Media Centre
2007/02/22

Maple Leaf Foods Reports 2006 Year-End and Fourth Quarter Financial Results

TORONTO, Feb. 22, 2007 (Canada NewsWire via COMTEX News Network) -- Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the fourth quarter and year ended December 31, 2006.

"Our combined operations achieved significant improvements in the fourth quarter, resulting in a 27% increase in earnings before restructuring and other related costs. Although a strong result compared to last year, it does not reflect our true earnings potential or meet the financial targets we have set for the Company." said Michael McCain, President and CEO. "We are moving forward aggressively with a major reorganization of our protein businesses to re-align the Company's focus on value-added meats and meals and bakery consumer products. We expect 2007 will be a year of change as we align operations to the new protein business model. The reward for investors will be a simpler, more profitable Company with leading market shares in the higher margin, high growth meats and meals and bakery sectors of the global food industry, reduced exposure to currency and commodities, and lower earnings volatility."

The new strategy for the Company's protein business announced in the fourth quarter of 2006 involves simplifying hog production operations, reducing hogs processed annually from over 7 million currently to approximately 4.5 million, divesting of non-core operations including animal nutrition and non-core global businesses, and focusing on growth and innovation in the value added meats and meals and bakery businesses, where the Company has strong market positions and brand leadership.

In the fourth quarter of 2006, the Company recorded restructuring and other related costs of $44.9 million ($34.3 million after tax and minority interest), of which $29.8 million is related directly to the protein reorganization. The balance is related to the closure of a poultry facility in Nova Scotia, the closure of a bakery in Langley, B.C. and the write-off of an investment in a Caribbean flour operation.

Sales for the fourth quarter of $1.5 billion were consistent with the same period last year, while sales for the year decreased 4% to $5.9 billion, primarily due to the impact of currency. Earnings from operations before restructuring and other related costs for the fourth quarter increased 27% to $65.4 million, while operating earnings before restructuring and other related costs for the year decreased to $223.9 million compared to $263.0 million. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs are not representative of continuing operations.

The following table is a summary of net earnings and earnings per share ("EPS"):

    <<
    ($ millions)                  Fourth Quarter              Full Year
                              ----------------------   ----------------------
                               2006    2005   Change    2006    2005   Change
                              ------  ------  ------   ------  ------  ------
    Net earnings as
     reported                 (11.6)   18.2   (164%)     4.5    94.2    (95%)

    Restructuring and other
     related costs, net of
     tax and minority
     interest                  34.3       -             49.9     8.4

    U.S. tax adjustment net
     of minority interest         -       -             18.6       -

                              -----------------------------------------------
    Net earnings before
     restructuring and
     other related costs
     and U.S. tax
     adjustment(i)             22.7    18.2     25%     73.0   102.6    (29%)
                              -----------------------------------------------
                              -----------------------------------------------
    EPS before restructuring
     and other related costs
     and U.S. tax
     adjustment(i)            $0.18   $0.14   $0.04    $0.57   $0.81  $(0.24)

    The Company recorded a loss of $0.09 per share in the quarter after
restructuring and other related costs compared to earnings per share of $0.14
in 2005.

    (i) These are not recognized measures under Canadian GAAP. Management
    believes that this is the most appropriate basis on which to evaluate
    operating results, as restructuring and other related costs and the non-
    recurring U.S. tax adjustment are not representative of continuing
    operations.

Operating Review
----------------

    The following table reflects operating earnings by business segment before
restructuring and other related costs:

    ($ millions)                  Fourth Quarter              Full Year
                              ----------------------   ----------------------
                               2006    2005   Change    2006    2005   Change
                              ------  ------  ------   ------  ------  ------
    Meat Products Group        37.9    10.4    264%     74.4    59.9     24%
    Agribusiness Group          4.2    18.9    (78%)    48.6   101.9    (52%)
                              ----------------------   ----------------------
    Protein Value Chain        42.1    29.3     44%    123.0   161.8    (24%)
    Bakery Products Group      23.3    22.3      4%    100.9   101.2       -
                              ----------------------   ----------------------
                               65.4    51.6     27%    223.9   263.0    (15%)
                              ----------------------   ----------------------
                              ----------------------   ----------------------
    >>

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 fourth quarter decreased 6% to $942 million compared to $998 million last year, while sales for the year decreased 9% to $3.7 billion compared to $4.1 billion last year. This decrease was due primarily to currency changes, a decline in volumes to Japan, and a 2% reduction in the number of hogs processed. Volumes in the Consumer Foods business also declined marginally as the Company exited non-profitable products.

