Form 8-K LEAPFROG ENTERPRISES For: Feb 05

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February 5, 2015 4:17 PM EST

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�

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

�

FORM 8-K

�

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

�

February 5, 2015
Date of Report (date of earliest event reported)

�

� �
LEAPFROG ENTERPRISES, INC. (Exact name of registrant as specified in its charter)

�

Delaware
(State or other jurisdiction
of incorporation)

1-31396
(Commission
File Number)

95-4652013
(IRS Employer
Identification No.)

�

6401 Hollis Street, Suite 100
Emeryville, California 94608-1463
(Address of principal executive offices) (Zip Code)

�

(510) 420-5000
Registrant's telephone number, including area code

�

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

�

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

�

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

�

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

�

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

�

Item 2.02.

Results of Operations and Financial Condition.

�

On February 5, 2015, we issued a press release announcing financial results for the fiscal quarter ended December 31, 2014. A copy of this press release entitled “LeapFrog Reports Third Quarter Fiscal Year 2015 Financial Results” is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

�

The information furnished in this report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

�

Item 9.01.

Financial Statements and Exhibits.

�

(d)

Exhibits

�

The following exhibit is filed herewith:

�

Exhibit Number	�	Description
99.1	�	Press release dated February 5, 2015 entitled “LeapFrog Reports Third Quarter Fiscal Year 2015 Financial Results”

�

SIGNATURES

�

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

�

�	LeapFrog Enterprises, Inc.
�	�	�
�	�	�
Date:��February 5, 2015	By:��	/s/ Raymond L. Arthur
�	�	Raymond L. Arthur
�	�	Chief Financial Officer

�

EXHIBIT INDEX

�

Exhibit Number	�	Description
99.1	�	Press release dated February 5, 2015 entitled “LeapFrog Reports Third Quarter Fiscal Year 2015 Financial Results”

�

�Exhibit 99.1

�

LEAPFROG REPORTS THIRD QUARTER FISCAL YEAR 2015 FINANCIAL RESULTS

�

EMERYVILLE, Calif.—February 5, 2015—LeapFrog Enterprises, Inc. (NYSE: LF) today announced financial results for the third fiscal quarter ended December 31, 2014. The company’s fiscal year covers the twelve-month period ending March 31, 2015.

�

“We are very disappointed that our performance in the third quarter declined significantly year-over-year and was below our previously-provided guidance,” said John Barbour, Chief Executive Officer.

�

“As we previously stated, the sales shortfall was mainly due to the following factors:

�

In our major territories, holiday sales of children’s tablets across the toy and electronics segments declined more than expected. This fall in consumer demand resulted in lower than planned LeapPad shipments in the quarter.

�

Due to development issues, we shipped and promoted our new LeapTV educational video game system later than planned. This delay along with associated LeapTV advertising and promotion being late in the holiday season and inconsistent execution at retail resulted in us significantly missing our sales expectations on this innovative new platform.

�

The lower consumer sales of LeapPad and LeapTV hardware resulted in less demand for cartridges, accessories and digital content.

�

Our LeapReader learn-to-read system sales were also lower than expected over the quarter, partly due to the significant drop in the retail prices of children’s tablets.

�

In addition to the primary drivers above, retail in-stocks of our new tablets were hampered by tighter inventory management and open-to-buy challenges across a number of our retailer partners and the West Coast port slowdown in the US.

�

“Despite these sales declines, the children’s tablet business remains a sizeable business around the world, and we believe based on market data that LeapPad tablets continued to be the #1 selling kids’ tablets in the US based on units. In addition, our LeapPad tablets were also the overall #1 selling toy in the UK for the year according to NPD.¹ LeapTV has also won a wide variety of independent awards and has been getting good online consumer reviews.”

�

Summary of financial results for the quarter ended December 31, 2014 compared to the quarter ended December 31, 2013:

�

Consolidated net sales were $144.6 million, down 23%. U.S. segment net sales were down 20%, and international segment net sales were down 28%.

�

Net loss per basic and diluted share was ($1.77) and included $0.23 per share of goodwill impairment, net of the associated tax benefit, and $1.29 per share of an additional deferred tax asset valuation allowance. In the prior year period, net income per diluted share was $0.90 and included $0.88 per share benefit from the reduction of deferred tax asset valuation allowance.

�

¹ Source: Based on the NPD Group/Retail Tracking service; UK; GBP; Annual 2014.

