Madacy Entertainment Income Fund reports second quarter 2007 results



    /NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN
    THE U.S./

    MONTREAL, Aug. 9 /CNW Telbec/ - Madacy Entertainment Income Fund
(TSX: MEG.UN) (the "Fund" or "Madacy") today announced financial and operating
results for its second quarter ended June 30, 2007 ("Second Quarter")

    
    - Reported net sales of $19.6 million in the Second Quarter, an increase
      of 63.2% from the comparative period of the prior year (an increase of
      15.6% ignoring the higher return provision taken in the comparative
      quarter of 2006 and slow-moving inventory sale of the current quarter)

    - Reported EBITDA of $0.34 million in the Second Quarter, an increase of
      $1.52 million from the comparative period of the prior year

    - Completed, on April 30, 2007, the refinancing of its banking facilities

    "This has been a positive quarter for Madacy, a quarter in which Madacy
continued to build upon its dominant position as the leading provider of
budget and mid-priced music to virtually all of North America's traditional
retailers of recorded music in the face of overall industry declines" said
Hillel Frankel, President of Madacy. "In the face of continued strong retail
sales of our products, our customers have extended their support of these
products within the retail environment. As a consequence, Madacy continued to
increase its overall unit sales market share. We continue to work on the
challenge of managing our product costs and balancing our customers' overall
product mix of higher margin and lower margin products. While gross margin
dollars increased as a result of the higher level of sales, the gross margin
percentage was lower than expected. During the quarter, we were able to secure
orders for over $3 million of discontinued, overstock and slower moving
inventory for shipment in the second and third quarters. While these orders do
not typically generate any gross margin for Madacy, they will strengthen our
balance sheet and improve our overall working capital position. Finally, on
April 30, 2007, Madacy successfully closed on its previously announced
refinancing providing the Fund with a new US$27.0 million banking facility.
This new banking facility provides Madacy with a higher degree of flexibility
and will allow us to manage the continuing growth of our business" said
Mr. Frankel.

    Review of Operations for the Second Quarter

    Madacy recorded net sales of $19.6 million in the Second Quarter, an
increase of $7.6 million or 63.2% from the comparative period of the prior
year (an increase of $2.4 million, or 15.6%, ignoring previous year higher
return provision and current quarter low margin sale of slow-moving
inventory).
    Madacy recorded gross margin of $4.9 million in the Second Quarter, an
increase of $1.9 million or 64.7% from the comparative period of the prior
year (an increase of $0.2 million, or 5.1%, ignoring the same items as above).
    EBITDA was $0.34 million in the Second Quarter, an increase of $1.52 from
the comparative period of the prior year.
    References to "EBITDA" are to earnings 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 exposure to foreign
exchange fluctuations on the Fund's distributions to Unitholders and the share
of net earnings 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.

    Forward-Looking Statements

    Certain statements in this news release may contain forward-looking
statements, which reflect management's expectations regarding the future
growth, results of operations, performance and business prospects, and
opportunities of the Fund. Such forward-looking statements reflect
management's current beliefs and are based on information currently available
to us. Forward-looking statements involve significant risks and uncertainties.
A number of factors could cause actual results to differ materially from
results discussed in the forward-looking statements.

    About Madacy Entertainment Income Fund

    Madacy operates in the business of recorded music and home video products
with a primary focus on the development and marketing of budget and mid-priced
recorded music products. Madacy is also involved in the worldwide licensing of
its proprietary recordings. According to industry data, Madacy is the largest
independent budget and mid-priced music label in North America by number of
units sold. Madacy also develops and markets budget and mid-priced home video
products.
    Additional information relating to Madacy Entertainment Income Fund,
including Audited Financial Statements and the Management Discussion and
Analysis of the Fund as at December 31, 2006, is available at www.sedar.com
and on Madacy's website at www.madacy.com.

    The financial statements of the Fund are expressed in United States
dollars and are in accordance with Canadian GAAP.

    Attachments:
    ------------
    Selected Financial Information
    Unaudited Interim Consolidated Statements of Earnings
    Unaudited Interim Consolidated Balance Sheets
    Unaudited Interim Consolidated Statements of Cash Flows


    Exhibit 1

    MADACY ENTERTAINMENT INCOME FUND
    Selected Consolidated Financial Information

    (Unaudited)                    Three       Three         Six         Six
    (in thousands of U.S.         months      months      months      months
     dollars except where          ended       ended       ended       ended
     indicated)                  June 30,     July 1,    June 30,     July 1,
                                    2007        2006        2007        2006

    Statement of Earnings Data:
      Net Sales                 $ 19,571    $ 11,989    $ 39,672    $ 28,197
      Cost of Sales               14,686       9,023      28,917      19,582
      Gross Margin                 4,885       2,966      10,755       8,615
        Gross Margin %              25.0%       24.7%       27.1%       30.6%
      Selling, General and
       Administrative
        Expenses                   4,822       4,350       9,975       9,088
      Net Earnings (Loss)           (325)       (893)       (812)     (1,412)
      EBITDA                    $    344    $ (1,180)   $  1,218    $   (184)