Earnings from operations before restructuring and other related costs for the fourth quarter increased significantly to $37.9 million from $10.4 million last year. Consumer foods operations achieved strong earnings growth in the quarter, benefiting from an improved sales mix and margins as a result of price increases implemented to offset higher raw material costs. Fresh pork operations benefited from initiatives to increase manufacturing efficiencies and reduce costs, improved sales and customer mix. The fresh poultry operations recorded a substantial increase in earnings, largely due to an improvement in underlying commodity prices.

Earnings from operations before restructuring and other related costs for the year increased to $74.4 million from $59.9 million in 2005. The consumer foods operations achieved excellent results in 2006, supported by its leading brands and market shares, and rising demand in both the food service and retail markets for fully cooked meats and meal solutions. The business also benefited from lower raw material costs earlier in the year, price increases to offset higher energy and related costs, and synergies related to the Schneider Foods acquisition. During the year, Maple Leaf extended its leadership in the value-added meats and meals category with the very successful launch of Schneiders Fully Cooked Sausages, Maple Leaf Grilled Meat Strips, and expansion of the very popular Maple Leaf Fully Cooked Roasts product line. Growth in the consumer foods group more than offset a year-over-year decline in the earnings of the fresh pork operations that was largely related to the ongoing impact of a high Canadian dollar on global competitiveness. Earnings from fresh poultry operations increased in 2006, as industry-wide processor margins recovered from the depressed levels of the prior year.

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 fourth quarter increased to $218.3 million from $212.3 million last year, while sales for the year increased to $815.9 million from $800.8 million, largely due to the consolidation of Cold Springs Farms, a Schneider Foods subsidiary that was previously accounted for on an equity basis. After excluding the sales of Cold Springs Farms, sales for the year decreased by 2%.

Earnings from operations before restructuring and other related costs for the fourth quarter declined to $4.2 million from $18.9 million last year. Although market hog prices increased marginally year over year, losses from hog operations increased as operations were impacted by a stronger Canadian dollar against the U.S. dollar and substantially higher feed costs. The Company had an effective ownership of 20% of the hogs it processed in the fourth quarter. As part of the protein reorganization, this business is being restructured to 100% ownership of significantly fewer hogs. Moving to a smaller, vertically integrated business model is expected to significantly reduce both the complexity and costs of the Company's hog production operations.

Earnings from operations before restructuring and other related costs for the year decreased to $48.6 million from $101.9 million in 2005, due to a year-over-year decline in hog prices, a weaker U.S. dollar resulting in lower realized hog prices, and increased feed and energy costs. Full-year earnings from hog production were also negatively affected in the second quarter by a one-time adjustment made to the inventory values of work-in-progress hogs, and the impact of short term hedging programs.

Earnings from the animal nutrition operations for the quarter and year were lower due principally to restructuring in the hog production business and associated reductions in volumes and margins related to feeding Company owned livestock, and changes made in sales prices in Western Canada. Earnings were also impacted by the costs of transitioning customers from the Company's three aging feed mills in Atlantic Canada into a new high-efficiency feed mill in Moncton, New Brunswick. As part of implementing the new business model, the Company is vertically integrating and re-sizing all protein operations to support growth in the value added meats and meals market. As a result, the Company is proceeding with the sale of its animal nutrition business, retaining only two feed mills in Western Canada to meet the future requirements of its own hog production operations.

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 fourth quarter increased 15% to $355.0 million compared to $308.7 million last year. Sales for the year increased 9% to $1.3 billion. Excluding acquisitions, sales increased by 8% in the fourth quarter and 6% for the year as a result of increased sales across all the bakery businesses.