�

LeapFrog Enterprises, Inc.
Page 2 of 10

�

Adjusted net loss per basic and diluted share,² which excludes goodwill impairment, the tax benefit associated with goodwill impairment and the deferred tax asset valuation allowance adjustment, was ($0.25), compared to adjusted net income per diluted share² of $0.02 a year ago.

�

Cash and cash equivalents were $94.0 million as of December 31, 2014, down 44% compared to $168.1 million as of December 31, 2013.

�

“In light of the sales decline and losses, we are reviewing our product strategies, operations and cost structure. In this regard, we internally announced yesterday an approximate 16% reduction in our worldwide organization,” continued Mr. Barbour. “LeapFrog is a strong brand that parents trust with a rich, 20-year history of innovation and education. We are confident we can leverage our core assets to return the company to growth and continue to help children achieve their potential.”

�

Financial Overview for the Third Fiscal Quarter Ended December 31, 2014 Compared to the Quarter Ended December 31, 2013

�

Third fiscal quarter net sales were $144.6 million, down 23% compared to $186.7 million last year, and included a 1% negative impact from changes in currency exchange rates. In the U.S. segment, net sales were $99.2 million, down 20% compared to $123.7 million last year. In the International segment, net sales were $45.4 million, down 28% compared to $63.0 million last year, and included a 3% negative impact from changes in currency exchange rates.

�

Loss from operations for the third fiscal quarter was ($36.5) million, compared to income from operations of $0.7 million last year.

�

Net loss for the third fiscal quarter was ($124.2) million and included non-cash charges of $19.5 million for goodwill impairment, net of the associated non-cash tax benefit of $3.8 million, and $90.8 million for additional non-cash deferred tax asset valuation allowance. In the prior year period, net income was $63.9 million and included a non-cash benefit of $62.8 million from the reduction of deferred tax asset valuation allowance.

�

² Adjusted net income (loss) per basic and diluted share is a non-GAAP financial measure. It is described below and reconciled to its comparable GAAP measure in the accompanying financial tables.

�

LeapFrog Enterprises, Inc.
Page 3 of 10

�

Adjusted net loss per basic and diluted share,³ which excludes goodwill impairment, the tax benefit associated with goodwill impairment and the deferred tax asset valuation allowance adjustment, was ($0.25), compared to adjusted net income per diluted share³ of $0.02 a year ago.

�

Adjusted EBITDA⁴ for the third fiscal quarter was a loss of ($7.3) million, compared to a gain of $9.2 million last year. Adjusted EBITDA⁴ excludes stock-based compensation and goodwill impairment.

�

Guidance

�

“We expect our net sales to decline in the fourth quarter compared to the same period of the prior year given our recent sales trends,” said Ray Arthur, Chief Financial Officer.

�

Conference Call and Webcast

�

LeapFrog will hold a conference call to discuss third quarter fiscal year 2015 financial results on February 5, 2015, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). The conference call will be webcast live and can be accessed at LeapFrog's investor relations web site at www.leapfroginvestor.com. An archive of the webcast will be available on the web site approximately three hours after completion of the call. In addition, more information about LeapFrog, including this press release and other financial and investor information, is also available on the investor relations web site.

�

To participate in the call, please dial (706) 634-0183 and request conference ID 72266181. A replay of the call will be available for one month. To access the replay, please dial (404) 537-3406 and use conference ID 72266181.

�

About LeapFrog

�

LeapFrog Enterprises, Inc. is the leader in educational entertainment for children. For 20 years, LeapFrog has created award-winning learning solutions that combine educational expertise, innovative technology and a child’s love for fun. With experiences that are personalized to each child’s level, LeapFrog helps children achieve their potential through LeapFrog’s proprietary learning tablets, learn to read and write systems, interactive learning toys and more, all designed or approved by LeapFrog’s full-time in-house team of learning experts. LeapFrog’s Learning Path, the ultimate guide for parents on early childhood, is designed specifically to help support and guide their child's learning with personalized ideas and feedback, fun activities and expert advice. LeapFrog is based in Emeryville, California, and was founded in 1995 by a father who revolutionized technology-based learning solutions to help his child learn how to read. Learn more at www.leapfrog.com.��

�

Use of Non-GAAP Financial Information

�

This press release includes non-GAAP financial measures, specifically adjusted net income (loss) per basic and diluted share and adjusted EBITDA.

