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# Appendix A - Assumptions & Calculations to MV and BV of Debt + Cost of Debt

Term loan 260mil, secured, maturing in July 2012:

Floating portion (42.3%):

The company originally took out a floating rate term loan of 260mil at LIBOR + 1.75%
into an interest rate swap for 150mil of the original loan value, adopting a fixed rate
portion of the swap. As a result, we have split this term loan into two portions, a flo
(110mil/260mil= 42.3%) and a fixed portion (150mil/260mil= 57.7%)
BV = 259,350,000 - 150,000,000 = 109,350,000
For floating rate loans, MV = BV
2005
2004
LIBOR @ Year end*
4.39%
2.42%
1.75%
2.25%
Interest Rate at Year end
6.14%
4.67%

*MB said term loan was either based on LIBOR or US base rate. We chose LIBOR be
define which US base rate as there are many. The one month LIBOR was used; 1 mo
used.

Fixed portion (57.7%):

Term loan 40mil, floater, secured, maturing July 2010:

†This credit spread was determined in July 2005 to reflect the risk of the company's
of Rose Art as that was their intention for levering up. Because there were no mater
company between July and Dec. 2005, this credit spread is an accurate reflection of
year end 2005.
BV = 150,000,000
MV = present value of future cash flows discounted at 6.14% which is the cost of the
term loan at year end 2005. (refer to
For floating rate loans, MV = BV

Same rates as Term loan 260mil, floating portion; *MB stated they had option to cho
between 1.25% and 2.25%. We assumed average as no indication was given toward
other. We also performed sensitivity analysis and found that the difference was not m
Term loan, floater, secured, maturing May 2008:

For floating rate loans, MV = BV

*MB stated they had option to choose a spread rate between 1.5% and 3%. We ass
indication was given towards one direction or the other. We also performed sensitivit
that the difference was not material.
Revolving credit facility, secured, maturing in May 2007:

For floating rate loans, MV = BV

*MB stated they had option to choose a spread rate between 1.25% and 2.75%. We
no indication was given towards one direction or the other. We also performed sensit
found that the difference was not material.
Capital leases, maturing various dates up to may 2008:

2005
2004
Interest rates*
7.16%
8.20%
Discount rate†
6.14%
4.67%
BV of capital leases
1,341,000
1,197,000
MV of capital leases^
1,386,313
1,215,917
*MB provided a range of interest rates and we assumed the average of the range. T
not deviate far from our assumption and is immaterial to calculate given the proporti
total debt.
†Discount rate is based on the interest rate of the 2010 due floating term loan becau
cash flows best represent the length of the leases
^MV of capital leases is calculated according to the payment schedule below and disc
assumed discount rate.
Capital lease schedule
2005
2004
PMT due
PV of MV of PMT PMT due
2004
2005
385,000
2006
602,000
567,198
366,000
2007
641,000
569,030
405,000
2008
299,000
250,084
193,000

Operating leases:

2005
2004
Interest rates*
7.16%
8.20%
Discount rate†
6.14%
4.67%
BV of operating leasesº
33,613,665
15,708,757
MV of operating leases^
34,482,299
17,304,298
*It is assumed that the operating leases carry the same risk as the capital leases and
same interest rate.
†Same as with capital lease. Refer to note on capital lease discount rate.
ºBV of operating leases is not shown in the financial statements and thus must be ca
valuing the PMTs by the interest rates they are assumed to be charged. Refer to sche
^MV of operating leases is calculated according to the payment schedule below and
assumed discount rate.

Operating lease schedule PMT due
2004
2005
2006
2007
2008
2009
2010
2010

2005
PV of BV
9,134,000
9,954,000
8,131,000
7,012,000
6,348,000
6,348,000

http://www.moneycafe.com/library/1mlibor.htm#chart
Effective Tax Rate 2005

24.0%

8,524,101
8,669,075
6,608,557
5,318,537
4,493,396

PV of MV
8,605,964
8,836,386
6,800,792
5,525,810
4,713,348

erm loan of 260mil at LIBOR + 1.75% and later entered
nal loan value, adopting a fixed rate of 4.66% for the
his term loan into two portions, a floating portion
0mil/260mil= 57.7%)

2003
1.12%
3.75%
4.87%

r US base rate. We chose LIBOR because they did not
e one month LIBOR was used; 1 month LIBOR rate was

to reflect the risk of the company's debt post acquisition
g up. Because there were no material changes to the
t spread is an accurate reflection of the risk of MB's debt at

ed at 6.14% which is the cost of the floating portion of the

ge as no indication was given towards one direction or the
d found that the difference was not material.

rate between 1.5% and 3%. We assumed average as no
e other. We also performed sensitivity analysis and found

rate between 1.25% and 2.75%. We assumed average as
the other. We also performed sensitivity analysis and

