Madacy Entertainment Income Fund (TSX: MEG.UN) announced financial and operating results for its Third Quarter ended September 27, 2008.
- Reported net sales of $22.7 million in the Third Quarter, a decrease of 32.0% from the comparative period of the prior year
- Reported EBITDA of $3.1 million in the Third Quarter, a decrease of $0.2 million from the comparative period of the prior year
- Obtained modification to its banking covenant relating to fixed charge coverage permitting full compliance with its banking covenants
"This has been a mixed quarter for Madacy, a quarter in which sales were significantly lower than the seasonally high third quarter of 2007 but EBITDA was only modestly lower due to an increased gross margin percentage and lower selling, general and administrative ("SG&A") costs," said Hillel Frankel, President of Madacy. "Business with mass merchant and specialty retailer accounts was below expectations, due in part to a weak retail environment and an overall level of caution regarding inventory levels. In addition, the exiting of the recorded music business by one of the Fund's largest customers, Handleman Company, has reduced the Fund's customer base and caused a general reduction in gross and net sales. While a sizeable portion of Handleman Company's business has been taken up by other customers of the Fund, the overall business levels previously realized with Handleman Company have not been continued and are not expected to be fully replaced. In addition, at the beginning of the quarter, another of the Fund's largest customers, Anderson Merchandisers, in conjunction with its customer, a large US retail chain, announced that there will be a future reduction in the number of music products that the retail chain carries. This reduction has been felt in the Third Quarter as witnessed by the lower level of overall net sales. Management has had discussions with this customer and has received some comfort that while the number of the Fund's products that the retail chain carries will, as originally announced, be reduced, the retail chain is expected, for the immediate future, to continue to purchase the Fund's better selling products," said Mr. Frankel.
"In response to the continued challenges of its brick and mortar business, Management is undertaking another review of all aspects of its cost of goods sold and SG&A expenditures with a view to both increasing its overall gross margin percentage through product cost reductions and decreasing both the variable and the fixed components of SG&A. Certain cost cutting actions were taken in the second quarter of 2008 and further actions are forthcoming. Some of the benefits of these initiatives are being experienced in the second half of 2008. It is expected that the full benefit of these cost reductions will be experienced in 2009," said Amos Alter, CEO of Madacy.
Review of Operations for the Third Quarter
Madacy recorded net sales of $22.7 million in the Third Quarter, a decrease of $10.7 million or 32.0% from the comparative period of the prior year.
Madacy recorded gross margin of $7.6 million in the Third Quarter, a decrease of $1.0 million or 11.8% from the comparative period of the prior year.
EBITDA was $3.1 million in the Third Quarter, a decrease of $0.2 million from the comparative period of the prior year.
During the Third Quarter, the Fund requested and obtained a modification to its financial covenant relating to fixed charged coverage. This modification, which has retroactive effect to the end of the second quarter, provides for an adjustment in the calculation of the fixed charge coverage ratio to exclude certain expenses and charges which are not expected to be recurring. It further provides that the fixed charge covenant must be complied with on a quarterly basis rather than monthly. In addition, the Fund agreed to be subject to a monthly tangible net worth covenant. As at September 27, 2008, the Fund was in compliance with these covenants.
References to "EBITDA" are to earnings (loss) before interest, income taxes, amortization, mark-to-market (unrealized) gains or losses on foreign exchange and interest rate swap contracts, realized foreign exchange gains or losses on foreign exchange contracts entered into to eliminate foreign exchange exposure on distributions to unitholders and the share of net earnings (loss) of the Exchangeable Units interest.
EBITDA is not an earnings measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Investors are cautioned that EBITDA should not replace net earnings or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, or cash flows from operating, investing and financing activities as a measure of the Fund's liquidity and cash flows. Our method of calculating EBITDA may differ from the methods used by other issuers. Therefore, our EBITDA may not be comparable to similar measures presented by other issuers. -- www.cnxmarketlink.com
Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.
