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

Term loan 260mil, secured, maturing in July 2012: 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%)
Floating portion (42.3%): 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%
Avg. Spread† 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.
†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.
Fixed portion (57.7%): 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

Term loan 40mil, floater, secured, maturing July 2010: 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.
 2005
Operating lease schedule PMT due PV of BV PV of MV
2004
2005
2006 9,134,000 8,524,101 8,605,964
2007 9,954,000 8,669,075 8,836,386
2008 8,131,000 6,608,557 6,800,792
2009 7,012,000 5,318,537 5,525,810
2010 6,348,000 4,493,396 4,713,348
2010 6,348,000

http://www.moneycafe.com/library/1mlibor.htm#chart

Effective Tax Rate 2005 24.0%

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

n; *MB stated they had option to choose a spread rate

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
 2004 2003
PMT due PV of BV PV of MV PMT due PV of BV PV of MV
3,533,000 3,265,400 3,368,949
3,824,000 3,534,359 3,653,464 3,657,000 3,123,997 3,325,267
3,818,000 3,261,531 3,485,056 3,660,000 2,889,745 3,173,463
4,001,000 3,158,981 3,489,227 3,835,000 2,798,573 3,170,798
4,075,000 2,973,712 3,395,277 3,904,000 2,633,139 3,077,966
4,122,000 2,780,174 3,281,274
Appendix B - Interest Swap
Term loan, 150mil fixed portion, interest rate swap to 4.66% fixed rated

Quarters after Principal Payment Interest Payment Total Interest Discount Rate
Q42005 (0.25% of 150,000,000) @ 4.66% PMT (6.14%/4)
0
1 373,125 1,739,975 2,113,100 0.0154
2 373,125 1,735,625 2,108,750 0.0154
3 373,125 1,731,275 2,104,400 0.0154
4 373,125 1,726,925 2,100,050 0.0154
5 373,125 1,722,575 2,095,700 0.0154
6 373,125 1,718,225 2,091,350 0.0154
7 373,125 1,713,876 2,087,001 0.0154
8 373,125 1,709,526 2,082,651 0.0154
9 373,125 1,705,176 2,078,301 0.0154
10 373,125 1,700,826 2,073,951 0.0154
11 373,125 1,696,476 2,069,601 0.0154
12 373,125 1,692,126 2,065,251 0.0154
13 373,125 1,687,776 2,060,901 0.0154
14 373,125 1,683,426 2,056,551 0.0154
15 373,125 1,679,076 2,052,201 0.0154
16 373,125 1,674,726 2,047,851 0.0154
17 373,125 1,670,376 2,043,501 0.0154
18 373,125 1,666,026 2,039,151 0.0154
19 373,125 1,661,676 2,034,801 0.0154
20 373,125 1,657,326 2,030,451 0.0154
21 373,125 1,652,976 2,026,101 0.0154
22 373,125 1,648,626 2,021,751 0.0154
23 373,125 1,644,277 2,017,402 0.0154
24 373,125 1,639,927 2,013,052 0.0154
25 373,125 1,639,927 2,013,052 0.0154

MV = discounted interest pmt + discounted principle = 138,202,807

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
2005 2004
Stock (CAD$) 27.62 19.05
CAD to US Exchange rate (Dec 31, 2006) 0.8579 0.8307
Stock (US$) 23.70 15.82
Year end shares outstanding 32,105,575 27,119,532
Market Capitalization (US$) 760,772,119 429,139,107

BV of Equity (US$) 231,592,000 154,434,000

Cost of Equity
1.5 Year Beta (vs S&P500 from July 2005
to Jan 2007, self-regressed see
Apppendix D1)* 0.90
2 Year Beta (vs S&P500 from Jan 2005 to
Jan 2007, from Bloomberg)* 0.91
Risk free rate: 10 year Canadian
benchmark bond† 3.98%
MRP (of common stock over LT bonds)^ 5.40%
CAPM 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

