Maple Leaf Foods Reports 2007 Second Quarter Financial Results
TORONTO, Jul 27, 2007 (Canada NewsWire via COMTEX News Network) -- Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2007.
"We are very pleased with our performance in the second quarter from both an operating and a strategic perspective," said Michael McCain, President and CEO. "Our primary focus is the strategic transformation of the business to a focused, value-added meat, meals and bakery company, and we made excellent progress during the quarter. We finalized the sale of our animal nutrition business, we began the process of consolidating hog processing by closing a plant, and we are on track to complete what is a very complex change process. Operationally we delivered a solid profit performance in the second quarter, which in the context of our activity level and rising grain and meat raw material costs, was an excellent accomplishment."
Sales for the second quarter decreased 3% to $1.3 billion while earnings from continuing operations, before restructuring and other related costs, increased 12% to $52.7 million from $46.8 million 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 second quarter of 2007, the Company recorded restructuring and other related costs as a part of continuing operations of $30.7 million ($27.2 million after tax), of which $27.8 million related to the Company's strategic reorganization of its protein operations.
Earnings per share from continuing operations before restructuring and other related costs, net of taxes, were $0.13, compared to $0.12 last year, while year-to-date earnings per share on a comparable basis were $0.25 compared to $0.20 last year. The Company reported a net loss for the quarter of $1.7 million ($0.01 per share) compared to net earnings of $21.2 million ($0.17 per share) in the prior period.
The results of the animal nutrition business have been reflected separately as discontinued operations in the current and comparative results. Therefore all operating earnings comparisons exclude the results of the animal nutrition business. Following is a summary of earnings per share ("EPS") from continuing operations, before restructuring and other related costs:
Second Quarter Year-To-Date
---------------------------------------
2007 2006 2007 2006
---- ---- ---- ----
Reported EPS from continuing
operations $ (0.05) $ 0.12 $ (0.01) $ 0.20
Restructuring and other related
costs, net of tax (ii) $ 0.18 $ - $ 0.26 $ -
---------------------------------------
EPS from continuing operations
before restructuring and other
related costs (i) $ 0.13 $ 0.12 $ 0.25 $ 0.20
Discontinued operations $ 0.04 $ 0.05 $ 0.08 $ 0.10
---------------------------------------
---------------------------------------
Total EPS before restructuring
and other related costs (i) $ 0.17 $ 0.17 $ 0.33 $ 0.30
---------------------------------------
---------------------------------------
(i) These are not recognized measures 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.
(ii) Includes the per share impact of restructuring and other related
costs net of tax and includes the recognition of a tax benefit of
$5.1 million in Q2 related to the sale of the animal nutrition business.
>>
Sale of Animal Nutrition Business
---------------------------------
On July 20, 2007, the Company completed the sale of its animal nutrition business to Nutreco Holding NV for $512 million subject to final closing adjustments. The Company estimates that it will record an after-tax gain in the third quarter of approximately $210 million on the transaction and approximately $190 million ($1.50 per share) after accounting for a $20.7 million goodwill impairment charge related to the transaction, which is recorded in earnings in the second quarter. Earnings attributable to the animal nutrition business are reported as discontinued operations. This sale represents another significant step in the Company's strategic reorganization to focus on its value-added meat, meals and bakery businesses. The transaction will result in a significant de-leveraging of the Company's balance sheet and provide it with flexibility to re-invest in growing its core businesses.
Included in the total assets of the Agribusiness Group prior to the sale was $99 million of goodwill recorded. Of this amount, $78 million has been allocated directly to the animal nutrition business being sold. A further $20.7 million of goodwill was, under the accounting rules, allocated to Maple Leaf's remaining feed and hog operations. The sale of the animal nutrition business places certain restrictions on the operations of two feed mills that have been retained by Maple Leaf to supply feed to its own hog production operations. This has reduced the assessment of future cash flows related to these remaining feed and hog operations. As a result, the Company has determined that this goodwill previously allocated to the remaining feed and hog operations is impaired and has recorded an impairment charge of $20.7 million in the second quarter.