2003
8.20%
4.87%
1,767,000
1,804,249
ssumed the average of the range. The actual rate should
terial to calculate given the proportion of capital leases to

e 2010 due floating term loan because the duration of the
s
he payment schedule below and discounted using the
2004
2003
PV of MV of PMT PMT due
PV of MV of PMT
764,000
728,524
367,830
359,000
326,435
334,083
341,000
295,670
353,196
377,000
311,706
160,807
180,000
141,914

2003
8.20%
4.87%
14,710,854
16,116,444
e same risk as the capital leases and thus, should bare the

pital lease discount rate.
cial statements and thus must be calculated by present
ssumed to be charged. Refer to schedule below.
o the payment schedule below and discounted using the

PMT due
3,824,000
3,818,000
4,001,000
4,075,000
4,122,000

2004
PV of BV
3,534,359
3,261,531
3,158,981
2,973,712
2,780,174

PV of MV
3,653,464
3,485,056
3,489,227
3,395,277
3,281,274

2003
PMT due
PV of BV
PV of MV
3,533,000
3,265,400
3,368,949
3,657,000
3,123,997
3,325,267
3,660,000
2,889,745
3,173,463
3,835,000
2,798,573
3,170,798
3,904,000
2,633,139
3,077,966

Appendix B - Interest Swap
Term loan, 150mil fixed portion, interest rate swap to 4.66% fixed rated
Quarters after
Q42005

Principal Payment
Interest Payment Total Interest Discount Rate
(0.25% of 150,000,000) @ 4.66%
PMT
(6.14%/4)
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125
373,125

1,739,975
1,735,625
1,731,275
1,726,925
1,722,575
1,718,225
1,713,876
1,709,526
1,705,176
1,700,826
1,696,476
1,692,126
1,687,776
1,683,426
1,679,076
1,674,726
1,670,376
1,666,026
1,661,676
1,657,326
1,652,976
1,648,626
1,644,277
1,639,927
1,639,927

MV = discounted interest pmt + discounted principle =

2,113,100
2,108,750
2,104,400
2,100,050
2,095,700
2,091,350
2,087,001
2,082,651
2,078,301
2,073,951
2,069,601
2,065,251
2,060,901
2,056,551
2,052,201
2,047,851
2,043,501
2,039,151
2,034,801
2,030,451
2,026,101
2,021,751
2,017,402
2,013,052
2,013,052
138,202,807

0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154
0.0154

Discounted
Interest PMT

Notional Amount
149,250,000
2,081,154
148,876,875
2,045,472
148,503,750
2,010,393
148,130,625
1,975,908
147,757,500
1,942,005
147,384,375
1,908,676
147,011,250
1,875,911
146,638,125
1,843,700
146,265,000
1,812,034
145,891,875
1,780,905
145,518,750
1,750,302
145,145,625
1,720,218
144,772,500
1,690,644
144,399,375
1,661,570
144,026,250
1,632,989
143,653,125
1,604,893
143,280,000
1,577,273
142,906,875
1,550,121
142,533,750
1,523,429
142,160,625
1,497,191
141,787,500
1,471,397
141,414,375
1,446,041
141,041,250
1,421,116
140,668,125
1,396,614
140,295,000
1,375,500
139,921,875
42,595,456
95,607,351
* discounted principal

Appendix C - Assumptions on Equity
Value of Equity
CAD to US Exchange rate (Dec 31, 2006)
Stock (US\$)
Year end shares outstanding
Market Capitalization (US\$)
BV of Equity (US\$)
Cost of Equity
1.5 Year Beta (vs S&P500 from July 2005
to Jan 2007, self-regressed see
Apppendix D1)*
2 Year Beta (vs S&P500 from Jan 2005 to
Jan 2007, from Bloomberg)*
Risk free rate: 10 year Canadian
benchmark bond†
MRP (of common stock over LT bonds)^
CAPM

2005
27.62
0.8579
23.70
32,105,575
760,772,119

2004
19.05
0.8307
15.82
27,119,532
429,139,107

231,592,000

154,434,000

0.90
0.91
3.98%
5.40%
8.89%

*The 1.5 year beta excludes the major jump in stock price in June of 2005 when MB levered up to
acquire Rose Art. Because 1.5 year beta may be too short a time period, we also found the 2 year beta
which does include the major jump in stock price. We have averaged these two betas in our CAPM
calculation.
†We assumed this as the risk free rate because the 10 year bond best reflects the duration of cash flows
of projects that WACC is intended to measure.
^The MRP is based on the historical premium common stock has above LT government bond. This
matches the risk free rate.
Historical Returns: *this methodology cannot be used because there is not enough data. The company
has less than 3 years of data. The company also does not issue dividends so DDM could not be used.

2003
23.00
0.7734
17.79
26,881,061
478,173,645
153,729,000

05 when MB levered up to
we also found the 2 year beta
ese two betas in our CAPM

eflects the duration of cash flows

LT government bond. This

ot enough data. The company
s so DDM could not be used.

