Media Centre
2006/07/28

Maple Leaf Foods Reports 2006 Second Quarter Financial Results

TORONTO, July 28, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Maple Leaf Foods Inc. (TSX:MFI) today reported its financial results for the second quarter ended June 30, 2006.

"Currency challenges and global protein market conditions pressured our financial performance in the quarter," said Michael McCain, President and CEO. "While we fared better in these difficult markets than our peers in North America, the impact of currency, combined with these market conditions, pressured our margins in both hog production and primary processing. We are taking several long-term actions to offset these impacts."

"As previously discussed, we are moving forward with major mid-term initiatives to achieve our long-term EPS and RONA targets, including realigning our protein value chain operations, investing in value-added processing and new product innovation, and implementing significant manufacturing optimization and cost reduction initiatives. We anticipate that results for the second half of the year will be impacted by restructuring costs related to these actions. We will also execute strategic acquisitions to broaden our sales mix and expand our global operations."

Sales for the second quarter decreased to $1.5 billion compared with $1.6 billion for the prior year, primarily due to the lower commodity prices of export products. Year-to-date sales decreased 5% to $2.9 billion.

In the second quarter, earnings from operations decreased to $60.4 million from $78.7 million last year, while year-to-date earnings decreased to $112.2 million from $139.8 million in the first six months last year. Year-to-date earnings from operations in 2005 exclude $13.2 million ($8.8 million after tax) in restructuring costs incurred in the first quarter. 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 for the quarter declined to $21.2 million ($0.17 per share) from $33.2 million ($0.26 per share) in the second quarter last year. Year-to-date net earnings were $38.5 million ($0.30 per share) compared to $54.3 million ($0.43 per share) before restructuring costs last year. Including restructuring costs, net earnings for the first six months of 2005 were $46.0 million ($0.36 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 maximize profitability for the Company 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)                   Second Quarter             Year to Date
                                ---------------------  ----------------------
                                2006     2005  Change   2006     2005  Change
                                ----     ----  ------   ----     ----  ------
    Meat Products Group         13.6     17.5   (22%)   27.3     36.1   (24%)
    Agribusiness Group          17.8     34.3   (48%)   31.2     56.2   (44%)
                                ---------------------  ----------------------
    Protein Value Chain         31.4     51.8   (39%)   58.5     92.3   (37%)
    Bakery Products Group       29.0     26.9     8%    53.7     47.5    13%
                                ---------------------  ----------------------
                                60.4     78.7   (23%)  112.2    139.8   (20%)
                                ---------------------  ----------------------
                                ---------------------  ----------------------

    Protein Value Chain
    -------------------

    Protein Value Chain earnings for the second quarter declined to      $31.4
million from $51.8 million last year, primarily due to the impact of currency
changes and protein markets, resulting in significantly reduced earnings from
hog production operations and pork sales to Japan, as well as higher energy
costs. Year-to-date earnings decreased to $58.5 million from $92.3 million in
2005. A combination of portfolio balance, brand strength and value-added
packaged meats & meals business helped the Company mitigate the very negative
market conditions felt by more pure-play meat industry participants in the
North American market.


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 second quarter decreased 10% to $955 million primarily due to a decline in pork sales values and volume of frozen pork to Japan. Year-to-date sales were $1.9 billion compared to $2.1 billion last year.

Earnings from operations for the second quarter declined to $13.6 million from $17.5 million last year, while year-to-date earnings decreased to $27.3 million from $36.1 million last year. Earnings in the second quarter declined primarily due to global protein markets and the impact of currency shifts in the U.S. dollar and the Japanese yen. While higher value chilled pork volumes to Japan remained strong, margins continue to be impacted by the depreciation of the yen, which declined more against the Canadian than the U.S. dollar and thus had a relatively greater impact on Maple Leaf compared to U.S. competitors. Price increases to offset these currency changes have been impeded by the current oversupply of protein in the global market. Profitability in the North American pork market was also pressured by an abundance of proteins, although poultry earnings improved from last year. These lower earnings offset strong performance by the Company's consumer foods operations, which benefited from lower raw material costs and price increases that were instituted to offset higher energy and related costs, reflecting the positive impact of the portfolio balance in the Meat Products Group.