�

Adjusted net income (loss) is calculated as net income (loss) adjusted to exclude goodwill impairment, tax benefit associated with goodwill impairment and deferred tax valuation allowance adjustment. Adjusted net income (loss) per basic and diluted share is calculated as adjusted net income (loss) divided by weighted-average basic and diluted shares outstanding, as applicable. As required by SEC rules, we have provided a schedule with a reconciliation of adjusted net income (loss) and adjusted net income (loss) per basic and diluted share to the most directly comparable GAAP measures, net income (loss) and net income (loss) per basic and diluted share.

�

³ Adjusted net loss per basic and diluted share is a non-GAAP financial measure. It is described below and reconciled to its comparable GAAP measure in the accompanying financial tables.

⁴ Adjusted EBITDA is a non-GAAP financial measure. It is described below and reconciled to its comparable GAAP measure in the accompanying financial tables.

�

LeapFrog Enterprises, Inc.
Page 4 of 10

�

Management believes that adjusted net income (loss) and adjusted net income (loss) per basic and diluted share are some of the appropriate measures for evaluating the operating performance of the Company because of the significant swing in net income (loss) and net income (loss) per basic and diluted share as a result of deferred tax valuation allowance adjustment and goodwill impairment, and therefore, provides a more comparable measure of year-over-year operating results.

�

Adjusted EBITDA is defined as earnings (or net income) before interest, income taxes, depreciation and amortization, goodwill impairment, other expenses (income) and stock-based compensation. As required by SEC rules, we have provided an attached schedule with a reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net income.

�

Management believes adjusted EBITDA is one of the appropriate measures for evaluating the operating performance of the Company because it reflects the resources available for strategic opportunities including, among others, to invest in the business, strengthen the balance sheet and make strategic acquisitions.

�

However, these non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP as more fully discussed in the Company's financial statements and filings with the SEC. Additionally, these non-GAAP measures may not be comparable to similarly-titled measures used by other companies. As used herein, "GAAP" refers to accounting principles generally accepted in the United States of America.

�

LeapFrog Enterprises, Inc.
Page 5 of 10

�

Forward-Looking Statements

�

This news release contains forward-looking statements that involve risks and uncertainties, including statements regarding the size of the children’s tablet business, the market share of our LeapPad learning tablets in the U.S., the strength of LeapFrog’s brand, the trust that parents place in the LeapFrog brand, our ability to leverage our core assets to return the company to growth and help children achieve their potential and anticipated financial results. Our actual results may differ materially from those expressed or implied by such forward-looking statements. The risks that could cause our results to differ include, without limitation, our ability to correctly predict highly changeable consumer preferences and product trends, our ability to continue to develop new products and services, our ability to compete effectively with competitors, deterioration of global economic conditions, our reliance on a small group of retailers for the majority of our gross sales, the effectiveness of our marketing and advertising efforts, the seasonality of our business, system failures in our online services or web store, our dependence on our suppliers for our components and raw materials, our reliance on a limited number of manufacturers, our ability to maintain sufficient inventory levels, our ability to maintain or acquire licenses, our ability to protect or enforce our intellectual property rights, defects in our products, the risks associated with international operations, costs or changes associated with compliance with laws and regulations, negative political developments, changes in trade relations, armed hostilities, terrorism, labor strikes, natural disasters or public health issues, our dependence on our officers and other employees, the sufficiency of our liquidity, impacts from acquisitions, mergers or dispositions, continued ownership by a few stockholders of a significant percentage of the voting power in the company, the volatility of our stock price, the impact of potential impairment charges or valuation allowances and failure to successfully implement new strategic operating initiatives. These risks and others are discussed under “Risk Factors” in our filings with the U.S. Securities and Exchange Commission, including our most recent Form 10-K and Form 10-Q.�All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

��

Contact Information

�

Investors:	Media:
�	�
Karen Sansot	Monica Ma
Investor Relations	Media Relations
(510) 420-4803	(510) 596-3437
[email protected]	[email protected]

�

��

�

LeapFrog Enterprises, Inc.
Page 6 of 10

��

�LEAPFROG ENTERPRISES, INC.�
�CONSOLIDATED STATEMENTS OF OPERATIONS�
�(In thousands, except per share data)�
�(Unaudited)�

�

Three Months Ended December 31,

Nine Months Ended December 31,

�

2014

�

2013

�

2014

�

2013

�

Net sales

�

144,598

�

186,707

�

305,220

�

470,678

�

Cost of sales

�

99,464

�

114,249

�

214,243

�

287,940

�

Gross profit

�

45,134

�

72,458

�

90,977

�

182,738

�

Operating expenses:

