Maple Leaf Foods Reports 2007 First Quarter Financial Results
TORONTO, April 26 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the first quarter ended March 31, 2007.
"Our results for the first quarter reflect a solid improvement, with increased contributions from both the bakery and the meats businesses," said Michael McCain, President and CEO. "In the context of the major change activities that we have underway, the quarterly results reflect our steady focus on maintaining business stability and performance while aligning our protein operations to a value-added meats and meals strategy. Our plan is on track and we are pleased with execution to date."
Sales for the first quarter increased 2% to $1.5 billion while earnings from operations before restructuring and other related costs increased 18% to $61.0 million from $51.8 million in the first quarter last year. Management believes this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs are not representative of continuing operations. In the first quarter of 2007, the Company recorded restructuring and other related costs of $13.1 million ($9.6 million after tax and minority interest), of which $6.8 million related directly to the Company's strategic reorganization of its protein operations to focus on growth in the value-added meats and meals businesses. The balance of the restructuring costs was due to the previously announced closures of a poultry facility in Nova Scotia and a bakery in Langley, British Columbia.
The following is a summary of net earnings and earnings per share (EPS), before and after restructuring and other related costs:
<< ($ millions except per share amounts) First Quarter ---------------------------------- 2007 2006 Change -------- -------- -------- Net earnings as reported $ 10.5 $ 17.3 (39%) Restructuring and other related costs, net of tax and minority interest 9.6 - ---------------------------------- Net earnings before restructuring and other related costs(i) $ 20.1 $ 17.3 16% ---------------------------------- ---------------------------------- EPS before restructuring and other related costs(i) $ 0.16 $ 0.14 $ 0.02 ---------------------------------- ---------------------------------- (i) This is not a recognized measure under Canadian GAAP. Management believes that this is the most appropriate basis on which to evaluate results, as restructuring and other related costs are not representative of continuing operations. >>
Net earnings before restructuring and other related costs increased 16% to $20.1 million ($0.16 per share) from $17.3 million ($0.14 per share) last year.
Operating Review
----------------
Operating earnings for the first quarter before restructuring and other
related costs increased by 18% from last year, as a result of a 23% increase
in earnings in the Protein Group and a 12% increase in the Bakery Group.
Protein Group earnings were driven by improved fresh meat margins, which more
than offset lower hog earnings due to higher corn prices, and reduced margins
in prepared meats. The Bakery Group recorded higher earnings in its fresh
bakery and U.K. and North American frozen bakery operations.
Following is a summary of operating earnings by business segment before restructuring and other related costs:
<< ($ millions) First Quarter ---------------------------------- 2007 2006 Change -------- -------- -------- Meat Products Group $ 21.3 $ 13.7 56% Agribusiness Group 12.1 13.4 (10%) ---------------------------------- Protein Value Chain 33.4 27.1 23% Bakery Products Group 27.6 24.7 12% ---------------------------------- $ 61.0 $ 51.8 18% ---------------------------------- ---------------------------------- >>
Meat Products Group (branded value-added prepared meat products; fresh, frozen and branded value-added pork products; fresh, frozen and branded value-added chicken and turkey products; and global food marketing, distribution and trading)
Meat Products Group sales for the first quarter declined 3% to $896 million, due principally to lower international trading sales, as certain trading businesses were wound down as part of the Company's strategic re-alignment.
Earnings from operations before restructuring and other related costs increased to $21.3 million from $13.7 million last year. Profits improved in the Company's fresh pork and poultry operations due to improved protein markets and primary processor margins, as well as improved operating efficiencies. However, higher meat costs pressured margins in the consumer foods businesses, as price increases could not be implemented quickly enough to offset increased input costs. Price increases are being implemented in most processed meat categories in the second quarter. Earnings were also affected by higher promotional and advertising costs related to new product launches.
During the quarter, the Company launched Maple Leaf Simply Fresh, a new line of refrigerated, single-serve entrees, meal kits and soups that are available across Canada. Manufactured at its new Brampton facility, these products include pork, chicken or beef and vegetables, and carry the Heart and Stroke Foundation's Health Check(TM) symbol. The products are developed using technology that significantly extends shelf life, while delivering fresh taste, low sodium and fat, and high nutrition. This new line reflects the Company's increasing emphasis on product innovation and investment in infrastructure and marketing to support expansion in the higher margin chilled meats and meals market.