Discontinued Operations
-----------------------
The operating results of the animal nutrition business that were sold have been classified as discontinued operations in the second quarter of 2007 and comparative amounts have been restated on a comparable basis. Earnings per share from discontinued operations were $0.04 for the quarter (2006: $0.05) and $0.08 for the first six months of 2007 (2006: $0.10).
Operating Review
----------------
Operating earnings from continuing operations for the second quarter before restructuring and other related costs increased 12% from last year, reflecting a 9% increase in Protein earnings and a 15% increase in Bakery earnings. For the year to date, Protein earnings from operations increased by 26%, and Bakery Products Group earnings increased by 13%.
Following is a summary of earnings from continuing operations by business segment before restructuring and other related costs:
($ millions) Second Quarter Year-to-Date
------------------------ ------------------------
2007 2006 Change 2007 2006 Change
---- ---- ------ ---- ---- ------
Meat Products Group $ 14.8 $ 13.6 9% $ 36.2 $ 27.3 33%
Agribusiness Group(1) 4.6 4.2 7% 5.5 5.7 (3%)
------------------------ ------------------------
Protein Value Chain 19.4 17.8 9% 41.7 33.0 26%
Bakery Products Group 33.3 29.0 15% 60.8 53.7 13%
------------------------ ------------------------
$ 52.7 $ 46.8 12% $102.5 $ 86.7 18%
------------------------ ------------------------
------------------------ ------------------------
(1) Agribusiness Group excludes the results of the animal nutrition
business which are reported as discontinued operations.
>>
Meat Products Group (value-added processed packaged meats; chilled meal
entrees, soups and lunch kits; value-added pork, poultry and turkey
products; and global meat sales.)
Meat Products Group sales for the second quarter declined 8% to $879 million, primarily due to lower international trading sales, as certain trading businesses have been exited and wound down as part of the Company's strategic re-alignment.
Earnings from continuing operations before restructuring and other related costs increased to $14.8 million from $13.6 million last year. Significant progress was made in the quarter to offset rising fresh meat input costs through price increases. The Company also recorded increased earnings in its fresh poultry operations due to higher industry poultry processor margins and improved operating performance resulting in part from closing its poultry processing facility in Atlantic Canada. While pricing to offset higher fresh meat prices in the consumer foods business was passed through in the second quarter, this did not fully offset the continuous rise in input costs and further price increases are expected through the balance of the year. Industry pork processor margins were slightly lower than last year. Earnings in the Meat Products Group were also affected by higher promotional and advertising costs related to the launch of Maple Leaf Simply Fresh chilled meals.
In the second quarter, Maple Leaf closed a pork processing facility in Saskatoon and announced the closure of two other meat processing facilities. Two of these facilities are primary pork processing operations in Saskatoon and Winnipeg that combined process 30,000 to 37,000 hogs per week. The closure of these two plants supports the expansion of the Brandon plant to a double shift operation. By the end of 2009, Maple Leaf will have consolidated all of its primary pork processing in Brandon. The Company also announced the closure of a value-added meat processing facility in Etobicoke, Ontario at the end of October 2007. These operations are being relocated to the Company's facility in Brampton, Ontario, where the business will benefit from expanded capacity and new processing technology. Closure costs, including severance, decommissioning and asset write-downs, are expected to result in a restructuring charge of approximately $5.0 million before tax. Most of these costs are expected to be charged against earnings in 2007, with $1.5 million charged in the second quarter.
Agribusiness Group (swine production; and animal by-products recycling,
livestock nutrition products)
Agribusiness Group sales from continuing operations for the second quarter decreased to $64 million from $66 million last quarter.
Earnings from continuing operations before restructuring and other related costs for the second quarter increased to $4.6 million from $4.2 million last year. Although hog prices were higher than the prior year, earnings from hog production operations were significantly lower due to the impact of substantially higher feed prices and higher mortality rates due to circo virus. However, mortality rates continue to improve and are expected to normalize by the end of the year. Comparisons for the second quarter were also affected by a one-time adjustment to inventory values last year. The Company had an effective ownership of 18% of the hogs it processed in the second quarter. The restructuring of these operations is well underway, which will reduce the total hogs under management and the cost and complexity of this business, and concentrate its hog production operations in Manitoba, in proximity to the Brandon processing plant. The Company expects to complete its restructuring in Manitoba during 2007 and to sell the remainder of its hog production assets in Ontario and Alberta by mid-2008.
