MEGA BRANDS REPORTS THIRD QUARTER 2010 RESULTS
MONTREAL, Nov. 5 /PRNewswire-FirstCall/ - MEGA Brands Inc. (TSX: MB) announced today its financial results for the third quarter and nine months ended September 30, 2010. (All figures are expressed in US dollars.)
Net sales increased 9% to $128.3 million compared to $118.0 million in the third quarter of 2009. Adjusted net earnings were $19.8 million or $0.06 per basic and diluted share compared to $14.4 million or $0.39 per basic and diluted share in the third quarter of 2009. Third quarter 2010 results are adjusted for a $3.4 million unrealized foreign exchange loss on debentures. Third quarter 2009 results include adjustments for Specified items including a non-recurring gain of $72.0 million from a favourable litigation settlement, as well as a $4.2 million unrealized foreign exchange loss on debentures.
Net sales of Toys product lines increased 18% compared to the third quarter of 2009, led by Halo and Dragons Universe in the Boys category and sustained growth in the Preschool category. On a geographical basis, North American net sales were higher, reflecting strong Toys shipments, which more than offset lower sales in Stationery and Activities. International sales were up 18% led by growth in key European markets. The Corporation has increased year-over-year sales in four consecutive quarters.
''Our sales momentum is positive for the peak toy selling season and into next year with all of our key product initiatives performing well at retail and a strong line-up of new products set for launch in spring and fall of next year,'' said Marc Bertrand, President and CEO. ''We are on track with our plan and continue to strengthen our product portfolio for the years to come.''
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- and nine-month periods ended September 30, 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.
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 November 16, 2010. The replay phone number is (416) 849-0833 or (514) 807-9274, access code 20448559.
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, 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 third quarter ended September 30, 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 | |||||
| (in thousands of US dollars, except per share data) | |||||
| Three-month periods | Nine-month periods | ||||
| ended September 30, | ended September 30, | ||||
| 2010 | 2009 | 2010 | 2009 | ||
| $ | $ | $ | $ | ||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||
| Net sales | 128,291 | 117,962 | 256,211 | 231,617 | |
| Cost of sales | 74,446 | 69,182 | 155,035 | 145,457 | |
| Gross profit | 53,845 | 48,780 | 101,176 | 86,160 | |
| Marketing and advertising expenses | 5,505 | 4,097 | 11,183 | 7,684 | |
| Research and development expenses | 2,737 | 2,765 | 8,745 | 8,543 | |
| Other selling, distribution and administrative expenses | 20,956 | 30,028 | 72,767 | 74,511 | |
| Impairment of goodwill / recovery of purchase price | - | (71,966) | 900 | (71,966) | |
| Loss (gain) on foreign currency translation on debentures | 3,444 | 4,195 | (179) | 6,665 | |
| Loss (gain) on foreign currency translation | (954) | (3,071) | 1,219 | (4,455) | |
| Earnings from operations | 22,157 | 82,732 | 6,541 | 65,178 | |
| Interest and other expenses | |||||
| Interest on long-term debt | 4,192 | 11,455 | 18,385 | 32,343 | |
| Settlement of debt | - | - | (140,344) | - | |
| Change in fair value of interest rate swap | - | (1,249) | - | (1,797) | |
| Amortization of deferred financing costs | 461 | 977 | 2,064 | 2,246 | |
| Other interest | 104 | 34 | 256 | 44 | |
| 4,757 | 11,217 | (119,639) | 32,836 | ||
| Earnings before income taxes | 17,400 | 71,515 | 126,180 | 32,342 | |
| Income taxes | |||||
| Current | 356 | (220) | 655 | 242 | |
| Future | 735 | (238) | 9,822 | (679) | |
| 1,091 | (458) | 10,477 | (437) | ||
| Net earnings | 16,309 | 71,973 | 115,703 | 32,779 | |
| Earnings per share | |||||
| Basic | 0.05 | 1.97 | 0.50 | 0.90 | |
| Diluted | 0.05 | 1.97 | 0.50 | 0.90 | |
| Consolidated statements of deficit | |||||
| (in thousands of US dollars) | |||||
| Three-month periods | Nine-month periods | ||||
| ended September 30, | ended September 30, | ||||
| 2010 | 2009 | 2010 | 2009 | ||
| $ | $ | $ | $ | ||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||
| Balance, beginning of period | (429,925) | (579,239) | (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) | |
| - | - | - | 3,116 | ||
| Balance, beginning of period as restated | (429,925) | (579,239) | (529,319) | (540,045) | |
| Net earnings | 16,309 | 71,973 | 115,703 | 32,779 | |
| Balance, end of period | (413,616) | (507,266) | (413,616) | (507,266) | |
| Consolidated statements of comprehensive income and Accumulated other comprehensive income |
|||||
| (in thousands of US dollars) | |||||
| Three-month periods | Nine-month periods | ||||
| ended September 30, | ended September 30, | ||||
| 2010 | 2009 | 2010 | 2009 | ||
| $ | $ | $ | $ | ||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||
| Net earnings for the period | 16,309 | 71,973 | 115,703 | 32,779 | |
| Other comprehensive income, net of income taxes | |||||