�

Selling, general and administrative

�

23,338

�

23,620

�

64,703

�

64,327

�

Research and development

�

8,993

�

10,688

�

23,967

�

26,925

�

Advertising

�

26,773

�

34,815

�

39,531

�

44,130

�

Goodwill impairment

�

19,549

�

19,549

�

Depreciation and amortization

�

2,971

�

2,637

�

8,571

�

7,883

�

Total operating expenses

�

81,624

�

71,760

�

156,321

�

143,265

�

Income (loss) from operations

�

(36,490

)

�

698

�

(65,344

)

�

39,473

�

Other income (expense):

�

Interest income

�

Interest expense

�

(16

)

�

(16

)

�

Other, net

�

(516

)

�

(364

)

�

(746

)

�

(641

)

Total other income (expense), net

�

(522

)

�

(350

)

�

(691

)

�

(597

)

Income (loss) before income taxes

�

(37,012

)

�

348

�

(66,035

)

�

38,876

�

Provision for (benefit from) income taxes

�

87,200

�

(63,589

)

�

76,571

�

(48,144

)

Net income (loss)

�

(124,212

)

�

63,937

�

(142,606

)

�

87,020

�

Net income (loss) per share:

�

�Class A and B - basic

�

(1.77

)

�

0.93

�

(2.04

)

�

1.27

�

�Class A and B - diluted

�

(1.77

)

�

0.90

�

(2.04

)

�

1.23

�

Weighted average shares used to calculate net income (loss)

�

per share:

�

�Class A and B - basic

�

70,169

�

69,038

�

69,997

�

68,601

�

�Class A and B - diluted

�

70,169

�

70,652

�

69,997

�

70,548

�

LeapFrog Enterprises, Inc.
Page 7 of 10

�

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

�

December 31,

�

�March 31,

�

2014

�

2013

�

2014

�

ASSETS

�

Current assets:

�

Cash and cash equivalents

�

94,020

�

168,053

�

231,988

�

Accounts receivable, net of allowances for doubtful accounts

�

��of $818, $139 and $306, respectively

�

100,810

�

133,221

�

29,920

�

Inventories

�

77,796

�

54,290

�

52,293

�

Prepaid expenses and other current assets

�

10,449

�

9,637

�

10,416

�

Deferred income taxes

�

661

�

25,639

�

22,553

�

��Total current assets

�

283,736

�

390,840

�

347,170

�

Deferred income taxes

�

1,498

�

45,252

�

53,998

�

Property and equipment, net

�

38,191

�

29,644

�

30,765

�

Capitalized product costs, net

�

23,191

�

17,494

�

19,058

�

Goodwill

�

19,549

�

19,549

�

Other intangible assets, net

�

3,836

�

3,465

�

3,805

�

Other assets

�

1,337

�

1,027

�

1,473

�

��Total assets

�

351,789

�

507,271

�

475,818

�

LIABILITIES AND STOCKHOLDERS' EQUITY

�

Current liabilities:

�

Accounts payable

�

23,440

�

22,110

�

19,146

�

Accrued liabilities

�

32,137

�

40,765

�

23,930

�

Deferred revenue

�

12,526

�

14,467

�

12,808

�

Deferred income taxes

�

1,290

�

Income taxes payable

�

431

�

1,100

�

689

�

��Total current liabilities

�

69,824

�

78,442

�

56,573

�

Other long-term liabilities

�

198

�

1,507

�

1,125

�

��Total liabilities

�

70,022

�

79,949

�

57,698

�

Stockholders' equity:

�

Class A Common Stock, par value $0.0001; Authorized - 139,500 shares;

�

��Outstanding: 65,803, 64,916 and 65,229, respectively

�

Class B Common Stock, par value $0.0001; Authorized - 40,500 shares;

�

��Outstanding: 4,394, 4,396 and 4,396, respectively

�

Treasury stock

�

(185

)

�

(185

)

�

(185

)

Additional paid-in capital

�

431,806

�

419,526

�

422,678

�

Accumulated other comprehensive loss

�

(3,453

)

�

)

�

(578

)

Retained earnings (accumulated deficit)

�

(146,408

)

�

7,981

�

(3,802

)

��Total stockholders’ equity

�

281,767

�

427,322

�

418,120

�

��Total liabilities and stockholders’ equity

�

351,789

�

507,271

�

475,818

�

LeapFrog Enterprises, Inc.
Page 8 of 10

�

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

�

Three Months Ended December 31,

�

�Nine Months Ended December 31,

�

2014

�

2013

�

2014

�

2013

�

Operating activities:

