============

Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                           $      2,384  $      1,874
     Margin loan                                       4,205            --
     Other accrued expenses and other current
      liabilities                                      2,654         1,513
     Taxes payable                                        56           336
                                                ------------  ------------
         Total current liabilities                     9,299         3,723
Long-term liabilities:
     Other non current liabilities                       157            30
                                                ------------  ------------
       Total liabilities                               9,456         3,753
                                                ------------  ------------
Commitments and contingencies
Stockholders' equity
  Preferred stock: $.0001 par value, 20,000
   shares authorized; 0 shares issued and
   outstanding at December 31, 2005 and 2004,
   respectively                                           --            --
  Common stock, $.0001 par value, 60,000 shares
   authorized, 19,575 and 18,353 shares issued
   and 18,360 and 17,138 shares outstanding at
   December 31, 2006 and 2005, respectively                2             2
  Additional paid-in capital                          90,720        89,307
  Unrealized loss on securities                           (2)         (107)
  Accumulated deficit                                (74,795)      (46,418)
  Treasury stock, $.001 par value, 1,215 shares
   at December 31, 2006 and 2005, respectively        (1,733)       (1,733)
                                                ------------  ------------
  Total stockholders' equity                          14,192        41,051
                                                ------------  ------------
  Total liabilities and stockholders’ equity    $     23,648  $     44,804
                                                ============  ============

Contact Information

  • Contact:
    Jim Craig
    Chief Financial Officer
    Email Contact
    202-349-1231