MEGA Brands reports first quarter 2010 results

MONTREAL, May 14 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) announced today its financial results for the first quarter ended March 31, 2010. (All figures are expressed in US dollars.)

Net sales increased 13% to $49.1 million compared to $43.5 million in the first quarter of 2009. The Corporation's net sales increased in both North America and international markets, driven mainly by higher shipments of construction toys in the Preschool and Boys categories. This is the second consecutive quarter of year-over-year improvement in the Corporation's net sales.

Net earnings were $98.2 million or $2.28 per share compared to a net loss of $25.9 million or $0.71 per share in the first quarter of 2009. The first quarter 2010 results include a gain on settlement of debt, reflecting the positive impact of the recapitalization transaction completed on March 30, 2010.

"All of our key performance indicators were positive during the quarter, with higher sales, lower operating expenses and improved gross margins," said Marc Bertrand, President and CEO. "Our market-leading Preschool offering is performing well at retail, with strong demand for core MEGA BLOKS product lines and incremental sales resulting from the Spring launch of Thomas & Friends. Our Boys business continues to build sales momentum driven by Halo Wars and Iron Man 2. With the Fall introduction of our Dragons Universe in the Boys category and more innovations in Preschool, we expect increased shelf space at major retailers in both North America and international markets heading into the peak toy selling season."

Recent Developments

The Corporation significantly improved its capital structure and financial flexibility with the completion of a recapitalization transaction on March 30, 2010.

    
       - Debt is reduced by approximately $290 million compared to the level
         at the end of 2009.
       - Cash interest expenses, which reached $43.9 million in 2009, are
         expected to decline to approximately $20.5 million in 2010 and
         $14.0 million in 2011. This excludes interest expense related to
         utilization, if any, of the Corporation's new asset-based credit
         facility for working capital purposes.
       - The Corporation has no principal repayments until 2012, and no
         financial covenant restrictions.
    

As a result of the recapitalization, the Corporation recognized a non-cash gain on settlement of debt amounting to $140.3 million, net of related fees of $2.0 million and the writeoff of deferred financing costs of $3.0 million. This amount is presented in the consolidated statement of earnings for the three-month period ended March 31, 2010 under the heading "Settlement of debt" in Interest and other expenses.

MD&A Filing

This press release should be read in conjunction with the Corporation's Management's Discussion and Analysis (the "MD&A") as well as the unaudited consolidated financial statements and notes for the three-month periods ended March 31, 2010 and 2009. The Corporation will file these documents today via SEDAR. The MD&A, financial statements and notes will be posted today on the Corporation's Web site.

Conference Call

A conference call will be held at 9:00 a.m. today to discuss the results and business outlook. Participants may listen to the call by dialing (647) 427-7450 or 1 (888) 231-8191. For those unable to participate, a replay will be available until May 21, 2010. The replay phone number is (416) 849-0833 or (514) 807-9274, access code 73323102.

About MEGA Brands

MEGA Brands Inc. is a trusted family of leading global brands in construction toys, games & puzzles, arts & crafts and stationery. They offer engaging creative experiences for children and families through innovative, well-designed, affordable and high-quality products. Visit http://www.megabrands.com for more information.

The MEGA logo, Mega Bloks, Rose Art, MagNext, MEGA Puzzles and Board Dudes are trademarks of MEGA Brands Inc. or its affiliates.

Forward-Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities laws These statements represent the Corporation's intentions, plans, expectations and beliefs. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking information and statements are based on a number of assumptions and involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by them, including, but not limited to risks, assumptions and uncertainties described in the Corporation's MD&A for the three-month period ended March 31, 2010 and the year ended December 31, 2009, which are available at www.sedar.com. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, other than as required by applicable law.

    
    Consolidated statements of earnings (loss)
    (in thousands of US dollars, except per share data)
    (Unaudited)


                                                          Three-month periods
                                                             ended March 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             $             $
    Net sales                                           49,145        43,533
    -------------------------------------------------------------------------

    Cost of sales                                       32,330        31,990
    -------------------------------------------------------------------------

    Gross profit                                        16,815        11,543

    Marketing and advertising expenses                   2,634         2,138
    Research and development expenses                    3,053         3,019
    Other selling, distribution and administrative
     expenses                                           31,313        19,506
    Impairment of goodwill                                 900             -
    Loss on foreign currency translation                   673         1,245
    -------------------------------------------------------------------------

    Loss from operations                               (21,758)      (14,365)
    -------------------------------------------------------------------------

    Interest and other expenses
      Interest on long-term debt                        10,051         9,984
      Gain on settlement of debt                      (140,344)            -
      Change in fair value of interest rate swap             -        1 ,583
      Amortization of deferred financing costs           1,130           306
      Other interest                                       113           (40)
    -------------------------------------------------------------------------
                                                      (129,050)       11,833
    -------------------------------------------------------------------------

    Earnings (loss) before income taxes                107,292       (26,198)
    -------------------------------------------------------------------------

    Income taxes
      Current                                             (431)          433
      Future                                             9,514          (713)
    -------------------------------------------------------------------------
                                                         9,083          (280)
    -------------------------------------------------------------------------

    Net earnings (loss)                                 98,209       (25,918)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
      Basic                                               2.28         (0.71)
      Diluted(1)                                          2.28         (0.71)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    1) The dilutive effects of the outstanding options, warrants and
       debentures for the three-month periods ended March 31, 2010 and 2009
       are nil as they are anti-dilutive.


