MEGA Brands reports second quarter 2009 results



    MONTREAL, Aug. 13 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) announced
today its financial results for the second quarter ended June 30, 2009. (All
figures are expressed in US dollars.)
    In line with the Corporation's expectations, net sales in the second
quarter of 2009 decreased to $70.1 million compared to $106.4 million in the
same period last year. This decrease reflects lower sales in both of the
Corporation's product lines.
    Net sales of Toys product lines declined to $32.1 million compared to
$50.4 million in the second quarter of 2008. This decrease is due mainly to
lower shipments in the Boys 5-plus and magnetic construction categories.
    Net sales of Stationery and Activities product lines declined to $38.0
million compared to $56.0 million in the second quarter of 2008. This decrease
is explained mainly by lower shipments in the children's activities and
writing instruments categories.
    On a geographical basis, net sales in North America decreased to $53.3
million compared to $69.7 million compared in the second quarter of 2008.
International net sales declined to $16.8 million compared to $36.7 million in
the second quarter of 2008.
    Net loss was $13.3 million or $0.36 basic and diluted loss per share,
compared to a net loss of $3.6 million or $0.10 basic and diluted loss per
share in the second quarter of 2008.
    For the six months ended June 30, 2009, net sales decreased to $113.7
million compared to $185.8 million in the same period last year. Sales of Toys
declined to $55.6 million compared to $97.6 million in the first six months of
2008. This decrease is explained mainly by lower sales in the Boys 5-plus and
magnetic construction categories. Sales of Stationery and Activities products
decreased to $58.1 million compared to $88.2 million in the corresponding
period of 2008. North American sales were $85.4 million compared to $121.8
million in the first six months of 2008 while International sales decreased to
$28.3 million compared to $64.0 million for the first six months of 2008. Net
loss was $39.2 million or $1.07 basic and diluted loss per share, compared to
a net loss of $13.2 million or $0.36 basic and diluted loss per share in the
corresponding period of 2008.
    "Sales have started to pick up and our new products are now at retail.
The initial reads are positive and we are building momentum for the peak
selling season," said Marc Bertrand, President and CEO. "We are seeing lots of
excitement with Battle Strikers growing worldwide. For the rest of the year,
we expect to track our 2009 plan."

    MD&A Filing

    MEGA Brands will file the Management's Discussion and Analysis as well as
the unaudited consolidated financial statements and notes for the second
quarter ended June 30, 2009 via SEDAR on August 14, 2009. The MD&A, financial
statements and notes will be available on the Corporation's Web site on August
14, 2009.

    Conference Call

    An analyst conference call will be held at 9:00 a.m. on August 13, 2009
to discuss the results. Participants may listen to the call by dialling 1
(800) 814-4862. For those unable to participate, a replay will be available
until August 20, 2009. The replay phone number is (416) 640-1917, access code
21312085#.

    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 and Q1 2009 MD&A which are
available on SEDAR.

    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, MAGNEXT
and BOARD DUDES are trademarks of MEGA Brands Inc. or its affiliates.

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

                                 Three-month periods       Six-month periods
                                       ended June 30,          ended June 30,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $

    Net sales                     70,122     106,385     113,655     185,777
    -------------------------------------------------------------------------
    Cost of sales                 44,285      71,630      76,275     123,219
    -------------------------------------------------------------------------

    Gross profit                  25,837      34,755      37,380      62,558

    Marketing and advertising
     expenses                      1,449       5,294       3,587       9,245
    Research and development
     expenses                      2,759       3,856       5,778       8,406
    Other selling, distribution
     and administrative
     expenses                     23,495      26,008      41,745      53,566
    Litigation expenses            1,482       2,311       2,738       3,453
    Loss (gain) on foreign
     currency translation           (159)       (336)      1,086       1,019
    -------------------------------------------------------------------------

    Loss from operations          (3,189)     (2,378)    (17,554)    (13,131)
    -------------------------------------------------------------------------

    Interest and other expenses
      Interest on long-term
       debt                       10,904       6,158      20,888      11,429
      Change in fair value
       of interest rate swap      (2,131)     (5,578)       (548)     (5,578)
      Amortization of deferred
       financing costs               963         874       1,269       1,814
      Other interest                  50        (172)         10          18
    -------------------------------------------------------------------------
                                   9,786       1,282      21,619       7,683
    -------------------------------------------------------------------------

    Loss before income taxes     (12,975)     (3,660)    (39,173)    (20,814)
    -------------------------------------------------------------------------

    Income taxes
      Current                         29         393         462       1,314
      Future                         272        (481)       (441)     (8,908)
    -------------------------------------------------------------------------
                                     301         (88)         21      (7,594)
    -------------------------------------------------------------------------

    Net loss                     (13,276)     (3,572)    (39,194)    (13,220)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss per share
      Basic and diluted            (0.36)      (0.10)      (1.07)      (0.36)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                 Three-month periods       Six-month periods
                                       ended June 30,          ended June 30,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $

    Balance, beginning of
     period as reported         (565,963)    (94,148)   (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         (565,963)    (94,148)   (540,045)    (84,500)

    Net loss                     (13,276)     (3,572)    (39,194)    (13,220)
    -------------------------------------------------------------------------

    Balance, end of period      (579,239)    (97,720)   (579,239)    (97,720)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated statements of comprehensive loss and
    accumulated other comprehensive loss
    (in thousands of US dollars)
    (Unaudited)

                                 Three-month periods       Six-month periods
                                       ended June 30,          ended June 30,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $

    Net loss for the period      (13,276)     (3,572)    (39,194)    (13,220)
    -------------------------------------------------------------------------

