MEGA Brands reports third quarter 2009 results

MONTREAL, Nov. 13 /CNW Telbec/ - MEGA Brands Inc. (TMX: MB) announced today its financial results for the third quarter ended September 30, 2009. (All figures are expressed in US dollars.)

The Corporation reported net earnings of $72.0 million or $1.22 diluted earnings per share, compared to a net loss of $122.1 million or $3.34 diluted loss per share in the third quarter of 2008.

Net earnings in the third quarter of 2009 before recovery of purchase price and, net of litigation expenses were $6.9 million or $0.14 diluted earnings per share. Earlier this week, the Corporation announced the settlement in its favor of all litigation with Lawrence, Jeffrey and Sidney Rosen, resulting in a gain of $72.0 million or $1.22 diluted earnings per share. The third quarter of 2008 was impacted by a $150.0 million pre-tax charge for impairment of goodwill and other assets.

"We are pleased with the third quarter results. Our return to profitability reflects mainly the significant cost reductions and supply chain initiatives implemented over the past 18 months under our Value Enhancement Plan," said Marc Bertrand, President and CEO. "Sales trends in the fourth quarter are positive and we are on track to end the year on a strong note in terms of top line, inventories, and profitability. We are well advanced on key product launches for 2010, with Thomas the Tank first out of the gate, Iron Man in the Spring and several exciting MEGA innovations in the second half of the year."

Net sales in the third quarter of 2009 decreased to $118.0 million compared to $160.9 million in the third quarter of 2008. This decrease is in line with the Corporation's expectations and reflects lower sales in both of its product lines. Net sales of Toys product lines declined to $86.2 million compared to $107.9 million in the third 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 $31.7 million compared to $53.0 million in the third quarter of 2008.

MD&A Filing

MEGA Brands will file its Management's Discussion and Analysis as well as the unaudited consolidated financial statements and notes for the third quarter ended September 30, 2009 via SEDAR on November 13, 2009. The MD&A, financial statements and notes will be available on the Corporation's Web site on November 13, 2009.

Conference Call

An analyst conference call will be held at 9:00 a.m. on November 13, 2009 to discuss the results. Participants may listen to the call by dialing 1 (877) 974-0447. For those unable to participate, a replay will be available until November 20, 2009. The replay phone number is (416) 640-1917, access code 4183228#.

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 Q3 2009 MD&A.

About MEGA Brands

MEGA Brands 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.

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

                                     Three-month periods  Nine-month periods
                                      ended September 30, ended September 30,
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             $         $         $         $

    Net sales                          117,962   160,860   231,617   346,637
    -------------------------------------------------------------------------
    Cost of sales                       69,182   101,992   145,457   225,211
    -------------------------------------------------------------------------
    Gross profit                        48,780    58,868    86,160   121,426

    Marketing and advertising
     expenses                            4,097     4,648     7,684    13,893
    Research and development
     expenses                            2,765     4,750     8,543    13,156
    Other selling, distribution
     and administrative expenses        23,148    30,751    64,893    84,317
    Recovery of purchase price         (71,966)        -   (71,966)        -
    Litigation expenses                  6,880     3,623     9,618     7,076
    Product liability settlement
     and related expenses                    -    (9,350)        -    (9,350)
    Impairment of goodwill and
     other assets                            -   150,000         -   150,000
    Loss on foreign currency
     translation                         1,124     2,204     2,210     3,223
    -------------------------------------------------------------------------

    Earnings (loss) from operations     82,732  (127,758)   65,178  (140,889)
    -------------------------------------------------------------------------

    Interest expense
      Interest on long-term debt        11,455     9,416    32,343    20,845
      Change in fair value of
       interest rate swap               (1,249)    1,657    (1,797)   (3,921)
      Amortization of deferred
       financing costs                     977     1,201     2,246     3,015
      Other interest                        34       307        44       325
    -------------------------------------------------------------------------
                                        11,217    12,581    32,836    20,264
    -------------------------------------------------------------------------

