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
-------------------------------------------------------------------------
(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
-----------------------------------------------------------------------
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-----------------------------------------------------------------------
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
-------------------------------------------------------------------------
$ 3,169,689 $ 3,188,786 $
3,189,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings from
operations before
restructuring
costs 60,396 78,670 112,198 139,820
Restructuring
costs (Note 2) - - - 13,157
-------------------------------------------------------------------------
Earnings from
operations 60,396 78,670 112,198 126,663
Other income
(Note 4) 210 2,258 2,179 1,716
-------------------------------------------------------------------------
Earnings before
interest and
income taxes 60,606 80,928 114,377 128,379
Interest expense 24,880 26,044 49,095 51,090
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
Net earnings $ 21,186 $ 33,237 $ 38,458 $ 45,985
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of shares
(millions) 127.8 126.6 127.8 126.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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) -
-------------------------------------------------------------------------
Retained earnings, end of period $ 255,464 $
194,991
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
-------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
(Unaudited) 2006 2005 2006 2005
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
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)
-------------------------------------------------------------------------
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
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
-------------------------------------------------------------------------
(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)
---------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
---------------------------------------------------------------------
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
---------------------------------------------------------------------
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)
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Diluted $ 21,186 129.9 $ 0.16 $ 33,237 130.3 $ 0.25
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Six months ended June 30,
2006 2005
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Weighted Weighted
Net Average Net Average
Earnings Shares(ii) EPS Earnings Shares(ii) EPS
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Basic $ 38,458 127.8 $ 0.30 $ 45,985 126.3 $ 0.36
Stock
options (i) - 2.2 - - 3.4 (0.01)
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Diluted $ 38,458 130.0 $ 0.30 $ 45,985 129.7 $ 0.35
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(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
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Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
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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