Earnings from operations before restructuring and other related costs in the fourth quarter were $23.3 million compared to $22.3 million last year. Operating earnings from fresh bakery operations rose as a result of an improved sales mix, including strong sales of Dempsters Smart bread launched earlier in the year. Dempsters Smart is a white bread product made with a new enriched whole wheat flour that provides the health attributes of whole grain bread. The business also benefited from operating improvements and price increases implemented in the fourth quarter to offset rising wheat prices. This earnings increase in the fresh bakery was offset in part by lower earnings in the North American frozen bakery operations, due to higher input and distribution costs, and higher operating costs at the Roanoke, Virginia facility.

The U.K. bakery business had another strong quarter, although earnings growth was offset by higher marketing and promotional investments to continue to build market growth and the New York Bagel brand. In November, the Company completed the acquisition of the French Croissant Company Ltd. and Avance (U.K.) Ltd. These operations manufacture premium croissants products and fresh and frozen specialty bakery items such as baguettes with annual sales of approximately $85 million. Included in the fourth quarter results is one month's contribution from these acquisitions.

Bakery Group earnings from operations before restructuring and other related costs for the year were largely consistent at $100.9 million compared to $101.2 million in 2005. This was achieved despite a sharp increase in flour prices. Fresh Bakery operating earnings improved from last year due to price increases and 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. Fresh pasta earnings increased for the year, expanding whole grain higher nutrition product lines and adding capacity through investment in its manufacturing plant in British Columbia. Earnings also benefited from the contribution of acquisitions and increased production at the new bagel plant in Rotherham, England. Through these investments, the Company now operates one of the largest specialty bakeries in the United Kingdom, with leading market shares in the bagel and croissant categories.

The North American frozen bakery operations recorded increased sales and volumes for the year, but profitability declined due to record high wheat costs that were not fully recovered in pricing, higher energy and distribution costs, and operational issues at its Roanoke, Virginia facility.

Restructuring and Other Related Costs

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

As noted above, the Company recorded a charge for restructuring and other related costs of $44.9 million in the fourth quarter and $64.6 million for the full year. The following table is a summary of restructuring and other related costs for the fourth quarter of 2006 and the year:

    <<
    ($ millions)
                                       Fourth Quarter     Full Year
                                       --------------  --------------
    Pork value chain re-organization       29.8             49.5
    Bakery facility closures                5.5              5.5
    Poultry plant closure                   2.3              2.3
    Impairment of an investment             7.3              7.3
                                       --------------  --------------
    Total                                  44.9             64.6
                                       --------------  --------------
                                       --------------  --------------
    >>

The Company had previously estimated that the total restructuring and other related costs for the pork value chain would be between $80 million and $120 million. Management has revised these estimates based on more detailed plans, and now estimates that restructuring and other related costs to this reorganization will amount to between $100 million and $150 million including $49.5 million recorded in 2006. Of the total amount $35 million to $50 million represents cash costs. The total amount of restructuring and other related charges is partly dependent on whether certain facilities that are non-core to the Company strategy will be sold or closed.

In addition, the Company is initiating other improvements and restructuring and other related costs unrelated to the protein reorganization. Management anticipates that approximately $25 million related to these initiatives will be charged to earnings during 2007.

Cash Flow and Financing

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

Total debt, net of cash balances, was $1.2 billion at December 31, 2006. This represents an increase of $150.8 million from the prior year due largely to acquisitions made in the United Kingdom, increases in working capital, and share repurchases during 2006.

Cash flow from operating activities for the fourth quarter was $58.3 million compared to $125.6 million last year. The reduction in fourth quarter cash flow was caused primarily by lower net earnings and a significant decrease in the fourth quarter cash flows from changes in working capital. In the final quarter of 2005, working capital had decreased as a result of an increase in accounts receivable securitization by $35.6 million and an increase in accrued charges and taxes payable that were not as significant in 2006. Cash flows from operating activities for the year decreased to $132.0 million from $264.7 million in 2005. The decrease resulted from a reduction in net earnings and an increase in net working capital.

