MONTREAL: 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.
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
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$ $
Net sales 49,145 43,533
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Cost of sales 32,330 31,990
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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
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Loss from operations (21,758) (14,365)
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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)
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(129,050) 11,833
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Earnings (loss) before income taxes 107,292 (26,198)
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Income taxes
Current (431) 433
Future 9,514 (713)
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9,083 (280)
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Net earnings (loss) 98,209 (25,918)
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Earnings (loss) per share
Basic 2.28 (0.71)
Diluted(1) 2.28 (0.71)
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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
-------------------------------------------------------------------------
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$ $
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)
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- 3,116
Balance, beginning of period (529,319) (540,045)
Net earnings (loss) 98,209 (25,918)
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Balance, end of period (431,110) (565,963)
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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
-------------------------------------------------------------------------
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$ $
Net earnings (loss) for the period 98,209 (25,918)
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Other comprehensive income (loss), net of
income taxes
Gain (loss) on derivatives designated as
cash flow hedges - 356
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Comprehensive income (loss) for the period 98,209 (25,562)
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Accumulated other comprehensive loss
Balance, beginning of period
Gross - (8,246)
Income taxes - 3,141
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- (5,105)
Other comprehensive income (loss)
Net change in losses on cash flow hedging
items - -
Reclassification to income (loss) - 575
Income taxes - (219)
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- 356
Balance, end of period
Gross - (7,671)
Income taxes - 2,922
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Balance, end of period - (4,749)
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Consolidated balance sheets
(in thousands of US dollars)
March 31, December 31,
2010 2009
(Unaudited) (Audited)
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$ $
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
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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
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236,610 281,129
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Liabilities
Current liabilities
Accounts payable and accrued liabilities 55,952 67,290
Current portion of long-term debt 247 944
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56,199 68,234
Long-term debt 119,734 395,940
Derivative financial instruments - 6,045
Future income taxes 19,206 12,407
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195,139 482,626
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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)
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41,471 (201,497)
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236,610 281,129
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Consolidated statements of cash flows
(in thousands of US dollars)
(Unaudited)
Three-month periods
ended March 31,
2010 2009
-------------------------------------------------------------------------
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$ $
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)
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(28,478) (22,081)
Changes in non-cash operating working
capital items 26,427 25,068
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(2,051) 2,987
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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) -
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2,042 (2,345)
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Cash flows from investing activities
Acquisition of property, plant and equipment (1,938) (1,951)
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(1,938) (1,951)
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Decrease in cash and cash equivalents (1,947) (1,309)
Cash and cash equivalents, beginning of period 26,763 49,427
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Cash and cash equivalents, end of period 24,816 48,118
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SOURCE MEGA BRANDS INC.
