MEGA Brands reports fourth quarter and 2013 results

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Mar 05, 2014, 12:01 ET

MONTREAL, March 5, 2014 /PRNewswire/ - MEGA Brands Inc. (TSX: MB) announced today its financial results for the fourth quarter and full year ended December 31, 2013. (All figures are expressed in US dollars.)

Full year 2013

Consolidated net sales decreased 4% to $404.7 million in 2013, compared to $420.3 million in 2012.
Net earnings increased 25% to $20.8 million or $0.93 per diluted share, compared to $16.6 million or $0.84 per diluted share in 2012.

Net sales decreased 5% in the Toys segment while net sales for Stationery & Activities increased 1%. On a geographic segment basis, net sales decreased 3% in North America and 5% in International. Adjusted earnings before interest, taxes, depreciation and amortization (''EBITDA'') was $47.0 million compared to $49.2 million in 2012.

Fourth quarter

Consolidated net sales decreased 21% to $101.2 million, compared to $127.5 million in the fourth quarter of 2012.
Net earnings were $1.4 million or $0.04 per diluted share, compared to $4.0 million or $0.01 per diluted share in the same 2012 period.

Net sales were down 24% in the Toys segment and 3% in Stationery & Activities. On a geographic segment basis, North American net sales decreased 20% and International net sales decreased 23%. Adjusted EBITDA was $8.9 million compared to $13.9 million in the fourth quarter of 2012.

Adjusted EBITDA is a supplementary financial measure and readers are cautioned that this measures does not have standardized meaning and is unlikely to be comparable to similar measures used by other issuers.

Several factors contributed to the decline in the Corporation's fourth quarter shipments, including a difficult retail environment which affected the performance of the entire toy industry, particularly in products for boys. The Corporation also faced a difficult comparison with the fourth quarter of 2012, which saw an 18% net sales increase compared to the previous year.

2013 highlights
The MEGA BLOKS First Builders product line had a year of record growth and the retail performance of the Call of Duty line equaled or bettered the sell through of any previous MEGA BLOKS product launch. According to NPD Group, the Call of Duty product line was the top-selling new brand in the construction toy category during the fourth quarter despite limited availability.

The Corporation ended 2013 in a strong financial position, with long-term debt reduced 48% to $59.3 million compared to $113.0 million at the end of 2012, cash on hand of $16.4 million compared to $8.0 million the previous year, and no borrowings against our working capital facility. The Corporation also completed a three-year program during which it invested over $30 million to increase efficiency and production capacity in its Montreal facility.

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 year ended December 31, 2013. 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.

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. Readers are cautioned that non-IFRS financial measures do not have standardized meaning and are unlikely to be comparable to similar measures used by other issuers. A reconciliation of supplementary financial measures with IFRS financial statements is provided in the Corporation's MD&A for the year ended December 31, 2013, 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, 2013, 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.

Consolidated Income Statements
(in thousands of US dollars, except per share amounts)

		Three-month periods ended December 31,		Twelve-month periods ended December 31,
		2013	2012	2013	2012
		$	$	$	$

Net sales		101,212	127,538	404,738	420,271
Cost of sales		65,485	79,396	255,702	262,452
Gross profit		35,727	48,142	149,036	157,819

Marketing and advertising expenses		6,359	7,703	18,231	16,937
Research and development expenses		3,817	4,405	15,389	16,218
Other selling, distribution and administrative expenses		21,269	25,184	84,059	87,830
Contingent consideration on business acquisition		87	96	347	383
Loss (gain) on foreign currency translation		(966)	473	(1,808)	576

Earnings from operations		5,161	10,281	32,818	35,875

Financial expenses		2,170	4,516	10,766	17,647
Early redemption of debentures		-	-	2,869	-
		2,170	4,516	13,635	17,647

Earnings before income taxes		2,991	5,765	19,183	18,228

Income taxes		1,579	1,755	(1,591)	1,642

Net earnings		1,412	4,010	20,774	16,586

Earnings per share
	Basic	0.06	0.24	0.98	1.01
	Diluted	0.04	0.01	0.93	0.84

Consolidated Statements of Comprehensive Income
(in thousands of US dollars)

