MEGA Brands reports fourth quarter and 2008 results
MONTREAL, April 6 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) announced
today its financial results for the fourth quarter and full year ended
December 31, 2008. (All figures are expressed in US dollars.)
For 2008, the Corporation reported sales of $447.7 million, down 14.6%
compared to $524.5 million in 2007. Net loss was $458.7 million or $12.53 per
diluted share, compared to a net loss of $97.1 million or $2.82 per share in
the previous year.
The 2008 results were impacted by Impairment of Goodwill and Intangible
Assets and Other Charges of $404.5 million which reduced earnings by $11.05
per diluted share.
For the fourth quarter of 2008, net sales declined 21.6% to $101.0
million compared to $128.8 million in the same period in 2007. Net loss was
$323.3 million or $8.83 per diluted share, compared to a net loss of $66.2
million or $1.81 per share in the fourth quarter of the prior year.
The fourth quarter results were impacted by Impairment of Goodwill and
Intangible Assets and Other Charges of $234.4 million which reduced earnings
by $6.40 per diluted share.
"Consumer products companies were affected by the dramatic decline in the
global economy during the fourth quarter of last year and MEGA Brands was no
exception," said Mac Bertrand, President and Chief Executive Officer. "We
experienced lower than expected sales and took additional charges resulting
from the extremely weak retail environment, including restructuring charges
and write-offs of bad debt."
Despite the lower results, solid progress was made in many areas that
will help the Corporation in 2009 and position it for the economic recovery.
- The actions taken in 2008 under the Corporation's ongoing Value
Enhancement Plan have reduced annual expenses by more than $30 million.
- Significant supply chain improvements have been realized, a key factor
in reducing the Corporation's year-end inventories to $65 million, or
$26 million lower than at the end of 2007.
- The Corporation ended 2008 with cash and cash equivalents of
$49.4 million compared to $8.5 million at the end of 2007. As at
March 31, 2009, cash and cash equivalents were substantially at the
same level as at the end of 2008.
"For 2009, we are planning for an even more challenging retail
environment than last year," added Bertrand. "One of our first priorities this
year is to preserve cash and increase liquidity. We are continuing to take
additional measures under our Value Enhancement Plan to reduce costs and
working capital requirements while benefiting from a decline in resin prices
and a lower Canadian dollar."
"On the product side, our focus is on basics, lower price points and
working closely with our customers to deliver winning programs at retail. With
great innovation and exciting new licenses, our product lines are in tune with
the times, offering the best value for consumers and retailers in an uncertain
economy."
Recent Developments
On April 1, 2009, the Corporation executed a waiver and amendment
agreement (the "Seventh Amendment") to the Credit Agreement providing for
certain changes to the terms of its Credit Facilities maturing in 2012. These
include a waiver of the minimum cumulative EBITDA covenant for the quarters
ended December 31, 2008 and March 31, 2009 and relaxing the minimum cumulative
EBITDA covenant to $4.0 million for the quarter ended June 30, 2009; $24.0
million for the nine-month period ending September 30, 2009 and $37.0 million
for the 12-month period ending December 31, 2009. For the periods ending March
31, 2010 and June 30, 2010, the Corporation must have a minimum rolling
twelve-month EBITDA of $40.0 million. Effective July 1, 2010, the more
restrictive financial covenants in the existing Credit Agreement will come
back into force. The Seventh Amendment also provides for an event of default
in relation to any adverse deviation in month-end cash and short-term
investment balances in any month in excess of $9.0 million compared to the
Corporation's forecast and introduces certain other restrictions and
compliance requirements on the Corporation, including a limitation on certain
asset sales. The Amendment and Waiver also reduce the Corporation's revolving
facility from $100.0 million to the actual amount presently outstanding
thereunder, being $96.9 million. Finally, the Amendment provides for increased
fees and interest payable in respect of the Credit Facilities and for other
fees payable in certain circumstances and imposes certain ongoing reporting
obligations on the Corporation.
Results of Operations
The Corporation's results for the years ended December 31, 2008 and 2007
were affected by numerous write-offs and charges which make it difficult to
analyze the trends in its operating performance. Such write-offs and charges
are quantified and described below under various headings, along with an
indication of their classification in the statements of loss according to
GAAP. Under securities regulations, the Corporation is required to caution
readers that financial measures adjusted to a basis other than GAAP do not
have standardized meaning and are unlikely to be comparable to similar
measures used by other issuers. Management uses non-GAAP measures and believes
that such measures provide meaningful information on the Corporation's
financial condition and operating performance.