| Gain on derivatives designated as cash flow hedges | - | 356 | - | 1,068 | |
| Comprehensive income for the period | 16,309 | 72,329 | 115,703 | 33,847 | |
| Accumulated other comprehensive loss | |||||
| Balance, beginning of period | |||||
| Gross | - | (7,096) | - | (8,246) | |
| Income taxes | - | 2,703 | - | 3,141 | |
| - | (4,393) | - | (5,105) | ||
| Other comprehensive income (loss) | |||||
| Net change in losses on cash flow hedging items | - | - | - | - | |
| Reclassification to income (loss) | - | 575 | - | 1,725 | |
| Income taxes | - | (219) | - | (657) | |
| - | 356 | - | 1,068 | ||
| Balance, end of period | |||||
| Gross | - | (6,521) | - | (6,521) | |
| Income taxes | - | 2,484 | - | 2,484 | |
| Balance, end of period | - | (4,037) | - | (4,037) | |
| Consolidated balance sheets | |||
| (in thousands of US dollars) | |||
| September 30, | December 31, | ||
| 2010 | 2009 | ||
| (Unaudited) | (Audited) | ||
| $ | $ | ||
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | 9,794 | 26,763 | |
| Accounts receivable | 124,398 | 112,517 | |
| Inventories | 66,391 | 46,247 | |
| Income taxes | 1,382 | 914 | |
| Future income taxes | 2,160 | 4,197 | |
| Derivative financial instruments | 207 | - | |
| Prepaid expenses | 9,425 | 12,806 | |
| 213,757 | 203,444 | ||
| Property, plant and equipment | 21,383 | 21,210 | |
| Intangible assets | 23,781 | 24,278 | |
| Goodwill, net | 30,000 | 30,000 | |
| Derivative financial instruments | 135 | - | |
| Future income taxes | 2,308 | 2,197 | |
| 291,364 | 281,129 | ||
| Liabilities | |||
| Current liabilities | |||
| Accounts payable and accrued liabilities | 72,200 | 67,290 | |
| Derivative financial instruments | 1,540 | - | |
| Current portion of long-term debt | 18,034 | 944 | |
| 91,774 | 68,234 | ||
| Long-term debt | 120,165 | 395,940 | |
| Derivative financial instruments | 468 | 6,045 | |
| Future income taxes | 19,561 | 12,407 | |
| 231,968 | 482,626 | ||
| Shareholders' equity | |||
| Capital stock | 429,007 | 308,678 | |
| Warrants | 24,430 | - | |
| Contributed surplus | 19,575 | 558 | |
| Equity component of convertible debentures | - | 18,586 | |
| Deficit | (413,616) | (529,319) | |
| 59,396 | (201,497) | ||
| 291,364 | 281,129 | ||
| Consolidated statements of cash flows | ||||||
| (in thousands of US dollars) | ||||||
| Three-month periods | Nine-month periods | |||||
| ended September 30, | ended June 30, | |||||
| 2010 | 2009 | 2010 | 2009 | |||
| $ | $ | $ | $ | |||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||
| Cash flows from operating activities | ||||||
| Net earnings | 16,309 | 71,973 | 115,703 | 32,779 | ||
| Items not affecting cash and cash equivalents | ||||||
| Amortization of property, plant and equipment | 2,416 | 3,544 | 7,146 | 10,069 | ||
| Amortization of intangible assets | 166 | 166 | 498 | 498 | ||
| Settlement of debt | - | - | (145,310) | - | ||
| Impairment of goodwill / recovery of purchase price | - | (439) | - | (1,339) | ||
| Amortization of unrealized loss on swap derivative financial instruments | - | 575 | - | 1,726 | ||
| Gain on swap derivative financial instruments | - | (1,825) | - | (3,523) | ||
| Stock-based compensation plans | 430 | (17) | 576 | 28 | ||
| Amortization of deferred financing costs | 461 | 977 | 2,064 | 2,246 | ||
| Amortization of warrants | 576 | - | 1,167 | - | ||
| Writeoff deferred financing costs | - | - | 2,967 | - | ||
| Future income taxes | 735 | (238) | 9,822 | (679) | ||
| Accretion of interest on convertible debentures | - | 719 | 819 | 1,959 | ||
| Loss (gain) on foreign currency | (483) | 5,391 | (3,237) | 6,310 | ||
| 20,610 | 80,826 | (7,785) | 50,074 | |||
| Changes in non-cash operating working capital items | (29,285) | (90,982) | (21,557) | (73,617) | ||
| (8,675) | (10,156) | (29,342) | (23,543) | |||
| Cash flows from financing activities | ||||||
| Change in asset-based credit facility | 17,887 | - | 17,887 | - | ||
| Repayment of long-term debt | (59) | (701) | (216,159) | (3,733) | ||
| Issuance of debentures | - | - | 120,733 | - | ||
| Issuance of capital stock | - | - | 85,859 | - | ||
| Issuance of warrants | - | - | 23,775 | - | ||
| Addition to deferred financing costs | - | - | (7,937) | (3,254) | ||
| Share issue cost | - | - | (3,399) | - | ||
| Issue costs on warrants | - | - | (965) | - | ||
| 17,828 | (701) | 19,794 | (6,987) | |||
| Cash flows from investing activities | ||||||
| Acquisition of property, plant and equipment | (3,187) | (1,385) | (7,319) | (5,467) | ||
| (3,187) | (1,385) | (7,319) | (5,467) | |||
| Effect of changes in foreign exchange rates on cash and cash equivalents | (90) | (296) | (102) | 7 | ||
| Increase (decrease) in cash and cash equivalents | 5,876 | (12,538) | (16,969) | (35,990) | ||
| Cash and cash equivalents, beginning of period | 3,918 | 25,975 | 26,763 | 49,427 | ||
| Cash and cash equivalents, end of period | 9,794 | 13,437 | 9,794 | 13,437 | ||
| Supplementary disclosure of cash flow information | ||||||
| Interest paid | 254 | 10,170 | 20,521 | 29,724 | ||
| Income taxes paid (recovery) | 88 | 233 | 1,255 | (156) | ||
SOURCE MEGA BRANDS INC.
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