Interest expense for the fourth quarter was $24.9 million compared to $23.6 million last year due to higher short term interest rates and slightly higher average debt outstanding. Interest expense for the year increased slightly to $99.1 million compared to $98.3 million last year. At December 2006, 77% of indebtedness was not exposed to interest rate fluctuations.

Capital expenditures on plant and equipment for the fourth quarter increased to $65.0 million from $36.2 million last year, while expenditures for the year were $169.5 million compared to $152.1 last year. In 2006, the Company made significant investments in its consumer products business to support increased capacity, new product lines and further cost reductions. These investments included the relocation of the existing Schneiders Lunchmate manufacturing operation to a new facility in Guelph, Ontario that will double the production capacity and reduce manufacturing costs. The Company has also purchased and renovated a 185,000 square foot facility in Brampton, Ontario to manufacture a new line of branded, fully cooked meal entrees.

Other Income

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

Other income for the fourth quarter of $0.9 million decreased from $2.9 million in the prior year when a gain from insurance proceeds was recognized.

Taxes

-----

For the fourth quarter of 2006, the tax rate on regular earnings was 38% and the tax rate on restructuring and other related costs was 22%. On a net basis, due to the differential effective tax rates, the Company incurred a tax expense of $6.2 million applied against a loss before taxes of $3.6 million. The Company's tax rate for the year was 83.0% due to a number of unusual items including a $21.2 million non-recurring tax expense in the third quarter related to its U.S. frozen bakery business.

Forward-Looking Statements

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

This document may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Maple Leaf Foods' control, that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Maple Leaf does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise. Any forward-looking information in this press release speaks as of the date of this press release. Additional information about these assumptions and risks and uncertainties is contained in the filings with securities regulators including the annual information form and Management's Discussion and Analysis accompanying the financial statements in the reports to shareholders. These filings are available on the Company's website at www.mapleleaf.ca.

Other Matters

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

Maple Leaf Foods declared a dividend of $0.04 per share payable on March 29, 2007, to shareholders of record on March 9, 2007. Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the corporation in 2007 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System.

Maple Leaf Foods Inc. is a leading Canadian food processing company. 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 $5.9 billion in 2006.

An investor presentation related to the Company's fourth 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 February 22, 2007 to review Maple Leaf Foods' fourth quarter financial results. To participate in the call, please dial 416-641-6113 or 866-226-1792. For those unable to participate, playback will be made available an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 3213713 followed by the number sign).

A webcast presentation of the fourth quarter financial results will also be available at http://investor.mapleleaf.ca at 10:30 a.m. EDT via a link http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=88490&eventID=1479799. An archived replay of the webcast will be available following the call at each of the above links.

    <<
           Consolidated Interim Financial Statements
           (Expressed in Canadian dollars)

           MAPLE LEAF FOODS INC.
           Three and twelve months ended December 31, 2006 and 2005


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

    -------------------------------------------------------------------------
                                                           As at December 31,
                                                           2006         2005
    -------------------------------------------------------------------------

    ASSETS

    Current assets
      Cash and cash equivalents                     $    64,494  $    80,502
      Accounts receivable (Note 3)                      263,806      247,014
      Inventories                                       427,846      400,848
      Future tax asset - current                          2,321       15,329
      Prepaid expenses and other assets                  11,986       12,104
      -----------------------------------------------------------------------
                                                        770,453      755,797
    Investments in associated companies                  22,110       61,939
    Property and equipment                            1,187,398    1,137,317
    Other long-term assets                              282,091      261,907
    Future tax asset - non-current                       23,464       38,499
    Goodwill                                            902,663      847,853
    Other intangibles                                    87,547       86,468
    -------------------------------------------------------------------------
                                                    $ 3,275,726  $ 3,189,780
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Accounts payable and accrued charges          $   665,886  $   669,941
      Income and other taxes payable                     20,457       31,727
      Current portion of long-term debt                  91,490      110,428
      -----------------------------------------------------------------------
                                                        777,833      812,096
    Long-term debt                                    1,186,538    1,032,829
    Future tax liability                                 29,475       56,183
    Other long-term liabilities                         197,201      202,576
    Minority interest                                    90,237       87,425
    Shareholders' equity                                994,442      998,671
    -------------------------------------------------------------------------
                                                    $ 3,275,726  $ 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       Twelve months ended
                                       December 31,              December 31,
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
                           (Unaudited)  (Unaudited)

