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Press release from PR Newswire

MEGA Brands reports second quarter 2011 results

Thursday, July 28, 2011

MEGA Brands reports second quarter 2011 results07:00 EDT Thursday, July 28, 2011 Seventh consecutive quarter of year-over-year sales growth Toy sales up 11%, growth in all categories Stationery and Activities sales up 2% MONTREAL, July 28, 2011 /PRNewswire/ - MEGA Brands Inc. (TSX: MB) announced its financial results today for the second quarter ended June 30, 2011. The Corporation adopted International Financial Reporting Standards effective January 1, 2011 and all comparative 2010 figures have been restated. (All figures are expressed in US dollars.) Consolidated net sales in the second quarter increased 6% to $83.9 million compared to $78.8 million in the corresponding 2010 period. This is the seventh consecutive quarter of higher year-over-year consolidated sales since the fourth quarter of 2009. Toy sales increased 11% with growth in all categories compared to the second quarter of 2010. Sales of Stationery and Activities products increased 2%, reflecting the successful execution of the Corporation's new business plan for this segment. On a geographical basis, North American sales were up 6%, reflecting growth in both of the Corporation's product segments. International sales increased 8% in the second quarter and the Corporation expects further growth in the second half of the year. Net earnings were $0.3 million compared to a net loss of $0.4 million in the second quarter of 2010. ''These results - and the fact that retail sales of our products are running ahead of shipments - show that we are building momentum throughout our business,'' said Marc Bertrand, President and CEO. ''We continue to invest in innovation and licensed properties, including an expanded offering of video game-based products from industry leaders such as Microsoft, Electronic Arts and Blizzard Entertainment. In Stationery and Activities, we are seeing early signs of a turnaround and we continue to implement our new business plan based on innovation and growth.'' The Corporation's business is seasonal, with net sales and financial results typically at their highest levels in the third and fourth quarters. 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) 807-8791 or 1 (800) 731-5319. For those unable to participate, a replay will be available until August 3, 2011. The replay phone number is (416) 640-1917 or 1 (877) 289-8525, access code 4454214. 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 unaudited consolidated financial statements and notes for the three- and six month periods ended June 30, 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 three-month period ended June 30, 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, 2010, 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. Unaudited Interim Consolidated Income Statements (in thousands of US dollars, except per share amounts)       Three-month periods ended June 30,   Six-month periods ended June 30,     2011   2010   2011   2010   Note $   $   $   $                   Net sales   83,942   78,775   134,978   127,920 Cost of sales   52,892   48,488   86,116   81,043 Gross profit   31,050   30,287   48,862   46,877                   Marketing and advertising expenses   2,634   3,044   5,498   5,678 Research and development expenses   3,517   2,955   6,793   6,008 Other selling, distribution and administrative expenses   20,753   20,902   38,663   52,287 Contingent consideration on business acquisition 4 606   167   774   335 Gain on foreign currency translation   (663)   (1,319)   (542)   (1,117)                   Earnings (loss) from operations   4,203   4,538   (2,324)   (16,314)                   Financial expenses   4,837   4,663   9,510   16,045 Loss (gain) on settlement of debt 7 2,984   -   2,984   (144,338)     7,821   4,663   12,494   (128,293)                   Earnings (loss) before income taxes   (3,618)   (125)   (14,818)   111,979                   Income taxes                    Current   (4,004)   797   (5,455)   7,637   Deferred   76   (494)   (409)   1,749     (3,928)   303   (5,864)   9,386                   Net earnings (loss)   310   (428)   (8,954)   102,593                   Earnings (loss) per share                   Basic 6 0.02   (0.03)   (0.55)   11.03   Diluted 6 (0.18)   (0.24)   (0.55)   6.48 Unaudited Interim Consolidated Statements of Comprehensive Income (in thousands of US dollars, except per share amounts)       Three-month periods ended June 30,   Six-month periods ended June 30,     2011   2010   2011   2010   Note $   $   $   $                   Net earnings (loss)   310   (428)   (8,954)   102,593                   Other comprehensive loss:                   Cumulative translation adjustment 4 (315)   (86)   (881)   (2,675)                   Other comprehensive loss   (315)   (86)   (881)   (2,675)                   