Maple Leaf Foods Reports 2006 First Quarter Financial Results
TORONTO, Apr 26, 2006 (Canada NewsWire via COMTEX News Network) -- Maple Leaf Foods Inc. (TSX:MFI) today reported its financial results for the first quarter ended March 31, 2006.
"We made good progress in earnings recovery during our first quarter of 2006, as we addressed factors that challenged us in late 2005," said Michael H. McCain, President and CEO. "However, as expected, protein markets were weak on a number of fronts coming into this year."
"We are delighted with the performance of our balanced portfolio in the midst of these very, very challenging protein markets around the world. We have been successful implementing price increases to offset the inflationary effects of higher energy costs. We achieved excellent results from our consumer foods and fresh bakery operations, benefiting from innovative product marketing and merger synergies. These achievements were successful in muting the ongoing impact of weak fresh pork and poultry markets, driven by currency challenges and global supply and demand of all proteins."
Sales for the first quarter decreased 5% to $1.4 billion compared with $1.5 billion for the prior year, primarily due to lower commodity prices of export products.
Earnings from operations before restructuring costs decreased to $51.8 million from $61.2 million last year. Earnings from operations for the first quarter last year exclude $13.2 million ($8.3 million after tax and minority interest) in restructuring costs. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring costs are not representative of continuing operations.
Net earnings declined to $17.3 million ($0.14 per share) from $21.1 million ($0.17 per share) excluding restructuring costs in the first quarter last year. Including restructuring costs, net earnings for the quarter in 2005 were $12.7 million ($0.10 per share).
Operating Review
----------------
The Company's Meat Products Group and the Agribusiness Group together comprise the Protein Value Chain operations, which are involved in producing animal protein products. These operations are highly interrelated and are strategically linked through the Company's Vertical Coordination business model. While each operation maintains a strong external customer focus, they are tightly coordinated to deliver superior performance where their operations intersect. Accordingly, it is more meaningful to review the combined results of the Protein Value Chain rather than each segment independently.
The following table, which forms the basis of discussion in this document of the Company's results of operations, reflects operating earnings by business segment before restructuring costs:
<<
Earnings from Operations
------------------------
($ millions) First Quarter
--------------------------
2006 2005 Change
---- ---- ------
Meat Products Group 13.7 18.7 (26%)
Agribusiness Group 13.4 21.9 (39%)
--------------------------
Protein Value Chain 27.1 40.6 (33%)
Bakery Products Group 24.7 20.6 20%
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51.8 61.2 (15%)
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Protein Value Chain
-------------------
Protein Value Chain earnings for the first quarter declined 33% to $27.1 million from $40.6 million last year, primarily due to lower earnings from pork operations and reduced earnings from hog production operations. Energy costs, which impacted the Company's results in the back half of 2005, are being addressed through price increases.
Meat Products Group (branded value-added prepared meat products; fresh,
frozen and branded value-added pork products; fresh, frozen and branded
value-added chicken and turkey products; and global food marketing,
distribution and trading)
Meat Products Group sales for the first quarter decreased 10% to $924 million primarily as a result of lower commodity pork prices and a decline in pork sales values and volume to Japan.
Earnings from operations for the first quarter declined 26% to $13.7 million from $18.7 million last year, primarily due to lower profits from pork sales and higher energy and indirect related costs. Margins in the Japanese market were impacted by a 19% depreciation of the Japanese yen against the Canadian dollar, and challenges in achieving compensatory price increases due to the current global protein markets. Frozen pork exports to this market also declined compared to last year. The profitability of North American fresh pork and poultry operations were also pressured by increased quantities of protein in the market and resulting lower prices.
The consumer foods operations earnings improved significantly in the quarter, benefiting from lower raw material costs, price increases to offset higher energy and related costs, as well as costs synergies related to the Schneider Foods merger. This business continues to benefit from leading brands and market shares, and consumer trends towards ready-to-eat meal solutions. Extending its leadership in the fast growing Canadian "home meal assembly" market, Maple Leaf launched Grilled Meat Strips, a line of seasonal frozen and refrigerated pre-cooked chicken and beef strips.
Agribusiness Group (research, development and supply of quality livestock
nutrition products and services; pet food; swine production; and animal
by-products recycling)
Agribusiness Group sales for the first quarter increased 8% to $201 million from $186 million last year, largely due to increased rendering sales.