�

Net income (loss)

�

(124,212

)

�

63,937

�

(142,606

)

�

87,020

�

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

�

Depreciation and amortization

�

6,636

�

5,411

�

19,869

�

15,662

�

Goodwill impairment

�

19,549

�

19,549

�

Deferred income taxes

�

86,371

�

(64,600

)

�

75,531

�

(50,859

)

Stock-based compensation expense

�

2,996

�

3,043

�

8,676

�

8,254

�

Allowance for doubtful accounts

�

436

�

954

�

(291

)

Other changes in operating assets and liabilities:

�

Accounts receivable, net

�

(2,956

)

�

51,327

�

(73,546

)

�

(76,138

)

Inventories

�

29,660

�

67,742

�

(27,804

)

�

(8,969

)

Prepaid expenses and other current assets

�

1,692

�

(776

)

�

(520

)

�

478

�

Other assets

�

129

�

129

�

198

�

Accounts payable

�

(32,628

)

�

(38,415

)

�

6,942

�

4,017

�

Accrued liabilities

�

7,078

�

4,693

�

9,182

�

14,810

�

Deferred revenue

�

207

�

1,765

�

(134

)

�

6,798

�

Other long-term liabilities

�

(260

)

�

(215

)

�

(910

)

�

(894

)

Income taxes payable

�

167

�

355

�

(220

)

�

577

�

Net cash provided by (used in) operating activities

�

(5,238

)

�

94,476

�

(104,908

)

�

663

�

Investing activities:

�

Purchases of property and equipment and other intangible assets

�

(6,019

)

�

(2,153

)

�

(21,085

)

�

(15,267

)

Capitalization of product costs

�

(4,905

)

�

(3,529

)

�

(13,069

)

�

(10,260

)

Net cash used in investing activities

�

(10,924

)

�

(5,682

)

�

(34,154

)

�

(25,527

)

Financing activities:

�

Proceeds from stock option exercises and employee stock purchase plan

�

1,369

�

1,512

�

4,232

�

Cash paid for payroll taxes on restricted stock unit releases

�

(99

)

�

(121

)

�

(940

)

�

(906

)

Common stock repurchased

�

(38

)

�

Excess tax benefits from stock-based compensation

�

Net cash provided by (used in) financing activities

�

(66

)

�

1,248

�

545

�

3,337

�

Effect of exchange rate changes on cash

�

(1,096

)

�

(362

)

�

549

�

(130

)

Net change in cash and cash equivalents

�

(17,324

)

�

89,680

�

(137,968

)

�

(21,657

)

Cash and cash equivalents, beginning of period

�

111,344

�

78,373

�

231,988

�

189,710

�

Cash and cash equivalents, end of period

�

94,020

�

168,053

�

94,020

�

168,053

�

LeapFrog Enterprises, Inc.
Page 9 of 10

�

�LEAPFROG ENTERPRISES, INC.

�SUPPLEMENTAL FINANCIAL INFORMATION

�(In thousands)

�(Unaudited)�

�

Three Months Ended December 31,

�

Nine Months Ended December 31,

�

2014

�

2013

�

2014

�

2013

�

Net sales

�

144,598

�

186,707

�

305,220

�

470,678

�

�Cost of sales (1)

�

99,464

�

114,249

�

214,243

�

287,940

�

�Gross profit

�

45,134

�

72,458

�

90,977

�

182,738

�

Operating expenses: (2)

�

�Selling, general and administrative

�

23,338

�

23,620

�

64,703

�

64,327

�

�Research and development

�

8,993

�

10,688

�

23,967

�

26,925

�

�Advertising

�

26,773

�

34,815

�

39,531

�

44,130

�

�Goodwill impairment

�

19,549

�

19,549

�

�Depreciation and amortization

�

2,971

�

2,637

�

8,571

�

7,883

�

��Total operating expenses

�

81,624

�

71,760

�

156,321

�

143,265

�

��Income (loss) from operations

�

(36,490

)

�

698

�

(65,344

)

�

39,473

�

Other income (expense):

�

�Interest income

�

�Interest expense

�

(16

)

�

(16

)

�

�Other, net

�

(516

)

�

(364

)

�

(746

)

�

(641

)

��Total other income (expense), net

�

(522

)

�

(350

)

�

(691

)

�

(597

)

��Income (loss) before income taxes

�

(37,012

)

�

348

�

(66,035

)

�

38,876

�

Provision for (benefit from) income taxes

�

87,200

�

(63,589

)