Earnings from rendering operations increased due to higher prices for rendered products that track rising commodity grain prices. As previously described, financial results for the animal nutrition business have been reported as discontinued operations. Maple Leaf has retained ownership of two mills in Western Manitoba and the operating results of these mills are included in the Agribusiness Group.
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 second quarter increased 12% to $375 million from $335 million last year. Excluding acquisitions, sales increased by 6% in the second quarter, with increases in both fresh and frozen bakery operations.
Earnings from continuing operations before restructuring and other related costs of $33.3 million increased by 15% from last year, due to increased contributions from acquisitions, primarily in the U.K. and improved operating earnings in the frozen bakery businesses. Significantly higher wheat costs, which are rising along with record high corn prices, impacted margins in the bakery businesses. Profitability in the fresh pasta business declined due to higher manufacturing costs and a sharp rise in dairy and flour costs. Growth in high margin value-added categories, improvements in operating efficiencies across a number of fresh bakery plants and pricing implemented earlier in the year helped to partially offset higher raw material costs as well as some continued industry-wide volume decline in the fresh bread segment. Price increases across the Bakery Products Group are anticipated through the balance of the year.
The U.K. bakery operations continued to benefit from organic growth in the specialty bakery market as well as the contribution of acquisitions earlier in the year. The Company is currently expanding freezer capacity at its Rotherham bakery to increase production capabilities, and also increasing manufacturing capacity in its croissant bakeries. Earnings from the North American frozen bakery operations increased, benefiting from ongoing price increases. The Roanoke plant, which is the Company's largest par-baked facility, is undertaking a major warehouse expansion that will significantly increase its storage capacity and reduce costs.
Restructuring and Other Related Costs
-------------------------------------
In the second quarter, the Company recorded a charge for restructuring and other related costs from continuing operations of $30.7 million (2006: $nil). Including full-year amounts charged to earnings during 2006, the following is a summary of restructuring and other related costs incurred in 2006 and 2007:
($ millions)
------------------------------------------
2006 2007
---------------------------------- Total-
Full-year Q1 Q2 YTD to-date
------------------------------------------
Protein value chain
restructuring 47.5 4.1 3.8 7.9 55.4
Retention payments 2.0 3.3 3.3 6.6 8.6
Bakery plant closure 5.5 2.2 - 2.2 7.7
Poultry plant closure 2.3 3.1 2.9 6.0 8.3
Impairment of a non-core
equity investment 7.3 - - - 7.3
Goodwill impairment related
to the sale of the animal
nutrition business - - 20.7 20.7 20.7
------------------------------------------
64.6 12.7 30.7 43.4 108.0
Discontinued operations - 0.4 1.8 2.2 2.2
------------------------------------------
Total restructuring 64.6 13.1 32.5 45.6 110.2
------------------------------------------
------------------------------------------
Cash incurred and to be
incurred 25.4 8.2 6.6 14.8 40.2
Non-cash 39.2 4.9 25.9 30.8 70.0
------------------------------------------
64.6 13.1 32.5 45.6 110.2
------------------------------------------
------------------------------------------
>>
The Company has revised its estimates of total restructuring costs upwards by $25 million primarily to reflect the goodwill impairment recorded in the second quarter relating to the remaining feed and hog operations. The Company now estimates it will incur total restructuring costs of $165 million to $215 million between 2006 and 2009. The Company's estimate of total cash restructuring costs has not changed from its previous estimate of $55 million to $75 million.
Cash Flow and Financing
-----------------------
Total debt, net of cash balances, totaled $1.3 billion at the end of the second quarter, compared to $1.1 billion last year. Cash used in operations for the second quarter was $0.4 million compared to a source of funds of $15.0 million last year. Cash flow from operating activities for the year-to-date was a use of cash of $18.0 million compared to $3.7 million in the first six months of 2006.