    Consolidated statements of deficit
    (in thousands of US dollars)
    (Unaudited)

                                                          Three-month periods
                                                             ended March 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             $             $


    Balance, beginning of period                      (529,319)     (543,161)
    Impact of the adoption of new abstract,
     Handbook EIC-173, Credit Risk and the Fair
     Value of Financial Assets and Financial
     Liabilities

      Change in fair value of interest rate swap             -         4,722
      Income taxes                                           -        (1,606)
    -------------------------------------------------------------------------
                                                             -         3,116

    Balance, beginning of period                      (529,319)     (540,045)
    Net earnings (loss)                                 98,209       (25,918)
    -------------------------------------------------------------------------
    Balance, end of period                            (431,110)     (565,963)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated statements of comprehensive income (loss) and
    Accumulated other comprehensive income (loss)
    (in thousands of US dollars)

                                                         Three-month periods
                                                            ended March 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             $             $

    Net earnings (loss) for the period                  98,209       (25,918)
    -------------------------------------------------------------------------

    Other comprehensive income (loss), net of
     income taxes
      Gain (loss) on derivatives designated as
       cash flow hedges                                      -           356
    -------------------------------------------------------------------------
    Comprehensive income (loss) for the period          98,209       (25,562)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive loss
    Balance, beginning of period
      Gross                                                  -        (8,246)
      Income taxes                                           -         3,141
    -------------------------------------------------------------------------
                                                             -        (5,105)

    Other comprehensive income (loss)
      Net change in losses on cash flow hedging
       items                                                 -             -
      Reclassification to income (loss)                      -           575
      Income taxes                                           -          (219)
    -------------------------------------------------------------------------
                                                             -           356
    Balance, end of period
      Gross                                                  -        (7,671)
      Income taxes                                           -         2,922
    -------------------------------------------------------------------------
    Balance, end of period                                   -        (4,749)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated balance sheets
    (in thousands of US dollars)

                                                      March 31,  December 31,
                                                          2010          2009
                                                    (Unaudited)     (Audited)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             $             $

    Assets
    Current assets
      Cash and cash equivalents                         24,816        26,763
      Accounts receivable                               64,475       112,517
      Inventories                                       53,987        46,247
      Income taxes                                         936           914
      Future income taxes                                3,416         4,197
      Prepaid expenses                                  11,584        12,806
    -------------------------------------------------------------------------
                                                       159,214       203,444

    Property, plant and equipment                       20,954        21,210
    Intangible assets                                   24,112        24,278
    Goodwill, net                                       30,000        30,000
    Future income taxes                                  2,330         2,197
    -------------------------------------------------------------------------
                                                       236,610       281,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities          55,952        67,290
      Current portion of long-term debt                    247           944
    -------------------------------------------------------------------------
                                                        56,199        68,234

    Long-term debt                                     119,734       395,940
    Derivative financial instruments                         -         6,045
    Future income taxes                                 19,206        12,407
    -------------------------------------------------------------------------
                                                       195,139       482,626
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                                    429,007       308,678
      Warrants                                          24,430
      Contributed surplus                               19,144           558
      Equity component of convertible debentures             -        18,586
      Deficit                                         (431,110)     (529,319)
    -------------------------------------------------------------------------
                                                        41,471      (201,497)
    -------------------------------------------------------------------------
                                                       236,610       281,129
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated statements of cash flows
    (in thousands of US dollars)
    (Unaudited)
                                                          Three-month periods
                                                             ended March 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             $             $

    Cash flows from operating activities
      Net earnings (loss)                               98,209       (25,918)
      Items not affecting cash and cash equivalents
        Amortization of property, plant and
         equipment                                       2,194         3,178
        Amortization of intangible assets                  166           166
        Settlement of debt                            (145,310)            -
        Impairment of goodwill / recovery of
         purchase price                                      -          (900)
        Amortization of unrealized loss on swap
         derivative financial instruments                    -           575
        Loss (gain) on swap derivative financial
         instruments                                         -         1,008
        Stock-based compensation plans                    (295)            3
        Amortization of deferred financing costs           991           306
        Writeoff deferred financing costs                2,967             -
        Future income taxes                              9,514          (713)
        Accretion of interest on convertible
         debentures                                        819           596
        Loss (gain) on foreign currency                  2,267          (382)
    -------------------------------------------------------------------------
                                                       (28,478)      (22,081)

    Changes in non-cash operating working
     capital items                                      26,427        25,068
    -------------------------------------------------------------------------
                                                        (2,051)        2,987
    -------------------------------------------------------------------------

    Cash flows from financing activities
      Repayment of long-term debt                     (216,024)       (2,345)
      Issuance of debentures                           120,732             -
      Issuance of capital stock                         85,859             -
      Issuance of warrants                              23,776             -
      Addition to deferred financing costs              (7,937)            -
      Share issue cost                                  (3,399)            -
      Issue costs on warrants                             (965)            -
    -------------------------------------------------------------------------
                                                         2,042        (2,345)
    -------------------------------------------------------------------------

    Cash flows from investing activities
      Acquisition of property, plant and equipment      (1,938)       (1,951)
    -------------------------------------------------------------------------
                                                        (1,938)       (1,951)
    -------------------------------------------------------------------------

    Decrease in cash and cash equivalents               (1,947)       (1,309)
    Cash and cash equivalents, beginning of period      26,763        49,427
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period            24,816        48,118
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE MEGA Brands Inc.

For further information: For further information: Investor Contact: Eric Laniel, Manager, Treasury & Investor Relations, (514) 333-5555 ext. 2620

Organization Profile

MEGA Brands Inc.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890