Earnings from operations for the first quarter declined 39% to $13.4 million from $21.9 million last year. A 17% decline in hog prices and currency impact on the Company's hog production operations substantially reduced earnings compared to the first quarter last year. The Company has a number of measures in place to restore competitiveness in this business, which has been significantly affected by the decline in the U.S. dollar and a corresponding lower selling price for hogs. The Company had effective ownership of 22% of the hogs it processed in the first quarter. Earnings from rendering operations increased in the quarter as a result of volume and service charge increases to cover high energy and related costs. The Company also commissioned its new biodiesel plant in Quebec, where it converts inedible tallow into an alternate fuel for industrial and commercial applications.
Bakery Products Group (fresh, frozen and branded value-added bakery
products, including frozen par-baked bakery products; and specialty pasta
and sauces)
Bakery Product Group sales for the first quarter increased 4% to $301 million compared to $289 million last year driven by improvement in sales mix and price increases, offset by some short term market softness.
Earnings from operations in the first quarter increased 20% to $24.7 million compared to $20.6 million last year, due to a very strong contribution from the fresh bakery operations. This business benefited significantly from growth in branded and higher margin higher nutrition categories as part of its overall sales mix. A focus on innovation and brand building continues to drive significant margin and market expansion. In the first quarter, the Company launched Dempster's Smart, a white bread product made with a new enriched whole wheat flour that provides the health attributes of whole grain bread. This is the first product of its type in the Canadian market, and provides a higher nutrition alternative to white bread consumers, who represent a large segment of the Canadian bread market. The business also benefited from a price increase implemented in February to offset high fuel prices.
Frozen bakery earnings declined despite increased volumes, largely due to higher freight and energy costs, due to the slower pace of price increases in this market. Earnings from the U.K. Bakery operations increased in the quarter, benefiting from the commissioning of the new bagel plant in Rotherham, England early in 2005 and related sales and earnings growth. This plant is the largest bagel producer in the U.K., and in addition to meeting rising consumer demand for bagels in the U.K., is manufacturing for export markets including the Netherlands, Iceland and Ireland. The pasta business also increased earnings in the quarter due to increased volume and sales of higher margin products.
Cash Flow and Financing
-----------------------
Interest expense for the first quarter of $24.2 million compared to $25.0 million last year as lower debt balances were mostly offset by higher interest rates. At March 2006, 86% of indebtedness was not exposed to interest rate fluctuations.
Cash used in operations of $18.7 million compared to $40.9 million last year, an improvement of $22.2 million. This improvement was due to an increase in the Company's accounts receivable securitization program of $33.8 million. This was offset by increased contributions to the Company's pension plans during the quarter.
Total debt, net of cash balances, of $1.1 billion as at March 31, 2006 decreased from $1.2 billion in the prior year.
Capital expenditures on plant and equipment for the first quarter decreased to $25.8 million from $40.0 million last year due to reduced spending in the Meat and Agribusiness Groups.
Other Income
------------
Other income for the first quarter of $2.0 million compared to an expense of $0.5 million reflecting a gain on the sale of real estate in 2006 and a loss on conversion of a convertible debenture in the first quarter of 2005.
Acquisitions
------------
During the quarter, the Company made two acquisitions totaling $5.3 million. In March 2006, Canada Bread acquired the assets of Harvestime Limited ("Harvestime"), a U.K.-based bakery. This acquisition broadens the U.K. bakery's operating capabilities to manufacture par-baked bread products and also positions the Company as a major supplier to the in-store bakery market. Also in the quarter, the Company purchased the assets of a Quebec hatchery which supplies chick embryos for production of influenza vaccines.
Forward-Looking Statements
--------------------------
This document contains, and the Company's oral and written public communications often contain, forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the management of the Company. Such statements include, but are not limited to, statements with respect to our objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Words such as "expect," "anticipate," "intend," "attempt," "may," "plan," "believe," "seek," "estimate," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. The Company does not intend, and the Company disclaims any obligation to update any forward-looking statements, whether written or oral, or whether as a result of new information, future events or otherwise. Refer to the Company's annual report, management proxy circular, annual information form and other filings with the Ontario Securities Commission and Toronto Stock Exchange for further information on risks and uncertainties that could cause actual results to differ materially from forward-looking statements.
