MEGA BRANDS REPORTS FIRST QUARTER 2011 RESULTS

  • Sixth consecutive quarter of year-over-year sales growth
  • Toy sales up 17%
  • $18.6 million reduction in adjusted net loss

MONTREAL, May 12 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) announced its financial results today for the first quarter ended March 31, 2011. The Corporation adopted International Financial Reporting Standards effective January 1, 2011 and all comparative 2010 figures have been restated. (All figures are expressed in US dollars.)

Consolidated net sales in the first quarter increased 4% to $51.0 million compared to $49.1 million in the corresponding 2010 period. This is the sixth consecutive quarter of higher year-over-year sales since the fourth quarter of 2009.

Toy sales continued their strong momentum with a 17% increase compared to the first quarter of 2010. Sales of Stationery and Activities products declined as expected and the Corporation is taking steps to improve this segment's results through the balance of the year.

The Corporation reduced its adjusted net loss by $18.6 million compared to the first quarter of 2010. Reported net loss was $9.3 million or $0.03 per basic and diluted share compared to net earnings of $103.0 million or $2.39 per basic and diluted share in the first quarter of 2010. Net earnings in the 2010 period were due primarily to a non-recurring accounting gain of $144.3 million resulting from the settlement of debt. Before this non-cash gain and other Specified items, net loss in the first quarter of 2010 was $27.7 million.

''We are off to a good start to the year with an $18.6 million improvement in operating results, positive feedback on new products and a strong outlook for the construction toy category which continues to outperform the toy industry,'' said Marc Bertrand, President and CEO. ''MEGA Brands is on track for higher sales and profitability in 2011.''

New products introduced in the first quarter included Blok Town, Blok Squad and Hello Kitty, a new construction toy line for girls which is off to a strong start at retail. The Corporation's Fall launches include construction toys based on the Need for Speed video games, new products in conjunction with the 10th anniversary of Halo, and Breakthrough Puzzles, an innovation in 3D puzzles.

The Corporation's business is seasonal, with net sales and financial results typically at their highest levels in the third and fourth quarters.

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 (514) 807-8791 or 1-800-589-8577. For those unable to participate, a replay will be available until May 18, 2011. The replay phone number is 877-289-8525 or (416) 640-1917, access code 4437892.

Annual Meeting of Shareholders
The Corporation's Annual Meeting of Shareholders will be held today at 11:00 a.m. at Le Nouvel Hotel, 1740 René-Lévesque Blvd. West, in Montreal.

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, MEGA Puzzles, MEGA Games and Board Dudes are trademarks of MEGA Brands Inc. or its affiliates.

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, 2011 and 2010. 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.

Use of Supplementary Financial Measures
The Corporation reports its financial results in accordance with International Financial Reporting Standards (''IFRS''). However, the Corporation believes that certain non-IFRS measures provide useful information to investors regarding its financial condition and results of operations. A reconciliation of supplementary financial measures with IFRS financial statements is provided in the Corporation's MD&A for the three-month period ended March 31, 2011, which is available at www.sedar.com and on the Corporation's Web site.

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 year ended December 31, 2010, which are available at www.sedar.com and on the Corporation's Web site. 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.

Unaudited Interim Consolidated Income Statements
(in thousands of US dollars, except per share amounts)
 
Three-month periods
ended March 31,
    2011 2010
  Note $ $
 
Net sales   51,036 49,145
Cost of sales   33,224 32,555
Gross profit   17,812 16,590
 
Marketing and advertising expenses   2,864 2,634
Research and development expenses   3,276 3,053
Other selling, distribution and administrative expenses   17,910 31,385
Contingent consideration on business acquisition 4 168 168
Loss on foreign currency translation   121 202
 
Loss from operations   (6,527) (20,852)
 
Financial expenses   4,673 11,382
Gain on settlement of debt 8 - (144,338)
    4,673 (132,956)
 
Earnings (loss) before income taxes   (11,200) 112,104
Income taxes      
  Current   (1,451) 6,840
  Deferred   (485) 2,243
    (1,936) 9,083
 
Net earnings (loss)   (9,264) 103,021
 
Earnings (loss) per share      
  Basic 6 (0.03) 2.39
  Diluted 6 (0.03) 2.39
 
Unaudited Interim Consolidated Statements of Comprehensive Income
(in thousands of US dollars, except per share amounts)
    Three-month periods
ended March 31,
    2011 2010
  Note $ $
 
Net earnings (loss)   (9,264) 103,021
 
Other comprehensive loss:      
  Cumulative translation adjustment 4 (566) (2,589)
 
Other comprehensive loss   (566) (2,589)
 
Comprehensive income (loss)   (9,830) 100,432
 
Unaudited Consolidated Statements of Financial Position
(in thousands of US dollars)
    March 31, December 31, January 1,
    2011 2010 2010
  Note $ $ $
 