The Company will be making significant investments in its value-added meats business to support increased capacity and further cost reductions. These capital investments include the relocation of the existing Schneiders Lunchmates manufacturing operation to a new facility in Guelph, Ontario that will double the production capacity and reduce manufacturing costs. The Company has also purchased a 185,000 square foot facility in Brampton, Ontario to manufacture a new line of refrigerated, branded meal solution products. These products are expected to be launched in the first quarter of 2007. Capital spending related to these investments will amount to approximately $70 million, to be spent principally in 2006.

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 second quarter increased to $207 million compared to $203 million last year, year-to-date sales increased 5% to $408 million compared to $389 million last year.

Earnings from operations for the second quarter declined to $17.8 million from $34.3 million last year, and year-to-date declined 44% to $31.2 million due to significantly lower results in the hog production operations. A 7% decline in hog prices and a weaker U.S. dollar resulted in a lower realized price for hogs, and combined with higher feed prices contributed to the earnings decline. Earnings were also negatively impacted by a one-time adjustment in the inventory values of work in progress hogs following the implementation of a new costing and tracking system in 2006, and by higher energy costs. Maple Leaf had effective ownership of 19% of the 1.7 million hogs it processed in the second quarter. A review of these hog operations is well underway and the Company may incur special charges this year as it restructures this business to restore competitiveness and improve profitability. This may include the sale or liquidation of investments that cannot achieve the Company's targets for return on capital employed in this business.

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 second quarter increased to $335 million compared to $314 million last year, supported by increased volume in the U.K. bakery operations, an improved sales mix and price increases, which more than offset some market softness. Year-to-date sales increased to $637 million compared to $603 million in 2005. Earnings from operations in the second quarter increased to $29.0 million from $26.9 million last year, while year-to date earnings rose to $53.7 million from $47.5 million.

Fresh Bakery operating earnings increased from last year due to an improved mix of higher margin bakery products, supported by an ongoing focus on new product innovation, higher nutrition products and investment in brand building. The Company benefited from the first quarter launch of Dempster's Smart, a white bread product made with a new enriched whole wheat flour that provides the health attributes of whole grain bread. These gains more than offset an industry wide volume decline and higher input costs. A price increase implemented in February helped to offset higher fuel prices, and the Company will continue to pass through price adjustments as necessary to offset rising input costs, including wheat and energy, which have increased significantly from last year.

Frozen bakery earnings increased as well in the second quarter due to the increased contribution from the U.K. bakery operations, which benefited from the contribution of recent investments including increased production from the new bagel plant in Rotherham and the par-baked plant in Walsall, which was acquired in the first quarter of 2006. Significantly higher advertising and promotional costs were also incurred in the second quarter last year to support increased bagel production. The North American frozen bakery operations achieved a strong volume increase in the quarter, although profits were impacted by higher energy, distribution and raw material costs. The business continues to gradually pass through price increases to offset these higher input costs.

Cash Flow and Financing
-----------------------

Interest expense for the second quarter was $24.9 million compared to $26.0 million last year as lower debt balances offset higher short-term interest rates. At the end of the second quarter, interest rates on 82% of the Company's indebtedness was fixed and therefore not significantly exposed to interest rate fluctuations. Year-to-date interest expense was $49.1 million compared to $51.1 million last year.

Cash flow from operating activities for the second quarter was $15.0 million compared to $70.7 million last year. This decrease was primarily the result of an increased investment in working capital and lower earnings. Cash flow from operating activities for the year-to-date was a use of cash of $3.7 million compared to a source of funds of $29.8 million in the first six months of 2005.

Capital expenditures on plant and equipment for the second quarter were largely consistent with last year at $45.9 million, and include an investment of approximately $10 million to acquire a facility that provides increased capacity to support growth in the value-added packaged meats and meals business.