Beta
Market Returns (%)
Mega Brands S&P 500 10%
Date Adj. Close*Returns (%) Adj. Close*Returns (%) 8%

MB Returns (%)
22-Jan-07 25.28 2.76423% 1423.9 -0.46138% 5%
16-Jan-07 24.6 -5.74713% 1430.5 -0.01608% 3%
8-Jan-07 26.1 1.35922% 1430.73 1.49109%
0%
3-Jan-07 25.75 -1.52964% 1409.71 -0.60565%
-3%
29-Aug-05 24.46 -8.04511% 1218.02 1.07211%
22-Aug-05 26.6 -0.37453% 1205.1 -1.19783% -5%
15-Aug-05 26.7 -1.11111% 1219.71 -0.86802% -8%
8-Aug-05 27 2.07940% 1230.39 0.32371% -10%
1-Aug-05 26.45 3.60360% 1226.42 -0.62876% RR RR RR RR RR RR RR RR RR
25-Jul-05 25.53 3.52798% 1234.18 0.04053% oooooooooooooooooo
18-Jul-05 24.66 1233.68 ww ww ww ww ww ww ww ww ww
Mark
beta 0.9
 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

2005
Debt Type (including current portion) Market Value Book Value
Term loan 260mil, secured, maturing in July 2012:
Floating portion (42.3%) 109,725,000 109,725,000
Fixed portion (57.7%) 138,202,807 149,625,000
Term loan 40mil, floater, secured, maturing July 2010 40,000,000 40,000,000
Capital leases, maturing various dates up to may 2008 1,386,313 1,341,000
Mortgage, secured, maturing December 2010* 262,000 262,000
Term loan, floater, secured, repaid in 2005 - -
Revolving credit facility, secured, repaid in 2005 - -
Operating leases 34,482,299 33,613,665
Total LT Debt (including current portion) 324,058,419 334,566,665

Undrawn revolving term loan (not included in total) 100,000,000

Equity
Common Stock 760,772,119 231,592,000

Total Debt & Equity 1,084,830,538 566,158,665

*Assumed BV = MV because mortgage is immaterial

Assumptions and Calculations provided in Appendix A & C
 2004 2003
Market Value Book Value Market Value Book Value

- - - -
- - - -
- - - -
1,215,917 1,197,000 1,804,249 1,767,000
- - 52,000 52,000
12,375,000 12,375,000 24,625,000 24,625,000
11,000,000 11,000,000 10,000,000 10,000,000
17,304,298 15,708,757 16,116,444 14,710,854
41,895,215 40,280,757 52,597,692 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

Mega Brands
2005 2004 2003 3 Yr Avg BV
Leverage Ratios: BV MV BV MV BV MV
LT Debt Ratio 0.603 0.299 0.282 0.086 0.401 0.090 0.334
Total Debt Ratio 0.695 0.415 0.439 0.201 0.536 0.189 0.457
LT Debt to Equity 1.521 0.426 0.392 0.095 0.669 0.099 0.620
Total Debt to Equity 2.410 0.683 0.859 0.203 1.241 0.182 1.079
Times Interest Earned 6.075 24.166 24.013 18.085
Cash Coverage 7.248 30.612 28.265 22.042

Liquidity Ratios:
Current Ratio 1.519 3.104 2.970 2.531
Quick Ratio 0.988 2.445 2.324 1.919
NWC to Total Assets 0.141 0.552 0.523 0.405
Interval Measure 239.792 263.435 243.176 248.801

Other Ratios:
Avg. Collection Period 128.030 163.311 141.788

*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

(LT Debt + Leases) / (LT Debt + Leases + Equity)

Total Liabilities / Total Assets
0.34 0.65 (LT Debt + Leases) / Equity
0.5 0.74 (LT Debt + Leases + ST Debt) / Equity
8.97 14.61 EBIT / Interest
(EBIT + Depreciation & Amortization) / Interest

