Mega Brands reports fourth quarter and 2011 results

MONTREAL, March 14, 2012 /PRNewswire/ - MEGA Brands Inc. (TSX: MB) announced today its financial results for the fourth quarter and full year ended December 31, 2011. (All figures are expressed in US dollars.)

Consolidated total net sales in 2011 increased 2% to $376.8 million compared to $368.0 million in 2010. Sales increased 2% in Toys product lines and 3% in the Stationery & Activities segment. On a geographic basis, sales were up 1% in North America and 5% in international markets.

Reported net earnings were $8.3 million in 2011 compared to $131.1 million in 2010. Reported earnings in 2011 include a $3.0 million loss on the settlement of debt in 2011 and, in 2010, a $144.3 million gain on the settlement of debt and transaction costs and other expenses of $13.4 million.

Adjusted net earnings increased to $12.3 million or $0.75 per share in 2011 compared to $0.9 million or $0.07 per share in 2010. The term ''adjusted net earnings'' does not have standardized meaning under IFRS and, consequently, is unlikely to be comparable to similar measures used by other issuers. A reconciliation of adjusted net earnings with IFRS financial statements is provided in the Corporation's Management's Discussion & Analysis for the year ended December 31, 2011.

Fourth quarter results
Fourth quarter 2011 consolidated net sales decreased 3% to $108.5 million compared to $111.8 million in the corresponding 2010 period. Sales decreased 8% in Toys product lines, after a string of eight consecutive quarters of year-over-year increases. Stationery & Activities sales increased 35%, the third consecutive quarter of year-over-year growth for this segment. On a geographical basis, sales declined 4% in North America and 1% in international markets.

Reported net earnings were $0.2 million compared to $11.3 million in the same 2010 period. Reported earnings include contingent consideration charges of $0.1 million in the 2011 period and $0.2 million in the 2010 period resulting from the transition to IFRS.

Adjusted net earnings were $0.3 million or $0.02 per share compared to $11.5 million or $0.70 per share in the 2010 fourth quarter.

Fourth quarter results were mainly impacted by lower than expected sales of Toys in the United States. However, retail sales of the Corporation's Toys during the quarter were higher than in the fourth quarter of 2010.

2012 Outlook
''MEGA Brands achieved important milestones in 2011, including sales growth in all of our operating segments,'' said Marc Bertrand, President and CEO. ''The MEGA BLOKS and ROSE ART brands gained momentum at retail and we entered 2012 with a positive outlook thanks to a compelling offering for preschoolers, girls and boys of all ages, and collectors.''

  • Our Preschool construction toys feature several innovations for toddlers and an appealing offering for girls led by our new MEGA BLOKS Lil' Princess assortment and popular licenses such as Hello Kitty and Moshi Monsters.
  • In the Boys construction category, major product launches for 2012 include Power Rangers Super Samurai in the first quarter, Spider-Man in the second quarter based on the new movie, and World of WarCraft in the third quarter. The popularity of MEGA BLOKS Halo continues to grow worldwide and we expect 2012 sales to be stimulated by the release of the Halo 4 video game by Microsoft Games Studios scheduled for the peak toy-selling season.
  • Stationery & Activities began 2012 with growth momentum following three consecutive quarters of year-over-year sales gains in 2011 and a return to profitability.
  • We invested in production equipment and tooling at our Montreal facility in 2011 to increase production efficiency and expect to benefit from this investment in 2012 and beyond.

''With innovative products in our Toys segment, sales momentum in Stationery & Activities, and investments in production efficiency, we are looking forward to a successful 2012,'' concluded Bertrand.

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) 807-9895 or 1 (888) 231-8191. For those unable to participate, a replay will be available until March 21, 2012. The replay phone number is (514) 807-9274 or 1 (855) 859-2056, access code 57470766.

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 audited consolidated financial statements and notes for the years ended December 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 year ended December 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, 2011, 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.

The Corporation adopted International Financial Reporting Standards effective January 1, 2011 and all comparative 2010 figures have been adjusted.


Consolidated Income Statements
(in thousands of US dollars, except per share amounts)
         
  Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
  2011 2010 2011 2010
  (Unaudited) (Unaudited) (Audited) (Audited)
  $ $ $ $
         
Net sales 108,495 111,809 376,827 368,020
Cost of sales 68,575 66,942 235,649 222,661
Gross profit 39,920 44,867 141,178 145,359
         
Marketing and advertising expenses 7,808 8,177 17,027 19,360
Research and development expenses 4,491 3,555 14,456 12,300
Other selling, distribution and administrative expenses 21,596 21,637 82,540 95,395
Contingent consideration on business acquisition 110 168 994 671
Loss (gain) on foreign currency translation 801 41 1,421 (421)
         
Earnings from operations 5,114 11,289 24,740 18,054
         
Financial expenses 4,604 4,957 18,666 25,773
Loss (gain) on settlement of debt - - 2,984 (144,338)
  4,604 4,957 21,650 (118,565)
         
Earnings before income taxes 510 6,332 3,090 136,619
         
Income taxes         
  Current (7,369) (5,520) (12,337) 3,185
  Deferred 7,645 560 7,097 2,332
  276 (4,960) (5,240) 5,517
         
