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MEGA Brands reports fourth quarter and 2013 results

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,

December 31,
  $   $
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
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
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
  Deficit Accumulated
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



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