2.04 1.73 Current Assets / Current Liabilities

1.43 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

Mega Brands
2005 2004 2003 3 Yr Avg Industry
Profitability Ratios:
Gross Margin 45.9% 45.2% 46.6% 45.9% 41.84
EBITDA Margin 15.3% 14.2% 19.7% 16.4% 18.12
Pre-tax Margin 12.8% 13.6% 18.9% 15.1% 15.56
Net Profit Margin 9.7% 10.7% 13.1% 11.2% 10.61
Effective Tax Rate 24.0% 21.1% 30.5% 25.2% 28.26

ROA 11.0% 15.3% 18.6% 15.0% 12.83

ROE 24.5% 28.1% 46.6% 33.1% 24.36

DuPont Analysis:
ROA = 11.0% 15.3% 18.6% 15.0%
Asset Turnover 0.901 1.349 1.334 1.19
Profit Margin 12.3% 11.3% 13.9% 12.5%

ROE = 24.5% 28.1% 46.6% 33.1%

Leverage Ratio 2.799 1.940 2.667 2.469
Asset Turnover 0.901 1.349 1.334 1.194
Profit Margin 12.3% 11.3% 13.9% 12.5%
Debt Burden 0.794 0.948 0.941 0.894

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 45.33 Gross Profit / Sales

18.96 22.54 EBITDA / Sales
15.52 18.66 EBT / Sales
10.27 13.61 Net Income / Sales
32.62 32 Stated by management in MD&A

12.17 8.13 (Net Income + Interest) / Avg. Total Assets

21.54 19.92 Net Income / Avg. Total Equity

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)

ndustry 5 yr avg.
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 24%

WACC 7.54%

Sensitivity Analysis
Tax Rate 14%
WACC 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% 4.77% 0.48%

4.75% 3.61% 0.46%
6.28% 4.77% 0.18%
7.35% 5.59% 0.01%
6.17% 4.69% 0.00%
7.35% 5.59% 0.18%
8.89% 8.89% 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

Mega Brands RC2 Corp MacDonald's

MV BV
Leverage Ratios:
LT Debt Ratio 0.30 0.60 0.10
LT Debt to Equity 0.43 1.52 0.14 0.59
Times Interest Earned 6.07

Liquidity Ratios:
Current Ratio 1.52 1.99 1.45
Quick Ratio 0.99 1.21 1.25

Efficiency Ratios:
Avg. Collection Period 128 75 14
Days to Sell Inventory 9

Profitability Ratios:
Average Interest Rate 4.0%
Gross Margin 45.9% 48.7% 69.6%
EBITDA Margin 15.3% 17.7% 19.8%
Net Profit Margin 9.7% 10.5% 12.7%
ROA 11.0% 7.8% 9.9%
ROE 24.5% 14.2% 17.2%
Effective Tax Rate 24.0%

Market Values:
Market Cap. 760,772,119 735,901,726
Appendix J - Restructuring

Effective Tax Rate 24%

Balance Sheet Before Restructuring

Assets Liabilities
Operating Assets 1,193,900,517 Current Liabilities†
PV of Tax Shield* 77,774,021 LT Debt (including current portion)
Total Liabilities
Total Assets 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.

Balance Sheet On Annoucement of Restructuring

Assets Liabilities
Operating Assets 1,193,900,517 Current Liabilities
PV of Tax Shield* 101,774,021 LT Debt (including current portion)
Total Liabilities
Total Assets 1,295,674,538
Equity
Market Capitalization

Total Liabilities and Equity

Shares outstanding
Price per Share

Balance Sheet After Restructuring

Assets Liabilities
Operating Assets 1,193,900,517 Current Liabilities
PV of Tax Shield* 101,774,021 LT Debt (including current portion)
Total Liabilities
Total Assets 1,295,674,538
Equity
Market Capitalization

Total Liabilities and Equity

Shares outstanding
Price per Share
 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
186,844,000 Capital leases, maturing various dates up to may 2008
324,058,419 Mortgage, secured, maturing december 2010
510,902,419 Operating leases
New Debt, 100mil.*
Common Equity†
760,772,119 Total