Appendix C2 - Beta

Market Returns (%)

Mega Brands
S&P 500
Date
22-Jan-07
25.28
2.76423%
1423.9 -0.46138%
16-Jan-07
24.6 -5.74713%
1430.5 -0.01608%
8-Jan-07
26.1
1.35922% 1430.73
1.49109%
3-Jan-07
25.75 -1.52964% 1409.71 -0.60565%
29-Aug-05
24.46 -8.04511% 1218.02
1.07211%
22-Aug-05
26.6 -0.37453%
1205.1 -1.19783%
15-Aug-05
26.7 -1.11111% 1219.71 -0.86802%
8-Aug-05
27
2.07940% 1230.39
0.32371%
1-Aug-05
26.45
3.60360% 1226.42 -0.62876%
25-Jul-05
25.53
3.52798% 1234.18
0.04053%
18-Jul-05
24.66
1233.68
beta

0.9

MB Returns (%)

Beta

10%
8%
5%
3%
0%
-3%
-5%
-8%
-10%

RR RR RR RR RR RR RR RR RR
oooooooooooooooooo
ww ww ww ww ww ww ww ww ww

Mark

Market Returns (%) vs. MB Returns (&)

R RR RR RR RR RR RR RR RR RR RR RR RR RR RR RR RR RR RRR R
ooooooooooooooooooooooooooooooooooooooo
w ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww www w
Market Returns (%)

Appendix D - Sources of Financing
Debt Type (including current portion)
Term loan 260mil, secured, maturing in July 2012:
Floating portion (42.3%)
Fixed portion (57.7%)
Term loan 40mil, floater, secured, maturing July 2010
Capital leases, maturing various dates up to may 2008
Mortgage, secured, maturing December 2010*
Term loan, floater, secured, repaid in 2005
Revolving credit facility, secured, repaid in 2005
Operating leases
Total LT Debt (including current portion)

Market Value

2005
Book Value

109,725,000
138,202,807
40,000,000
1,386,313
262,000
34,482,299
324,058,419

109,725,000
149,625,000
40,000,000
1,341,000
262,000
33,613,665
334,566,665

Undrawn revolving term loan (not included in total)

100,000,000

Equity
Common Stock

760,772,119

231,592,000

1,084,830,538

566,158,665

Total Debt & Equity

*Assumed BV = MV because mortgage is immaterial
Assumptions and Calculations provided in Appendix A & C

2004
Market Value Book Value

2003
Market Value Book Value

1,215,917
12,375,000
11,000,000
17,304,298
41,895,215

1,197,000
12,375,000
11,000,000
15,708,757
40,280,757

1,804,249
52,000
24,625,000
10,000,000
16,116,444
52,597,692

1,767,000
52,000
24,625,000
10,000,000
14,710,854
51,154,854

429,139,107

154,434,000

478,173,645

153,729,000

471,034,322

194,714,757

530,771,337

204,883,854

Appendix E - Leverage & Liquidity

Leverage Ratios:
LT Debt Ratio
Total Debt Ratio
LT Debt to Equity
Total Debt to Equity
Times Interest Earned
Cash Coverage

Mega Brands
2005
2004
2003
3 Yr Avg BV
BV
MV
BV
MV
BV
MV
0.603 0.299
0.282 0.086
0.401 0.090
0.334
0.695 0.415
0.439 0.201
0.536 0.189
0.457
1.521 0.426
0.392 0.095
0.669 0.099
0.620
2.410 0.683
0.859 0.203
1.241 0.182
1.079
6.075
24.166
24.013
18.085
7.248
30.612
28.265
22.042

Liquidity Ratios:
Current Ratio
Quick Ratio
NWC to Total Assets
Interval Measure

1.519
0.988
0.141
239.792

3.104
2.445
0.552
263.435

2.970
2.324
0.523
243.176

Other Ratios:
Avg. Collection Period

128.030

163.311

141.788

2.531
1.919
0.405
248.801

*Industry and S&P500 ratios calculated by Reuters; calculations used may not be exctly the same as for the

Industry S&P500 Calculations for Company Ratios

0.34
0.5
8.97

2.04
1.43

(LT Debt + Leases) / (LT Debt + Leases + Equity)
Total Liabilities / Total Assets
0.65 (LT Debt + Leases) / Equity
0.74 (LT Debt + Leases + ST Debt) / Equity
14.61 EBIT / Interest
(EBIT + Depreciation & Amortization) / Interest
1.73 Current Assets / Current Liabilities
1.21 (Cash + AR) / Current Liabilities
(Current Assets - Current Liabilities) / Total Assets
(Cash + AR) / ((COS + SG&A) / 365)
Avg. AR / (Sales / 365)

