MEGA Brands reports fourth quarter and 2009 results

MONTREAL, March 31 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) announced today its financial results for the fourth quarter and full year ended December 31, 2009. (All figures are expressed in US dollars.)

Net earnings in 2009 were $10.7 million or $0.29 per share compared to a net loss of $458.7 million or $12.53 per share in 2008. Net sales decreased to $338.9 million compared to $447.7 million in 2008.

For the fourth quarter, net loss was $22.1 million or $0.60 per share compared to a net loss of $323.3 million or $8.83 per share in the same 2008 period. Net sales increased 6% to $107.3 million compared to $101.0 million in the corresponding period in 2008. This increase is the first positive variance in year-over-year net sales since the first quarter of 2007.

"We are pleased with the improving trends in our business, with higher sales, lower expenses and improved gross margin in the fourth quarter compared to the same period in 2008," said Marc Bertrand, President and CEO. "With the completion of the recapitalization transaction, the company now has the liquidity and capital resources to pursue its business plan and we are fully focused on strengthening our brands, improving financial performance and building value."

Response from global retailers to its 2010 product lines at toy fairs in Asia, Europe and the United States was favourable and MEGA Brands expects increased shelf space to drive sales growth in both North America and international markets. Continued margin improvement is also anticipated from actions completed under the Value Enhancement Plan which have reduced operating expenses and increased global supply chain efficiency.

"Our preschool assortment is stronger than ever, with MEGA BLOKS basics leading the way and our Thomas & Friends products already performing well at retail. This year we will also benefit from media buzz surrounding the 65th anniversary of the Thomas & Friends brand, the 10th anniversary of Dora the Explorer, and of course, the 25th anniversary of MEGA BLOKS," added Marc Bertrand.

"In Boys, shipments of our Iron Man II construction line began in the first quarter and we are expanding our successful Halo Wars assortment and adding new innovations in Battle Strikers. Later in the year, we look forward to the launch of our Dragons Universe which has already received strong listings from retailers around the world."

Recent Developments

On March 30, 2010, the Corporation completed a recapitalization transaction whereby it significantly reduced total indebtedness and annual interest expenses going forward. This transaction is disclosed as a Subsequent Event in the notes to the Corporation's consolidated financial statements for the year ended December 31, 2009 and its impact will be reflected in the financial statements for the first quarter ending March 31, 2010.

    
    The Corporation's capital structure and financial flexibility are
    significantly improved.
    - Long-term debt is reduced by approximately $290 million to $139
      million, with no financial covenant restrictions.
    - Annual interest is reduced by approximately $30 million.
    - There are no material principal repayments until 2012.
    - The Corporation can borrow up to $45 million for working capital
      purposes under a new credit facility.
    

Further information on this transaction is available under the Corporation's profile on SEDAR at www.sedar.com.

In 2009, the Corporation completed the implementation of its Value Enhancement Plan (the "VEP"), which was launched at the end of 2007. Actions completed mainly in 2008 have improved global supply chain efficiency, allowing the Corporation to operate with significantly lower inventories and working capital. Among such actions was the significant downsizing of operations at the Corporation's manufacturing facility in China at the end of 2008. Numerous cost reduction measures have also been implemented, including the consolidation of North American warehousing and distribution activities. During 2009, the Corporation closed the MEGA Brands America headquarters in New Jersey and relocated these activities to its offices in Montreal and California. The Corporation has identified additional opportunities for cost reduction and increased efficiency which will be implemented in the normal course of operations in 2010.

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 audited consolidated financial statements and notes for the years ended December 31, 2009 and 2008. 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 for analysts will be held today at 9:00 a.m. to discuss the results. Management's presentation and the question and answer period with financial analysts will be followed by a question and answer period with journalists. 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 April 7, 2010. The replay phone number is (416) 849-0833 or (514) 807-9274, access code 66225450.