    Earnings (loss) before income
     taxes                              71,515  (140,339)   32,342  (161,153)
    -------------------------------------------------------------------------

    Income taxes
      Current                             (220)     (313)      242     1,001
      Future                              (238)  (17,886)     (679)  (26,794)
    -------------------------------------------------------------------------
                                          (458)  (18,199)     (437)  (25,793)
    -------------------------------------------------------------------------

    Net earnings (loss)                 71,973  (122,140)   32,779  (135,360)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share
      Basic                               1.97     (3.34)     0.90     (3.70)
      Diluted                             1.22     (3.34)     0.61     (3.70)
    -------------------------------------------------------------------------


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

                                     Three-month periods  Nine-month periods
                                      ended September 30, ended September 30,
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             $         $         $         $

    Balance, beginning of period      (579,239)  (97,720) (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                      (579,239)  (97,720) (540,045)  (84,500)

    Net earnings (loss)                 71,973  (122,140)   32,779  (135,360)
    -------------------------------------------------------------------------
    Balance, end of period            (507,266) (219,860) (507,266) (219,860)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                     Three-month periods  Nine-month periods
                                      ended September 30, ended September 30,
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             $         $         $         $

    Net earnings (loss) for the
     period                             71,973  (122,140)   32,779  (135,360)
    -------------------------------------------------------------------------

    Other comprehensive income (loss),
     net of income taxes
      Gain (loss) on derivatives
       designated as cash flow hedges      356       356     1,068    (3,196)
    -------------------------------------------------------------------------
      Comprehensive income (loss) for
       the period                       72,329  (121,784)   33,847  (138,556)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive
     loss
    Balance, beginning of period
      Gross                             (7,096)   (9,398)   (8,246)   (3,659)
      Income taxes                       2,703     3,581     3,141     1,394
    -------------------------------------------------------------------------
                                        (4,393)   (5,817)   (5,105)   (2,265)

    Other comprehensive income (loss)
      Net change in losses on cash
       flow hedging items                    -         -         -    (6,313)
      Reclassification to income (loss)    575       575     1,725     1,150
      Income taxes                        (219)     (219)     (657)    1,967
    -------------------------------------------------------------------------
                                           356       356     1,068    (3,196)

    Balance, end of period
      Gross                             (6,521)   (8,823)   (6,521)   (8,822)
      Income taxes                       2,484     3,362     2,484     3,361
    -------------------------------------------------------------------------
    Balance, end of period              (4,037)   (5,461)   (4,037)   (5,461)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated balance sheets
    (in thousands of US dollars)

                                           September    December   September
                                            30, 2009    31, 2008    30, 2008
                                          (Unaudited)   (Audited) (Unaudited)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                   $           $           $
    Assets
    Current assets
      Cash and cash equivalents               13,437      49,427      39,664
      Accounts receivable                    111,912     104,620     173,289
      Recovery of purchase price              17,191           -           -
      Inventories                             67,420      65,220     108,135
      Income taxes                             3,322       7,149       8,869
      Future income taxes                      3,460       5,291       4,843
      Derivative financial instruments             -           -       1,599
      Prepaid expenses                        11,850      12,857      21,072
    -------------------------------------------------------------------------
                                             228,592     244,564     357,471

    Property, plant and equipment             27,125      31,726      40,860
    Intangible assets                         24,444      24,942      74,108
    Goodwill, net                             31,339      30,000     149,539
    Derivative financial instruments               -           -         552
    Future income taxes                        2,091       1,931      48,708
    -------------------------------------------------------------------------
                                             313,591     333,163     671,238
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued
       liabilities                            84,311      76,532      97,507
      Additional consideration accrued on
       business combination                        -      54,775      54,775
      Current portion of long-term debt       98,912       3,273       2,885
    -------------------------------------------------------------------------
                                             183,223     134,580     155,167