                                      (As restated              (As restated
                                         Note 2(a))                Note 2(a))

    Sales                 $ 1,514,806  $ 1,518,561  $ 5,895,218  $ 6,129,243
    -------------------------------------------------------------------------

    Earnings from
     operations before
     restructuring and
     other related costs       65,409       51,653  $   223,898  $   263,034
    Restructuring and
     other related costs
     (Note 4)                 (44,926)           -      (64,618)     (13,157)
    -------------------------------------------------------------------------

    Earnings from
     operations                20,483       51,653      159,280      249,877
    Other income (Note 5)         863        2,896        3,026        6,977
    -------------------------------------------------------------------------

    Earnings before
     interest and income
     taxes                     21,346       54,549      162,306      256,854
    Interest expense           24,934       23,603       99,104       98,317
    -------------------------------------------------------------------------

    Earnings (loss)
     before income taxes       (3,588)      30,946       63,202      158,537
    Income taxes (Note 7)       6,220        9,176       52,469       51,308
    -------------------------------------------------------------------------

    Earnings (loss) before
     minority interest         (9,808)      21,770       10,733      107,229
    Minority interest           1,816        3,574        6,208       12,987
    -------------------------------------------------------------------------
    Net earnings (loss)
     for the period       $   (11,624) $    18,196  $     4,525  $    94,242
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per
     share - basic
     (Note 6)             $     (0.09) $      0.14  $      0.04  $      0.74

    Earnings (loss) per
     share - diluted
     (Note 6)             $     (0.09) $      0.14  $      0.03  $      0.72

    Weighted average
     number of shares
    (millions) (Note 6)         127.0        127.5        127.5        126.8

    Dividends declared
     per share            $      0.04  $      0.04  $      0.16  $      0.16

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

    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
                                             Twelve months ended December 31,
                                                           2006         2005
    -------------------------------------------------------------------------

    Retained earnings, beginning of period          $   231,807  $   159,129
    Net earnings for the period                           4,525       94,242
    Dividends declared                                  (20,387)     (20,327)
    Premium on repurchase of share capital              (11,530)      (1,237)
    -------------------------------------------------------------------------
    Retained earnings, end of period                $   204,415  $   231,807
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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       Twelve months ended
                                       December 31,              December 31,
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
                           (Unaudited)  (Unaudited)
                                      (As restated              (As restated
                                         Note 2(b))                Note 2(b))
    CASH PROVIDED BY (USED) IN

    Operating activities
      Net earnings (loss) $   (11,624) $    18,196  $     4,525  $    94,242
      Add (deduct) items
       not affecting cash:
        Depreciation and
         amortization          36,456       33,550      143,105      132,489
        Stock-based
         compensation           3,367        2,826       10,384        8,425
        Minority interest       1,816        3,574        6,208       12,987
        Future income
         taxes                (15,774)     (18,474)          75       (8,921)
        Undistributed
         (earnings)/losses
         of associated
         companies                989       (1,829)         770       (7,620)
        Loss on repayment
         of convertible
         debenture                  -            -            -        1,108
        Gain on sale of
         property and
         equipment             (1,792)      (4,394)      (2,199)      (5,814)
        (Gain) loss on
         sale of
         investments               57            -          202         (363)
      Other                     3,455      (12,842)       7,090       (2,300)
      Change in other
       long-term
       receivables              2,460          (45)       4,546        6,840
      Change in
       restructuring and
       other related costs
       (Note 4)                17,083        1,000       20,621        5,500
      Increase in net
       pension asset          (20,925)     (14,822)     (55,322)     (39,226)
      Change in non-cash
       operating working
       capital                 42,762      118,820       (7,994)      67,368
      -----------------------------------------------------------------------
                          $    58,330  $   125,560  $   132,011  $   264,715