1,271,674,538 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 Before tax Required Rate Afer-tax Required
(US$) Weighting of Return (effective) Rate of Return

109,725,000 9.90% 6.28% 4.77%

138,202,807 12.46% 4.75% 3.61%
40,000,000 3.61% 6.28% 4.77%
1,386,313 0.13% 7.35% 5.59%
262,000 0.02% 6.17% 4.69%
34,482,299 3.11% 7.35% 5.59%
100,000,000 9.02% 6.28% 4.77%
684,772,119 61.76% 8.95% 8.95%
1,108,830,538 100.00%

24% 9.44
7.23%

st rate as Term loan 260 mil

tress cost, cost of equity will only increase slightly

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 12/30/2001 12/30/2000 12/30/1999

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Net earnings (loss) 39,608 25,177 28,805

Amortization of capital assets 10,343 8,515 7,305
Amortization of deferred charges 1,538 361 356
Amortization of intangible assets 161 - -
Stock-based compensation plan 451 423 262
Future income taxes 7,005 -704 2,542
Loss (gain) on foreign currency 2,796 -3,117 -4,284
Cash flows before changes in non-cash working 61,902 30,655 34,986
Accounts receivable - trade -1,560 -8,567 -23,861
Accounts receivable - other 3,739 -5,281 -1,525
Inventories -2,694 -1,685 -9,954
Prepaid expenses -400 -524 -2,049
Accounts payable & accrued liabilities -31,203 -1,160 19,902
Income taxes 1,626 1,135 -3,834
Derivative financial instruments -3,573 - -
Foreign currency translation relating to work -2,796 6,720 4,773
Total changes in non-cash operating working c -36,861 -9,362 -16,548
Net cash flows from operating activities 25,041 21,293 18,438
Proceeds from long-term debt 300,000 - -
Repayments of long-term debt -49,791 -12,940 -14,201
Change in revolving credit facility -11,000 1,000 6,000
Issuance of capital stock 57,158 705 666
Addition to deferred charges -4,457 - -
Related party transaction adjustment - - -419
Net cash flows from financing activities 291,910 -11,235 -7,954
Acquisition of subsidiaries, net of cash acqu -291,623 - -
Acquisition of capital assets -9,977 -7,201 -9,765
Acquisition of intangible assets -1,391 - -
Addition to deferred charges - -845 -
Net cash flows from investing activities -302,991 -8,046 -9,765
Net cash inflow 13,960 2,012 719
Cash & cash equivalents, beginning of year 5,607 3,595 2,876
Cash & cash equivalents, end of year 19,567 5,607 3,595
Interest paid 6,534 1,363 1,626
Income taxes paid 1,840 6,292 12,376
MEGA Brands Inc

As Reported Annual Income Statement 12/30/2001 12/30/2000 12/30/1999

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Net sales 407,032 234,581 219,691

Cost of sales 220,260 128,659 117,244
Gross profit 186,772 105,922 102,447
Marketing, research & development & advertisi 50,552 33,360 28,161
Other selling, distribution & administrative 73,870 34,127 35,298
Unusual items - 5,158 -
Gain (loss) on foreign currency translation - - 4,284
Earnings (loss) from operations 62,350 33,277 43,272
Interest expense - long-term debt 9,310 1,207 1,666
Interest expense - other 954 170 136
Total interest expense 10,264 1,377 1,802
Earnings (loss) before income taxes 52,086 31,900 41,470
Income taxes - current 5,473 7,427 10,123
Income taxes - future 7,005 -704 2,542
Total income taxes 12,478 6,723 12,665
Net earnings (loss) 39,608 25,177 28,805
Weighted average shares outstanding - basic 29,281.15 27,185.18 26,992.80
Weighted average shares outstanding - diluted 31,390.46 29,331.62 29,437.06
Year end shares outstanding 32,105.58 27,292.47 27,119.53
Earnings (loss) per share - basic 1.35 0.93 1.07
Earnings (loss) per share - diluted 1.26 0.86 0.98

