Masonite slides on numbers; Michaels recoups some losses; LCDX continues to rise with stocks

By Sara Rosenberg

New York, Aug. 28 - Masonite International Inc.'s term loan headed lower in trading on Thursday after the company announced second quarter and first half of the year earnings results.

Also in trading, Michaels Stores Inc.'s term loan regained some of the ground it lost on its recent earnings news and LCDX 10 inched higher with equities.

Masonite's term loan weakened during the session following the release of negative financials, even though most people weren't expecting the numbers to be good anyway, according to a trader.

The term loan was quoted at 84½ bid, 85½ offered, down from Wednesday's levels of 85½ bid, 86½ offered, the trader said.

For the second quarter, the company reported a net loss of $688.6 million, compared to net income of $5.4 million last year.

Sales for the quarter were $507.8 million, down 13.8% from $588.9 million in the second quarter of 2007.

Operating EBITDA decreased 48% to $46.1 million in the quarter from $88.6 million last year.

Adjusted EBITDA for the quarter was $56 million, down 43.5% from $99.1 million in the 2007 comparable period, and adjusted EBITDA margin decreased to 11% from 16.8%.

The company said that second quarter adjusted EBITDA includes $9.9 million of net adjustments, while adjusted EBITDA in the second quarter of 2007 includes $10.5 million of such adjustments.

"Masonite's second-quarter results were negatively impacted by the persistent deterioration in the U.S. housing market. Lower operating volumes led to margin compression that was further exacerbated by significant inflation in our raw material, energy and transportation costs," said Fred Lynch, president and chief executive officer, in a news release.

"It is our current belief that market conditions will deteriorate further in both the United States and the United Kingdom through the second half of 2008. In response, we continue to address every lever at our disposal; adjusting staffing and production capacities in line with demand, driving additional operating efficiencies through lean sigma implementation, and pricing our products to appropriately reflect their value in this inflationary climate. These difficult but necessary actions will help position Masonite for greater success when the market rebounds," Lynch added in the release.

For the first half of the year, the company's net loss was $716.2 million, compared to net income of $2.4 million in the previous year's comparable period.

Sales for the six months declined 16.1% to $972.1 million from $1.1583 billion in the first six months of 2007.

Operating EBITDA for the six month period was $92.8 million, down 42.8% from $162.2 million last year.

Adjusted EBITDA for the six months was $109.5 million, down 39.5% from $181 million in the first half of 2007, and adjusted EBITDA margin decreased to 11.3% from 15.6%.

First half 2008 adjusted EBITDA includes $16.7 million of net adjustments, while adjusted EBITDA in the first half of 2007 includes $18.8 million of such adjustments.

Also, net debt increased $102.4 million to $2.0352 billion on June 30 from $1.9328 billion on March 31, 2008. On Dec. 31, 2007, net debt was $1.9103 billion.

For the latest 12 months ended June 30, adjusted EBITDA declined by 22.4% to $247.9 million from $319.4 million for the 12 months ended Dec. 31, 2007.

The company's net debt to trailing 12 months adjusted EBITDA ratio was 8.25 times at June 30, compared to 6.00 times at Dec. 31, 2007 and a covenant maximum of 7.00 times.

Furthermore, the company's cash interest coverage ratio was 1.51 times at June 30, compared to 1.91 times at Dec. 31, 2007 and a covenant minimum of 1.65 times.

As has been previously reported, the company is in negotiations with the lenders under its senior secured credit facility regarding an amendment and a waiver of the non-compliance with the adjusted EBITDA and interest coverage ratios.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

Michaels strengthens

Michaels Stores' term loan moved higher on Thursday, recouping some of the losses it posted in the previous session on earnings, according to a trader.

The term loan was quoted at 77 bid, 78 offered, up from 76 3/8 bid, 77 7/8 offered on Wednesday. On Tuesday, the loan was being quoted at 77½ bid, 78½ offered.

"It's just up with the rest of the market I guess. Most things feeling pretty good today," the trader remarked.

On Wednesday, the term loan had dipped in reaction to quarterly and first half of the fiscal year numbers.

For the second quarter, the company reported a net loss of $25 million, compared to a $44 million loss for the 2007 second quarter, net sales were $796 million, compared to $788 million last year, and adjusted EBITDA declined to $73 million, or 9.2% of sales, from $90 million, or 11.4% of sales.

For the six months ended Aug. 2, the company reported a loss of $45 million, compared to a $67 million loss for first half of fiscal 2007, net sales were $1.643 billion, compared to $1.627 billion last year, and adjusted EBITDA was $170 million, or 10.3% of sales, versus $203 million, or 12.5% of sales.

As for an outlook on future performance, the company said that low consumer confidence and increased economic volatility are expected to have a continued adverse effect on the business for the remainder of the year, causing the forecasting of future results with any level of certainty to be difficult.

However, the company also said that it expects the first half trends for same-store sales, adjusted EBITDA, net income and cash flow from operations to continue for the second half.

Michaels Stores is an Irving, Texas-based arts and crafts specialty retailer.

LCDX heads higher

LCDX 10 was once again stronger in trading as the stock market saw positive momentum, according to a trader.

The index was quoted at 97.15 bid, 97.25 offered, up from Wednesday's levels of 97 bid, 97.10 offered, the trader said.

Nasdaq closed up 29.18 points, or 1.22%, Dow Jones Industrial Average closed up 212.67 points, or 1.85%, S&P 500 closed up 19.02 points, or 1.48%, and NYSE closed up 116.28 points, or 1.39%.

Warnaco closes

In other news, Warnaco Group Inc. closed on its new $300 million five-year asset-based revolving credit facility, according to an 8-K filed with the Securities and Exchange Commission Thursday.

The facility consists of a $270 million U.S. revolver that has a $200 million accordion feature, and a $30 million Canadian revolver.

Pricing on the revolver can range from Libor/BA plus 150 basis points to 200 bps based on leverage, with initial pricing set at Libor/BA plus 175 bps.

Bank of America and Deutsche Bank acted as the joint lead arrangers on the deal that was completed on Aug. 26. Bank of America, Deutsche and JPMorgan acted as the joint bookrunners on the U.S. revolver and Bank of America and Deutsche were the bookrunners on the Canadian revolver.

Proceeds are being used to refinance the company's existing $225 million revolver and repay its term loan B in full.

Warnaco is a New York-based apparel company.

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