Charges impacting 2008 results of operations
In 2008, the Corporation recorded Impairment of Goodwill and Intangible
Assets and Other Charges of $404.5 million ($234.4 million in the fourth
quarter), as follows:
Impairment of goodwill and intangible assets
During the third quarter of 2008, the deterioration in the global
economic environment combined with the decline in the Corporation's stock
price triggered a requirement for an interim goodwill impairment test and
assessment of the recoverability of the Corporation's other assets. In
anticipation of performing a comprehensive analysis of goodwill and an
assessment of the recoverability of other assets, the Corporation recorded a
preliminary provision of $150.0 million against the carrying value of these
assets. This provision included, amongst other things, the impact of
downsizing of the Chinese operations.
During the fourth quarter of 2008, the Corporation commenced a
comprehensive step-two analysis of the goodwill and an assessment of the
recoverability of other assets. Based on this preliminary assessment, the
Corporation believes that the resulting fair value of goodwill may range from
$30.0 million to $50.0 million for the Toy Segment only. As such, the
Corporation has recorded an additional preliminary goodwill charge of $164.5
million in the fourth quarter and reduced the carrying value of the Rose Art
Trademark by $49.0 million. For the year, the goodwill and intangibles
impairment charges totaled $318.5 million ($213.5 million in the fourth
quarter).
These non-cash impairment charges are recorded separately in the
statement of loss.
Plant closure, integration and other restructuring charges
The Corporation recorded charges of $27.6 million ($3.1 million in the
fourth quarter) for plant closure, integration and other restructuring costs.
This amount includes $21.5 million ($1.5 million in the fourth quarter)
recorded mainly in cost of sales for inventory, asset write-offs and severance
related to the significant downsizing of the Corporation's factory in China.
It also includes $3.6 million ($0.7 million in the fourth quarter) of
integration costs, recorded mainly in other selling, distribution and
administrative expenses related to the consolidation of the Corporation's
distribution activities in Fife, Washington. The balance of $2.5 million ($0.9
million in the fourth quarter), recorded in other selling, distribution and
administrative expenses, represents mainly lease termination fees as well as
professional fees in connection with the sales process for the Stationery and
Activities business.
Voluntary product recall and other charges
The Corporation recorded $39.6 million ($8.9 million in the fourth
quarter) for voluntary product recall and other charges. Of this amount, $12.5
million, recorded against other selling, distribution and administrative
expenses, is related mainly to bad debt as a result of financial difficulties
faced by customers in Mexico and, the United Kingdom. Another $13.2 million
(nil in the fourth quarter) is recorded against net sales and represents
returned MAGNETIX product inventory from retailers and related penalties. The
balance of $13.9 million ($6.8 million in the fourth quarter), recorded in
cost of sales, is for MAGNETIX and other inventory write-offs.
Litigation expenses
The Corporation recorded litigation expenses of $11.9 million ($4.8
million in the fourth quarter), mainly for the ongoing litigation related to
the MEGA Brands America acquisition. This amount is recorded separately in the
statement of loss.
License termination and prototype charges
The Corporation recorded license termination and product development
charges of $4.4 million ($1.6 million in the fourth quarter). Of this amount,
$2.8 million (nil in the fourth quarter), recorded in cost of sales,
represents license termination fees mainly resulting from the Corporation's
product line rationalization under its VEP. The balance of $1.6 million ($1.6
million in the fourth quarter) represents the amortization of 2007 prototype
costs.
Write-off of deferred financing costs
The Corporation wrote-off $2.5 million ($2.5 million in the fourth
quarter) of deferred financing costs related to previous amendments to its
Credit Agreement.
Charges impacting 2007 Results of operations
In 2007, the Corporation recorded Impairment of Goodwill and Intangible
Assets and Other Charges of $116.6 million ($35.8 million in the fourth
quarter), as follows:
Impairment of goodwill and intangible assets
The Corporation recorded a write-off of intangible assets of $4.2 million
related to MAGNETIX resulting from product recalls.
