Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Jeff Stein – Soleil Securities
Jeff Stein – Soleil Securities
Can you talk a little bit about financial covenants? In the 10-K you allude to the leverage covenant and interest coverage but there’s no numbers and I’m wondering where you guys are at trailing 12 months relative to the covenants in your revolver?
Steve Smith
We have two covenants, one is a leverage ratio and one is interest coverage. We’ve passed both for the past quarter, the preliminary work that we’ve done.
Jeff Stein – Soleil Securities
Can you tell us what the tests are for leverage and interest?
Steve Smith
Yes, they’re public. Rather than get into the details here we’d be glad to go offline and do that with you. The bottom line is its net debt to EBITDA and then EBITDA to interest coverage.
Jeff Stein – Soleil Securities
In terms of the numbers themselves is the interest coverage 3.2%.
Steve Smith
I prefer not to get into that over the line.
Jeff Stein – Soleil Securities
Can you talk a little bit about the affect of technology cards on your gross margin during the quarter?
Zev Weiss
Speaking to it in general we continue to see sales in technology cards, both cards that are music based but also evolving and do other products as well. I think we’re doing a better job getting arms around how we distribute this to make sure that we’re at least optimizing sales and profits in the distribution. I also think we’re doing a better job on the sourcing side. I know that for going forward I’m sure all that has yet impacted the third quarter numbers.
Jeff Stein – Soleil Securities
Have you been making progress in terms of getting the scrappage rate down on the year on year basis?
Zev Weiss
Yes, I believe we’re doing a much better job in the way we’re distributing the product to do a better job on the scrap rate. Obviously Christmas is going to be an important holiday for that so we’ll see how that goes. We’ll know probably in a week or so.
Jeff Stein – Soleil Securities
On the pending sale of Care Bears and Strawberry Shortcake, if you do not sell the business to Cookie Jar how does that affect the relationship between the two companies because I think if I’m correct there was some litigation and will that be an issue if the deal does not go through?
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