During the quarter, the Company completed an agreement with its principal bank syndicate to renew its primary revolving credit facility. The result was an increase in the facility from $700 million to $870 million, coupled with a slight reduction in interest rates. This renewal has strengthened the Company's medium-term liquidity and the facility will continue to be used to meet the Company's shorter term funding requirements for general corporate purposes. Total debt at the end of the quarter, net of cash balances, was $1.1 billion, a decline from $1.2 billion last year.

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

-------------

Maple Leaf Foods declared a dividend of $0.04 per share payable on September 29, 2006, to shareholders of record on September 8, 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 second 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 10:00 a.m. EDT on July 28, 2006 to review Maple Leaf Foods' second 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 3192256 followed by the number sign).

A webcast presentation of the second quarter financial results will also be available at http://investor.mapleleaf.ca at 10:00 a.m. EDT via a link http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=88490&eventID=1352492. 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 and Six months ended June 30, 2006 and 2005


    MAPLE LEAF FOODS INC.
    Consolidated Balance Sheets
    (In thousands of Canadian dollars)


-------------------------------------------------------------------------

                                           As at         As at         As at
                                         June 30,      June 30,  December 31,
                                            2006          2005          2005

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                                      (Unaudited)   (Unaudited)
    ASSETS

    Current assets

Cash and cash equivalents $ 33,562 $ 43,319 $ 80,502

Accounts receivable (Note 3) 240,920 318,630 247,014

      Inventories                        418,261       401,816

400,848

Future tax asset - current 14,410 20,599 15,329

Prepaid expenses and other

       assets                             18,366        16,900

12,104

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                                         725,519       801,264       755,797

    Investments in associated
     companies                            46,281        79,313        61,939

    Property and equipment             1,158,933     1,111,369     1,137,317

    Other long-term assets               272,684       235,023       261,907

    Future tax asset - non-current        33,320        29,608        38,499

    Goodwill (Note 9)                    846,855       851,005       847,853

    Other intangibles                     86,097        81,204        86,468

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                                     $ 3,169,689   $ 3,188,786   $

3,189,780

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    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Accounts payable and
       accrued charges               $   599,565   $   584,364   $   669,941
      Income and other taxes
       payable                             9,116        22,610        31,727

Current portion of long-term

       debt                              105,539        62,471

110,428

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                                         714,220       669,445       812,096

    Long-term debt (Note 11)           1,055,435     1,202,488     1,032,829

    Future tax liability                  51,879        41,469        56,183

    Other long-term liabilities          213,372       235,600       202,576

    Minority interest                     95,843        75,044        87,425

    Shareholders' equity               1,038,940       964,740       998,671

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                                     $ 3,169,689   $ 3,188,786   $

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)


-------------------------------------------------------------------------

                      Three months ended June 30,   Six months ended June 30,
    (Unaudited)               2006          2005          2006          2005

-------------------------------------------------------------------------

                                    (As restated)               (As restated)
                                      (Note (1a))                 (Note 1(a))
    Sales              $ 1,496,696   $ 1,580,482   $ 2,922,647   $ 3,081,125

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    Earnings from
     operations before
     restructuring
     costs                  60,396        78,670       112,198       139,820
    Restructuring
     costs (Note 2)              -             -             -        13,157

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    Earnings from
     operations             60,396         78,670      112,198       126,663
    Other income
     (Note 4)                  210          2,258        2,179         1,716

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    Earnings before
     interest and
     income taxes           60,606         80,928      114,377       128,379
    Interest expense        24,880         26,044       49,095        51,090

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    Earnings before
     income taxes           35,726         54,884       65,282        77,289
    Income taxes
     (Note 6)               11,995         18,183       21,824        25,737

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    Earnings before
     minority interest      23,731         36,701       43,458        51,552
    Minority interest        2,545          3,464        5,000         5,567

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Net earnings $ 21,186 $ 33,237 $ 38,458 $ 45,985