t be exctly the same as for the company ratios and are only loosely comparable

Appendix F - Profitability
2005

Mega Brands
2004

2003

3 Yr Avg

Industry

45.2%
14.2%
13.6%
10.7%
21.1%

46.6%
19.7%
18.9%
13.1%
30.5%

45.9%
16.4%
15.1%
11.2%
25.2%

41.84
18.12
15.56
10.61
28.26

11.0%
24.5%

15.3%
28.1%

18.6%
46.6%

15.0%
33.1%

12.83
24.36

DuPont Analysis:
ROA =
Asset Turnover
Profit Margin

11.0%
0.901
12.3%

15.3%
1.349
11.3%

18.6%
1.334
13.9%

15.0%
1.19
12.5%

ROE =
Leverage Ratio
Asset Turnover
Profit Margin
Debt Burden

24.5%
2.799
0.901
12.3%
0.794

28.1%
1.940
1.349
11.3%
0.948

46.6%
2.667
1.334
13.9%
0.941

33.1%
2.469
1.194
12.5%
0.894

Profitability Ratios:
Gross Margin
EBITDA Margin
Pre-tax Margin
Net Profit Margin
Effective Tax Rate

45.9%
15.3%
12.8%
9.7%
24.0%

ROA
ROE

Industry and S&P ratios from Reuters; all are for the TTM from 09/06 except industry 5 yr avg.

Industry 5 Yr. Avg.

S&P500

Calculations for Company Ratios

41.94
18.96
15.52
10.27
32.62

45.33
22.54
18.66
13.61
32

Gross Profit / Sales
EBITDA / Sales
EBT / Sales
Net Income / Sales
Stated by management in MD&A

12.17
21.54

8.13 (Net Income + Interest) / Avg. Total Assets
19.92
Net Income / Avg. Total Equity

ndustry 5 yr avg.

Asset Turnover * Profit Margin
Sales / Avg. Total Assets
(Net Income + Interest) / Sales
Leverage Ratio * Asset Turnover * Profit
Margin * Debt Burden
Avg. Total Assets / Avg. Total Equity
Sales / Avg. Total Assets
(Net Income + Interest) / Sales
Net Income / (Net Income + Interest)

Appendix H - 2005 Year End Weighted Average Cost of Capital

Source of Financing
Market Value (US\$) Weighting
Term loan 260mil, secured, maturing in july 2012:
Floating portion (42.3%)
109,725,000
10.11%
Fixed portion (57.7%)
138,202,807
12.74%
Term loan 40mil, floater, secured, maturing july 2010
40,000,000
3.69%
Capital leases, maturing various dates up to may 2008
1,386,313
0.13%
Mortgage, secured, maturing december 2010
262,000
0.02%
Operating leases
34,482,299
3.18%
Common Equity
760,772,119
70.13%
Total
1,084,830,538 100.00%
Effective Tax Rate
WACC

24%
7.54%

Sensitivity Analysis
Tax Rate
WACC

14%
7.71%

We used the effective tax rate as the assumed rate of tax on the companies debt. Because MB operates in
represents the overall rate at which the entire company was taxed at however if the bulk of the debt (prim
issued in a country with a tax rate significantly different from the effective tax rate, you will end up with a
sensitivity analysis with the tax rate that is assumed by Bloomberg, 14% and saw minor effects in that WA
the company does not disclose which tax rate actually applies and because it is rather immaterial, it is safe
rate on debt.
WACC according to Bloomberg
WACC

7.11%

Bloomberg also calculates for us what they believe to be MB's WACC based on their assumptions. One rea
are using a beta that was derived from regressing company returns against the TSX index, resulting in a lo
a lower CAPM computation. Bloombergs WACC also applies to more recently released information, Q3 200

Before tax Required Rate Afer-tax Required Weighted Required
of Return (effective)
Rate of Return
Rate of Return
6.28%
4.75%
6.28%
7.35%
6.17%
7.35%
8.89%

4.77%
3.61%
4.77%
5.59%
4.69%
5.59%
8.89%

0.48%
0.46%
0.18%
0.01%
0.00%
0.18%
6.24%
7.54%

debt. Because MB operates in multiple countries, its effective tax rate
r if the bulk of the debt (primarily the 260mil and 40 mil term loans) were
x rate, you will end up with a different WACC figure. We performed
d saw minor effects in that WACC increased to 7.71%. As a result, because
is rather immaterial, it is safe to assume the effective tax rate as the tax

n their assumptions. One reason that their result is somewhat lower is they
he TSX index, resulting in a lower CAPM lower beta that ultimately results in
released information, Q3 2006 which makes not a comparable.

Appendix I - Ratio Comparison Table
MV
Leverage Ratios:
LT Debt Ratio
LT Debt to Equity
Times Interest Earned

Mega Brands
BV
0.30
0.43

Liquidity Ratios:
Current Ratio
Quick Ratio
Efficiency Ratios:
Avg. Collection Period
Days to Sell Inventory
Profitability Ratios:
Average Interest Rate
Gross Margin
EBITDA Margin
Net Profit Margin
ROA
ROE
Effective Tax Rate
Market Values:
Market Cap.