    Financing activities
      Dividends paid           (5,081)      (5,105)     (20,387)     (20,327)
      Dividends paid to
       minority interest         (191)        (320)      (1,602)      (1,031)
      Increase in
       long-term debt         103,908      275,537      247,311          592
      Decrease in
       long-term debt          (8,941)    (334,305)    (128,098)    (122,948)
      Increase in share
       capital                  1,454        5,710       15,556       19,421
      Shares repurchased
       for cancellation             -       (1,989)     (23,056)      (1,989)
      Other                         -      (13,454)       2,357      (13,454)
      -----------------------------------------------------------------------
                          $    91,149  $   (73,926)  $   92,081  $  (139,736)

    Investing activities
      Additions to
       property and
       equipment              (64,977)     (36,190)    (169,527)    (152,130)
      Proceeds from sale
       of property and
       equipment                2,629        6,491        7,836        9,746
      Purchase of Canada
       Bread shares                 -            -            -       (7,004)
      Purchase of net
       assets of
       businesses, net of
       cash acquired
       (Note 8)               (70,663)           -      (80,986)      (3,621)
      Other                     5,419       (1,495)       2,577       (3,238)
      -----------------------------------------------------------------------
                             (127,592)     (31,194)    (240,100)    (156,247)

    Increase (decrease)
     in cash and cash
     equivalents               21,887       20,440      (16,008)     (31,268)
    Cash and cash
     equivalents,
     beginning of period       42,607       60,062       80,502      111,770
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period            $    64,494  $    80,502  $    64,494  $    80,502
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


    Segmented Financial Information
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                Three months ended       Twelve months ended
                                       December 31,              December 31,
                                 2006         2005         2006         2005
    -------------------------------------------------------------------------
                           (Unaudited)  (Unaudited)
    Sales (Note 2(a))
      Meat Products Group $   941,557  $   997,570  $ 3,745,654  $ 4,102,383
      Agribusiness Group      218,257      212,261      815,899      800,820
      Bakery Products
       Group                  354,992      308,730    1,333,665    1,226,040
    -------------------------------------------------------------------------
                          $ 1,514,806  $ 1,518,561  $ 5,895,218  $ 6,129,243
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from
     operations, before
     restructuring and
     other related costs
      Meat Products Group $    37,855  $    10,425  $    74,400  $    59,881
      Agribusiness Group        4,218       18,883       48,621      101,862
      Bakery Products
       Group                   23,336       22,345      100,877      101,291
    -------------------------------------------------------------------------
                          $    65,409  $    51,653  $   223,898  $   263,034
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to property
     and equipment
      Meat Products Group $    35,869  $    12,925  $    91,271  $    59,287
      Agribusiness Group       12,501        9,636       28,802       36,266
      Bakery Products
       Group                   16,607       13,629       49,454       56,577
    -------------------------------------------------------------------------
                          $    64,977  $    36,190  $   169,527  $   152,130
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Meat Products Group $    16,657  $    15,426  $   66,987   $    62,788
      Agribusiness Group        7,699        6,150      29,691        24,502
      Bakery Products
       Group                   12,100       11,974      46,427        45,199
    -------------------------------------------------------------------------
                          $    36,456  $    33,550  $  143,105   $   132,489
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                           As at December 31,
                                                           2006         2005
    -------------------------------------------------------------------------
    Total assets (Note 2(b))
      Meat Products Group                           $ 1,551,502  $ 1,550,439
      Agribusiness Group                                702,534      639,622
      Bakery Products Group                             810,940      694,519
      Non-allocated assets                              210,750      305,200
    -------------------------------------------------------------------------
                                                    $ 3,275,726  $ 3,189,780
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Meat Products Group                           $   452,139  $   452,815
      Agribusiness Group                                 97,807       97,376
      Bakery Products Group                             352,717      297,662
    -------------------------------------------------------------------------
                                                    $   902,663  $   847,853
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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


    1.  THE COMPANY

        Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") is a
        leading Canadian-based food processing company, serving wholesale,
        retail, food service, industrial and agricultural customers across
        North America and internationally. The Company's results are
        organized into three segments: Meat Products Group, Agribusiness
        Group and Bakery Products Group.