Inventory provisions and sales below cost
The Corporation recorded a charge of $20.0 million (nil in the fourth
quarter), primarily as a result of the transition of MAGNETIX to MAGNEXT and
other slow moving products. The total amount is recorded in cost of sales. The
Corporation also reduced gross profit by $14.8 million (nil in the fourth
quarter) and recorded related freight charges of $0.6 million (nil in the
fourth quarter) in other selling, distribution and administrative expenses as
a result of the sale of excess inventory below cost.
Plant closure, integration and other restructuring charges
The Corporation incurred plant closure, integration and other
restructuring charges of $9.0 million ($4.9 million in the fourth quarter).
This amount includes integration charges of $4.9 million ($4.9 million in the
fourth quarter) related to the completion of the integration of MEGA Brands
America and $1.5 million (nil in the fourth quarter) for inventory write-downs
as part of the integration of two factories in China into a single facility.
Both charges are recorded in cost of sales. The Corporation also recorded a
charge of $2.6 million (nil in the fourth quarter) related mainly to the
sub-lease of excess warehouse space at unfavorable terms, classified in other
selling, distribution and administrative expenses.
Voluntary product recall and other charges
The Corporation recorded charges and incremental costs of $56.1 million
($20.9 million in the fourth quarter) primarily related to product recall and
other charges. Of this amount, $26.7 million ($6.2 million in the fourth
quarter) related to reversals of sales and credits associated with recalled
products, $18.0 million ($0.8 million in the fourth quarter) to write-offs of
finished goods, components and fixed assets, recorded in cost of sales, as
well as $11.4 million ($6.7 million in the fourth quarter) for incremental
advertising, logistics and administrative costs, recorded mainly in other
selling, distribution and administrative costs.
Litigation and related expenses
The Corporation recorded litigation and related expenses of $8.9 million
($4.3 million in the fourth quarter), mainly for the ongoing litigation
related to the MEGA Brands America acquisition. This amount is recorded
separately in the statement of loss.
License termination charges
The Corporation recorded charges of $3.0 million ($1.5 million in the
fourth quarter) in other selling, distribution and administrative expenses
related to the termination of licensing agreements, as a result of product
line rationalization under its VEP.
Year ended December 31, 2008 compared to year ended December 31, 2007
Net Sales
Net sales in 2008 were $447.7 million compared to $524.5 million in 2007.
This decline is due in equal proportion to lower sales of the Toys and
Stationery and Activities product lines.
Net sales of Toys declined 10% to $280.9 million in 2008 compared to
$310.9 million in 2007, mainly as a result of significantly lower shipments of
licensed products in Boys 5-plus construction and, to a lesser extent, lower
shipments of magnetic construction products. Net sales of preschool
construction toys and games and puzzles were stable. Other Charges reduced
reported sales by $13.2 million in 2008 and $26.7 million in 2007.
Net sales of Stationery and Activities products decreased 22% to $166.8
million in 2008 compared to $213.6 million in 2007. Net sales declined in the
activity and writing instruments categories, offsetting increased shipments in
the boards and accessories category.
North American sales were $297.5 million in 2008 compared to $352.7
million in 2007. This decrease is due mainly to lower sales of Stationery and
Activities products. International sales declined to $150.2 million compared
to $171.8 million in 2007, primarily as a result of lower sales of Toys
product lines. International sales accounted for 34% of consolidated sales in
2008 compared to 33% in 2007. Other Charges reduced the reported North
American and International sales by $10.5 million and $2.7 million,
respectively, in 2008 and $20.1 million and $6.6 million, respectively, in
2007.
Cost of Sales
Cost of sales decreased to $342.2 million in 2008 compared to $403.4
million in 2007. This decrease reflects cost improvements and efficiencies
resulting from VEP implementation as well as reduced production which more
than offset higher labor and input costs in China, as well as increased resin
prices compared to 2007. Cost of sales in 2008 includes Other Charges totaling
$38.4 million, primarily related to the significant downsizing of the
Corporation's plant in China and product recall charges. In 2007, cost of
sales includes Other Charges of $57.3 million, mainly related to product
recall, inventory revaluation and integration charges.
Gross Profit
Gross profit was $105.5 million in 2008 or 23.6% of sales, compared to
$121.2 million or 23.1% of sales in 2007. Excluding Other Charges of $51.6
million in 2008 and $84.0 million in 2007, gross profit was 34.1% compared to
37.2%. This decline is due mainly to an unfavorable product mix in 2008
compared to the previous year, reflecting a lower proportion of sales of Boys
5-plus and magnetic construction toys. Both of these product lines have
historically generated higher margins than the Corporation's other product
lines.
