LATE FRIDAY NEWSBREAKS: Valley Media Reports 12.1% Sales Drop, Steep Losses in Fiscal 2001; MGM Feels Losses, Shakes Up Management; FCC Launches 2001 Report to Congress on Video Competition22 Jun, 2001 By: Hive News
Valley Media Reports 12.1% Sales Drop, Steep Losses in Fiscal 2001
Woodland, Calif.-based distributor Valley Media Inc. announced its financial results for the fiscal year ended March 31, 2001 -- and it's not a pretty picture.
Barney Cohen, chairman of the board, reported net sales of$803,738,000 for the year compared to $914,299,000 for the previous year, a decrease of 12.1%. Cohen said the company would post a net lossof $29,500,000 ($3.47 per share), compared to a net loss of $4,604,000 ($0.54 per share) in the prior year.
Before additions to its bad debt reserve and costsassociated with severance and other downsizing initiatives, said Peter Berger, Valley Media's c.e.o., Valley's pre-tax operating loss would have been approximately $19,423,000.
"Fiscal 2001 was just plain ugly," according to Cohen. "The reasons arenumerous but can be best described as a failure to focus on core activities,"he noted. "Valley invested time, money, and talent on Internet-related activities which did not pay off. And it wasn't the only company that did so," Cohen added.
The company added over $12 million to its bad debt reserves in the fourth quarter, bringing the total costs for bad debt to over $17 million for the year. The reserves recognize several large customer bankruptcies aswell as disputed balances that may yet be collected. Severance and otherdownsizing costs during the year totaled $10.3 million, including the previously reported $3.9 million charge which resulted from Valley'srestructuring of its agreement with amplified.com.
While gross profit dropped from 10.7% of net sales in fiscal 2000 to 8.5% in fiscal 2001, Berger stated, "We have been fixing the basics of thebusiness and we expect to see steady improvement as a result. We hope to have put the bad news behind us and can now concentrate on our core strengths."
Berger reported that full-line distribution sales decreased 8.3% from fiscal 2000, mirroring the weakness in audio retail markets, although sell-through video showed solid volume improvement during the year.Reduced revenue was also the result of a light audio and video sellthrough release schedule during the year. E-fulfillment sales decreased 22.4% from the prior year primarily due to turmoil in the Internet market generally, as well as failure of several customers, flat or declining sales with other existing customers, and the lack of e-tail startups.
Independent distribution salesincreased 8.9% from fiscal 2000 due to the acquisition of new labels and growth with existing labels.
As was previously released, the company received a notice from Nasdaq that it failed to meet the minimum listing requirements for the Nasdaq National Market and that its securities were therefore subject to delisting. The company has appealed that determination. The hearing forthe appeal is being held on June 21, 2001. There can be no assurance that the Panel will grant the company's request for continued listing.
MGM Feels Losses, Shakes Up Management
Metro-Goldwyn-Mayer Inc. said Thursday that it expects to lose money for the second quarter and the remainder of the year.
Said to be dragging down income and revenue were the Martin Lawrence-Danny DeVito film What's the Worst That Could Happen?, a $45-million film that has made $28 million at the box office, and Josie and the Pussycats, released jointly with Universal Studios, which had a $22-million budget and earned $14 million in the U.S.
Revenue for the second quarter, which ends next week, is expected to be between $265 million and $270 million, compared with $290 million for the second quarter of 2000.
MGM said it would lose 27 cents to 29 cents per share after the effect of new accounting rules. Before the effect of new accounting rules, losses are anticipated to be 24 cents to 26 cents per share. Reported earnings in the second quarter of 2000 were 3 cents per share.
The profit warning followed a management shake-up at MGM.
According to the Los Angeles Times, longtime Walt Disney Co. and Sony Pictures marketing chief Robert Levin on Thursday was named president of worldwide marketing and distribution for MGM. Levin immediately flew to New York with MGM c.o.o. Chris McGurk to screen an undisclosed film, said the Times.
Levin was installed less than 24 hours after McGurk told two senior MGM marketing and distribution executives that they were being replaced. Levin succeeds Gerry Rich, president of marketing, and Larry Gleason, the studio's distribution chief.
McGurk denied the two men were bounced, saying they still have jobs at MGM. He did not say what their roles would be, reported the Times in Friday's edition.
FCC Launches 2001 Report to Congress on Video Competition
The Federal Communications Commission (FCC) has initiated its eighth annual inquiry, as required by Congress, into the status of competition in the market for the delivery of video programming.
Thursday’s Notice of Inquiry (NOI) is designed to assist the FCC in gathering the information, data and comments for the 2001 Competition Report.
In the 2001 Competition Report, the FCC expects to update its assessment of the status of competition and report on changes in the competitive environment over the last year. The NOI seeks information that will allow the FCC to evaluate the status of competition in the video marketplace, prospects for new entrants to that market, and its effect on the cable television industry and consumers.
The NOI also solicits information regarding the extent to which consumers have choices among video programming distributors and delivery technologies. In addition, the NOI asks for information that will allow it to compare video programming offerings, prices for programming services and associated equipment, and any other services (e.g., telephony, data access) offered by providers of video programming services.
As in previous reports, the FCC seeks factual information regarding each of the video programming distributors, including the number of homes passed, the number of subscribers, the services offered, the cost for various service options, financial information on each industry, ownership information, and data on investments in plant and facility upgrades. The FCC also requests comment on industry and market structure, programming issues, and technical advances.
For the 2001 report, the FCC additionally requests information regarding the convergence of services and technologies, particularly information about the extent to which video programming distributors offer video and non-video services together. The FCC also seeks information on issues relating to the convergence of television and the Internet (e.g., streaming video, interactive television).
In previous reports, the FCC reported on broadband service providers in the context of overbuilding. In this year's NOI, the FCC considers broadband providers as a separate delivery technology. Further, this year's NOI solicits information on the number of households that rely on over-the-air reception of local television stations on one or more of their television sets.