Total interest expense allocated to continuing activities for the quarter of $25.4 million compared to $22.5 million last year, largely due to increased debt balances resulting from strong investing activity. At the end of the second quarter, 71% of indebtedness was not exposed to interest rate fluctuations, compared to 82% in the previous year.
Capital expenditures on plant and equipment from continuing operations for the second quarter increased to $59.3 million compared to $43.5 million last year. The significant increase in capital expenditures reflects a number of initiatives that are in progress. The Company is undertaking a substantial capacity expansion in the U.K. bagel and croissant facilities, and the construction of a new warehouse at the Company's bakery in Roanoke, Virginia to increase internal capacity and reduce warehouse and distribution costs. In the second quarter, Canada Bread acquired assets previously owned by Interstate Bakery located in Lakewood, Washington for US$10 million, including a manufacturing facility and fresh bakery equipment. The Company is considering several options to utilize this purchase to continue to improve efficiencies in its western manufacturing operations. As well, the Company continued its capital investment 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 September 28, 2007, to shareholders of record on September 7, 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 food processing company, headquartered in Toronto, Canada. The Company employs approximately 22,500 people at its operations across Canada and in the United States, the United Kingdom and Asia. The Company had sales of $5.9 billion in 2006.
An investor presentation related to the Company's second quarter financial results is available at www.mapleleaf.com and can be found on the Quarterly Results page under Investor Relations. A conference call will be held at 1:00 p.m. EDT on July 27, 2007 to review Maple Leaf Foods' second 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 3228320 followed by the number sign).
A webcast presentation of the second quarter financial results will also be available at http://investor.mapleleaf.ca via a link http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=88490&eventID=1597727
Consolidated Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three and six months ended June 30, 2007 and 2006
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
June 30, June 30, December 31,
2007 2006 2006
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 50,249 $ 33,562 $ 64,494
Accounts receivable (Note 5) 207,449 179,564 201,743
Inventories 427,259 383,435 388,242
Future tax asset - current 9,415 14,217 2,128
Prepaid expenses and other
assets 23,856 16,523 11,158
Assets held for sale
(Note 4(iii)) 271,874 98,217 280,439
-----------------------------------------------------------------------
990,102 725,518 948,204
Investments in associated companies 1,068 39,421 15,499
Property and equipment 1,140,469 1,072,842 1,099,000
Other long-term assets 278,608 269,769 279,001
Future tax asset - non-current 18,270 33,320 23,464
Goodwill (Note 11) 802,403 768,958 824,741
Other intangibles 85,521 86,097 85,817
Assets held for sale (Note 4(iii)) - 173,764 -
-------------------------------------------------------------------------
$ 3,316,441 $ 3,169,689 $ 3,275,726
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
charges $ 565,025 $ 543,631 $ 594,685
Income and other taxes payable 21,144 6,365 18,056
Current portion of long-term debt 85,454 105,119 91,084
Liabilities related to assets
held for sale (Note 4(iii)) 61,433 59,105 74,474
-----------------------------------------------------------------------
733,056 714,220 778,299
Long-term debt 1,257,611 1,054,883 1,185,970
Future tax liability 7,013 52,099 29,867
Other long-term liabilities 249,269 213,372 196,911
Long-term liabilities related to
assets held for sale (Note 4(iii)) - 332 -
Minority interest 83,269 95,843 90,237
Shareholders' equity 986,223 1,038,940 994,442
-------------------------------------------------------------------------
$ 3,316,441 $ 3,169,689 $ 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 Six months ended
June 30, June 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Sales $ 1,318,773 $ 1,356,465 $ 2,634,908 $ 2,642,762
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings from
continuing operations
before restructuring
and other related
costs $ 52,667 $ 46,831 $ 102,526 $ 86,655
Restructuring and
other related costs