MEGA Brands Inc

As Reported Annual Retained Earnings 12/30/2001 12/30/2000 12/30/1999

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Retained earnings (deficit), beginning of yea -52,320 -77,497 -106,014

Retained earnings (deficit), beginning - as r - -77,497 -106,014
Related party transaction adjustment - - -288
Retained earnings (deficit), end of year -12,712 -52,320 -77,497
MEGA Brands Inc

As Reported Annual Balance Sheet 12/30/2001 12/30/2000

Currency US Dollar US Dollar
Auditor Status Not Qualified Not Qualified
Consolidated Yes Yes
Scale Thousands Thousands

Cash & cash equivalents 19,567 5,607

Accounts receivable - trade 167,428 101,984
Accounts receivable - other 6,238 9,898
Raw materials 18,333 1,797
Work in progress 12,648 6,368
Finished goods 51,299 17,960
Inventories 82,280 26,125
Future income taxes 13,396 -
Derivative financial instruments - 1,184
Prepaid expenses 8,324 4,347
Total current assets 297,233 149,145
Land 44 -
Buildings, cost 889 -
Less: accumulated amortization - buildings 7 -
Buildings, net 882 -
Machinery & equipment, cost 73,908 61,183
Less: accumulated amortization - machinery & 44,287 36,108
Machinery & equipment, net 29,621 25,075
Computer equipment, cost 7,298 5,335
Less: accumulated amortization - computer equ 4,227 3,280
Computer equipment, net 3,071 2,055
Leasehold improvements, cost 6,127 4,876
Less: accumulated amortization - leasehold im 1,896 1,128
Leasehold improvements, net 4,231 3,748
Computer equipment held under capital leases, 1,996 1,480
Less: accumulated amortization - computer equ 1,412 1,227
Computer equipment held under capital leases, 584 253
Machine & equipment held under capital leases 1,472 1,472
Less: accumulated amortization - machine & eq 554 382
Machine & equipment held under capital leases 918 1,090
Capital assets, gross 91,734 74,346
Less: accumulated amortization - capital asse 52,383 42,125
Capital assets, net 39,351 32,221
Intangible assets 72,230 -
Goodwill 306,973 -
Deferred charges 4,708 1,789
Total assets 720,495 183,155
Accounts payable & accrued liabilities 108,025 41,622
Additional consideration accrued on business 74,075 -
Derivative financial instruments - 4,757
Income taxes 4,744 1,111
Current portion of long-term debt 8,784 563
Total current liabilities 195,628 48,053
Long-term debt 292,169 24,009
Future income taxes 12,682 8,294
Total liabilities 500,479 80,356
Capital stock 231,592 154,434
Contributed surplus 1,136 685
Retained earnings (accumulated deficit) -12,712 -52,320
Total shareholders' equity (deficiency) 220,016 102,799
 12/30/1999 12/30/1998
US Dollar US Dollar
Not Qualified Not Qualified
Yes Yes
Thousands Thousands

3,595 2,876
93,417 69,556
4,617 3,092
551 30,318
9,467 1,592
14,422 $ 164,718 $ 123,694
24,440 14,486 Liabilities
24 - Current liabilities
- Accounts payable and accrued liabilitie
3,823 1,774 Income taxes – 3,941
129,916 91,784 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
56,059 Shareholders’ equity
29,176 Capital stock (Note 6) 153,729 153,06
26,883 Contributed surplus (Note 8) 262 –
4,634 Deficit (77,497) (106,014)
2,522 76,494 47,049
2,112 $ 164,718 $ 123,694
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
-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 12/31/2005 12/31/2004 12/31/2003

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Net income (loss) 53,130.35 33,978.23 38,417.26