Agribusiness Group (research, development and supply of quality livestock nutrition products and services; pet food; swine production; and animal by-products recycling)
Agribusiness Group sales for the first quarter increased 4% to $208 million from $201 million last quarter, primarily as a result of higher feed prices as the prices of agricultural commodities, particularly corn, increased.
Earnings from operations before restructuring and other related costs for the first quarter declined to $12.1 million from $13.4 million last year. Although hog prices increased 8% compared to the first quarter last year, significantly higher feed costs more than offset the benefit of higher hog prices. Hog production earnings were also impacted by an industry-wide outbreak of circo virus, which has impacted herds across North America and caused higher rates of hog mortality and slower growth rates. Consistent with the industry, the Company is experiencing success in administering vaccines and efficiencies are expected to steadily improve throughout the year. Maple Leaf had an effective ownership of 19% of the hogs it processed in the first quarter.
Bakery Products Group (fresh, frozen and branded value-added bakery products, including frozen par-baked bakery products; and specialty pasta and sauces)
Bakery Products Group sales for the first quarter increased 19% to $358 million from $301 million last year. Excluding acquisitions, sales increased by 8% in the first quarter, with increases in both fresh and frozen bakery.
Earnings from operations before restructuring and other related costs increased 12% to $27.6 million compared to $24.7 million last year, due to a strong contribution from both the frozen and fresh bakery businesses. Price increases implemented last year, to offset inflationary costs, and growth in higher margin value-added categories contributed to increased earnings. These price and mix improvements more than offset higher wheat prices and some market volume decline. Reinforcing its leadership in the growing higher nutrition market, the Company launched Dempsters WholeGrains Prebiotic, a delicious bread that contains inulin, a unique prebiotic source that promotes digestive health. Dempsters WholeGrains Prebiotic is the first major brand in Canada to offer the benefits of prebiotics.
The U.K. bakery operations recorded another strong quarter, benefiting from the contribution of acquisitions, as well as improved earnings from the bagel category. During the quarter, the Company commenced an $8.3 million investment to further expand capacity at its Rotherham bagel facility that will allow the business to pursue further opportunities in the frozen bagel market in the U.K and Europe. This expansion, together with investments in croissant capacity at the newly acquired French Croissant Company Ltd., will position the business to continue its growth in the specialty bakery market. The profitability of the Company's North American frozen bakery operations increased from last year, although still below earnings potential. A strategic realignment of this business is being developed to position it for higher returns, and the Company has recently made a senior leadership change in the business.
Other Items
-----------
The Company previously announced the intended sale of its animal
nutrition business as a result of its new protein strategy. A process to sell
this business has commenced and was still ongoing at the end of the first
quarter.
Effective March 31, 2007, the Company completed two transactions to sell its Convenience and Seafood trading businesses in Germany, as these businesses were not aligned with the Company's new protein strategy. These sales will not have a material impact on ongoing earnings or cash flows.
Restructuring and Other Related Costs
-------------------------------------
In the first quarter, the Company recorded a charge for restructuring and
other related costs of $13.1 million (2006: $nil). Including full-year amounts
charged to earnings during 2006, the following is a summary of restructuring
and other related costs incurred up to 2007:
<< ($ millions) Full-year Q1 2007 Total 2006 to Date ------------------------------------- Protein value chain restructuring 47.5 4.1 51.6 Retention payments 2.0 3.7 5.7 Bakery plant closure 5.5 2.2 7.7 Poultry plant closure 2.3 3.1 5.4 Impairment of a non-core equity investment 7.3 - 7.3 ------------------------------------- 64.6 13.1 77.7 ------------------------------------- ------------------------------------- Cash incurred and to be incurred 25.4 8.2 33.6 Non-cash 39.2 4.9 44.1 ------------------------------------- 64.6 13.1 77.7 ------------------------------------- ------------------------------------- >>
The Company estimates it will incur total restructuring costs of $140 million to $190 million over the next three years. This includes $100 million to $150 million of costs to realign its protein value chain operations to a value-added meats and meals business, of which $56.3 million has been recorded to date.
