Plagued by continuing weak sales for both its technology and consumer titles, Hungry Minds announced last week that rather than the expected earnings of 10 cents per share for the fiscal year ended September 30, 2001, it expects to post a net loss of four cents per share. And although the company did not project revenues for the year, it said that sales for the second quarter ended March 30, 2001, will be 20% below expectations and 34% below the same period last year. The company also announced that it was in discussions with its lender over being in default on its $110-million credit facility and that it is looking to hire a financial adviser to examine its strategic alternatives.
Hungry Minds said sales are down in a number of its major distribution channels. According to HM, sales through Internet retailers have fallen by as much as 35%, while store closings in the office-supply superstore channel, as well as decreased sell-through and the bankruptcies of several trade bookstores, have resulted in a 20% decline in business from this retail segment. In addition, a backlog of inventory has led returns to run 30% higher than anticipated. Earlier this year, HM lowered its earnings estimate and announced it was laying off about 18% of its workforce (News, Jan. 29). No additional layoffs were announced last week.
Negotiations took on new urgency after its lender informed the company it was no longer willing to extend waivers on HM's inability to meet certain financial covenants. Although the lender has not said it intends to accelerate HM's obligations, it is reserving the right to do so. The default also calls into question a $9.5-million loan that was to be provided by an affiliate of HM's parent company, International Data Group. IDG has, however, agreed to provide HM with up to $9.5 million, which, together with cash from operations, will give HM enough to meet its needs for the next 90 days.
The cash crunch, combined with the news that HM is examining its options, has renewed rumors that IDG is planning to acquire the company. HM said that while it is aware that IDG may be considering such a move, it has received no proposal. The resignations of independent board members Jack Hoeft and Gregoire Sentilhes, which were also announced last week, were taken by some observers to mean that IDG was indeed preparing to make an offer for the company.