    2.  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, 2006

        (a)   Accounting Changes

              Effective January 1, 2006, the Company adopted retroactively,
              with restatement of prior periods, the guidance presented in
              Emerging Issues Committee ("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 for the quarter of
              approximately $87.4 million (2005: $79.6 million) and year-to-
              date of approximately $369.4 million (2005: $333.3 million).
              This accounting change had no impact on operating earnings, net
              earnings or earnings per share.

        (b)   Comparative Figures

              Certain 2005 comparative figures have been reclassified to
              conform with the financial statement presentation adopted in
              2006.

    3.  ACCOUNTS RECEIVABLE

        Under revolving securitization programs the Company has sold certain
        of its trade accounts receivable to financial institutions. The
        Company retains servicing responsibilities and retains a limited
        recourse obligation for delinquent receivables. At December 31, 2006,
        trade accounts receivable being serviced under this program amounted
        to $241.5 million (2005: $230.1 million).

    4.  RESTRUCTURING AND OTHER RELATED COSTS

        2006
        ----

        During the fourth quarter, the Company recorded restructuring and
        other costs of $44.9 million ($34.8 million after tax). The majority
        of these restructuring and other related costs relate to the pork
        value chain reorganization, the closure of a poultry plant in Nova
        Scotia and the closure of a fresh bakery plant in British Columbia.

        During the third quarter, the Company recorded restructuring costs of
        $19.7 million ($15.6 million after tax). These restructuring and
        other related costs related to the write-down of certain hog
        investments, the costs to exit certain non-core trading businesses,
        and restructuring costs related to the combination of the fresh pork
        and poultry businesses.

        The following table provides a summary of costs recognized and cash
        payments made in respect of the above restructuring initiatives in
        2006 and the corresponding liability as at December 31, 2006.

        ---------------------------------------------------------------------
                                       Site      Asset
                       Severance    closing impairment  Retention      Total
        ---------------------------------------------------------------------
        2006
         Restructuring
         & Related
         Costs
          Charges
           during third
           quarter     $   4,400  $   1,481  $  13,811  $       -  $  19,692
          Cash draw-
           downs            (211)      (659)         -          -       (870)
          Non-cash
           items                    (13,811)         -    (13,811)
        ---------------------------------------------------------------------
        Balance at
         September 30,
         2006          $   4,189  $     822  $       -  $       -  $   5,011
          Charges
           during
           fourth
           quarter     $  11,634  $   4,836  $  25,406  $   3,050  $  44,926
          Cash draw-
           downs          (1,651)      (627)         -        (35)    (2,313)
          Non-cash
           items               -          -    (25,406)         -    (25,406)
        ---------------------------------------------------------------------
        Balance at
         December 31,
         2006          $  14,172  $   5,031  $       -  $   3,015  $  22,218
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        2005
        ----

        During the first quarter of 2005, the Company recorded $13.2 million
        in restructuring and other related 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 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, $1.6 million was paid in 2006 (2005:
        $2.7 million) and $2.5 million was returned to earnings.

    5.  OTHER INCOME
        ---------------------------------------------------------------------
                                    Three months ended  Twelve months ended
                                           December 31,          December 31,
                                       2006       2005       2006       2005
        ---------------------------------------------------------------------

        Gain on sale of property
         and equipment            $   1,792  $   2,078  $   2,199  $   3,498
        Earnings (loss) from
         real estate operations         (50)      (283)     1,047        283
        Dividends received               93         71        458        510
        Rental income                    74        538        294        300
        Earnings (loss) from
         associated companies          (989)       492       (770)     3,131
        Gain (loss) on sale of
         investments                    (57)         -       (202)       363
        Loss on redemption of
         convertible debenture            -          -          -     (1,108)
        ---------------------------------------------------------------------
                                  $     863  $   2,896  $   3,026  $   6,977
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    6.  EARNINGS PER SHARE