Cash Flow and Financing
-----------------------
Total debt, net of cash balances, was $1,280 million at the end of the
first quarter, compared to $1,214 million as at December 31, 2006. Cash used
in operations was $17.6 million compared to $18.7 million last year, as a
decrease in net earnings was offset by a reduced investment in working
capital.
Interest expense for the quarter was $26.9 million compared to $24.2 million last year, largely due to increased debt balances. At March 31, 2007, 74% of indebtedness was not exposed to interest rate fluctuations, compared to 86% in the previous year.
Capital expenditures on plant and equipment for the first quarter increased to $55.8 million compared to $25.8 million last year, primarily resulting from increased capital investments to support the launch of the Maple Leaf Simply Fresh product line.
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
June 29, 2007, to shareholders of record on June 8, 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 first quarter financial results is available at www.mapleleaf.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on April 26, 2007 to review Maple Leaf Foods' first 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 3219792 followed by the number sign).
A webcast presentation of the first quarter financial results will also be available at http://investor.mapleleaf.ca via a link http://phx.corporate-ir.net/phoenix.zhtml?c=88490&p=irol-eventdetails&EventId= 1533544
<< Consolidated Financial Statements (Expressed in Canadian dollars) MAPLE LEAF FOODS INC. Three months ended March 31, 2007 and 2006 MAPLE LEAF FOODS INC. Consolidated Balance Sheets (In thousands of Canadian dollars) ------------------------------------------------------------------------- As at As at As at March 31, March 31, December 31, 2007 2006 2006 ------------------------------------------------------------------------- (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 61,564 $ 8,674 $ 64,494 Accounts receivable (Note 3) 269,218 230,111 263,806 Inventories 465,220 432,792 427,846 Future tax asset - current 2,947 15,896 2,321 Prepaid expenses and other assets 14,608 11,888 11,986 ----------------------------------------------------------------------- 813,557 699,361 770,453 Investments in associated companies 13,235 48,262 22,110 Property and equipment 1,204,283 1,151,116 1,187,398 Other long-term assets 290,633 268,097 282,091 Future tax asset - non-current 36,377 39,881 23,464 Goodwill 907,715 848,032 902,663 Other intangibles 87,291 86,350 87,547 ------------------------------------------------------------------------- $3,353,091 $3,141,099 $3,275,726 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued charges $ 653,061 $ 629,275 $ 665,886 Income and other taxes payable 24,971 18,803 20,457 Other current liabilities (Note 1(a)) 27,220 - - Current portion of long-term debt 89,593 102,584 91,490 ----------------------------------------------------------------------- 794,845 750,662 777,833 Long-term debt 1,251,651 1,037,077 1,186,538 Future tax liability 28,003 55,172 29,475 Other long-term liabilities 208,188 196,130 197,201 Minority interest 83,754 91,147 90,237 Shareholders' equity (Note 10) 986,650 1,010,911 994,442 ------------------------------------------------------------------------- $3,353,091 $3,141,099 $3,275,726 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 March 31, (Unaudited) 2007 2006 ------------------------------------------------------------------------- Sales $1,461,437 $1,425,951 ------------------------------------------------------------------------- Earnings from operations before restructuring and other related costs 61,007 51,802 Restructuring costs and other related costs (Note 2) (13,119) - ------------------------------------------------------------------------- Earnings from operations 47,888 51,802 Other income (Note 4) 529 1,969 ------------------------------------------------------------------------- Earnings before interest and income taxes 48,417 53,771 Interest expense 26,940 24,215 ------------------------------------------------------------------------- Earnings before income taxes 21,477 29,556 Income taxes 9,470 9,829 ------------------------------------------------------------------------- Earnings before minority interest 12,007 19,727 Minority interest 1,544 2,455 ------------------------------------------------------------------------- Net earnings $ 10,463 $ 17,272 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share - basic (Note 7) $ 0.08 $ 0.14 Earnings per share - diluted (Note 7) $ 0.08 $ 0.13 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of shares (millions) 127.2 127.7 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes to the consolidated financial statements are an integral part of these statements. MAPLE LEAF FOODS INC. Consolidated Statements of Retained Earnings (In thousands of Canadian dollars, except share amounts) ------------------------------------------------------------------------- Three months ended March 31, (Unaudited) 2007 2006 ------------------------------------------------------------------------- Retained earnings, beginning of period $ 204,415 $ 231,807 Net earnings 10,463 17,272 Dividends declared ($0.04 per share; 2006: $0.04 per share) (5,091) (5,100) Premium on repurchase of share capital (Note 6) - (3,456) ------------------------------------------------------------------------- Retained earnings, end of period $ 209,787 $ 240,523 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes to the consolidated financial statements are an integral part of these statements. Consolidated Statements of Comprehensive Income (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended March 31, (Unaudited) 2007 2006 ------------------------------------------------------------------------- Net earnings $ 10,463 $ 17,272 Other comprehensive income (Note 11) 4,437 764 ------------------------------------------------------------------------- Comprehensive income $ 14,900 $ 18,036 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 March 31, (Unaudited) 2007 2006 ------------------------------------------------------------------------- CASH PROVIDED BY (USED IN) Operating activities Net earnings $ 10,463 $ 17,272 Add (deduct) items not affecting cash: Depreciation and amortization 38,140 35,522 Stock-based compensation 3,672 2,591 Minority interest 1,544 2,455 Future income taxes (3,411) (2,854) Undistributed earnings (loss) of associated companies - (137) Gain on sale of property and equipment (493) (566) Other 3,187 3,097 Change in other long-term receivables (2,311) 1,587 Decrease in net pension asset (16,425) (12,441) Change in restructuring provisions 3,721 (545) Change in operating working capital (55,708) (64,697) ----------------------------------------------------------------------- (17,621) (18,716) Financing activities Dividends paid (5,091) (5,100) Dividends paid to minority interest (251) (655) Increase (decrease) in long-term debt 73,664 (13,045) Increase in share capital (Note 6) 2,215 2,943 Shares repurchased for cancellation (Note 6) - (6,229) Other 8,106 2,057 ----------------------------------------------------------------------- 78,643 (20,029) Investing activities Additions to property and equipment (55,752) (25,814) Proceeds from sale of property and equipment 746 3,439 Proceeds on disposal of business (Note 8) 5,470 - Purchase of net assets of businesses - net of cash acquired (Note 8) (10,803) (5,323) Purchase of Canada Bread shares (6,521) - Change in other investments, net - (5,265) Other 2,908 (120) ----------------------------------------------------------------------- (63,952) (33,083) Decrease in cash and cash equivalents (2,930) (71,828) Cash and cash equivalents, beginning of period 64,494 80,502 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 61,564 $ 8,674 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 March 31, (Unaudited) 2007 2006 ------------------------------------------------------------------------- Sales Meat Products Group $ 895,735 $ 923,527 Agribusiness Group 208,197 201,081 Bakery Products Group 357,505 301,343 ------------------------------------------------------------------------- $1,461,437 $1,425,951 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings from operations, before restructuring and other related costs Meat Products Group $ 21,364 $ 13,727 Agribusiness Group 12,064 13,344 Bakery Products Group 27,579 24,731 ------------------------------------------------------------------------- $ 61,007 $ 51,802 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Additions to property and equipment Meat Products Group $ 36,718 $ 11,028 Agribusiness Group 5,967 4,367 Bakery Products Group 13,067 10,419 ------------------------------------------------------------------------- $ 55,752 $ 25,814 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Depreciation and amortization Meat Products Group $ 17,386 $ 16,993 Agribusiness Group 7,935 6,952 Bakery Products Group 12,819 11,577 ------------------------------------------------------------------------- $ 38,140 $ 35,522 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at As at As at March 31, March 31, December 31, 2007 2006 2006 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Total assets Meat Products Group $1,595,010 $1,502,768 $1,551,502 Agribusiness Group 670,324 692,870 702,534 Bakery Products Group 821,038 706,094 810,940 Non-allocated assets 266,719 239,367 210,750 ------------------------------------------------------------------------- $3,353,091 $3,141,099 $3,275,726 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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, 2006. 