(Note 2) (30,715) - (43,425) -
-------------------------------------------------------------------------
Earnings from
continuing
operations $ 21,952 $ 46,831 $ 59,101 $ 86,655
Other income (Note 6) 1,501 72 1,969 1,954
-------------------------------------------------------------------------
Earnings from
continuing operations
before interest and
income taxes $ 23,453 $ 46,903 $ 61,070 $ 88,609
Interest expense 25,352 22,518 49,943 44,663
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes $ (1,899) $ 24,385 $ 11,127 $ 43,946
Income taxes (Note 8) 1,749 7,105 7,965 12,884
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before minority
interest $ (3,648) $ 17,280 $ 3,162 $ 31,062
Minority interest 2,810 2,545 4,354 5,000
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations $ (6,458) $ 14,735 $ (1,192) $ 26,062
Net earnings from
discontinued
operations - net of
income tax (Note 4(ii)) 4,787 6,451 9,984 12,396
-------------------------------------------------------------------------
Net earnings (loss) $ (1,671) $ 21,186 $ 8,792 $ 38,458
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings (loss)
per share (Note 10)
from continuing
operations $ (0.05) $ 0.12 $ (0.01) $ 0.20
from discontinued
operations 0.04 0.05 0.08 0.10
-------------------------------------------------------------------------
$ (0.01) $ 0.17 $ 0.07 $ 0.30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings (loss)
per share (Note 10)
from continuing
operations $ (0.05) $ 0.11 $ (0.01) $ 0.20
from discontinued
operations 0.04 0.05 0.08 0.10
-------------------------------------------------------------------------
$ (0.01) $ 0.16 $ 0.07 $ 0.30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number
of shares (millions) 127.7 127.8 127.4 127.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
-------------------------------------------------------------------------
Six months ended June 30,
(Unaudited) 2007 2006
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 204,415 $ 231,807
Net earnings for the period 8,792 38,458
Dividends declared ($0.08 per share;
2006: $0.08 per share) (10,224) (10,227)
Premium on repurchase of share capital (Note 9) - (4,574)
-------------------------------------------------------------------------
Retained earnings, end of period $ 202,983 $ 255,464
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings (loss)
for the period $ (1,671) $ 21,186 $ 8,792 $ 38,458
Other comprehensive
income (loss) (Note 14)
Change in accumulated
foreign currency
translation
adjustment (6,704) 1,330 (7,590) 2,094
Change in unrealized
derivative gain on
cash flow hedges 5,491 - 10,814 -
-------------------------------------------------------------------------
$ (1,213) $ 1,330 $ 3,224 $ 2,094
-------------------------------------------------------------------------
Comprehensive income
(loss) $ (2,884) $ 22,516 $ 12,016 $ 40,552
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Six months ended
June 30, June 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings (loss)
from continuing
operations $ (6,458) $ 14,735 $ (1,192) $ 26,062
Add (deduct) items not
affecting cash:
Depreciation and
amortization 34,889 32,818 69,982 65,374
Stock-based
compensation 3,414 2,228 7,085 4,819
Minority interest 2,810 2,545 4,354 5,000
Future income taxes (7,472) 4,670 (10,883) 1,816
Loss (gain) on sale
of property and
equipment 377 (27) (82) (568)
Loss on sale of
investments - 137 - 145
Goodwill impairment
(Note 11) 20,713 - 20,713 -
Change in other
long-term receivables 128 469 (2,182) 2,056
Increase in pension
asset (11,668) (11,821) (28,092) (24,262)
Change in restructuring
provision 3,712 (545) 7,433 (1,090)
Other (6,632) 2,175 (3,423) 4,261
Change in operating
working capital (38,447) (42,015) (78,619) (82,548)
-------------------------------------------------------------------------
Cash provided by
(used in) operating
activities of
continuing
operations $ (4,634) $ 5,369 $ (14,906) $ 1,065
Cash provided by
(used in) operating
activities of
discontinued
operations 4,232 9,677 (3,117) (4,735)
-------------------------------------------------------------------------
$ (402) $ 15,046 $ (18,023) $ (3,670)
Financing activities
Dividends paid (5,133) (5,127) (10,224) (10,227)
Dividends paid to
minority interest (183) (293) (434) (948)
Net increase in
long-term debt 45,102 48,533 119,164 35,488
Increase in share
capital (Note 9) 12,887 10,440 15,102 13,383
Shares repurchased
for cancellation
(Note 9) - (2,028) - (8,257)
Other (729) 297 7,377 2,354