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

        ---------------------------------------------------------------------
                                     Three months ended December 31,
                                   2006                          2005
        ---------------------------------------------------------------------
                                 Weighted                    Weighted
                          Net    Average             Net     Average
                         (loss)  Shares(ii)  EPS   Earnings  Shares(ii)  EPS
                       -------------------------- ---------------------------
        Basic          $(11,624)  127.0   $(0.09)  $ 18,196   127.5   $ 0.14
          Stock
           options(i)         -     1.6        -          -     2.9        -
        ---------------------------------------------------------------------
        Diluted        $(11,624)  128.6   $(0.09)  $ 18,196   130.4   $ 0.14
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                    Twelve months ended December 31,
                                   2006                          2005
        ---------------------------------------------------------------------
                                 Weighted                    Weighted
                          Net    Average             Net     Average
                         (loss)  Shares(ii)  EPS   Earnings  Shares(ii)  EPS
                       -------------------------- ---------------------------
        Basic          $  4,525   127.5   $ 0.04   $ 94,242   126.8   $ 0.74
        Stock
         options(i)           -     1.8        -          -     3.2    (0.02)
        ---------------------------------------------------------------------
        Diluted         $ 4,525   129.3   $ 0.03   $ 94,242   130.0   $ 0.72
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i)  Excludes the effect of approximately 11.7 million options and
             restricted stock units to purchase common shares for the three
             months ended December 31 (2005: 10.7 million) and 9.5 million
             options and restricted stock units to purchase common shares for
             the twelve months ended December 31  (2005: 10.3 million) that
             are anti-dilutive

        (ii) In millions

    7.  INCOME TAXES

        In accordance with CICA Handbook section 3465, "Accounting for Income
        Taxes", the Company reviews all available positive and negative
        evidence to evaluate the recoverability of future tax assets. This
        includes a review of the Company's cumulative losses in recent years,
        the carry forward period related to the tax losses, and the tax
        planning strategies available to the Company. Upon applying these
        accounting rules to the Company's accumulated tax losses in the U.S.
        frozen bakery business, there is now sufficient uncertainty
        surrounding the timing and amount of losses that will be utilized.
        Accordingly, in the third quarter the Company recorded a valuation
        allowance of US$19.2 million ($21.2 million) against the full amount
        of the related net future tax asset related to tax losses in the U.S.

    8.  ACQUISITIONS

        (a)   During the fourth quarter of 2006, the Company acquired the
              remaining interest in several partly owned hog barn investments
              that had been accounted for on an equity basis for a total of
              $2.9 million and recorded goodwill of $0.2 million.

        (b)   On November 27, 2006, Canada Bread purchased The French
              Croissant Company Ltd. ("FCC") and Avance U.K. Limited
              ("Avance"), two related bakeries in the U.K. for total
              consideration of (pnds stlg)29.1 million ($63.9 million). FCC
              markets croissants and specialty goods across the U.K., and
              Avance is a leading supplier of fresh, frozen and long-life
              specialty bakery items. The Company has not yet finalized the
              purchase equation for these acquisitions

        (c)   On October 2, 2006, Canada Bread acquired the remaining
              interest in Royal Touch Foods Inc. ("Royal Touch"), a pre-
              packaged sandwich supplier based in Etobicoke, Ontario. The
              Company paid $3.5 million, net of estimated cash acquired of
              $0.8 million for the shares of Royal Touch. The investment in
              Royal Touch had been accounted for on an equity basis prior to
              this purchase. The purchase price is subject to an adjustment
              based on the net assets of Royal Touch as at the acquisition
              date. As at December 31, 2006 the purchase price adjustment has
              not yet been determined.

    9.  SUBSEQUENT EVENTS

        On January 16, 2007, the Company purchased 122,900 additional shares
        in Canada Bread for $6.5 million. The Company's ownership interest in
        Canada Bread has increased from 87.5% to 88.0%, as a result of this
        transaction.

    10. SUPPLEMENTAL CASH FLOW INFORMATION

        ---------------------------------------------------------------------
                                    Three months ended   Twelve months ended
                                           December 31,          December 31,
                                       2006       2005       2006       2005
        ---------------------------------------------------------------------
        Net interest paid         $  36,447  $  36,940  $  96,222  $ 103,342
        Net income taxes paid        14,433     14,832     67,072     54,053
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
    >>

SOURCE: Maple Leaf Foods Inc.

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


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