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, 2006, except for the following: (a) Accounting changes Effective January 1, 2007 the Company prospectively adopted the guidance presented in CICA Handbook Sections 1530 "Comprehensive Income" ("Section 1530"), Section 3855 "Financial Instruments - Recognition and Measurement" ("Section 3855"), and Section 3865 "Hedges" ("Section 3865"). On January 1, 2007 the Company recorded the following transitional adjustment to the consolidated balance sheet as a result of the adoption of the new standards: ----------------------------------------------------------------- Increase in other current assets $ 1,167 Increase in future tax assets - long-term 12,409 Increase in other current liabilities (3,085) Decrease in long-term debt 3,123 Increase in other long-term liabilities (37,101) Accumulated other comprehensive loss - cash flow hedges 23,487 ----------------------------------------------------------------- (i) Comprehensive Income In accordance with Section 1530, the Company has presented comprehensive income and its components as part of the financial statements to show unrealized gains and losses that are not included in GAAP income. Comprehensive income is the change in equity during a period resulting from transactions and other events from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. In accordance with the new standard, $9.8 million relating to unrealized losses resulting from the translation of self-sustaining operations which had previously been classified as unrealized foreign currency adjustment within shareholders' equity is now presented within accumulated other comprehensive income. (ii) Financial Instruments In accordance with Section 3855, the Company has classified all financial assets as either held for trading, available for sale, held-to-maturity or loans and receivables. All financial liabilities are classified as either held for trading or as other liabilities. Financial assets and liabilities classified as held for trading are measured at fair value with changes in fair value recognized in net income in the period in which they arise. Financial assets classified as available-for-sale are measured at fair value with gains and losses recognized in other comprehensive income until the underlying financial asset is derecognized or becomes impaired. Held-to-maturity investments, loans and receivables and other liabilities are measured at amortized cost. Gains or losses on financial assets and liabilities carried at amortized cost are recognized in earnings when the financial asset or financial liability is derecognized or impaired. All derivative instruments, including any embedded derivatives that are required to be separated from their host instruments, are recorded at fair value with changes in fair value being recorded in income unless the derivative is designated as a cash flow hedge or a hedge of a net investment in a self-sustaining foreign operation. The Company completed a detailed review of its financial instruments and its contracts and determined that the fair value of embedded derivative instruments which required separation from their host instruments was not significant. (iii) Hedge Accounting The Company's existing hedging relationships continue to qualify for hedge accounting under the new standard. The Company continues to designate hedges as either fair value hedges, cash flow hedges or hedges of a net investment in a self-sustaining foreign operation. For a fair value hedge, changes in the fair value of the hedging derivative are recognized in income together with the offsetting change on the hedged item attributable to the hedged risk. For cash flow and net investment hedges, changes in the fair value of the hedging derivative, to the extent effective, are recorded in other comprehensive income (loss) and are subsequently recognized in income when the hedged item affects income. Any ineffectiveness in hedging relationships is recognized in income immediately. On adoption the Company recognized an increase in other current assets of $1.2 million, an increase in other current liabilities of $3.1 million, an increase in other long-term liabilities of $37.1 million, a decrease in long-term debt of $3.1 million and an increase in accumulated other comprehensive loss of $23.5 million (net of future taxes of $12.4 million) to recognize the fair value of financial instruments designated to hedge the Company's commodity, interest rate, and foreign currency exposures. On adoption of the new standard, there was no significant ineffectiveness in these hedging relationships. The following table illustrates the fair values of financial instruments by type of hedging relationship: ----------------------------------------------------------------- As at January 1, 2007 Other Other Current Current Long-term Assets Liabilities Liabilities ----------------------------------------------------------------- Futures contracts to hedge commodity price exposure $ 1,112 $ 203 $ - Cross currency interest rate swaps to hedge U.S. dollar- denominated notes payable(i) 55 25,324 100,037 Interest rate swaps to hedge interest rate exposure - - 12,471 Foreign currency contracts to hedge transactions denominated in foreign currencies - 880 - ----------------------------------------------------------------- Total $ 1,167 $ 26,407 $112,508 ----------------------------------------------------------------- ----------------------------------------------------------------- (i) The fair value of the cross currency interest rate