RC2 Corp
0.60
1.52
6.07

0.10
0.14

0.59

1.52
0.99

1.99
1.21

1.45
1.25

128

75

14
9

45.9%
15.3%
9.7%
11.0%
24.5%
24.0%
760,772,119

MacDonald's

48.7%
17.7%
10.5%
7.8%
14.2%

735,901,726

4.0%
69.6%
19.8%
12.7%
9.9%
17.2%

Appendix J - Restructuring

Effective Tax Rate
Assets
Operating Assets
PV of Tax Shield*
Total Assets

24%
Balance Sheet Before Restructuring
Liabilities
1,193,900,517
Current Liabilities†
77,774,021
LT Debt (including current portion)
Total Liabilities
1,271,674,538
Equity
Market Capitalization
Total Liabilities and Equity
Shares outstanding
Price per Share

*The PV of tax shield (PVTS) is calculated as follows: LT Debt * Tax Rate. To confirm that the PVTS is
accurate, we also computed the PVTS using another equation:
PVTS = tax rate * (total years interest / required return on debt); see below
tax rate =
24%
interest for 1 yr =
19,127,536
return on debt (before tax) =
5.74%
PVTS =
79,975,758
Because the PVTS is very similar according to both calculations, it is safe to assume that the top PVTS
is sound.
†taken from the 2005 BS as current liabilities are supposed to be valued at market.

Assets
Operating Assets
PV of Tax Shield*
Total Assets

Balance Sheet On Annoucement of Restructuring
Liabilities
1,193,900,517
Current Liabilities
101,774,021
LT Debt (including current portion)
Total Liabilities
1,295,674,538
Equity
Market Capitalization
Total Liabilities and Equity
Shares outstanding
Price per Share

Assets
Operating Assets
PV of Tax Shield*
Total Assets

Balance Sheet After Restructuring
Liabilities
1,193,900,517
Current Liabilities
101,774,021
LT Debt (including current portion)
Total Liabilities
1,295,674,538
Equity

Market Capitalization
Total Liabilities and Equity
Shares outstanding
Price per Share

186,844,000
324,058,419
510,902,419
760,772,119
1,271,674,538

Source of Financing
Term loan 260mil, secured, maturing in july 2012:
Floating portion (42.3%)
Fixed portion (57.7%)
Term loan 40mil, floater, secured, maturing july 2010
Capital leases, maturing various dates up to may 2008
Mortgage, secured, maturing december 2010
Operating leases
New Debt, 100mil.*
Common Equity†
Total
Effective Tax Rate
WACC

32,105,575
23.70
*New debt assumed to have the same interest rate as Term loan 260 mil

To confirm that the PVTS is

†We assume that because of low financial distress cost, cost of equity will on

w

o assume that the top PVTS

t market.

ing
186,844,000
324,058,419
510,902,419
784,772,119
1,295,674,538
32,105,575
24.44

186,844,000
424,058,419
610,902,419

684,772,119
1,295,674,538
28,014,505
24.44

Market Value
(US\$)
109,725,000
138,202,807
40,000,000
1,386,313
262,000
34,482,299
100,000,000
684,772,119
1,108,830,538

Weighting

Before tax Required Rate Afer-tax Required
of Return (effective)
Rate of Return

9.90%
12.46%
3.61%
0.13%
0.02%
3.11%
9.02%
61.76%
100.00%

24%
7.23%

st rate as Term loan 260 mil

tress cost, cost of equity will only increase slightly

6.28%
4.75%
6.28%
7.35%
6.17%
7.35%
6.28%
8.95%
9.44

4.77%
3.61%
4.77%
5.59%
4.69%
5.59%
4.77%
8.95%

Weighted Required
Rate of Return
0.47%
0.45%
0.17%
0.01%
0.00%
0.17%
0.43%
5.53%
7.23%

MEGA Brands Inc
As Reported Annual Cash Flow
Currency
Auditor Status
Consolidated
Scale

12/30/2001 12/30/2000 12/30/1999
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands

Net earnings (loss)
Amortization of capital assets
Amortization of deferred charges
Amortization of intangible assets
Stock-based compensation plan
Future income taxes
Loss (gain) on foreign currency
Cash flows before changes in non-cash working
Accounts receivable - other
Inventories
Prepaid expenses
Accounts payable & accrued liabilities
Income taxes
Derivative financial instruments
Foreign currency translation relating to work
Total changes in non-cash operating working c
Net cash flows from operating activities
Proceeds from long-term debt
Repayments of long-term debt
Change in revolving credit facility
Issuance of capital stock
Net cash flows from financing activities
Acquisition of subsidiaries, net of cash acqu
Acquisition of capital assets
Acquisition of intangible assets
Net cash flows from investing activities
Net cash inflow
Cash & cash equivalents, beginning of year
Cash & cash equivalents, end of year
Interest paid
Income taxes paid

39,608
10,343
1,538
161 451
7,005
2,796
61,902
-1,560
3,739
-2,694
-400
-31,203
1,626
-3,573 -2,796
-36,861
25,041
300,000 -49,791
-11,000
57,158
-4,457 291,910
-291,623 -9,977
-1,391 -302,991
13,960
5,607
19,567
6,534
1,840