Comprehensive income  (loss)   (5)   (514)   (9,835)   99,918 Unaudited Consolidated Statements of Financial Position (in thousands of US dollars)       June 30,   December 31,     2011   2010   Note $   $           Assets         Current assets         Cash and cash equivalents   3,394   5,277 Trade and other receivables   90,027   123,194 Inventories   81,649   51,135 Derivative financial instruments 11 617   414 Prepaid expenses    11,648   11,039 Total current assets   187,335   191,059           Non-current assets         Property, plant and equipment   31,520   21,501 Intangible assets   23,404   23,615 Goodwill   30,000   30,000 Derivative financial instruments 11 96   309 Deferred income tax assets   7,138   7,097 Total assets   279,493   273,581                     Liabilities                   Current liabilities         Asset-based credit facility 7 20,294   - Trade and other payables   70,793   62,686 Income taxes   12,532   16,857 Derivative financial instruments 11 1,620   970 Current portion of long-term debt 7 7,382   35     112,621   80,548 Non-current liabilities         Long-term debt 7 108,162   125,507 Derivative financial instruments 11 173   19 Deferred income tax liabilities   -   -     108,335   125,526 Equity         Share capital 8 429,007   429,007 Warrants 8 24,430   24,430 Contributed surplus   2,847   1,982 Deficit 4 (391,606)   (382,652) Accumulated other comprehensive loss 4 (6,141)   (5,260) Total equity   58,537   67,507 Total liabilities and equity   279,493   273,581 Unaudited Consolidated Statement of Changes in Equity (in thousands of US dollars)         Share capital  Warrants Contributed surplus Deficit Accumulated other comprehensive loss Total equity   Note   $ $ $ $ $ $ Balance - January 1, 2010     308,678 - 558 (513,754) - (204,518) Net earnings for the period     - - - 102,593 - 102,593 Other comprehensive loss 4   - - - - (2,675) (2,675) Shares issued in settlement of debt 8   37,869 - - - - 37,869 Shares issued for cash 8   85,859 - - - - 85,859 Share issuance expense 8   (3,399) - - - - (3,399) Issuance of warrants 8   - 25,395 - - - 25,395 Warrant issuance expense 8   - (965) - - - (965) Stock-based compensation     - - 475 - - 475 Balance - June 30, 2010     429,007 24,430 1,033 (411,161) (2,675) 40,634         - - - -   Net earnings for the period     - - - 28,509 - 28,509 Other comprehensive loss 4   - - - - (2,585) (2,585) Stock-based compensation     - - 949 - - 949 Balance - December 31, 2010     429,007 24,430 1,982 (382,652) (5,260) 67,507                   Net loss for the period     - - - (8,954) - (8,954) Other comprehensive loss     - - - - (881) (881) Stock-based compensation     - - 865 - - 865 Balance - June 30, 2011     429,007 24,430 2,847 (391,606) (6,141) 58,537 Unaudited Consolidated Statements of Cash Flows         (in thousands of US dollars)                       Six-month periods, ended June 30     2011   2010   Note $   $           Operating activities         Net earnings (loss)   (8,954)   102,593 Items not affecting cash and cash equivalents           Depreciation of property, plant and equipment   5,134   5,323   Amortization of intangible assets   211   332   Loss (gain) on settlement of debt 7 1,236   (149,304)   Stock-based compensation   866   475   Financial expenses   9,510   16,045   Writeoff deferred financing costs 7 1,748   2,967   Income taxes   (5,864)   9,386   Loss (gain) on foreign currency   587   (2,741)     4,474   (14,924)   Net change in non-cash working capital balances 10 10,594   15,692   Income taxes recovered (paid)   1,306   (1,167)   Interest paid   (7,151)   (20,267) Cash flows provided by operating activities   9,223   (20,666)           Financing activities         Repurchase of debentures 7 (20,644)   - Change in asset-based credit facility 7 20,294   - Government loan 7 4,152   - Issuance of long-term debt 7 32   - Repayment of long-term debt 7     (216,100) Issuance of debentures 7 -   120,732 Issuance of capital stock 8 -   85,859 Issurance of warrants 8 -   23,776 Addition to deferred financing costs 7 -   (7,937) Share issue cost 8 -   (3,399) Issue costs on warrants 8 -   (965) Cash flows provided by financing activities   3,834   1,966           Investing activities         Acquisition of property, plant and equipment   (14,932)   (4,132) Cash flows provided by investing activities   (14,932)   (4,132)           Effect of changes in foreign exchange rates on cash and cash equivalents   (8)   (13)           Increase (decrease) in cash and cash equivalents   (1,883)   (22,845) Cash and cash equivalents ? Beginning of period   5,277   26,763           Cash and cash equivalents ? End of period   3,394   3,918       SOURCE MEGA BRANDS INC.For further information: <p align="justify"> <b>Investor Contact</b>: </p> <p align="justify"> Peter Ferrante<br/> Vice President and Chief Financial Officer<br/> MEGA Brands Inc.<br/> Tel: (514) 333-5555 ext. 2283 </p>