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 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 year ended December 31, 2009 and the Corporation's annual information form, as well as the Corporation's information circular dated February 15, 2010, all of 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)

                                 Three-month periods    Twelve-month periods
                                   ended December 31,      ended December 31,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $
                              (Unaudited) (Unaudited)   (Audited)   (Audited)

    Net sales                    107,295     101,040     338,912     447,677
    -------------------------------------------------------------------------

    Cost of sales                 73,612     116,979     219,069     342,190
    -------------------------------------------------------------------------

    Gross profit                  33,683     (15,939)    119,843     105,487
    Marketing and advertising
     expenses                      6,524      12,693      14,208      26,586
    Research and development
     expenses                      2,827       3,912      11,370      17,068
    Other selling,
     distribution and
     administrative expenses      23,154      46,035      88,047     130,057
    Impairment of goodwill /
     recovery of purchase
     price                         2,039     119,539     (69,927)    269,539
    Voluntary product recall
     and replacement                   -         293           -         588
    Litigation expenses            2,141       4,831      11,759      11,907
    Product liability
     settlement and related
     expenses                          -           -           -      (9,350)
    Impairment of intangible
     assets                            -      49,000           -      49,000
    Loss on foreign currency
     translation                     143         717       2,353       3,940
    -------------------------------------------------------------------------

    Earnings (loss) from
     operations                   (3,145)   (252,959)     62,033    (393,848)
    -------------------------------------------------------------------------

    Interest expense
      Interest on long-term debt  11,573      11,423      43,916      32,268
      Change in fair value of
       interest rate swap          5,982      10,503       4,185       6,582
      Amortization of deferred
       financing costs               986       1,270       3,232       4,285
      Other interest                 219         412         263         737
    -------------------------------------------------------------------------
                                  18,760      23,608      51,596      43,872
    -------------------------------------------------------------------------

    Earnings (loss) before
     income taxes                (21,905)   (276,567)     10,437    (437,720)
    -------------------------------------------------------------------------

    Income taxes
      Current                        331       2,190         573       3,191
      Future                        (183)     44,544        (862)     17,750
    -------------------------------------------------------------------------
                                     148      46,734        (289)     20,941
    -------------------------------------------------------------------------

    Net earnings (loss)          (22,053)   (323,301)     10,726    (458,661)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
      Basic                        (0.60)      (8.83)       0.29      (12.53)
      Diluted(1)                   (0.60)      (8.83)       0.29      (12.53)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    1) The dilutive effects of the convertible debentures and the outstanding
       options under the treasury stock method for the threeand 12-month
       periods ended December 31, 2009 and 2008 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,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $
                              (Unaudited) (Unaudited)   (Audited)   (Audited)

    Balance, beginning of
     period                     (507,266)   (219,860)   (543,161)    (84,500)
    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 as restated         (507,266)   (219,860)   (540,045)    (84,500)
    Net earnings (loss)          (22,053)   (323,301)     10,726    (458,661)
    -------------------------------------------------------------------------
    Balance, end of period      (529,319)   (543,161)   (529,319)   (543,161)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                 Three-month periods    Twelve-month periods
                                   ended December 31,      ended December 31,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $
                              (Unaudited) (Unaudited)   (Audited)   (Audited)
    Net earnings (loss) for
     the period                  (22,053)   (323,301)     10,726    (458,661)
    Other comprehensive
     income (loss), net of
     income taxes
      Gain (loss) on
       derivatives designated
       as cash flow hedges         4,037         356       5,105      (2,840)
    -------------------------------------------------------------------------
    Comprehensive income
     (loss) for the period       (18,016)   (322,945)     15,831    (461,501)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive loss
    Balance, beginning of period
      Gross                       (6,521)     (8,823)     (8,246)     (3,659)
      Income taxes                 2,484       3,362       3,141       1,394
    -------------------------------------------------------------------------
                                  (4,037)     (5,461)     (5,105)     (2,265)

    Other comprehensive income
     (loss)
      Net change in losses on
       cash flow hedging items         -           -           -      (6,313)
      Reclassification to income
       (loss)                      6,521         575       8,246       1,725
      Income taxes                (2,484)       (219)     (3,141)      1,748
    -------------------------------------------------------------------------
                                   4,037         356       5,105      (2,840)

    Balance, end of period
      Gross                            -      (8,248)          -      (8,247)
      Income taxes                     -       3,143           -       3,142
    -------------------------------------------------------------------------
    Balance, end of period             -      (5,105)          -      (5,105)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated balance sheets
    (in thousands of US dollars)
                                                        December    December
                                                        31, 2009    31, 2008
                                                        (Audited)   (Audited)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                               $           $
    Assets
    Current assets
      Cash and cash equivalents                           26,763      49,427
      Accounts receivable                                112,517     104,620
      Inventories                                         46,247      65,220
      Income taxes                                           914       7,149
      Future income taxes                                  4,197       5,291
      Prepaid expenses                                    12,806      12,857
    -------------------------------------------------------------------------
                                                         203,444     244,564

