MEGA Brands reports fourth quarter and 2009 results
MONTREAL, March 31 /PRNewswire-FirstCall/ - 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
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$ $ $ $
(Unaudited) (Unaudited) (Audited) (Audited)
Net sales 107,295 101,040 338,912 447,677
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Cost of sales 73,612 116,979 219,069 342,190
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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
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Earnings (loss) from
operations (3,145) (252,959) 62,033 (393,848)
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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
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18,760 23,608 51,596 43,872
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Earnings (loss) before
income taxes (21,905) (276,567) 10,437 (437,720)
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Income taxes
Current 331 2,190 573 3,191
Future (183) 44,544 (862) 17,750
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148 46,734 (289) 20,941
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Net earnings (loss) (22,053) (323,301) 10,726 (458,661)
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Earnings (loss) per share
Basic (0.60) (8.83) 0.29 (12.53)
Diluted(1) (0.60) (8.83) 0.29 (12.53)
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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
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$ $ $ $
(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) -
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- - 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)
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Balance, end of period (529,319) (543,161) (529,319) (543,161)
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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)
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Comprehensive income
(loss) for the period (18,016) (322,945) 15,831 (461,501)
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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
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(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
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4,037 356 5,105 (2,840)
Balance, end of period
Gross - (8,248) - (8,247)
Income taxes - 3,143 - 3,142
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Balance, end of period - (5,105) - (5,105)
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Consolidated balance sheets
(in thousands of US dollars)
December December
31, 2009 31, 2008
(Audited) (Audited)
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$ $
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
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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
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281,129 333,163
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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
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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
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482,626 553,607
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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)
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(201,497) (220,444)
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281,129 333,163
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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
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(3,207) (79,009) (8,608) (80,060)
Changes in non-cash
operating working capital
items 18,869 92,476 734 (14,266)
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15,662 13,467 (7,874) (94,326)
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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)
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(707) (2,378) (7,694) 146,008
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Cash flows from investing
activities
Acquisition of property,
plant and equipment (1,629) (1,326) (7,096) (10,159)
Business combinations - - - (601)
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(1,629) (1,326) (7,096) (10,760)
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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
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SOURCE MEGA BRANDS INC.
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