Net earnings 234 11,292 8,330 131,102
         
Earnings per share        
  Basic 0.01 0.70 0.51 10.19
  Diluted (0.14) 0.17 0.45 5.94

Consolidated Statements of Comprehensive Income
(in thousands of US dollars, except per share amounts)
         
  Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
  2011 2010 2011 2010
  (Unaudited) (Unaudited) (Audited) (Audited)
  $ $ $ $
         
Net earnings 234 11,292 8,330 131,102
         
Other comprehensive loss (income):        
  Cumulative translation adjustment 479 (2,044) (1,584) (5,260)
         
Other comprehensive loss (income) 479 (2,044) (1,584) (5,260)
         
Comprehensive income 713 9,248 6,746 125,842

Consolidated Statements of Financial Position
(in thousands of US dollars)
     
  December 31, December 31,
  2011 2010
  (Audited) (Audited)
  $ $
     
Assets    
Current assets    
Cash and cash equivalents 6,745 5,277
Trade and other receivables 126,359 123,194
Inventories 69,560 51,135
Derivative financial instruments 904 414
Prepaid expenses  13,760 11,039
Total current assets 217,328 191,059
     
Non-current assets    
Property, plant and equipment 32,172 21,501
Intangible assets 23,193 23,615
Goodwill 30,000 30,000
Derivative financial instruments 231 309
Deferred income tax assets - 7,097
Total assets 302,924 273,581
     
Liabilities    
     
Current liabilities    
Asset-based credit facility 37,279 -
Trade and other payables 71,762 62,686
Income taxes 5,832 16,857
Derivative financial instruments - 970
Current portion of long-term debt 7,013 35
  121,886 80,548
Non-current liabilities    
Long-term debt 105,275 125,507
Derivative financial instruments - 19
  105,275 125,526
Equity    
Share capital 429,007 429,007
Warrants 24,430 24,430
Contributed surplus 3,492 1,982
Deficit (374,322) (382,652)
Accumulated other comprehensive loss (6,844) (5,260)
Total equity 75,763 67,507
Total liabilities and equity 302,924 273,581

Consolidated Statement of Changes in Equity            
(in thousands of US dollars)            
             
  Share capital Warrants Contributed
surplus
Deficit Accumulated
other
comprehensive
loss
Total equity
(Audited) $ $ $ $ $ $
Balance - January 1, 2010 308,678 - 558 (513,754) - (204,518)
Net earnings - - - 131,102 - 131,102
Other comprehensive loss - - - - (5,260) (5,260)
Shares issued in settlement of debt 37,869 - - - - 37,869
Shares issued for cash 85,859 - - - - 85,859
Share issuance expense (3,399) - - - - (3,399)
Issuance of warrants - 25,395 - - - 25,395
Warrant issuance expense - (965) - - - (965)
Stock-based compensation - - 1,424 - - 1,424
Balance - December 31, 2010 429,007 24,430 1,982 (382,652) (5,260) 67,507
             
Net earnings - - - 8,330 - 8,330
Other comprehensive loss - - - - (1,584) (1,584)
Stock-based compensation - - 1,510 - - 1,510
Balance - December 31, 2011 429,007 24,430 3,492 (374,322) (6,844) 75,763

Consolidated Statements of Cash Flows
(in thousands of US dollars)
     
  Twelve-month periods,
ended December 31 
  2011 2010
  (Audited) (Audited)
  $ $
     
Operating activities    
Net earnings 8,330 131,102
Adjustments for:    
  Depreciation of property, plant and equipment 13,074 10,741
  Amortization of intangible assets 422 664
  Loss (gain) on settlement of debt 1,236 (149,304)
  Stock-based compensation 1,511 1,424
  Financial expenses 18,666 25,773
  Writeoff deferred financing costs 1,748 2,967
  Income taxes (5,240) 5,517
  Gain on foreign currency (374) (2,185)
  39,373 26,699
  Net change in non-cash working capital balances (24,011) (14,696)
  Income taxes recovered 1,312 2,943
  Interest paid (13,755) (28,194)
Cash flows provided by (used in) operating activities 2,919 (13,248)
     
Financing activities    
Repurchase of debentures (20,678) -
Change in asset-based credit facility 37,279 -
Government loan 5,065 -
Issuance of long-term debt 32 -
Repayment of long-term debt - (216,277)
Issuance of debentures - 120,732
Issuance of capital stock - 85,859
Issurance of warrants - 23,776
Addition to deferred financing costs - (7,937)
Share issue cost - (3,399)
Issue costs on warrants - (965)
Cash flows provided by financing activities 21,698 1,789
     
Investing activities    
Acquisition of property, plant and equipment (23,248) (9,981)
Cash flows used in investing activities (23,248) (9,981)
     
Effect of changes in foreign exchange rates on cash and cash equivalents 99 (46)
     
Increase (decrease) in cash and cash equivalents 1,468 (21,486)
Cash and cash equivalents — Beginning of year 5,277 26,763
     
Cash and cash equivalents — End of year 6,745 5,277

SOURCE MEGA BRANDS INC.




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