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Press release from CNW Group

Indigo Q2 Consolidated Revenue Up 1.7%

Tuesday, November 08, 2011

Indigo Q2 Consolidated Revenue Up 1.7%16:52 EST Tuesday, November 08, 2011Indigo Agrees to Sell Kobo to RakutenTORONTO, 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,, 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 million.  Ms. 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 StatementsStatements 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 MeasuresThe 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,, 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 for more information.To learn more about Indigo, please visit the About Our Company section of Balance Sheets(Unaudited)             As at  As at    As at  October 1,  October 2,    April 2,(thousands of Canadian dollars) 2011  2010    2011ASSETS          Current          Cash and cash equivalents 45,491  61,822    83,661Accounts receivable 21,831  10,535    12,684Inventories 263,918  267,316    232,694Income taxes recoverable -  899    -Prepaid expenses 15,285  22,152    7,941Total current assets 346,525  362,724    336,980           Property, plant and equipment 76,031  83,091    78,777Intangible assets 31,251  26,780    30,614Deferred tax assets 68,250  48,127    38,004Goodwill 1,216  26,632    26,632Total assets 523,273  547,354    511,007LIABILITIES AND EQUITY          Current          Accounts payable and accrued liabilities 224,159  217,587    180,899Unredeemed gift card liability 36,292  32,838    40,991Provisions -  130    -Deferred revenue 12,401  23,619    11,528Income taxes payable 650  -    657Notes payable 5,168  -    -Current portion of long-term debt 1,305  1,392    1,290Total current liabilities 279,975  275,566    235,365Long-term accrued liabilities 5,038  6,962    6,284Long-term debt 1,623  2,347    1,995Total liabilities 286,636  284,875    243,644           Equity          Share capital 202,962  199,914    202,220Contributed surplus 6,839  5,930    6,066Retained earnings 4,882  52,740    48,629Total equity attributable to shareholders of the Company 214,683  258,584    256,915Non-controlling interest 21,954  3,895    10,448Total equity 236,637  262,479    267,363Total liabilities and equity 523,273  547,354    511,007Consolidated Statements of Loss and Comprehensive Loss(Unaudited)      13-week13-week26-week26-week period endedperiod endedperiod endedperiod ended October 1,October 2,October 1,October 2,(thousands of Canadian dollars, except per share data)2011201020112010     Revenues218,472214,764420,565419,050Cost of sales130,064124,362255,459242,117Gross profit88,40890,402165,106176,933Cost of operations66,05365,304131,709129,907Selling and administrative expenses29,05621,89459,82244,848Foreign currency translation715570859378Operating earnings (loss) before the following(7,416)2,634(27,284)1,800Depreciation of property, plant and equipment4,7004,3159,2948,781Amortization of intangible assets3,8742,5187,4994,930Impairment of goodwill25,416-25,416-Interest on long-term debt and financing charges39108343Interest expense (income) on cash and cash equivalents20(104)(139)(184)Loss before income taxes(41,465)(4,105)(69,437)(11,770)Income tax expense (recovery)(1,074)498(4,852)87Net 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-week13-week26-week26-week period endedperiod endedperiod endedperiod ended October 1,October 2,October 1,October 2,(thousands of Canadian dollars)2011201020112010     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 equipment4,7004,3159,2948,781 Amortization of intangible assets3,8742,5187,4994,930 Impairment of goodwill25,416-25,416- Loss on disposal of capital assets1121569 Stock-based compensation7566670289 Directors' compensation118204267316 Deferred tax assets(1,250)498(4,852)87 Interest on long-term debt and financing charges39108343 Interest expense (income) on cash and cash equivalents20(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 liabilities58,54044,74342,01437,283 Unredeemed gift card liability(5,308)(4,622)(4,699)(4,978) Provisions---(48) Deferred revenue9348,77087310,737Cash 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 payable225-5,280-Repayment of long-term debt(393)(961)(712)(1,627)Interest received4684218134Proceeds from share issuances-1,1075781,181Repurchase of common shares-(74)-(387)Issuance of equity securities by subsidiary to non-controlling interest-1,19021,3451,190Dividends 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 equivalents2,285(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 period73,38585,51083,661103,898Cash and cash equivalents, end of period45,49161,82245,49161,822 For further information: Janet Eger Vice President, Public Relations 416 342 8561