Depreciation 14,474.62 15,309.53 11,950.46
Impairment of intangible assets - 4,318 -
Provision for uncollectible accounts 834.57 767.17 2,089.20
Interest on deferred financing costs 482.83 828.77 246.13
Amortization of intangible assets 1,384.80 93.75 -
Amort of goodwill & other intangible assets - - 30
Loss (gain) on disposition of assets -2,029.72 56.07 112.85
Deferred income taxes 1,887.11 8,385.75 -6,757.46
Other 15.67 - -
Accounts & other receivables -18,255.39 2,216.59 -26,766.96
Inventory -18,541.69 5,488.13 7,032.22
Prepaid expenses 287.88 53.63 1,242.18
Accounts payable & accrued expenses 26,024.69 -2,574.65 170.56
Other liabilities -559.32 -4,630.77 9,857.81
Net cash flows from operating activities 59,136.40 64,290.22 37,624.26
Purchase of property & equipment -14,159.23 -15,091.60 -10,752.39
Proceeds from disposition of property & equip 5,545.96 166.66 33.29
Purchase of LCI, net of cash acquired - - -99,381.96
Purchase of Playing Mantis - -17,238.06 -
Purchase of TFY, net of cash acquired 39.34 -154,567.41 -
Proceeds from sale of W. Britain product line 2,850 - -
Investment in Meteor The Monster Truck Compan -750 - -
Decrease (increase) in other non-current asse -168.94 1,745.37 -3,636.09
Net cash flows from investing activities -6,642.87 -184,985.04 -113,737.14
Net cash proceeds from public stock offering - 77,486.08 -
Issuance of stock upon option exercises 1,750.67 2,072.20 1,386.72
Issuance of stock under ESPP 190.84 140.84 140.64
Proceeds from bank term loans - 85,000 60,000
Payments on bank term loans -16,562.50 -53,750 -10,000
Net borrowings (payments) on line of credit -31,914.23 15,000 27,000
Purchase of stock to be held in treasury - -821.64 -
Proceeds from reissuance of treasury stock - - 91.39
Payment to notes payable - - -2,861.82
Financing fees paid - -1,942.19 -935.3
Net cash flows from financing activities -46,535.22 123,185.29 74,821.63
Effect of exchange rate changes on cash -819.96 1,051.86 768.16
Net increase (decrease) in cash & cash equiva 5,138.36 3,542.33 -523.09
Cash & cash equivalents, beginning of year 20,123.40 16,547.95 17,104.16
Restricted cash - 33.12 -33.12
Cash & cash equivalents, end of year 25,261.75 20,123.40 16,547.95
Cash paid for interest during the period 5,890.17 3,416.23 3,439.02
Cash paid for income taxes during the period 22,471.71 11,986.77 8,754.40
RC2 Corp

As Reported Annual Income Statement 12/31/2005 12/31/2004 12/31/2003

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Net sales 504,444.93 381,424.74 310,945.67

Cost of sales, related party 18,565.86 7,846.27 8,255.63
Other cost of sales 240,381.92 185,650.82 140,651.98
Gross profit (loss) 245,497.16 187,927.65 162,038.06
Selling, general & administrative expenses 155,412.48 126,264.74 104,794.27
Impairment of intangible assets - 4,318 -
Amortization of intangible assets 1,384.80 93.75 -
Gain on sale of W. Britain product line 1,952.56 - -
Amortization of goodwill & other intangible a - - 30
Operating income (loss) 90,652.43 57,251.16 57,213.79
Interest expense, net -5,983.13 -4,063.29 -3,477.35
Other income (expense) -145.95 508.16 145.45
Income before income taxes - United States 70,402 47,072 47,755
Income before income taxes - Foreign 14,121 6,624 6,127
Income (loss) before income taxes 84,523.35 53,696.03 53,881.88
Current income tax expense-federal 24,831 8,862 11,492
Current income tax expense-state 1,170 950 1,629
Current income tax expense-foreign 3,545 1,520 468
Total current income tax expense 29,546 11,332 13,589
Deferred income tax expense-federal 217 8,278 2,122
Deferred income tax expense-state 1,356 236 -664
Deferred income tax expense-foreign 274 -128 418
Total deferred income tax expense 1,847 8,386 1,876
Income tax expense 31,393 19,717.80 15,464.62
Net income (loss) 53,130.35 33,978.23 38,417.26
Weighted average shares outstanding-basic 20,612.85 18,687.06 17,059.59
Weighted average shares outstanding-diluted 21,531.66 19,761.16 18,104.97
Year end shares outstanding 20,717.95 20,462.66 17,380.60
Net income (loss) per share-basic 2.58 1.82 2.25
Net income (loss) per share-diluted 2.47 1.72 2.12
Total number of employees 842 742 -
Number of common stockholders 149 140 -