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    Earnings per share
     - basic (Note 8)  $      0.17   $       0.26   $     0.30   $      0.36
    Earnings per share
     - diluted (Note 8)$      0.16   $       0.25   $     0.30   $      0.35

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    Weighted average
     number of shares
    (millions)               127.8          126.6        127.8         126.3

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    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars)

-------------------------------------------------------------------------

                                                    Six months ended June 30,
    (Unaudited)                                           2006          2005

-------------------------------------------------------------------------

Retained earnings, beginning of period $ 231,807 $ 159,129

    Net earnings for the period                         38,458

45,985

Dividends declared

($0.08 per share; 2005: $0.08 per share) (10,227) (10,123)

    Premium on repurchase of share capital (Note 7)     (4,574)            -

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    Retained earnings, end of period               $   255,464   $

194,991

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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 June 30,   Six months ended June 30,
    (Unaudited)               2006          2005          2006          2005

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    CASH PROVIDED BY
     (USED IN)
    Operating
     activities
      Net earnings     $    21,186   $    33,237   $    38,458   $    45,985
      Add (deduct)
       items not
       affecting cash:
        Depreciation
         and
         amortization       35,868        33,261        71,390        65,881
        Stock-based
         compensation        2,228         1,742         4,819         3,510
        Minority
         interest            2,545         3,464         5,000         5,567
        Future income
         taxes               4,670         4,265         1,816          (273)
        Undistributed
         earnings of
         associated
         companies            (142)       (1,988)         (279)       (3,264)
        Loss on
         redemption
         of
         convertible
         debenture               -             -             -         1,108
        Gain on sale
         of property
         and equipment        (139)         (651)         (705)         (822)
        Loss (gain) on
         sale of
         investments           137           (11)          145             -
      Other                  2,228         4,948         5,317         3,576
      Change in other
       long-term
       receivables             469           450         2,056         6,486
      Increase in
       pension asset       (11,821)       (9,246)      (24,262)      (14,873)
      Change in
       operating
       working capital     (42,183)        1,193      (107,425)      (83,113)

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                            15,046        70,664        (3,670)       29,768

    Financing activities
      Dividends paid        (5,127)       (5,073)      (10,227)      (10,123)
      Dividends paid
       to minority
       interest               (293)         (200)         (948)         (511)
      Net increase
       (decrease) in
       long-term debt       48,935       (65,681)       35,890        (9,851)
      Increase in share
       capital (Note 7)     10,440         3,756        13,383         8,479
      Shares repurchased
       for cancellation
       (Note 7)             (2,028)            -        (8,257)            -
      Other                    297          (758)        2,354             -

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                            52,224       (67,956)       32,195       (12,006)

    Investing activities
      Additions to
       property and
       equipment           (45,911)      (44,930)      (71,725)      (84,888)
      Proceeds from
       sale of property
       and equipment           958         2,900         4,397         6,603
      Purchase of net
       assets of businesses
       (Note 10)                 -        (7,879)       (5,323)      (10,625)
      Other                  2,571         1,509        (2,814)        2,697

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                           (42,382)      (48,400)      (75,465)      (86,213)
    Increase (decrease)
     in cash and cash
      equivalents           24,888       (45,692)      (46,940)      (68,451)
    Cash and cash
     equivalents,
     beginning of period     8,674        89,011        80,502       111,770

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    Cash and cash
     equivalents,
     end of period     $    33,562   $    43,319   $    33,562   $    43,319

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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 June 30,   Six months ended June 30,
    (Unaudited)               2006          2005          2006          2005

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                                    (As restated)               (As restated)
                                      (Note (1a))                 (Note 1(a))
    Sales
      Meat Products
       Group           $   954,793   $ 1,063,325   $ 1,878,320   $ 2,089,212
      Agribusiness
       Group               206,601       202,930       407,682       388,995
      Bakery Products
       Group               335,302       314,227       636,645       602,918

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                       $ 1,496,696   $ 1,580,482   $ 2,922,647   $