    Distributable Cash and
     Distributions:
      Distributable Cash        $   (147)   $ (1,827)   $    148    $ (1,861)
      Cash Distributions
       on Fund Units            $      -    $  1,908    $      -    $  3,750
      Cash Distributions on
       Exchangeable Units       $      -    $      -    $      -    $    212

    Balance Sheet Data:
      Total Assets              $ 76,508    $107,587    $ 76,508    $107,587
      Current Portion of
       Long-term Debt           $      -    $ 10,000    $      -    $ 10,000
      Long-term Debt            $ 14,832    $      -    $ 14,832    $      -

    Per Unit information:
    Fund Units
    ----------
    Basic and Diluted Net
     Earnings (Loss)            $ (0.043)   $ (0.118)   $ (0.108)   $ (0.187)
    Distributable Cash per
     Fund Unit (1)              $ (0.019)   $ (0.242)   $  0.020    $ (0.247)
    Cash Distributions on
     Fund Units                 $      -    $  0.253    $      -    $  0.497
    Distributable Cash per
     Fund Unit (2)             C$ (0.024)  C$ (0.294)  C$  0.024   C$ (0.299)
    Cash Distributions on
     Fund Units                C$      -   C$  0.281   C$      -   C$  0.563

    Exchangeable Units
    ------------------
    Distributable Cash per
     Exchangeable Unit (1,2)   C$      -   C$      -   C$      -   C$      -
    Cash Distributions on
     Exchangeable Units                -           -           -           -


    ----------------------------------
    (1) Distributable Cash per Fund Unit and per Exchangeable Unit is derived
        by dividing the portion of Distributable Cash allocable to the Fund
        Units and to the Exchangeable Units by the aggregate number of issued
        Fund Units and Exchangeable Units, respectively. On an annual basis,
        Distributable Cash is allocated between the Fund Units and the
        Exchangeable Units based on distributions effected with respect to
        the year in accordance with the terms of the subordination agreement.
        In 2007, Distributable Cash is being allocated in its entirety to the
        Fund Units as a result of the continuing suspension of distributions
        to holders of the Exchangeable Units. In the first quarter of 2006,
        Distributable Cash was allocated pro rata between the Fund Units and
        Exchangeable Units. See "Distributable Cash and Distributions" below
        for discussion of the Fund's policy regarding distributions to
        holders of Fund Units and Exchangeable Units.

    (2) Distributable Cash per Fund Unit and per Exchangeable Unit is
        presented in Canadian dollars for purposes of comparison to the
        Canadian dollar denominated cash distributions. For this purpose,
        United States dollar denominated Distributable Cash is converted into
        Canadian dollars applying the exchange rate of the Fund's foreign
        exchange contracts relating to the period, which is C$1.2122/US$1.


    Exhibit 2

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Statements of Earnings

    (Unaudited)
    (in thousands of U.S. dollars except per unit amounts)

                                   Three       Three         Six         Six
                                  months      months      months      months
                                   ended       ended       ended       ended
                                 June 30,     July 1,    June 30,     July 1,
                                    2007        2006        2007        2006
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Net Sales                   $ 19,571    $ 11,989    $ 39,672    $ 28,197
    Cost of Sales                 14,686       9,023      28,917      19,582
                               ----------  ----------  ----------  ----------
    Gross Margin                   4,885       2,966      10,755       8,615
                               ----------  ----------  ----------  ----------
    Expenses
      Selling, general &
       administrative              4,822       4,350       9,975       9,088
      Interest on bank
       indebtedness                  329         239         564         400
      Interest on long-term
       debt                          193         160         395         330
      Loss (gain) on derivative
       financial instruments
       and foreign currency
       translation                (1,189)     (1,753)     (1,422)     (1,700)
      Amortization of property
       and equipment                 133         138         264         268
      Amortization of master
       recordings                    329         322         653         631
      Amortization of deferred
       financing charges               -          37           -          68
      Amortization of
       intangible assets             762         762       1,525       1,525
                               ----------  ----------  ----------  ----------
                                   5,379       4,255      11,954      10,610
                               ----------  ----------  ----------  ----------
    Earnings (Loss) Before
     Income Taxes and
     Exchangeable Units
     Interest                       (494)     (1,289)     (1,199)     (1,995)
    Income taxes                       6          85          50         177
                               ----------  ----------  ----------  ----------

    Earnings (Loss) Before
     Exchangeable Units
     Interest                       (500)     (1,374)     (1,249)     (2,172)
    Exchangeable Units
     interest                        175         481         437         760
                               ----------  ----------  ----------  ----------
    Net Earnings (Loss)         $   (325)   $   (893)   $   (812)   $ (1,412)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    Basic and Diluted Net
     Earnings (Loss) per Unit   $(0.0431)   $(0.1184)   $(0.1077)   $(0.1873)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    Basic and Diluted
     Weighted Average Number
     of Units Outstanding      7,540,000   7,540,000   7,540,000   7,540,000
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------