Operating Expenses
Marketing and advertising expenses were stable in 2008 at $26.6 million
compared to $26.2 million in 2007.
Research and development expenses declined to $17.1 million in 2008
compared to $22.0 million in 2007. This decrease reflects mainly a reduction
in third-party services, a significant decrease in the number of products
listed by the Corporation following the rationalization of its product lines
completed in the first quarter of 2008, net of a write-off of $1.6 million of
development costs.
Other selling, distribution and administrative expenses increased to
$130.1 million in 2008 compared to $127.8 million in 2007. The 2008 figure
includes Other Charges totaling $20.8 million, reflecting mainly the write-off
bad debt, a lease cancellation and integration charges. In 2007, Other Charges
in other selling, distribution and administrative expenses totaled $19.5
million.
The Corporation incurred litigation expenses of $11.9 million in 2008
compared to $8.9 million in 2007. This reflects increased activity in
connection with litigation related to the MEGA Brands America transaction.
The Corporation received $9.4 million from its insurers in 2008,
representing the final recovery in connection with a $13.5 million settlement
of lawsuits related to magnet ingestion paid by the Corporation in 2006. This
compares to a recovery of $3.5 million ($2.8 million net of related expenses)
recorded in 2007.
The Corporation also recorded charges of $49.0 million for impairment of
intangible assets and $269.5 million for impairment of goodwill in 2008
compared to $4.2 million in 2007.
Loss from Operations
As a result of the above, the loss from operations was $393.8 million
compared to a loss from operations of $66.7 million in 2007. Loss from
operations includes Impairment of Goodwill and Intangible Assets and Other
Charges of $404.5 million in 2008 and $116.6 million in 2007.
Non-Operating Expenses
Interest and other expenses amounted to $43.9 million in 2008 compared to
$26.5 million in 2007. This increase is due mainly to higher average long-term
debt and the amortization of deferred financing costs related to amendments to
the Corporation's credit facilities. In 2008, the Corporation also recorded a
charge of $6.6 million to reflect the change in fair value of an interest rate
swap agreement.
Income Taxes
Income tax expense was $20.9 million in 2008 compared to $4.0 million in
2007. The Corporation recorded valuation allowances of $136.1 million in 2008
and $27.8 million in 2007 on future income tax assets resulting from losses
carried forward originating mainly from Impairment of Goodwill and Intangible
Assets and Other Charges in both years. The tax rate used to establish the
income tax expense is the applicable estimated effective rate of each entity
of the Corporation. The effective tax rate reflects the Corporation's
structure for tax purposes as well as the financing structure put in place
following the acquisition of MEGA Brands America.
Net Loss
Net loss in 2008 was $458.7 million or $12.53 per diluted share, compared
to $97.1 million, or $2.82 per diluted share in 2007.
Impairment of Goodwill and Intangible Assets and Other Charges reduced
earnings by $11.05 per diluted share in 2008 and $3.41 per diluted share in
2007.
MD&A Filing
MEGA Brands plans file the Management's Discussion and Analysis as well
as the audited consolidated financial statements and notes for the years ended
December 31, 2008 and 2007 via SEDAR on April 6, 2009. The MD&A, financial
statements and notes will be available on the Corporation's Web site on April
7, 2009.
Conference Call
An analyst conference call will be held at 7:30 a.m. on April 6, 2009 to
discuss the results. Participants may listen to the call by dialing 1 (800)
733-7560. For those unable to participate, a replay will be available until
April 13, 2009. The replay phone number is (416) 640-1917, access code
21302665#.
Forward-looking Statements
All statements in this press release that do not directly and exclusively
relate to historical facts constitute "forward-looking statements". These
statements represent the Corporation's intentions, plans, expectations and
beliefs. In certain instances, these statements require us to make assumptions
and there is significant risk that these assumptions may not be correct.
Furthermore, these statements are subject to risks, uncertainties and other
factors, many of which are beyond the Corporation's control. The Corporation
disclaims any intention or obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, other than as required by applicable legislation. Readers
are cautioned not to place undue reliance on these forward-looking statements.
More information about the risks that could cause our actual results to
significantly differ from our current expectations can be found in the "Risks
and Uncertainties" section of our 2008 annual MD&A.
