MEGA Brands reports second quarter 2012 results

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Jul 27, 2012, 07:00 ET

Toy sales up 14%, Stationery & Activities sales up 10%
EBITDA up 21% to $9.2 million
EPS of $0.10 compared to $0.02

MONTREAL, July 27, 2012 /PRNewswire/ - MEGA Brands Inc. (TSX: MB) announced its financial results today for the second quarter ended June 30, 2012. (All figures are expressed in US dollars.)

Consolidated net sales in the second quarter increased 13% to $94.5 million compared to $83.9 million in the corresponding 2011 period.

Toy sales increased 14% compared to the second quarter of 2011, driven by higher product shipments in the Preschool and Boys construction categories. Toy sales have increased year-over-year in ten of the last 11 quarters.
Sales of Stationery & Activities products were up 10%, the fifth consecutive quarter of year-over-year growth in this segment.
On a geographical basis, North American sales were 18% higher and international sales were stable, with sales growth offset by unfavorable currency changes.

Earnings before interest, taxes, depreciation and amortization (''EBITDA'') increased 21% to $9.2 million compared to $7.6 million in the second quarter of 2011. For the six-month period ended June 30, 2012, EBITDA was $7.1 million compared to $3.8 million in the corresponding period in 2011. EBITDA is a supplementary financial measure.

Net earnings were $1.6 million or $0.10 basic per share compared to $0.3 million or $0.02 basic per share in the second quarter of 2011.

''Our second quarter results demonstrate solid growth in our business as we head into the peak selling period of the year,'' said Marc Bertrand, President and CEO. ''The key metrics in our business are positive and we are well-positioned for a strong finish to the year.''

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 1 (888) 231-8191 or (514) 807-9895. For those unable to participate, a replay will be available until August 3, 2012. The replay phone number is (514) 807-9274 or 1 (855) 859-2056, access code 98528715.

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-month periods ended June 30, 2012 and 2011. 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. 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, 2012, 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.

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,
		2012	2011	2012	2011
		$	$	$	$

Net sales		94,489	83,942	152,676	134,978
Cost of sales		60,224	52,892	98,980	86,116
Gross profit		34,265	31,050	53,696	48,862

Marketing and advertising expenses		3,028	2,634	5,876	5,498
Research and development expenses		4,003	3,517	8,059	6,793

Other selling, distribution and administrative expenses		20,655	20,753	39,113	38,663
Contingent consideration on business acquisition		96	606	192	774
Loss (gain) on foreign currency translation		434	(663)	(471)	(542)

Earnings (loss) from operations		6,049	4,203	927	(2,324)

Financial expenses		4,289	4,837	8,712	9,510
Loss on settlement of debt		-	2,984	-	2,984
		4,289	7,821	8,712	12,494

Earnings (loss) before income taxes		1,760	(3,618)	(7,785)	(14,818)

Income taxes
	Current	174	(4,004)	(838)	(5,455)
	Deferred	-	76	-	(409)
		174	(3,928)	(838)	(5,864)

Net earnings (loss)		1,586	310	(6,947)	(8,954)

Earnings (loss) per share
	Basic	0.10	0.02	(0.42)	(0.55)
	Diluted	(0.07)	(0.18)	(0.42)	(0.55)

Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)
(in thousands of US dollars, except per share amounts)

		Three-month periods ended June 30,		Six-month periods ended June 30,
		2012	2011	2012	2011
		$	$	$	$

Net earnings (loss)		1,586	310	(6,947)	(8,954)

Other comprehensive income (loss):
	Cumulative translation adjustment	847	(315)	2,282	(881)

Other comprehensive income (loss):		847	(315)	2,282	(881)

Comprehensive income (loss)		2,433	(5)	(4,665)	(9,835)

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

	June 30, 2012	December 31, 2011
	(Unaudited)	(Audited)
	$	$

Assets
Current assets
Cash and cash equivalents	3,037	6,745
Trade and other receivables	99,031	126,359
Inventories	84,419	69,560
Derivative financial instruments	784	904
Prepaid expenses	9,113	13,760
Total current assets	196,384	217,328

Non-current assets
Property, plant and equipment	38,682	32,172
Intangible assets	22,982	23,193
Goodwill	30,000	30,000
Derivative financial instruments	174	231
Total assets	288,222	302,924

Liabilities

Current liabilities
Asset-based credit facility	41,257	37,279
Trade and other payables	63,272	71,762
Income taxes	4,845	5,832
Current portion of long-term debt	6,988	7,013
	116,362	121,886
Non-current liabilities
Long-term debt	100,105	105,275
	100,105	105,275
Equity
Share capital	429,007	429,007
Warrants	24,430	24,430
Contributed surplus	4,149	3,492
Deficit	(381,269)	(374,322)
Accumulated other comprehensive loss	(4,562)	(6,844)
Total equity	71,755	75,763
Total liabilities and equity	288,222	302,924

Unaudited Consolidated Statement of Changes in Equity
(in thousands of US dollars)

	Share capital	Warrants	Contributed surplus	Deficit	Accumulated other comprehensive loss	Total equity
	$	$	$	$	$	$
Balance - December 31, 2010	429,007	24,430	1,982	(382,652)	(5,260)	67,507
Net loss	-	-	-	(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

Balance - December 31, 2011	429,007	24,430	3,492	(374,322)	(6,844)	75,763
Net loss	-	-	-	(6,947)	-	(6,947)
Other comprehensive income	-	-	-	-	2,282	2,282
Stock-based compensation	-	-	657	-	-	657
Balance - June 30, 2012	429,007	24,430	4,149	(381,269)	(4,562)	71,755

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

		Six-month periods ended June 30,
		2012	2011
		$	$

Operating activities
Net loss		(6,947)	(8,954)
Adjustments for:
	Depreciation of property, plant and equipment	5,739	5,134
	Amortization of intangible assets	211	211
	Loss on settlement of debt	-	1,236
	Stock-based compensation	657	866
	Writeoff deferred financing costs	-	1,748
	Financial expenses	8,712	9,510
	Income taxes	(838)	(5,864)
	Loss (gain) on foreign currency	(526)	587
		7,008	4,474
	Net change in non-cash working capital balances	10,511	10,594
	Income taxes recovered (paid)	(305)	1,306
	Interest paid	(6,598)	(7,151)
Cash flows provided by operating activities		10,616	9,223

Financing activities
Repayment of debentures		(7,151)	(20,644)
Change in asset-based credit facility		3,978	20,294
Government loan		-	4,152
Repayment of long-term debt		-	32
Cash flows used in financing activities		(3,173)	3,834

Investing activities
Acquisition of property, plant and equipment		(11,113)	(14,932)
Cash flows used in investing activities		(11,113)	(14,932)

Effect of changes in foreign exchange rates on cash and cash equivalents		(38)	(8)

Increase (decrease) in cash and cash equivalents		(3,708)	(1,883)
Cash and cash equivalents — Beginning of period		6,745	5,277

Cash and cash equivalents — End of period		3,037	3,394