		Three-month periods ended December 31,		Twelve-month periods ended December 31,
		2013	2012	2013	2012
		$	$	$	$

Net earnings		1,412	4,010	20,774	16,586

Other comprehensive income (loss):

Items that may be reclassified subsequently to income or loss
	Cumulative translation adjustment	(69)	(45)	(620)	1,008

Items that will not be reclassified subsequently to income or loss
	Cumulative translation adjustment	(1,841)	(213)	409	91

Other comprehensive income (loss):		(1,910)	(258)	(211)	1,099

Comprehensive income		(498)	3,752	20,563	17,685

Consolidated Statements of Financial Position
(in thousands of US dollars)

	December 31, 2013	December 31, 2012
	$	$

Assets
Current assets
Cash and cash equivalents	16,417	8,018
Trade and other receivables	116,740	130,541
Inventories	54,101	45,779
Derivative financial instruments	-	113
Prepaid expenses	7,916	9,370
Total current assets	195,174	193,821

Non-current assets
Property, plant and equipment	46,385	39,817
Intangible assets	22,349	22,771
Goodwill	30,000	30,000
Total assets	293,908	286,409


Liabilities

Current liabilities
Trade and other payables	54,231	62,638
Income taxes	3,842	5,631
Derivative financial instruments	1,037	-
Current portion of long-term debt	1,844	8,023
	60,954	76,292
Non-current liabilities
Long-term debt	59,285	112,992
Derivative financial instruments	58	206
	59,343	113,198
Equity
Share capital	502,193	431,893
Warrants	8,485	24,029
Contributed surplus	5,851	4,478
Deficit	(336,962)	(357,736)
Accumulated other comprehensive loss	(5,956)	(5,745)
Total equity	173,611	96,919
Total liabilities and equity	293,908	286,409

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 - December 31, 2011	429,007	24,430	3,492	(374,322)	(6,844)	75,763

Net earnings	-	-	-	16,586	-	16,586
Options exercised	472	-	(148)			324
Warrants exercised	2,414	(401)	-	-	-	2,013
Other comprehensive loss	-	-	-	-	1,099	1,099
Stock-based compensation	-	-	1,134	-	-	1,134
Balance - December 31, 2012	431,893	24,029	4,478	(357,736)	(5,745)	96,919

Net earnings	-	-	-	20,774	-	20,774
Options exercised	2,018	-	(621)			1,397
Warrants exercised	68,282	(15,544)	-	-	-	52,738
Other comprehensive loss	-	-	-	-	(211)	(211)
Stock-based compensation	-	-	1,994	-	-	1,994
Balance - December 31, 2013	502,193	8,485	5,851	(336,962)	(5,956)	173,611

Consolidated Statements of Cash Flows
(in thousands of US dollars)

		Twelve-month periods, ended December 31
		2013	2012
		$	$

Operating activities
Net earnings		20,774	16,586
Adjustments for:
	Depreciation of property, plant and equipment	13,387	12,476
	Amortization of intangible assets	422	422
	Stock-based compensation	1,994	1,134
	Financial expenses	10,766	17,647
	Early redemption of debentures	2,869	-
	Income taxes	(1,591)	1,642
	Loss on foreign currency	459	2,316
		49,080	52,223
	Net change in non-cash working capital balances	(7,709)	14,406
	Income taxes paid (recovered)	1,695	(1,473)
	Interest paid	(7,654)	(13,158)
Cash flows provided by operating activities		35,412	51,998

Financing activities
Repayment of debentures		(60,368)	(7,411)
Change in asset-based credit facility		-	(37,279)
Government loan		-	6,591
Issuance of long-term debt		216	4,524
Repayment of long-term debt		(750)	(220)
Issuance of capital stock		54,135	2,337
Cash flows used in financing activities		(6,767)	(31,458)

Investing activities
Acquisition of property, plant and equipment		(20,228)	(19,234)
Cash flows used in investing activities		(20,228)	(19,234)

Effect of changes in foreign exchange rates on cash and cash equivalents		(18)	(33)

Increase in cash and cash equivalents		8,399	1,273
Cash and cash equivalents — Beginning of year		8,018	6,745

Cash and cash equivalents — End of year		16,417	8,018