About MEGA Brands
MEGA Brands is a trusted family of leading global brands in construction
toys, games & puzzles, arts & crafts and stationery. We offer engaging
creative experiences for children and families through innovative,
well-designed, affordable and high-quality products that deliver on our
Creativity to the Rescue promise. For more information, please visit
http://www.megabrands.com.
The MEGA logo, Creativity to the Rescue, MEGA BLOKS, ROSE ART, MAGNETIX,
BOARD DUDES and MAGNEXT are trademarks of MEGA Brands Inc. or its affiliates.
Consolidated statements of loss
(in thousands of US dollars, except per share data)
Three-month periods Twelve-month periods
ended December 31, ended December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales 101,040 128,819 447,677 524,516
-------------------------------------------------------------------------
Cost of sales 116,979 100,128 342,190 403,358
-------------------------------------------------------------------------
Gross profit (15,939) 28,691 105,487 121,158
Marketing and advertising
expenses 12,693 10,661 26,586 26,226
Research and development
expenses 3,912 4,886 17,068 21,950
Other selling, distribution
and administrative
expenses 46,035 41,058 130,057 127,789
Loss (gain) on foreign
currency translation 717 (1,354) 3,940 (6,394)
Voluntary product recall
and replacement 293 6,725 588 11,425
Litigation expenses 4,831 832 11,907 5,445
Product liability
settlement (reimbursement)
and related expenses - 800 (9,350) (2,800)
Impairment of intangible
assets 49,000 - 49,000 4,171
Impairment of goodwill 119,539 - 269,539 -
-------------------------------------------------------------------------
Loss from operations (252,959) (34,917) (393,848) (66,654)
-------------------------------------------------------------------------
Interest expense
Interest on long-term
debt 11,423 6,119 32,268 25,395
Change in fair value
of interest rate swap 10,503 - 6,582 -
Amortization of deferred
financing costs 1,270 148 4,285 700
Other interest 412 450 737 417
-------------------------------------------------------------------------
23,608 6,717 43,872 26,512
-------------------------------------------------------------------------
Loss before income taxes (276,567) (41,634) (437,720) (93,166)
-------------------------------------------------------------------------
Income taxes
Current 2,190 (1,510) 3,191 (34)
Future 44,544 26,036 17,750 4,004
-------------------------------------------------------------------------
46,734 24,526 20,941 3,970
-------------------------------------------------------------------------
Net loss (323,301) (66,160) (458,661) (97,136)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss per share
Basic (8.83) (1.81) (12.53) (2.82)
Diluted(1) (8.83) (1.81) (12.53) (2.82)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The dilutive effects of the convertible debentures and the
outstanding options under the treasury stock method for the three-
month and twelve-month periods ended December 31, 2008 and 2007 are
nil as they are anti-dilutive.
Consolidated statements of deficit
(in thousands of US dollars)
Three-month periods Twelve-month periods
ended December 31, ended December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Balance, beginning of
period (219,860) (18,340) (84,500) 12,636
Net loss (323,301) (66,160) (458,661) (97,136)
-------------------------------------------------------------------------
Balance, end of period (543,161) (84,500) (543,161) (84,500)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated statements of comprehensive loss and
Accumulated other comprehensive income (loss)
(in thousands of US dollars)
Three-month periods Twelve-month periods
ended December 31, ended December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net loss for the period (323,301) (66,160) (458,661) (97,136)
Other comprehensive loss,
net of income taxes
Gain (loss) on
derivatives designated
as cash flow hedges 356 (2,832) (2,840) (1,184)
-------------------------------------------------------------------------
Comprehensive loss for
the period (322,945) (68,992) (461,501) (98,320)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other
comprehensive income
(loss)
Balance, beginning of
period (5,461) 567 (2,265) -
Impact of adopting the
new accounting policy
regarding financial
instruments, net of
income taxes - - - 1,751
Other comprehensive loss
Net change in losses
on cash flow hedging
items - (4,575) (6,313) (6,488)
Reclassification to loss 356 - 1,068 -
Income taxes - 1,743 2,405 2,472
-------------------------------------------------------------------------
356 (2,832) (2,840) (4,016)
Balance, end of period (5,105) (2,265) (5,105) (2,265)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated balance sheets
(in thousands of US dollars)
(Unaudited)
December 31, December 31,