    Other comprehensive loss,
     net of income taxes
      Earnings (loss) on
       derivatives designated
       as cash flow hedges           356         356         712      (3,552)
    -------------------------------------------------------------------------
    Comprehensive loss for the
     period                      (12,920)     (3,216)    (38,482)    (16,772)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive loss
    Balance, beginning of period
      Gross                       (7,671)     (9,973)     (8,246)     (3,659)
      Income taxes                 2,922       3,800       3,141       1,394
    -------------------------------------------------------------------------
                                  (4,749)     (6,173)     (5,105)     (2,265)

    Other comprehensive loss
      Net change in losses on
       cash flow hedging items         -           -           -      (6,313)
      Reclassification to loss       575         575       1,150         575
      Income taxes                  (219)       (219)       (438)      2,186
    -------------------------------------------------------------------------
                                     356         356         712      (3,552)

    Balance, end of period
      Gross                       (7,096)     (9,398)     (7,096)     (9,397)
      Income taxes                 2,703       3,581       2,703       3,580
    -------------------------------------------------------------------------
    Balance, end of period        (4,393)     (5,817)     (4,393)     (5,817)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated balance sheets
    (in thousands of US dollars)

                                                June    December        June
                                                  30,         31,         30,
                                                2009        2008        2008
                                          (Unaudited)   (Audited) (Unaudited)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   $           $           $
    Assets
    Current assets
      Cash and cash equivalents               25,975      49,427       7,728
      Accounts receivable                     78,219     104,620     122,760
      Inventories                             67,232      65,220     112,236
      Income taxes                             3,186       7,149       9,902
      Future income taxes                      2,745       5,291       3,986
      Prepaid expenses                        13,652      12,857      21,991
    -------------------------------------------------------------------------
                                             191,009     244,564     278,603

    Property, plant and equipment             29,283      31,726      43,239
    Intangible assets                         24,610      24,942      74,274
    Goodwill                                  30,900      30,000     298,938
    Future income taxes                        1,963       1,931      49,086
    -------------------------------------------------------------------------
                                             277,765     333,163     744,140
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued
       liabilities                            68,445      76,532     112,289
      Additional consideration accrued on
       business combination                   54,775      54,775      54,775
      Derivative financial instruments             -           -       1,682
      Current portion of long-term debt        2,862       3,273       5,521
    -------------------------------------------------------------------------
                                             126,082     134,580     174,267

    Long-term debt                           386,659     387,702     325,328
    Derivative financial instruments           8,408      14,828       4,260
    Future income taxes                       12,426      16,497      34,587
    -------------------------------------------------------------------------
                                             533,575     553,607     538,442
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                          308,678     308,678     308,677
      Contributed surplus                        558         558         558
      Equity component of convertible
       debentures                             18,586      18,586           -
      Deficit                               (579,239)   (543,161)    (97,720)
      Accumulated other comprehensive
       loss net of income taxes               (4,393)     (5,105)     (5,817)
    -------------------------------------------------------------------------
                                            (255,810)   (220,444)    205,698
    -------------------------------------------------------------------------
                                             277,765     333,163     744,140
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                 Three-month periods       Six-month periods
                                       ended June 30,          ended June 30,
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                       $           $           $           $

    Cash flows from operating
     activities
      Net loss                   (13,276)     (3,572)    (39,194)    (13,220)
      Items not affecting cash
       and cash equivalents
        Amortization of property,
         plant and equipment       3,347       3,853       6,525       7,460
        Amortization of
         intangible assets           166         166         332         332
        Stock-based compensation
         plans                        42        (203)         45        (632)
        Future income taxes          272        (481)       (441)     (8,908)
        Accretion of interest on
         convertible debentures      644           -       1,240           -
        Amortization of deferred
         financing costs             963         875       1,269       1,815
        Amortization of unrealized
         loss on swap derivative
         financial instruments       576         575       1,151         575
        Gain on swap derivative
         financial instruments    (2,706)     (6,153)     (1,698)     (6,153)
        Loss on foreign currency   1,301         245         919         890
    -------------------------------------------------------------------------
                                  (8,671)     (4,695)    (29,852)    (17,841)

    Changes in non-cash operating
     working capital items        (7,400)    (13,075)     17,668     (43,244)
    -------------------------------------------------------------------------
                                 (16,071)    (17,770)    (12,184)    (61,085)
    -------------------------------------------------------------------------

    Cash flows from financing
     activities
      Repayment of long-term debt   (687)     (2,312)     (3,032)     (4,665)
      Change in revolving credit
       facility                        -      26,500           -      75,000
      Addition to deferred
       financing costs            (3,254)          -      (3,254)     (2,666)
      Issuance of capital stock        -           -           -          76
    -------------------------------------------------------------------------
                                  (3,941)     24,188      (6,286)     67,745
    -------------------------------------------------------------------------

    Cash flows from investing
     activities
      Acquisition of property,
       plant and equipment        (2,131)     (2,763)     (4,082)     (7,437)
      Business combinations            -           -        (900)          -
    -------------------------------------------------------------------------
                                  (2,131)     (2,763)     (4,982)     (7,437)
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash equivalents   (22,143)      3,655     (23,452)       (777)
    Cash and cash equivalents,
     beginning of period          48,118       4,073      49,427       8,505
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                25,975       7,728      25,975       7,728
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary disclosure of
     cash flow information
      Interest paid                8,889       2,538      19,554       8,231
      Income taxes paid
       (recovered)                   481       2,863        (389)      2,553

    Non cash item
      Property, plant and
       equipment acquired by
       means of capital leases         -           -           -         622
    




For further information:

For further information: Analysts and Investors: Eric Laniel, (514)
333-5555 ext. 2620, elaniel@megabrands.com; Media: Harold Chizick, (514)
333-5555 ext. 2338, hchizick@megabrands.com


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