RC2 Corp

As Reported Annual Retained Earnings 12/31/2005 12/31/2004 12/31/2003

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Previous retained earnings (accum deficit) 133,481.53 99,503.30 61,086.04

Retained earnings (accumulated deficit) 186,611.88 133,481.53 99,503.30

Stock Price @ year end 35.52

Market Cap ###
Macdonals market cap
Share price
year end outstanding
RC2 Corp

As Reported Annual Balance Sheet 12/31/2005 12/31/2004 12/31/2003

Currency US Dollar US Dollar US Dollar
Auditor Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands

Cash & cash equivalents 25,261.75 20,123.40 16,547.95

Restricted cash - - 33.12
Accounts receivables, gross 116,139.18 96,812.93 76,170.95
Allowance for doubtful accounts 3,072.71 3,196.56 4,006.45
Accounts receivables, net 113,066.47 93,616.37 72,164.50
Other receivable 2,284.43 6,565.34 3,624.23
Inventory 71,260.18 55,022.93 37,463.70
Assets held for sale - 4,185.96 -
Deferred income taxes & prepaid taxes, net 8,716.72 8,263.66 4,336.49
Prepaid expenses 6,595.56 6,602.61 4,407.99
Total current assets 227,185.10 194,380.26 138,577.99
Land 685.64 699.5 699.5
Buildings & improvements 7,453.53 8,049.23 5,939.27
Tooling 96,416.01 85,253.55 64,146.44
Other equipment 19,149.48 19,087.08 16,178.64
Property & equipment, at cost 123,704.65 113,089.36 86,963.86
Less: accumulated depreciation 76,665.17 64,232.92 48,410.41
Property & equipment, net 47,039.48 48,856.44 38,553.45
Goodwill, net 253,571.01 282,367.32 159,720.25
Intangible assets, net 99,610.66 58,243.32 44,042.42
Other assets 2,330.15 1,901.14 934.62
Total assets 629,736.40 585,748.48 381,828.72
Accounts payable 25,543.08 16,590.06 13,290.00
Taxes payable, net 6,109.55 - 2,688.34
Accrued expenses 19,596.55 14,263.87 9,247.95
Accrued allowances 21,198.64 18,563.03 12,099.14
Accrued royalties 14,874.08 14,623.28 10,853.72
Line of credit 3,979.52 - -
Current maturities of term notes 21,250 16,562.50 15,000
Other current liabilities 1,347.98 846.62 4,927.57
Total current liabilities 113,899.39 81,449.36 68,106.72
Line of credit 13,979.52 50,000 35,000
Term notes, less current maturities 43,437.50 64,687.50 35,000
Deferred income taxes 49,313.06 31,632.97 6,105.20
Other long-term liabilities 10,155.55 11,216.23 12,317.41
Total liabilities 230,785.02 238,986.06 156,529.34
Common stock, voting 225.49 222.95 191.93
Additional paid-in capital 219,646.88 215,014.22 129,436.18
Accumulated other comprehensive income (loss) 1,126.60 6,543.96 3,880.57
Retained earnings (accumulated deficit) 186,611.88 133,481.53 99,503.30
Total stockholders' equity before treasury 407,610.84 355,262.66 233,011.98
Treasury stock, at cost 8,659.46 8,500.25 7,712.59
Total stockholders' equity 398,951.38 346,762.42 225,299.38