2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 49,427 8,505
Accounts receivable 104,620 125,784
Inventories 65,220 91,681
Income taxes 7,149 8,219
Future income taxes 5,291 4,286
Derivative financial instruments - 306
Prepaid expenses 12,857 19,650
-------------------------------------------------------------------------
244,564 258,431
Property, plant and equipment 31,726 42,620
Intangible assets 24,942 74,606
Goodwill, net 30,000 298,938
Future income taxes 1,931 35,119
-------------------------------------------------------------------------
333,163 709,714
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 76,532 136,592
Additional consideration accrued on business
combination 54,775 54,775
Current portion of long-term debt 3,273 8,303
-------------------------------------------------------------------------
134,580 199,670
Long-term debt 387,702 252,441
Derivative financial instruments 14,828 3,659
Future income taxes 16,497 31,550
-------------------------------------------------------------------------
553,607 487,320
-------------------------------------------------------------------------
Shareholders' equity
Capital stock 308,678 308,601
Contributed surplus 558 558
Equity component of convertible debentures 18,586 -
Deficit (543,161) (84,500)
Accumulated other comprehensive loss net of
income taxes (5,105) (2,265)
-------------------------------------------------------------------------
(220,444) 222,394
-------------------------------------------------------------------------
333,163 709,714
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated statements of cash flows
(in thousands of US dollars)
Three-month periods Twelve-month periods
ended December 31, ended December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from
operating activities
Net loss (323,301) (66,160) (458,661) (97,136)
Items not affecting
cash and cash
equivalents
Amortization of
property, plant and
equipment 4,123 5,776 15,337 15,753
Writeoff of property,
plant and equipment 6,338 3,167 6,338 3,167
Loss on disposal of
property, plant and
equipment - 867 - 607
Amortization of
intangible assets 166 190 664 740
Impairment of intangible
assets 49,000 4,171 49,000 4,171
Impairment of goodwill 119,539 - 269,539 -
Amortization of
unrealized loss on swap
derivative financial
instruments 575 - 1,726 -
Loss on swap derivative
financial instruments 9,927 - 4,856 -
Stock-based compensation
plans (58) (1,261) (803) (1,205)
Amortization of deferred
financing costs 1,270 148 4,285 700
Writeoff deferred
financing costs 2,528 - 2,528 -
Future income taxes 44,544 26,036 17,750 4,004
Accretion of interest on
convertible debentures 603 - 902 -
Loss on foreign currency
translation 5,737 909 6,479 614
-------------------------------------------------------------------------
(79,009) (26,157) (80,060) (68,585)
Changes in non-cash
operating working capital
items 92,476 90,906 (14,266) 59,662
-------------------------------------------------------------------------
13,467 64,749 (94,326) (8,923)
-------------------------------------------------------------------------
Cash flows from financing
activities
Repayment of long-term
debt (2,378) (2,441) (9,387) (9,574)
Change in revolving
credit facility - (58,600) 94,000 (38,000)
Issuance of convertible
debentures - - 69,934 -
Issuance of capital stock - 3 76 71,296
Deferred financing costs - - (7,564) -
Issue costs on equity
component of convertible
debentures - - (1,051) -
-------------------------------------------------------------------------
(2,378) (61,038) 146,008 23,722
-------------------------------------------------------------------------
Cash flows from investing
activities
Acquisition of property,
plant and equipment (1,326) (4,134) (10,159) (19,591)
Proceeds from disposal
of property, plant and
equipment - - - 798
Business combinations - - (601) (1,159)
-------------------------------------------------------------------------
(1,326) (4,134) (10,760) (19,952)
-------------------------------------------------------------------------
Increase (decrease) in
cash and cash equivalents 9,763 (423) 40,922 (5,153)
Cash and cash equivalents,
beginning of period 39,664 8,928 8,505 13,658
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 49,427 8,505 49,427 8,505
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary disclosure
of cash flow information
Interest paid 9,639 6,570 25,966 22,726
Income taxes paid
(recovered) (752) 1,300 1,666 (1,282)
Property, plant and
equipment acquired
by means of capital
leases - - 622 -
Non cash item
Additional
considerations accrued
on business combination - - - (3,050)
For further information: Analysts and Investors: Eric Phaneuf, (514)
333-5555 ext. 2538, ephaneuf@megabrands.com; Media: Harold Chizick, (514)
333-5555 ext. 2338, hchizick@megabrands.com
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