    Exhibit 3

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Balance Sheets

    Unaudited (in thousands of U.S. dollars)                        December
                                                         June 30,         31,
                                                            2007        2006
                                                       ----------  ----------

    ASSETS
    Current
      Cash                                              $    604    $    224
      Accounts receivable                                 23,350      29,243
      Inventories                                         18,996      14,769
      Prepaid expenses                                     1,353         627
      Unrealized gain on foreign exchange contracts          719         197
      Supplier Advances                                    1,249           -
                                                       ----------  ----------
                                                          46,271      45,060

    Supplier Advances                                          -       1,249
    Royalty Advances                                       1,713       2,126
    Property and Equipment                                   663         901
    Master Recordings                                      7,982       8,477

    Deferred Financing Charges                                 -          43
    Intangible Assets                                     19,311      20,836
    Unrealized Gain on Foreign Exchange Contracts            568         302
                                                       ----------  ----------
                                                        $ 76,508    $ 78,994
                                                       ----------  ----------
                                                       ----------  ----------
    LIABILITIES
    Current
      Bank indebtedness                                 $  4,036    $  9,049
      Accounts payable and accrued liabilities            16,803      17,987
      Income taxes payable                                    83          79
      Distribution payable on Fund Units                     663         611
      Current portion of the long-term debt                    -      10,000
                                                       ----------  ----------
                                                          21,585      37,726

    Long-term debt                                        14,832           -
    Accrued Pension Liability                                412         351
                                                       ----------  ----------
                                                          36,829      38,077
                                                       ----------  ----------
    Exchangeable Units Interest                           14,257      14,694
                                                       ----------  ----------

    Commitments and Contingencies

    UNITHOLDERS' EQUITY
      Fund Units                                          54,990      54,990
      Accumulated other comprehensive income                  67          56
      Retained Earnings (Deficit)                        (29,635)    (28,823)
                                                       ----------  ----------
                                                          25,422      26,223
                                                        $ 76,508    $ 78,994
                                                       ----------  ----------
                                                       ----------  ----------


    Exhibit 4

    MADACY ENTERTAINMENT INCOME FUND
    Consolidated Statements of Cash Flows

    (Unaudited)
    (in thousands of U.S. dollars)

                                   Three       Three         Six         Six
                                  months      months      months      months
                                   ended       ended       ended       ended
                                 June 30,     July 1,    June 30,     July 1,
                                    2007        2006        2007        2006
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    Funds Provided (Used) -

    Operating Activities
    Net earnings (loss)         $   (325)   $   (893)   $   (812)   $ (1,412)
    Add (deduct) items not
     involving cash:
    Amortization of
      Property and equipment         133         138         264         268
      Master recordings              329         322         653         631
      Deferred financing
       charges                         -          37           -          68
      Intangible assets              762         762       1,525       1,525
    Recovery of royalty
     advances                        190         161         389         294
    Write-off of royalty
     advances                        274          32         348          32
    Implicit interest on
     long-term debt                   21           -          58           -
    Employee future benefits          23          25          61          25
    Unrealized loss (gain)
     on derivative financial
     instruments and foreign
     currency translation           (620)     (1,338)       (725)     (1,072)
    Exchangeable Units
     interest                       (175)       (481)       (437)       (760)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
                                     612      (1,235)      1,324        (401)
    Changes in non-cash
     operating elements of
     working capital               1,782       5,809        (240)      4,317
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
                                   2,394       4,574       1,084       3,916
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Investing Activities
    Royalty advances                 (77)       (177)       (324)       (438)
    Additions to property
     and equipment                   (12)        (43)        (26)        (77)
    Additions to master
     recordings                      (85)       (104)       (158)       (549)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
                                    (174)       (324)       (508)     (1,064)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Financing Activities
    Repayment of long-term
     debt                        (10,000)          -     (10,000)          -
    Repayment of bank
     indebtedness                 (7,500)          -      (7,500)          -
    Increase in long-term
     debt                         14,832           -      14,832           -
    Increase (decrease) in
     bank indebtedness               615      (2,556)      2,472         577
    Deferred financing charges         -         (23)          -         (23)
    Distributions paid on
     Exchangeable Units                -           -           -        (212)
    Distributions paid on
     Fund Units                        -      (1,880)          -      (3,724)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
                                  (2,053)     (4,459)       (196)     (3,382)
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    Increase (decrease)
     in Cash                         167        (209)        380        (530)
    Cash - Beginning of Period       437         479         224         800
                               ----------  ----------  ----------  ----------
    Cash - End of Period        $    604    $    270    $    604    $    270
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------
    




For further information:

For further information: Hillel Frankel, President, Madacy Entertainment
Income Fund, (514) 341-5600 x333

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