These forward-looking statements are based on a variety of factors and assumptions including, but not limited to: the condition of the Canadian and U.S. economies, the rate of appreciation of the Canadian dollar versus the U.S. dollar and Japanese Yen, the availability and prices of livestock, raw materials, energy and supplies, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards, adverse results from ongoing litigation and actions of domestic and foreign governments. These assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party industry analysts. Actual results may differ materially from those predicted by such forward-looking statements. While the Company does not know what impact any of these differences may have, its business, results of operations, financial condition and the market price of its securities may be materially adversely affected. Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking statements include, among other things: the risks posed by food contamination, consumer liability and product recalls; the risks related to the health status of livestock; the risks related to the creditworthiness of customers to whom the Company extends credit; the Company's exposure to currency exchange risks; the impact of international events on commodity prices and the free flow of goods; the cyclical nature of the cost and supply of hogs and the pork market generally; the risks posed by compliance with extensive government regulation; the impact of the rate of duty imposed by the United States government on the shipment of live swine to the United States; the risk due to the consolidating customer environment; leverage risk and the risk posed by pandemic.
Other Matters
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Maple Leaf Foods declared a dividend of $0.04 per share payable on June 30, 2006, to shareholders of record on June 9, 2006.
Maple Leaf Foods Inc. is a leading Canadian food processing company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 24,000 people at its operations across Canada and in the United States, Europe and Asia. The Company had sales of $6.1 billion in 2005.
An investor presentation related to the Company's first quarter financial results is available at www.mapleleaf.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on April 26, 2006 to review Maple Leaf Foods' first quarter financial results. To participate in the call, please dial 416-641-6113 or 866-542-4239. For those unable to participate, playback will be made available an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 3182617 followed by the number sign).
A webcast presentation of the first quarter financial results will also be available at http://investor.mapleleaf.ca at 2:00 p.m. EDT via a link. An archived replay of the webcast will be available following the call at each of the above links.
Consolidated Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three months ended March 31, 2006 and 2005
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
March 31, March 31, December 31,
2006 2005 2005
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 8,674 $ 89,011 $ 80,502
Accounts receivable (Note 3) 230,111 277,953 247,014
Inventories 432,792 417,212 400,848
Future tax asset - current 15,896 20,020 15,329
Prepaid expenses and
other assets 11,888 14,035 12,104
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699,361 818,231 755,797
Investments in associated
companies 48,262 83,824 61,939
Property and equipment 1,151,116 1,090,020 1,137,317
Other long-term assets 268,097 232,875 261,907
Future tax asset - non-current 39,881 32,353 38,499
Goodwill 848,032 850,732 847,853
Other intangibles 86,350 81,552 86,468
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$ 3,141,099 $ 3,189,587 $ 3,189,780
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued charges $ 629,275 $ 559,425 $ 669,941
Income and other taxes payable 18,803 17,783 31,727
Current portion of
long-term debt 102,584 64,049 110,428
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750,662 641,257 812,096
Long-term debt 1,037,077 1,250,112 1,032,829
Future tax liability 55,172 43,359 56,183
Other long-term liabilities 196,130 247,835 202,576
Minority interest 91,147 76,831 87,425
Shareholders' equity 1,010,911 930,193 998,671
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$ 3,141,099 $ 3,189,587 $ 3,189,780
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
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Three months ended March 31,
(Unaudited) 2006 2005
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(As restated)
(Note 1(a))
Sales $ 1,425,951 $ 1,500,643
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Earnings from operations before
restructuring costs 51,802 61,150
Restructuring costs (Note 2) - 13,157
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Earnings from operations 51,802 47,993
Other income (expense) (Note 4) 1,969 (542)
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Earnings before interest and income taxes 53,771 47,451
Interest expense 24,215 25,046
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Earnings before income taxes 29,556 22,405
Income taxes 9,829 7,554
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Earnings before minority interest 19,727 14,851
Minority interest 2,455 2,103
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Net earnings $ 17,272 $ 12,748
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Earnings per share - basic (Note 7) $ 0.14 $ 0.10
Earnings per share - diluted (Note 7) $ 0.13 $ 0.10
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Weighted average number of shares (millions) 127.7 126.0
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
