MEGA Brands reports third quarter 2012 results

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Nov 01, 2012, 07:00 ET

Consolidated net sales up 5%
EBITDA up 13% to $28.2 million
Basic EPS of $1.19 compared to $1.04

MONTREAL, Nov. 1, 2012 /PRNewswire/ - MEGA Brands Inc. (TSX: MB) announced its financial results today for the third quarter ended September 30, 2012. (All figures are expressed in US dollars.)

Consolidated net sales in the third quarter increased 5% to $140.1 million compared to $133.4 million in the corresponding 2011 period.

Toy sales increased 5% compared to the third quarter of 2011, with higher product shipments in the Preschool and Boys construction categories. Toy sales have increased year-over-year in 11 of the last 12 quarters.
Sales of Stationery & Activities products were up 3%, the sixth consecutive quarter of year-over-year growth in this segment.
North American sales rose 19%, more than offsetting lower international shipments.

Gross margin improved to 40% of net sales compared to 39.2% in the third quarter of 2011, mainly as a result of favourable product mix and proactive measures by the Corporation, including investments in new equipment to increase efficiency at its Montreal production facility.

Earnings before interest, taxes, depreciation and amortization (''EBITDA'') increased 13% to $28.2 million compared to $25.0 million in the third quarter of 2011. For the nine-month period ended September 30, 2012, EBITDA was up 22% to $35.2 million compared to $28.8 million in the corresponding period in 2011. EBITDA is a supplementary financial measure.

Net earnings were $19.5 million or $1.19 per basic share ($0.65 per diluted share) compared to $17.1 million or $1.04 per basic share ($0.51 per diluted share) in the third quarter of 2011. For the nine-month period ended September 30, 2012, net earnings were $12.6 million or $0.77 per basic share ($0.60 per diluted share) compared to $8.1 million or $0.49 per basic share ($0.40 per diluted share) in the same period of 2011.

''MEGA Brands achieved higher sales and earnings, improved gross margin and stronger cash flow in the third quarter,'' said Marc Bertrand, President and CEO. ''After nine months, we are well ahead of 2011 and well-positioned for the fourth quarter with higher listings at North American retailers compared to the same period last year, including the launch of the MEGA BLOKS Skylanders Giants^TM and MEGA BLOKS Barbie^TM collections which will soon be appearing in stores.''

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 November 8, 2012. The replay phone number is (514) 807-9274 or 1 (855) 859-2056, access code 37587536.

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 nine-month periods ended September 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- and nine-month month periods ended September 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 September 30,		Nine-month periods ended September 30,
		2012	2011	2012	2011
		$	$	$	$

Net sales		140,057	133,354	292,733	268,332
Cost of sales		84,076	80,958	183,056	167,074
Gross profit		55,981	52,396	109,677	101,258

Marketing and advertising expenses		3,358	3,721	9,234	9,219
Research and development expenses		3,754	3,172	11,813	9,965
Other selling, distribution and administrative expenses		23,533	22,281	62,646	60,944
Contingent consideration on business acquisition		95	110	287	884
Loss on foreign currency translation		574	1,162	103	620

Earnings from operations		24,667	21,950	25,594	19,626

Financial expenses		4,419	4,552	13,131	14,062
Loss on settlement of debt		-	-	-	2,984
		4,419	4,552	13,131	17,046

Earnings before income taxes		20,248	17,398	12,463	2,580

Income taxes
	Current	725	487	(113)	(4,968)
	Deferred	-	(139)	-	(548)
		725	348	(113)	(5,516)

Net earnings		19,523	17,050	12,576	8,096

Earnings per share
	Basic	1.19	1.04	0.77	0.49
	Diluted	0.65	0.51	0.60	0.40

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

		Three-month periods ended September 30,		Nine-month periods ended September 30,
		2012	2011	2012	2011
		$	$	$	$

Net earnings		19,523	17,050	12,576	8,096

Other comprehensive income (loss):
	Cumulative translation adjustment	(925)	(1,182)	1,357	(2,063)

Other comprehensive income (loss):		(925)	(1,182)	1,357	(2,063)

Comprehensive income		18,598	15,868	13,933	6,033

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


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

Assets
Current assets
Cash and cash equivalents	3,654	6,745
Trade and other receivables	133,234	126,359
Inventories	75,683	69,560
Derivative financial instruments	667	904
Prepaid expenses	9,171	13,760
Total current assets	222,409	217,328

Non-current assets
Property, plant and equipment	38,134	32,172
Intangible assets	22,877	23,193
Goodwill	30,000	30,000
Derivative financial instruments	-	231
Total assets	313,420	302,924


Liabilities

Current liabilities
Asset-based credit facility	33,261	37,279
Trade and other payables	64,725	71,762
Income taxes	5,122	5,832
Current portion of long-term debt	7,244	7,013
	110,352	121,886
Non-current liabilities
Long-term debt	112,464	105,275
	112,464	105,275
Equity
Share capital	429,323	429,007
Warrants	24,430	24,430
Contributed surplus	4,084	3,492
Deficit	(361,746)	(374,322)
Accumulated other comprehensive loss	(5,487)	(6,844)
Total equity	90,604	75,763
Total liabilities and equity	313,420	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 earnings	-	-	-	8,096	-	8,096
Other comprehensive loss	-	-	-	-	(2,063)	(2,063)
Stock-based compensation	-	-	1,263	-	-	1,263
Balance - September 30, 2011	429,007	24,430	3,245	(374,556)	(7,323)	74,803

Balance - December 31, 2011	429,007	24,430	3,492	(374,322)	(6,844)	75,763
Net earnings	-	-	-	12,576	-	12,576
Options exercised	316		(100)			216
Other comprehensive income	-	-	-	-	1,357	1,357
Stock-based compensation	-	-	692	-	-	692
Balance - September 30, 2012	429,323	24,430	4,084	(361,746)	(5,487)	90,604

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

		Nine-month periods ended September 30,
		2012	2011
		$	$

Operating activities
Net earnings		12,576	8,096
Adjustments for:
	Depreciation of property, plant and equipment	9,045	7,960
	Amortization of intangible assets	316	316
	Loss on settlement of debt	-	1,236
	Stock-based compensation	692	1,263
	Writeoff deferred financing costs	-	1,748
	Financial expenses	13,131	14,062
	Income taxes	(113)	(5,516)
	Loss (gain) on foreign currency	2,849	(3,331)
		38,496	25,834
	Net change in non-cash working capital balances	(13,640)	(27,851)
	Income taxes recovered (paid)	(472)	706
	Interest paid	(7,055)	(6,827)
Cash flows provided by (used in) operating activities		17,329	(8,138)

Financing activities
Repayment of debentures		(7,411)	(20,644)
Change in asset-based credit facility		(4,018)	40,154
Government loan		6,591	4,152
Issurance of capital stock		217	-
Repayment of long-term debt		24	32
Cash flows provided by (used in) financing activities		(4,597)	23,694

Investing activities
Acquisition of property, plant and equipment		(15,765)	(18,145)
Cash flows used in investing activities		(15,765)	(18,145)

Effect of changes in foreign exchange rates on cash and cash equivalents		(58)	113

Decrease in cash and cash equivalents		(3,091)	(2,476)
Cash and cash equivalents — Beginning of period		6,745	5,277

Cash and cash equivalents — End of period		3,654	2,801