3,081,125

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    Earnings from
     operations, before
     restructuring costs
      Meat Products
       Group           $    13,591   $    17,491   $    27,318   $    36,147
      Agribusiness
       Group                17,838        34,302        31,182        56,153
      Bakery Products
       Group                28,967        26,877        53,698        47,520

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                       $    60,396   $    78,670   $   112,198   $

139,820

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    Additions to
     property and
     equipment
      Meat Products
       Group           $    27,116   $    15,423   $    38,144   $    33,182
      Agribusiness
       Group                 7,331         8,934        11,698        18,677
      Bakery Products
       Group                11,464        20,573        21,883        33,029

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                       $    45,911   $    44,930   $    71,725   $

84,888

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    Depreciation and
     amortization
      Meat Products
       Group           $    17,013   $    15,911   $    34,006   $    32,264
      Agribusiness
       Group                 7,505         6,320        14,457        11,690
      Bakery Products
       Group                11,350        11,030        22,927        21,927

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                        $   35,868   $    33,261   $    71,390   $

65,881

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                                           As at         As at         As at
                                         June 30,      June 30,  December 31,
                                            2006          2005          2005

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                                      (Unaudited)   (Unaudited) (As restated)
                                                                  (Note 1(b))
    Total assets
      Meat Products Group            $ 1,524,483   $ 1,579,737   $ 1,501,295
      Agribusiness Group                 685,052       646,408       688,766
      Bakery Products Group              706,207       723,915       694,519
      Non-allocated assets               253,947       238,726       305,200

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                                     $ 3,169,689   $ 3,188,786   $

3,189,780

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-------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    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 $95.7 million (2005: $85.8 million) and
           during the six months ended June 30, 2006 of approximately $186.4
           million (2005: $167.4 million). This accounting change had no
           impact on operating earnings, net earnings or earnings per share.

        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 Schneider's
           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 the 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 in the second quarter (2005: $0.8 million) leaving an
        outstanding balance of $4.5 million.

    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 June 30, 2006, trade accounts receivable
        being serviced under this program amounted to $241.1 million (June
        30, 2005: $195.0 million; December 31, 2005: $230.1 million).

    4.  OTHER INCOME (EXPENSE)


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                                  Three months ended        Six months ended
                                             June 30,                June 30,
                                   2006         2005        2006        2005

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        Earnings from
         associated
         companies             $     143   $   1,172   $     280   $   1,358
        Gain on sale of
         property and
         equipment                   139         651         705         822
        Gain (loss) from
         real estate
         operations                  (43)        284       1,135         142
        Dividends received             3          78          35         308
        Other                        (32)         73          24         194
        Loss on redemption
         of convertible
         debenture                     -           -           -      (1,108)

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                               $     210   $   2,258   $   2,179   $

1,716

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5. PENSIONS

During the quarter, the Company recorded income of $3.7 million

related to net benefit plan income including post-retirement benefit

        costs (2005: $2.9 million expense). For the six months of 2006, the
        Company recorded $6.6 million in net benefit plan income
        (2005: $3.9 million income).

    6.  INCOME TAX

        Included in the income tax expense for the second quarter is a one-
        time charge arising from changes to income tax legislation of
        $3.7 million consisting of a reassessment of the pre-acquisition tax
        liabilities of a subsidiary offset by the removal of the Large
        Corporation Tax in Canada. This charge was substantially offset by a
        net decrease to future tax liabilities and assets of $3.6 million due
        to income tax rate changes enacted during the quarter.

    7.  SHARE CAPITAL

        The following table sets forth the continuity for shares issued and
        outstanding during the year and the corresponding value:


---------------------------------------------------------------------

                                     Number of shares        Share capital $
                              ------------------------ ----------------------
                                     2006         2005       2006       2005

---------------------------------------------------------------------

        Balance at
         January 1,           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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        Balance at
         March 31,           127,495,679   126,354,629    765,836    748,231
        Exercise of options      876,473       334,755     10,439      3,756
        Repurchased for
         cancellation (i)       (150,900)            -       (910)         -
        Issuance of
         shares (ii)                   -       214,450          -      3,495

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Balance at June 30, 128,221,252 126,903,834 $ 775,365 $ 755,482

---------------------------------------------------------------------

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        (i)   The Company repurchased for cancellation 461,900 common shares
              during the first quarter of 2006 and 150,900 common shares
              during the second quarter of 2006 pursuant to a normal course
              issuer bid at an average exercise price of $13.48 per share and
              $13.44 per share respectively. The excess of the purchase cost
              over the book value of the shares was charged to retained
              earnings.