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Three months ended March 31,
(Unaudited) 2006 2005
Retained earnings, beginning of period $ 231,807 $ 159,129
Net earnings 17,272 12,748
Dividends declared ($0.04 per share;
2005: $0.04 per share) (5,100) (5,050)
Premium on repurchase of share capital
(Note 6) (3,456) -
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Retained earnings, end of period $ 240,523 $ 166,827
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
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Three months ended March 31,
(Unaudited) 2006 2005
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CASH PROVIDED BY (USED IN)
Operating activities
Net earnings $ 17,272 $ 12,748
Add (deduct) items not affecting cash:
Depreciation and amortization 35,522 32,620
Stock-based compensation 2,591 1,768
Minority interest 2,455 2,103
Future income taxes (2,854) (4,538)
Undistributed earnings of associated
companies (137) (1,276)
Loss on redemption of convertible
debenture - 1,108
Gain on sale of property and equipment (566) (171)
Loss on sale of investments 8 11
Other 3,089 (1,372)
Change in other long-term receivables 1,587 6,036
Increase in pension asset (12,441) (5,627)
Change in operating working capital (65,242) (84,306)
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(18,716) (40,896)
Financing activities
Dividends paid (5,100) (5,050)
Dividends paid to minority interest (655) (311)
Increase (decrease) in long-term debt (13,045) 55,830
Increase in share capital (Note 6) 2,943 4,723
Shares repurchased for cancellation (Note 6) (6,229) -
Other 2,057 758
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(20,029) 55,950
Investing activities
Additions to property and equipment (25,814) (39,958)
Proceeds from sale of property and equipment 3,439 3,703
Purchase of net assets of businesses (Note 8) (5,323) (2,746)
Change in other investments, net (5,265) -
Other (120) 1,188
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(33,083) (37,813)
Decrease in cash and cash equivalents (71,828) (22,759)
Cash and cash equivalents, beginning of period 80,502 111,770
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Cash and cash equivalents, end of period $ 8,674 $ 89,011
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Segmented Financial Information
(In thousands of Canadian dollars)
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Three months ended March 31,
(Unaudited) 2006 2005
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(As restated)
(Note 1(a))
Sales
Meat Products Group $ 923,527 $ 1,025,887
Agribusiness Group 201,081 186,065
Bakery Products Group 301,343 288,691
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$ 1,425,951 $ 1,500,643
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Earnings from operations, before
restructuring costs
Meat Products Group $ 13,727 $ 18,656
Agribusiness Group 13,344 21,851
Bakery Products Group 24,731 20,643
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$ 51,802 $ 61,150
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Additions to property and equipment
Meat Products Group $ 11,028 $ 17,759
Agribusiness Group 4,367 9,743
Bakery Products Group 10,419 12,456
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$ 25,814 $ 39,958
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Depreciation and amortization
Meat Products Group $ 16,993 $ 16,353
Agribusiness Group 6,952 5,370
Bakery Products Group 11,577 10,897
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$ 35,522 $ 32,620
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As at As at As at
March 31, March 31, December 31,
2006 2005 2005
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(Unaudited) (Unaudited) (As Restated)
(Note 1(b))
Total assets
Meat Products Group $ 1,502,768 $ 1,566,451 $ 1,501,295
Agribusiness Group 692,870 631,358 688,766
Bakery Products Group 706,094 697,529 694,519
Non-allocated assets 239,367 294,249 305,200
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$ 3,141,099 $ 3,189,587 $ 3,189,780
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MAPLE LEAF FOODS INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of Canadian dollars, except share amounts)
Three months ended March 31, 2006 and 2005
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1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim consolidated financial statements should be
read in conjunction with the annual consolidated financial statements
for the year ended December 31, 2005. These unaudited interim
consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles using the same
accounting policies as were applied in the consolidated financial
statements for the year ended December 31, 2005, except for the
following:
a) Accounting changes
Effective January 1, 2006 the Company retroactively adopted, with
restatement of prior periods, the guidance presented in EIC
Abstract 156 "Accounting by a Vendor for Consideration Given to a
Customer including a Reseller of the Vendor's Products". The EIC
requires vendors to classify certain consideration provided to
customers as a reduction of revenue rather than as cost of sales
unless the vendor receives, or will receive an identifiable
benefit in exchange for the consideration. The impact of the
adoption of this standard was a reduction in sales during the
quarter of approximately $90.7 million (2005: 81.6 million).
b) Comparative figures
The December 31, 2005 segmented total assets for the purposes of
the segmented financial information have been revised to reflect
the allocation of certain assets relating to Schneiders'
acquisition that are now being managed by the Agribusiness group.