25,177
8,515
361

28,805
7,305
356
-

423
-704
-3,117
30,655
-8,567
-5,281
-1,685
-524
-1,160
1,135

262
2,542
-4,284
34,986
-23,861
-1,525
-9,954
-2,049
19,902
-3,834
-

6,720
-9,362
21,293

4,773
-16,548
18,438
-

-12,940
1,000
705

-14,201
6,000
666
-419
-7,954

-11,235
-7,201

-9,765

-845 -8,046
2,012
3,595
5,607
1,363
6,292

-9,765
719
2,876
3,595
1,626
12,376

MEGA Brands Inc
As Reported Annual Income Statement
Currency
Auditor Status
Consolidated
Scale

12/30/2001 12/30/2000 12/30/1999
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands

Net sales
Cost of sales
Gross profit
Marketing, research & development & advertisi
Unusual items
Gain (loss) on foreign currency translation
Earnings (loss) from operations
Interest expense - long-term debt
Interest expense - other
Total interest expense
Earnings (loss) before income taxes
Income taxes - current
Income taxes - future
Total income taxes
Net earnings (loss)
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Year end shares outstanding
Earnings (loss) per share - basic
Earnings (loss) per share - diluted

407,032
220,260
186,772
50,552
73,870

234,581
128,659
105,922
33,360
34,127
5,158 -

62,350
9,310
954
10,264
52,086
5,473
7,005
12,478
39,608
29,281.15
31,390.46
32,105.58
1.35
1.26

33,277
1,207
170
1,377
31,900
7,427
-704
6,723
25,177
27,185.18
29,331.62
27,292.47
0.93
0.86

219,691
117,244
102,447
28,161
35,298
4,284
43,272
1,666
136
1,802
41,470
10,123
2,542
12,665
28,805
26,992.80
29,437.06
27,119.53
1.07
0.98

MEGA Brands Inc
As Reported Annual Retained Earnings
Currency
Auditor Status
Consolidated
Scale

12/30/2001 12/30/2000 12/30/1999
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands

Retained earnings (deficit), beginning of yea
Retained earnings (deficit), beginning - as r
Retained earnings (deficit), end of year

-

-52,320

-77,497
-77,497
-

-12,712

-52,320

-106,014
-106,014
-288
-77,497

MEGA Brands Inc
As Reported Annual Balance Sheet
Currency
Auditor Status
Consolidated
Scale

12/30/2001
US Dollar
Not Qualified
Yes
Thousands

Cash & cash equivalents
Accounts receivable - other
Raw materials
Work in progress
Finished goods
Inventories
Future income taxes
Derivative financial instruments
Prepaid expenses
Total current assets
Land
Buildings, cost
Less: accumulated amortization - buildings
Buildings, net
Machinery & equipment, cost
Less: accumulated amortization - machinery &
Machinery & equipment, net
Computer equipment, cost
Less: accumulated amortization - computer equ
Computer equipment, net
Leasehold improvements, cost
Less: accumulated amortization - leasehold im
Leasehold improvements, net
Computer equipment held under capital leases,
Less: accumulated amortization - computer equ
Computer equipment held under capital leases,
Machine & equipment held under capital leases
Less: accumulated amortization - machine & eq
Machine & equipment held under capital leases
Capital assets, gross
Less: accumulated amortization - capital asse
Capital assets, net
Intangible assets
Goodwill
Deferred charges
Total assets
Accounts payable & accrued liabilities
Derivative financial instruments
Income taxes
Current portion of long-term debt
Total current liabilities
Long-term debt
Future income taxes
Total liabilities
Capital stock
Contributed surplus

19,567
167,428
6,238
18,333
12,648
51,299
82,280
13,396
8,324
297,233
44
889
7
882
73,908
44,287
29,621
7,298
4,227
3,071
6,127
1,896
4,231
1,996
1,412
584
1,472
554
918
91,734
52,383
39,351
72,230
306,973
4,708
720,495
108,025
74,075
4,744
8,784
195,628
292,169
12,682
500,479
231,592
1,136

12/30/2000
US Dollar
Not Qualified
Yes
Thousands
5,607
101,984
9,898
1,797
6,368
17,960
26,125
1,184
4,347
149,145
61,183
36,108
25,075
5,335
3,280
2,055
4,876
1,128
3,748
1,480
1,227
253
1,472
382
1,090
74,346
42,125
32,221
1,789
183,155
41,622
4,757
1,111
563
48,053
24,009
8,294
80,356
154,434
685

Retained earnings (accumulated deficit)
Total shareholders' equity (deficiency)

-12,712
220,016

-52,320
102,799

12/30/1999 12/30/1998
US Dollar
US Dollar
Not Qualified Not Qualified
Yes
Yes
Thousands
Thousands
3,595
93,417
4,617
551
9,467
14,422
24,440
24 -