�

76,571

�

(48,144

)

��Net income (loss)�

�

(124,212

)

�

63,937

�

(142,606

)

�

87,020

�

________

�

(1)�Includes depreciation and amortization

�

3,665

�

2,774

�

11,298

�

7,779

�

(2)�Includes stock-based compensation as follows:

�

�Selling, general and administrative

�

2,619

�

2,704

�

7,547

�

7,287

�

�Research and development

�

377

�

339

�

1,129

�

967

�

Segment data:

�

Net sales:

�

�U.S. segment

�

99,183

�

123,697

�

207,449

�

328,886

�

�International segment

�

45,415

�

63,010

�

97,771

�

141,792

�

Income (loss) from operations*:

�

�U.S. segment

�

(39,822

)

�

(12,231

)

�

(73,977

)

�

7,994

�

�International segment

�

3,332

�

12,929

�

8,633

�

31,479

�

_________

* Certain corporate-level operating expenses associated with sales and marketing, product support, human resources, legal, finance, information technology, corporate development, procurement activities, research and development, legal settlements and other corporate costs are charged entirely to our U.S. segment, rather than being allocated between the U.S. and International segments.

�

LeapFrog Enterprises, Inc.
Page 10 of 10

��

�LEAPFROG ENTERPRISES, INC.

�SUPPLEMENTAL DISCLOSURE REGARDING NON-GAAP FINANCIAL INFORMATION

�RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

�(In thousands, except per share data)

�(Unaudited)

�

The following table presents a reconciliation of net income (loss), a GAAP measure, to adjusted net income (loss), a non-GAAP measure, where available. Adjusted net income (loss) is defined as net income (loss) before goodwill impairment, tax benefit associated with goodwill impairment and deferred tax valuation allowance adjustment. Adjusted net income (loss) per share is calculated as adjusted net income (loss) divided by weighted-average basic or diluted shares outstanding, as applicable.

�

Three Months Ended December 31,

�

Nine Months Ended December 31,

�

2014

�

2013

�

2014

�

2013

�

Net income (loss) - GAAP

�

(124,212

)

�

63,937

�

(142,606

)

�

87,020

�

Exclude:

�

Goodwill impairment

�

19,549

�

19,549

�

Tax benefit associated with goodwill impairment

�

(3,812

)

�

(3,812

)

�

Deferred tax valuation allowance adjustment

�

90,769

�

(62,759

)

�

90,769

�

(62,759

)

Adjusted net income (loss) - Non-GAAP

�

(17,706

)

�

1,178

�

(36,100

)

�

24,261

�

Net income (loss) per share - GAAP:

�

��Class A and B - basic

�

(1.77

)

�

0.93

�

(2.04

)

�

1.27

�

��Class A and B - diluted

�

(1.77

)

�

0.90

�

(2.04

)

�

1.23

�

Adjusted net income (loss) per share - Non-GAAP:

�

��Class A and B - basic

�

(0.25

)

�

0.02

�

(0.52

)

�

0.35

�

��Class A and B - diluted

�

(0.25

)

�

0.02

�

(0.52

)

�

0.34

�

Weighted-average shares used to calculate

�

net income (loss) per share:

�

��Class A and B - basic

�

70,169

�

69,038

�

69,997

�

68,601

�

��Class A and B - diluted

�

70,169

�

70,652

�

69,997

�

70,548

�

The following table presents a reconciliation of net income (loss), a GAAP measure, to adjusted EBITDA, a non-GAAP measure. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, goodwill impairment, other expenses (income), and stock-based compensation.

�

Three Months Ended December 31,

�

Nine Months Ended December 31,

�

2014

�

2013

�

2014

�

2013

�

Net income (loss) - GAAP

�

(124,212

)

�

63,937

�

(142,606

)

�

87,020

�

(Less) add:

�

Interest income

�

(10

)

�

(14

)

�

(71

)

�

(44

)

Interest expense

�

Provision for (benefit from) income taxes

�

87,200

�

(63,589

)

�

76,571

�

(48,144

)

Depreciation and amortization

�

6,636

�

5,411

�

19,869

�

15,662

�

Goodwill impairment

�

19,549

�

19,549

�

Other, net

�

516

�

364

�

746

�

641

�

Stock-based compensation

�

2,996

�

3,043

�

8,676

�

8,254

�

Adjusted EBITDA - Non-GAAP

�

(7,309

)

�

9,152

�

(17,250

)

�

63,389

�

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