Assets
Current assets
Cash and cash equivalents   16,574 5,277 26,763
Trade and other receivables   78,696 123,194 112,517
Inventories   64,616 51,135 46,247
Derivative financial instruments 12 581 414 -
Prepaid expenses   10,463 11,039 12,806
Total current assets   170,930 191,059 198,333
 
Non-current assets
Property, plant and equipment 7 28,987 21,501 21,210
Intangible assets   23,509 23,615 24,278
Goodwill   30,000 30,000 30,000
Derivative financial instruments 12 223 309 -
Deferred income tax assets   7,106 7,097 6,394
Total assets   260,755 273,581 280,215
 
Liabilities
 
Current liabilities
Trade and other payables   54,280 62,686 69,016
Income taxes   16,717 16,857 10,729
Derivative financial instruments 12 1,693 970 -
Current portion of long-term debt 8 26 35 944
    72,716 80,548 80,689
         
Non-current liabilities        
Long-term debt 8 129,566 125,507 395,940
Derivative financial instruments 12 261 19 7,340
Deferred income tax liabilities   - - 764
    129,827 125,526 404,044
Equity
Share capital 9 429,007 429,007 308,678
Warrants 9 24,430 24,430 -
Contributed surplus   2,517 1,982 558
Deficit 4 (391,916) (382,652) (513,754)
Accumulated other comprehensive loss 4 (5,826) (5,260) -
Total equity   58,212 67,507 (204,518)
Total liabilities and equity   260,755 273,581 280,215
 
Unaudited Consolidated Statement of Changes in Equity
(in thousands of US dollars)
    Share capital Warrants Contributed
surplus
Deficit Accumulated
other
comprehensive
loss
Total equity
  Note $ $ $ $ $ $
Balance - January 1, 2010   308,678 - 558 (513,754) - (204,518)
Net earnings for the period   - - - 103,021 - 103,021
Other comprehensive loss 4 - - - - (2,589) (2,589)
Shares issued in settlement of debt 9 37,869 - - - - 37,869
Shares issued for cash 9 85,859 - - - - 85,859
Share issuance expense 9 (3,399) - - - - (3,399)
Issuance of warrants 9 - 25,395 - - - 25,395
Warrant issuance expense 9 - (965) - - - (965)
Balance - March 31, 2010   429,007 24,430 558 (410,733) (2,589) 40,673
      - - - -  
Net earnings for the period   - - - 28,081 - 28,081
Other comprehensive loss 4 - - - - (2,671) (2,671)
Stock-based compensation   - - 1,424 - - 1,424
Balance - December 31, 2010   429,007 24,430 1,982 (382,652) (5,260) 67,507
               
Net loss for the period   - - - (9,264) - (9,264)
Other comprehensive loss   - - - - (566) (566)
Stock-based compensation   - - 535 - - 535
Balance - March 31, 2011   429,007 24,430 2,517 (391,916) (5,826) 58,212

 
Unaudited Consolidated Statements of Cash Flows
(in thousands of US dollars)
    Three-month periods,
ended March 31
    2011 2010
  Note $ $
 
Operating activities
Net earnings (loss)   (9,264) 103,021
Items not affecting cash and cash equivalents
  Depreciation of property, plant and equipment 7 2,404 2,491
  Amortization of intangible assets   105 166
  Gain on settlement of debt 8 - (149,304)
  Stock-based compensation   535 -
  Financial expenses   4,673 11,382
  Writeoff deferred financing costs 8 - 2,967
  Income taxes   (1,936) 9,083
  Loss (gain) on foreign currency   (31) 1,970
    (3,514) (18,224)
  Net change in non-cash working capital balances 11 22,211 33,314
  Income taxes recovered (paid)   1,312 (141)
  Interest paid   (92) (16,826)
Cash flows provided by operating activities   19,917 (1,877)
 
Financing activities
Repayment of long-term debt 8 (14) (216,024)
Issuance of debentures 8 - 120,732
Issuance of capital stock 9 - 85,859
Issurance of warrants 9 - 23,776
Addition to deferred financing costs 8 - (7,937)
Share issue cost 9 - (3,399)
Issue costs on warrants 9 - (965)
Cash flows provided by financing activities   (14) 2,042
 
Investing activities
Acquisition of property, plant and equipment 7 (8,575) (1,997)
Cash flows provided by investing activities   (8,575) (1,997)
 
Effect of changes in foreign exchange rates on cash and cash equivalents   (31) (115)
       
Increase (decrease) in cash and cash equivalents   11,297 (1,947)
Cash and cash equivalents — Beginning of period   5,277 26,763
       
Cash and cash equivalents — End of period   16,574 24,816

 

 

SOURCE MEGA BRANDS INC.

For further information:

Investor Contact:

Peter Ferrante
Vice President and Chief Financial Officer
Tel: (514) 333-5555 ext. 2283

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MEGA BRANDS INC.

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