2,876
69,556
3,092

14,486

3,823
129,916
56,059
29,176
26,883
4,634
2,522
2,112
3,471
654
2,817
1,454
1,042
412
1,473
187
1,286
67,091
33,581
33,510
1,292
164,718
42,782
955
43,737
35,489
8,998
88,224
153,729
262

1,774
91,784

30,318
1,592
\$ 164,718 \$ 123,694
Liabilities
Current liabilities
Accounts payable and accrued liabilitie
Income taxes – 3,941
Current portion of long-term debt (Not
43,737 30,563
Long-term debt (Note 5) 35,489 40,01
Future income taxes (Note 11) 8,998 6
88,224 76,645
Shareholders’ equity
Capital stock (Note 6) 153,729 153,06
Contributed surplus (Note 8) 262 –
Deficit (77,497) (106,014)
76,494 47,049
\$ 164,718 \$ 123,694

-77,497
76,494

47,049

164,718 \$ 123,694

rrent liabilities
counts payable and accrued liabilities \$ 42,782 \$ 22,880
come taxes – 3,941
rrent portion of long-term debt (Note 5) 955 3,742
,737 30,563
ng-term debt (Note 5) 35,489 40,015
ture income taxes (Note 11) 8,998 6,067
,224 76,645
areholders’ equity
pital stock (Note 6) 153,729 153,063
ntributed surplus (Note 8) 262 –
ficit (77,497) (106,014)
,494 47,049
164,718 \$ 123,694

RC2 Corp
As Reported Annual Cash Flow
Currency
Auditor Status
Consolidated
Scale
Net income (loss)
Depreciation
Impairment of intangible assets
Provision for uncollectible accounts
Interest on deferred financing costs
Amortization of intangible assets
Amort of goodwill & other intangible assets
Loss (gain) on disposition of assets
Deferred income taxes
Other
Accounts & other receivables
Inventory
Prepaid expenses
Accounts payable & accrued expenses
Other liabilities
Net cash flows from operating activities
Purchase of property & equipment
Proceeds from disposition of property & equip
Purchase of LCI, net of cash acquired
Purchase of Playing Mantis
Purchase of TFY, net of cash acquired
Proceeds from sale of W. Britain product line
Investment in Meteor The Monster Truck Compan
Decrease (increase) in other non-current asse
Net cash flows from investing activities
Net cash proceeds from public stock offering
Issuance of stock upon option exercises
Issuance of stock under ESPP
Proceeds from bank term loans
Payments on bank term loans
Net borrowings (payments) on line of credit
Purchase of stock to be held in treasury
Proceeds from reissuance of treasury stock
Payment to notes payable
Financing fees paid
Net cash flows from financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash & cash equiva
Cash & cash equivalents, beginning of year
Restricted cash
Cash & cash equivalents, end of year
Cash paid for interest during the period
Cash paid for income taxes during the period

12/31/2005 12/31/2004 12/31/2003
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands
53,130.35
14,474.62
834.57
482.83
1,384.80
-

33,978.23
15,309.53
4,318 767.17
828.77
93.75 -

38,417.26
11,950.46
2,089.20
246.13

30
-2,029.72
56.07
112.85
1,887.11
8,385.75
-6,757.46
15.67 -18,255.39
2,216.59 -26,766.96
-18,541.69
5,488.13
7,032.22
287.88
53.63
1,242.18
26,024.69
-2,574.65
170.56
-559.32
-4,630.77
9,857.81
59,136.40
64,290.22
37,624.26
-14,159.23 -15,091.60 -10,752.39
5,545.96
166.66
33.29
-99,381.96
-17,238.06 39.34 -154,567.41 2,850 -750 -168.94
1,745.37
-3,636.09
-6,642.87 -184,985.04 -113,737.14
77,486.08 1,750.67
2,072.20
1,386.72
190.84
140.84
140.64
85,000
60,000
-16,562.50
-53,750
-10,000
-31,914.23
15,000
27,000
-821.64 91.39
-2,861.82
-1,942.19
-935.3
-46,535.22 123,185.29
74,821.63
-819.96
1,051.86
768.16
5,138.36
3,542.33
-523.09
20,123.40
16,547.95
17,104.16
33.12
-33.12
25,261.75
20,123.40
16,547.95
5,890.17
3,416.23
3,439.02
22,471.71
11,986.77
8,754.40

RC2 Corp
As Reported Annual Income Statement
Currency
Auditor Status
Consolidated
Scale

12/31/2005 12/31/2004 12/31/2003
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands

Net sales
Cost of sales, related party
Other cost of sales
Gross profit (loss)
Impairment of intangible assets
Amortization of intangible assets
Gain on sale of W. Britain product line
Amortization of goodwill & other intangible a Operating income (loss)
Interest expense, net
Other income (expense)
Income before income taxes - United States
Income before income taxes - Foreign
Income (loss) before income taxes
Current income tax expense-federal
Current income tax expense-state
Current income tax expense-foreign
Total current income tax expense
Deferred income tax expense-federal
Deferred income tax expense-state
Deferred income tax expense-foreign
Total deferred income tax expense
Income tax expense
Net income (loss)
Weighted average shares outstanding-basic
Weighted average shares outstanding-diluted
Year end shares outstanding
Net income (loss) per share-basic
Net income (loss) per share-diluted
Total number of employees
Number of common stockholders