    Property, plant and equipment                         21,210      31,726
    Intangible assets                                     24,278      24,942
    Goodwill, net                                         30,000      30,000
    Future income taxes                                    2,197       1,931
    -------------------------------------------------------------------------
                                                         281,129     333,163
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities            67,290      76,532
      Additional consideration accrued on business
       combination                                             -      54,775
      Current portion of long-term debt                      944       3,273
    -------------------------------------------------------------------------
                                                          68,234     134,580

    Long-term debt                                       395,940     387,702
    Derivative financial instruments                       6,045      14,828
    Future income taxes                                   12,407      16,497
    -------------------------------------------------------------------------
                                                         482,626     553,607
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                                      308,678     308,678
      Contributed surplus                                    558         558
      Equity component of convertible debentures          18,586      18,586
      Deficit                                           (529,319)   (543,161)
      Accumulated other comprehensive income (loss)
       net of income taxes                                     -      (5,105)
    -------------------------------------------------------------------------
                                                        (201,497)   (220,444)
    -------------------------------------------------------------------------
                                                         281,129     333,163
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated statements of cash flows
    (in thousands of US dollars)

                                 Three-month periods    Twelve-month periods
                                   ended December 31,      ended December 31,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $
                              (Unaudited) (Unaudited)   (Audited)   (Audited)

    Cash flows from operating
     activities
      Net earnings (loss)        (22,053)   (323,301)     10,726    (458,661)
      Items not affecting
       cash and cash equivalents
        Amortization of property,
         plant and equipment       7,543       4,123      17,612      15,337
        Writeoff of property,
         plant and equipment           -       6,338           -       6,338
        Amortization of
         intangible assets           166         166         664         664
        Impairment of intangible
         assets                        -      49,000           -      49,000
        Impairment of good will
         /recovery of purchase
         price                     2,039     119,539     (54,775)    269,539
        Amortization of
         unrealized loss on swap
         derivative financial
         instruments               6,520         575       8,246       1,726
        Loss (gain) on swap
         derivative financial
         instruments                (539)      9,927      (4,062)      4,856
        Stock-based compensation
         plans                       340         (58)        368        (803)
        Amortization of deferred
         financing costs             986       1,270       3,232       4,285
        Writeoff deferred
         financing costs               -       2,528           -       2,528
        Future income taxes         (183)     44,544        (862)     17,750
        Accretion of interest on
         convertible debentures      768         603       2,727         902
        Loss on foreign currency   1,206       5,737       7,516       6,479
    -------------------------------------------------------------------------
                                  (3,207)    (79,009)     (8,608)    (80,060)

    Changes in non-cash
     operating working capital
     items                        18,869      92,476         734     (14,266)
    -------------------------------------------------------------------------
                                  15,662      13,467      (7,874)    (94,326)
    -------------------------------------------------------------------------

    Cash flows from financing
     activities
      Repayment of long-term
       debt                         (707)     (2,378)     (4,440)     (9,387)
      Change in revolving credit
       facility                        -           -           -      94,000
      Issuance of convertible
       debentures                      -           -           -      69,934
      Issuance of capital stock        -           -           -          76
      Addition to deferred
       financing costs                 -           -      (3,254)     (7,564)
      Issue costs on equity
       component of convertible
       debentures                      -           -           -      (1,051)
    -------------------------------------------------------------------------
                                    (707)     (2,378)     (7,694)    146,008
    -------------------------------------------------------------------------

    Cash flows from investing
     activities
      Acquisition of property,
       plant and equipment        (1,629)     (1,326)     (7,096)    (10,159)
      Business combinations            -           -           -        (601)
    -------------------------------------------------------------------------
                                  (1,629)     (1,326)     (7,096)    (10,760)
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash equivalents    13,326       9,763     (22,664)     40,922
    Cash and cash equivalents,
     beginning of period          13,437      39,664      49,427       8,505
    Cash and cash equivalents,
     end of period                26,763      49,427      26,763      49,427
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE MEGA Brands Inc.

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

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