    Long-term debt                           295,651     387,702     392,269
    Derivative financial instruments           6,583      14,828       4,901
    Future income taxes                       11,615      16,497      16,401
    -------------------------------------------------------------------------
                                             497,072     553,607     568,738
    -------------------------------------------------------------------------

    Shareholders' equity
      Capital stock                          308,678     308,678     308,677
      Contributed surplus                        558         558         558
      Equity component of convertible
       debentures                             18,586      18,586      18,586
      Deficit                               (507,266)   (543,161)   (219,860)
      Accumulated other comprehensive
       income (loss) net of income taxes      (4,037)     (5,105)     (5,461)
    -------------------------------------------------------------------------
                                            (183,481)   (220,444)    102,500
    -------------------------------------------------------------------------
                                             313,591     333,163     671,238
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                     Three-month periods  Nine-month periods
                                      ended September 30, ended September 30,
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                             $         $         $         $

    Cash flows from operating
     activities
      Net earnings (loss)               71,973  (122,140)   32,779  (135,360)
      Items not affecting cash and
       cash equivalents
        Amortization of property,
         plant and equipment             3,544     3,754    10,069    11,214
        Amortization of intangible
         assets                            166       166       498       498
        Stock-based compensation
         plans                             (17)     (113)       28      (745)
        Amortization of deferred
         financing costs                   977     1,200     2,246     3,015
        Amortization of unrealized
         loss on swap derivative
         financial instruments             575       576     1,726     1,151
        Loss (gain) on swap
         derivative financial
         instruments                    (1,825)    1,082    (3,523)   (5,071)
        Future income taxes               (238)  (17,886)     (679)  (26,794)
        Impairment of goodwill and
         other assets                        -   150,000         -   150,000
        Accretion of interest on
         convertible debentures            719         -     1,959         -
        Loss (gain) on foreign
         currency                        5,391      (148)    6,310       742
    -------------------------------------------------------------------------
                                        81,265    16,491    51,413    (1,350)

    Changes in non-cash operating
     working capital items             (91,278)  (63,199)  (73,610) (106,443)
    -------------------------------------------------------------------------
                                       (10,013)  (46,708)  (22,197) (107,793)
    -------------------------------------------------------------------------

    Cash flows from financing
     activities
      Repayment of long-term debt         (701)   (2,344)   (3,733)   (7,009)
      Change in revolving credit
       facility                              -    19,000         -    94,000
      Issuance of convertible
       debentures                            -    69,934         -    69,934
      Issue costs on equity
       component of convertible
       debentures                            -    (1,051)        -    (1,051)
      Addition to deferred
       financing costs                       -    (4,898)   (3,254)   (7,564)
      Issuance of capital stock              -         -         -        76
    -------------------------------------------------------------------------
                                          (701)   80,641    (6,987)  148,386
    -------------------------------------------------------------------------

    Cash flows from investing
     activities
      Acquisition of property,
       plant and equipment              (1,385)   (1,396)   (5,467)   (8,833)
      Business combinations               (439)     (601)   (1,339)     (601)
    -------------------------------------------------------------------------
                                        (1,824)   (1,997)   (6,806)   (9,434)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents              (12,538)   31,936   (35,990)   31,159
    Cash and cash equivalents,
     beginning of period                25,975     7,728    49,427     8,505
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                      13,437    39,664    13,437    39,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary disclosure of cash
     flow information
      Interest paid                     10,170     8,096    29,724    16,327
      Income taxes paid (recovery)         233      (135)     (156)    2,418

    Non cash item
      Property, plant and equipment
       acquired by means of capital
       leases                              116         -       116       622
    

SOURCE MEGA Brands Inc.

For further information: For further information: Analysts and investors: Eric Laniel, (514) 333-5555, ext. 2620, elaniel@megabrands.com; Media: Carine Sroujian, (514) 333-5555, ext. 2669, csroujian@megabrands.com

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