swaps recorded in the accounts includes a loss of $98.7 million which had been recorded prior to adoption of the new standard related to the loss on currency translation that was previously recorded in the accumulated foreign currency adjustment account. The fair value of the Company's financial instruments used to hedge commodity, interest rate, and foreign currency exposures as at March 31, 2007 are as follows: ----------------------------------------------------------------- As at January 1, 2007 Other Other Current Current Long-term Assets Liabilities Liabilities ----------------------------------------------------------------- Futures contracts to hedge commodity price exposure $ 72 $ - $ - Cross currency interest rate swaps to hedge U.S. dollar- denominated notes payable(i) - 26,126 102,901 Interest rate swaps to hedge interest rate exposure - 1,094 6,224 Foreign currency contracts to hedge transactions denominated in foreign currencies 1,391 - - ----------------------------------------------------------------- Total $ 1,463 $ 27,220 $109,125 ----------------------------------------------------------------- ----------------------------------------------------------------- (i) The fair value amount includes a currency revaluation loss of $104.0 million which has been recorded in the accumulated foreign currency translation adjustment, a component of accumulated other comprehensive income. (b) Comparative figures Certain 2006 comparative figures have been reclassified to conform to the financial statement presentation adopted in 2007 and the year ended 2006. 2. RESTRUCTURING AND OTHER RELATED COSTS During the first quarter of 2007, the Company recorded restructuring and other related costs of $13.1 million ($9.8 million after tax). The majority of these costs related to the sale of the Company's European seafood and convenience businesses, further costs related to the closure of a poultry plant in Nova Scotia and the closure of a fresh bakery in British Columbia. During 2006, the Company recorded restructuring and other related costs of $64.6 million ($50.4 million after tax). These costs related to the protein value chain reorganization, the closure of the aforementioned poultry plant in Nova Scotia, the closure of the aforementioned fresh bakery in British Columbia, the write-down of certain hog investments and the costs to exit certain non-core businesses and investments. The following table provides a summary of costs recognized and cash payments made in respect of the above restructuring initiatives in 2007 and the corresponding liability as at March 31, 2007, all on a pre-tax basis: --------------------------------------------------------------------- Asset impairment Site & accelerated Severance closing depreciation Retention Total --------------------------------------------------------------------- Balance at December 31, 2006 $14,172 $ 5,031 $ - $ 3,015 $22,218 Charges 2,560 1,931 4,893 3,735 13,119 Cash draw- downs (1,395) (2,242) - (484) (4,121) Non-cash items - - (4,893) - (4,893) --------------------------------------------------------------------- Balance at March 31, 2007 $15,337 $ 4,720 - 6,266 26,323 --------------------------------------------------------------------- --------------------------------------------------------------------- 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 March 31, 2007, trade accounts receivable being serviced under this program amounted to $226.2 million (March 31, 2006: $238.0 million; December 31, 2006: $241.5 million). 4. OTHER INCOME --------------------------------------------------------------------- Three months ended March 31, 2007 2006 --------------------------------------------------------------------- Gain on sale of property and equipment $ 493 $ 566 Earnings from associated companies - 137 Dividends received - 32 Earnings (loss) from real estate operations (65) 1,178 Other 101 56 --------------------------------------------------------------------- $ 529 $ 1,969 --------------------------------------------------------------------- --------------------------------------------------------------------- 5. PENSIONS During the quarter, the Company recorded income of $3.9 million related to net benefit plan income, including post-retirement benefit costs (2006: $2.9 million). 6. SHARE CAPITAL The following table sets forth the continuity for treasury shares issued and outstanding during the quarter and the corresponding value: --------------------------------------------------------------------- Number of shares Share capital ------------------------- ------------------------- 2007 2006 2007 2006 --------------------------------------------------------------------- Opening balance 127,135,866 127,704,812 $ 769,696 $ 765,666 Exercise of options 210,687 252,767 2,215 2,943 Repurchased for cancellation (i) - (461,900) - (2,773) --------------------------------------------------------------------- 127,346,553 127,495,679 $ 771,911 $ 765,836 --------------------------------------------------------------------- --------------------------------------------------------------------- (i) During the first quarter in 2006, the Company repurchased for cancellation 461,900 common shares pursuant to a normal course issuer bid at an average exercise price of $13.48 per share. The excess of the purchase cost over the book value of the shares was charged to retained earnings. 