504,444.93
18,565.86
240,381.92
245,497.16
155,412.48

381,424.74
7,846.27
185,650.82
187,927.65
126,264.74
4,318 1,384.80
93.75 1,952.56 90,652.43
57,251.16
-5,983.13
-4,063.29
-145.95
508.16
70,402
47,072
14,121
6,624
84,523.35
53,696.03
24,831
8,862
1,170
950
3,545
1,520
29,546
11,332
217
8,278
1,356
236
274
-128
1,847
8,386
31,393
19,717.80
53,130.35
33,978.23
20,612.85
18,687.06
21,531.66
19,761.16
20,717.95
20,462.66
2.58
1.82
2.47
1.72
842
742 149
140 -

310,945.67
8,255.63
140,651.98
162,038.06
104,794.27

30
57,213.79
-3,477.35
145.45
47,755
6,127
53,881.88
11,492
1,629
468
13,589
2,122
-664
418
1,876
15,464.62
38,417.26
17,059.59
18,104.97
17,380.60
2.25
2.12

RC2 Corp
As Reported Annual Retained Earnings
Currency
Auditor Status
Consolidated
Scale
Previous retained earnings (accum deficit)
Retained earnings (accumulated deficit)

Stock Price @ year end
Market Cap

12/31/2005 12/31/2004 12/31/2003
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands
133,481.53
186,611.88

35.52
###

99,503.30
133,481.53

61,086.04
99,503.30

Macdonals market cap
Share price
year end outstanding

RC2 Corp
As Reported Annual Balance Sheet
Currency
Auditor Status
Consolidated
Scale

12/31/2005 12/31/2004 12/31/2003
US Dollar
US Dollar
US Dollar
Not Qualified Not Qualified Not Qualified
Yes
Yes
Yes
Thousands
Thousands
Thousands

Cash & cash equivalents
25,261.75
20,123.40
Restricted cash
Accounts receivables, gross
116,139.18
96,812.93
Allowance for doubtful accounts
3,072.71
3,196.56
Accounts receivables, net
113,066.47
93,616.37
Other receivable
2,284.43
6,565.34
Inventory
71,260.18
55,022.93
Assets held for sale
4,185.96 Deferred income taxes & prepaid taxes, net
8,716.72
8,263.66
Prepaid expenses
6,595.56
6,602.61
Total current assets
227,185.10 194,380.26
Land
685.64
699.5
Buildings & improvements
7,453.53
8,049.23
Tooling
96,416.01
85,253.55
Other equipment
19,149.48
19,087.08
Property & equipment, at cost
123,704.65 113,089.36
Less: accumulated depreciation
76,665.17
64,232.92
Property & equipment, net
47,039.48
48,856.44
Goodwill, net
253,571.01 282,367.32
Intangible assets, net
99,610.66
58,243.32
Other assets
2,330.15
1,901.14
Total assets
629,736.40 585,748.48
Accounts payable
25,543.08
16,590.06
Taxes payable, net
6,109.55 Accrued expenses
19,596.55
14,263.87
Accrued allowances
21,198.64
18,563.03
Accrued royalties
14,874.08
14,623.28
Line of credit
3,979.52 Current maturities of term notes
21,250
16,562.50
Other current liabilities
1,347.98
846.62
Total current liabilities
113,899.39
81,449.36
Line of credit
13,979.52
50,000
Term notes, less current maturities
43,437.50
64,687.50
Deferred income taxes
49,313.06
31,632.97
Other long-term liabilities
10,155.55
11,216.23
Total liabilities
230,785.02 238,986.06
Common stock, voting
225.49
222.95
219,646.88 215,014.22
Accumulated other comprehensive income (loss)
1,126.60
6,543.96
Retained earnings (accumulated deficit)
186,611.88 133,481.53
Total stockholders' equity before treasury
407,610.84 355,262.66
Treasury stock, at cost
8,659.46
8,500.25
Total stockholders' equity
398,951.38 346,762.42

16,547.95
33.12
76,170.95
4,006.45
72,164.50
3,624.23
37,463.70
4,336.49
4,407.99
138,577.99
699.5
5,939.27
64,146.44
16,178.64
86,963.86
48,410.41
38,553.45
159,720.25
44,042.42
934.62
381,828.72
13,290.00
2,688.34
9,247.95
12,099.14
10,853.72
15,000
4,927.57
68,106.72
35,000
35,000
6,105.20
12,317.41
156,529.34
191.93
129,436.18
3,880.57
99,503.30
233,011.98
7,712.59
225,299.38