        (ii)  Consists of shares issued to purchase additional shares in
              Canada Bread Company, Limited

    8.  EARNINGS PER SHARE

        The following table sets forth the calculation of basic and fully
        diluted earnings per share:


-------------------------------------------------------------------------

                                    Three months ended June 30,
                                 2006                         2005

-------------------------------------------------------------------------

                             Weighted                     Weighted
                      Net     Average               Net    Average
                   Earnings Shares(ii)    EPS    Earnings Shares(ii)    EPS
                   ---------------------------   ----------------------------
    Basic          $ 21,186     127.8   $ 0.17   $ 33,237     126.6   $ 0.26
      Stock
       options (i)        -       2.1    (0.01)         -       3.7    (0.01)

-------------------------------------------------------------------------

Diluted $ 21,186 129.9 $ 0.16 $ 33,237 130.3 $ 0.25

-------------------------------------------------------------------------

-------------------------------------------------------------------------

-------------------------------------------------------------------------

                                     Six months ended June 30,
                                 2006                         2005

-------------------------------------------------------------------------

                             Weighted                     Weighted
                      Net     Average               Net    Average
                   Earnings Shares(ii)    EPS    Earnings Shares(ii)    EPS
                   ---------------------------   ----------------------------
    Basic          $ 38,458     127.8   $ 0.30   $ 45,985     126.3   $ 0.36
      Stock
       options (i)        -       2.2        -          -       3.4    (0.01)

-------------------------------------------------------------------------

Diluted $ 38,458 130.0 $ 0.30 $ 45,985 129.7 $ 0.35

-------------------------------------------------------------------------

-------------------------------------------------------------------------


        (i)   Excludes the effect of approximately 9.5 million options and
              restricted stock units to purchase common shares for the three
              months ended June 30 (2005: 9.5 million) and 9.5 million
              options and restricted stock options to purchase common shares
              for the six months ended June 30 (2005: 9.8 million) that are
              anti-dilutive.

        (ii)  In millions

    9.  GOODWILL

        In accordance with Canadian accounting standards section 3062,
        "Goodwill and Other Intangible Assets", the Company tests goodwill
        for possible impairment on an annual basis and at any other time if
        an event occurs or circumstances change that would more likely than
        not reduce the fair value of a reporting unit below its carrying
        amount. During the second quarter of 2006, the Company completed the
        goodwill impairment test for all reporting units and determined that
        there was no impairment to the carrying value of goodwill.

    10. ACQUISITIONS

        In the first quarter of 2006, the Company made two acquisitions
        totalling $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.

    11. LONG-TERM DEBT

        In May 2006, the Company renegotiated its unsecured revolving debt
        facility. The principal changes were (i) an increase in the size of
        the facility from $700 million to $870 million; (ii) an extension of
        the maturity date from December 6, 2007 to May 31, 2011; and (iii) a
        modest reduction in drawn debt pricing and commitment fees on the
        unutilized amount.

    12. SUPPLEMENTAL CASH FLOW INFORMATION


---------------------------------------------------------------------

                                  Three months ended        Six months ended
                                             June 30,                June 30,
                                    2006        2005        2006        2005

---------------------------------------------------------------------

        Net interest paid      $  37,507   $  35,875   $  49,648   $  50,766
        Net income taxes paid     15,621       8,407      43,059      28,988

---------------------------------------------------------------------

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SOURCE Maple Leaf Foods Inc.

Lynda Kuhn, Vice-President, Public & Investor Relations, (416) 926-2026,
www.mapleleaf.com

http://www.prnewswire.com


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