7. EARNINGS PER SHARE The following table sets forth the calculation of basic and fully diluted earnings per share: --------------------------------------------------------------------- Three months ended March 31, 2007 2006 --------------------------------------------------------------------- Weighted Weighted Average Average Net Number of Net Number of Earnings Shares(ii) EPS Earnings Shares(ii) EPS ---------------------------------------------------------- Basic $10,463 127.2 $0.08 $17,272 127.7 $0.14 Stock options(i) - 2.2 - - 2.4 (0.01) --------------------------------------------------------------------- Diluted $10,463 129.4 $0.08 $17,272 130.1 $0.13 --------------------------------------------------------------------- (i) Excludes the effect of 11.6 million options and restricted stock units (2006: 11.3 million) to purchase common shares that are anti-dilutive (ii) In millions 8. ACQUISITIONS AND DIVESTITURES - On February 26, 2007 the Company acquired 100% ownership of the shares in Pâtisserie Chevalier Inc. ("Chevalier") for $7.9 million. Chevalier is a leading producer of single-portion snack cake products in Quebec. As at March 31, 2007 the Company has not yet finalized the purchase price allocation. - During the quarter, the Company completed the sale of its European seafood and convenience businesses in Germany. The sales of these businesses will not have a significant impact on ongoing earnings or cash flows. - During the quarter, the Company completed some buy and sell transactions related to the realignment of its hog production business. These transactions did not have a significant impact on the financial position of the Company. - On January 16, 2007, the Company purchased 122,900 additional shares in Canada Bread for $6.5 million, increasing the Company's ownership interest in Canada Bread from 87.5% to 88.0%. 9. SUPPLEMENTAL CASH FLOW INFORMATION --------------------------------------------------------------------- Three months ended March 31, 2007 2006 --------------------------------------------------------------------- Net interest paid $ 15,207 $ 12,141 Net income taxes paid 11,890 27,438 --------------------------------------------------------------------- --------------------------------------------------------------------- 10. SHAREHOLDER'S EQUITY Shareholders' equity consists of the following: --------------------------------------------------------------------- Three months ended March 31, 2007 2006 --------------------------------------------------------------------- Share capital $ 771,911 $ 765,836 Retained earnings 209,787 240,523 Contributed surplus 33,811 22,346 Accumulated other comprehensive loss (Note 11) (28,859) (17,794) --------------------------------------------------------------------- $ 986,650 $1,010,911 --------------------------------------------------------------------- --------------------------------------------------------------------- 11. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss consists of the following: --------------------------------------------------------------------- Three months ended March 31, 2007 2006 --------------------------------------------------------------------- Balance at the beginning of the period (Note 1(a)) - net(i) $ (9,809) $ (18,558) Transition adjustment as of January 1, 2007 (Note 1(a)) (23,487) - --------------------------------------------------------------------- Adjusted balance at the beginning of the period $ (33,296) $ (18,558) Change in accumulated foreign currency translation adjustment - net(i) (886) 764 Change in unrealized derivative gain on cash flow hedges - net(ii) 5,323 - ------------------------------------------------------------------- Other comprehensive income for the period $ 4,437 $ 764 --------------------------------------------------------------------- Accumulated other comprehensive loss as at March 31, 2007 $ (28,859) $ (17,794) --------------------------------------------------------------------- --------------------------------------------------------------------- (i) Balance at the beginning of the period is net of tax of $9.1 million. The change in accumulated foreign currency translation adjustment is net of tax of $nil. (ii) Unrealized derivative gain on cash flow hedges is net of tax of $2.9 million in the quarter. The Company estimates that $0.3 million of net unrealized derivative gain included in other comprehensive income will be reclassified into net earnings within the next twelve months. During the quarter, a loss of approximately $3.0 million was released to income from accumulated other comprehensive loss, which is included in the net change for the period. >>
For further information:
Lynda Kuhn, Vice-President, Public & Investor
Relations,
(416) 926-2026,
www.mapleleaf.com