August 19, 2008 / 12:11 PM / in 10 years

Mega Brands slips to second-quarter loss

TORONTO (Reuters) - Mega Brands Inc MB.TO slipped to a second-quarter loss on Tuesday, as weaker sales and more recall charges hit results.

The Montreal-based toymaker lost $3.6 million, or 10 cents a share, in the period ended June 30. That compares with a profit of $4 million, or 12 cents a share, a year earlier.

Sales fell 12.4 percent to $106.4 million from $121.5 million.

The maker of construction toys, games and puzzles, arts and crafts, and stationery, said quarterly revenue was hurt by lower sales in its toys and stationery and activities product lines, as well as by additional product recall charges.

Marc Bertrand, president and chief executive, said in a conference call that the next two quarters are traditionally the strongest for the company and that it aims to build sales momentum with new products.

“We have great innovation in our boys’ category this year with all of the new products hitting retail in the third and fourth quarters,” he said.

Mega Brands also said on Tuesday it reached an agreement in principle with its insurers for the recovery of $9.3 million related to the settlement of lawsuits related to cases of children swallowing magnets, and said it will record the amount in its third-quarter results.

Mega Brands continues its recovery from a recall of its Magnetix toys that began in 2006 and expanded in 2007.

In March, it announced two separate recalls after reports of magnets coming loose from several toys manufactured in China.

Shares of Mega Brands were up 10.2 percent at C$2.92 on the Toronto Stock Exchange, but the stock has dived about 85 percent from the year high it hit last September as the company has been battered by the series of recalls.

Also on Tuesday, Mega Brands announced the closing of a C$75 million, private placement of senior unsecured convertible debentures.

Last week, it said it planned to issue the convertible debentures to various investors, including insurance holding company Fairfax Financial holdings Ltd (FFH.TO).

Bertrand said the offering will “provide us with significant financial resources and with greater flexibility to implement our value enhancement plan, restore the company to profitability and build our future.”

Mega Brands said earlier this year it was considering the sale of its stationery and activities division. The company said on Tuesday the sale of the segment was “following its normal course.”

($1=$1.06 Canadian)

Reporting by Jennifer Kwan and Leah Schnurr; editing by Rob Wilson

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