Certain other 2005 comparative figures have been reclassified to
conform to the financial statement presentation adopted in 2006
and year-end 2005.
2. RESTRUCTURING COSTS
During the first quarter of 2005, the Company recorded $13.2 million
in restructuring costs ($8.8 million after-tax) in respect of certain
plant closures and operational restructuring for several of its
businesses associated with the integration of Schneider Corporation
("Schneider Foods"), the closure of the Company's bakery in
Peterborough, England and certain other operational restructuring
items. Of the $13.2 million, $5.0 million represents the write-down
of certain capital assets that were disposed of or that have become
impaired as a result of restructuring and $8.2 million relates to
provisions for employee terminations, facility exit costs, and other
restructuring costs. Of the $8.2 million in provisions, $0.5 million
was paid during the quarter (2005: $nil), leaving an outstanding
balance of $5.0 million as at March 31, 2006.
3. ACCOUNTS RECEIVABLE
Under revolving securitization programs, the Company has sold, with
limited recourse, certain of its trade accounts receivable to
financial institutions. The Company retains servicing
responsibilities and assumes limited recourse obligations for
delinquent receivables. At March 31, 2006, trade accounts receivable
being serviced under this program amounted to $238.0 million
(March 31, 2005: $204.2 million; December 31, 2005: $230.1 million).
4. OTHER INCOME (EXPENSE)
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Three months ended March 31,
2006 2005
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Earnings (loss) from real estate
operations $ 1,178 $ (142)
Gain on sale of property and equipment 566 171
Earnings from associated companies 137 186
Dividends received 32 230
Loss on redemption of convertible
debenture - (1,108)
Other 56 121
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$ 1,969 $ (542)
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5. PENSIONS
During the quarter, the Company recorded income of $2.9 million
related to net benefit plan income including post-retirement benefit
costs (2005: $1.0 million).
6. SHARE CAPITAL
The following table sets forth the continuity for shares issued and
outstanding during the quarter and the corresponding value:
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Number of shares Share capital
------------------------- ---------------------
2006 2005 2006 2005
---------------------------------------------------------------------
Opening balance 127,704,812 125,174,627 $ 765,666 $ 731,291
Exercise of options 252,767 416,069 2,943 4,723
Repurchased for
cancellation(i) (461,900) - (2,773) -
Conversion of
convertible
debentures - 763,933 - 12,217
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127,495,679 126,354,629 $ 765,836 $ 748,231
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(i) During the quarter, the Company repurchased for cancellation
461,900 common shares pursuant to a normal course issuer bid at
an average exercise price of $13.48 per share. The excess of the
purchase cost over the book value of the shares was charged to
retained earnings.
7. EARNINGS PER SHARE
The following table sets forth the calculation of basic and fully
diluted earnings per share:
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Three months ended March 31,
2006 2005
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Weighted Weighted
Average Average
Net Number of Net Number of
Earnings Shares(ii) EPS Earnings Shares(ii) EPS
--------------------------- ---------------------------
Basic $ 17,272 127.7 $ 0.14 $ 12,748 126.0 $ 0.10
Stock
options(i) - 2.4 (0.01) - 3.2 -
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Diluted $ 17,272 130.1 $ 0.13 $ 12,748 129.2 $ 0.10
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(i) Excludes the effect of 11.3 million options and restricted stock
units (2005: 10.0 million) to purchase common shares that are
anti-dilutive
(ii) In millions
8. ACQUISITIONS
During the quarter, the Company made two acquisitions totaling
$5.3 million. On March 24, 2006 Canada Bread acquired Harvestime
Limited (Harvestime), a bakery in Walsall, England. Harvestime is a
producer of par-baked breads, rolls and specialty bakery products. In
January 2006, the Company purchased the assets of a hatchery in
Quebec that supplies chick embryos for the production of influenza
vaccines. The Company has not yet finalized the purchase price
allocations for either of these acquisitions.
9. SUPPLEMENTAL CASH FLOW INFORMATION
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Three months ended March 31,
2006 2005
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Net interest paid $ 12,141 $ 14,891
Net income taxes paid 27,438 20,581
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>>
SOURCE: Maple Leaf Foods Inc.
Lynda Kuhn, Vice-President, Public & Investor Relations, (416) 926-2026;
www.mapleleaf.com