-------------------------------------------------------------------------
Cash provided by
financing activities
of continuing
operations $ 51,944 $ 51,822 $ 130,985 $ 31,793
Cash provided by
(used in) financing
activities of
discontinued
operations 9 402 (389) 402
-------------------------------------------------------------------------
$ 51,953 $ 52,224 $ 130,596 $ 32,195
Investing activities
Additions to property
and equipment (59,300) (43,466) (111,725) (61,369)
Proceeds from sale
of property and
equipment 1,040 836 1,786 4,225
Purchase of net
assets of businesses
- net of cash
acquired (Note 12) (2,628) - (13,431) (5,323)
Proceeds on sale of
investments (Note 12) 1,622 - 1,622 -
Proceeds on disposal
of business (Note 12) - - 5,470 -
Purchase of Canada
Bread shares - - (6,521) -
Other (2,787) 1,217 121 (6,936)
-------------------------------------------------------------------------
Cash used in investing
activities of
continuing
operations $ (62,053) $ (41,413) $ (122,678) $ (69,403)
Cash used in investing
activities of
discontinued
operations (813) (969) (4,140) (6,062)
-------------------------------------------------------------------------
$ (62,866) $ (42,382) $ (126,818) $ (75,465)
Increase (decrease)
in cash and cash
equivalents (11,315) 24,888 (14,245) (46,940)
Cash and cash
equivalents, beginning
of period 61,564 8,674 64,494 80,502
-------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 50,249 $ 33,562 $ 50,249 $ 33,562
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Segmented Financial Information from Continuing Operations
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Sales (i)
Meat Products Group $ 878,966 $ 954,793 $ 1,774,692 $ 1,878,320
Agribusiness Group 64,445 66,370 127,349 127,797
Bakery Products
Group 375,362 335,302 732,867 636,645
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$ 1,318,773 $ 1,356,465 $ 2,634,908 $ 2,642,762
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Earnings from
continuing operations
before restructuring
and other related
costs (i)
Meat Products Group $ 14,848 $ 13,591 $ 36,212 $ 27,318
Agribusiness Group 4,554 4,273 5,470 5,639
Bakery Products
Group 33,265 28,967 60,844 53,698
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$ 52,667 $ 46,831 $ 102,526 $ 86,655
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Additions to property
and equipment (i)
Meat Products Group $ 24,406 $ 27,116 $ 61,124 $ 38,144
Agribusiness Group 3,986 4,886 6,626 1,342
Bakery Products
Group 30,908 11,464 43,975 21,883
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$ 59,300 $ 43,466 $ 111,725 $ 61,369
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Depreciation and
amortization (i)
Meat Products Group $ 17,204 $ 17,013 $ 34,590 $ 34,006
Agribusiness Group 4,769 4,455 9,657 8,441
Bakery Products
Group 12,916 11,350 25,735 22,927
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$ 34,889 $ 32,818 $ 69,982 $ 65,374
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As at As at As at
June 30, June 30, December 31,
2007 2006 2006
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Total assets (i)
Meat Products Group $ 1,603,563 $ 1,524,483 $ 1,551,502
Agribusiness Group 380,635 413,071 422,095
Bakery Products Group 823,844 706,207 810,940
Non-allocated assets 236,525 253,947 210,750
-------------------------------------------------------------------------
$ 3,044,567 $ 2,897,708 $ 2,995,287
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(i) All amounts exclude the results and financial position of the animal
nutrition business sold on July 20, 2007 (Note 4).
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
Decrease in other assets (12,889)
Increase in future tax assets - long-term 16,587
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 32,198
-----------------------------------------------------------------
(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 income. 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 as income or loss immediately.
On adoption the Company recognized an increase in other current
assets of $1.2 million, a decrease in other assets of
$12.9 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
$32.2 million (net of future taxes of $16.6 million) to recognize
the fair value of financial instruments designated to hedge the
Company's commodity, interest rate, and foreign currency
exposures. The above amounts include an additional adjustment
identified in the second quarter of 2007 with respect to deferred
amounts existing on the adoption date of $12.9 million relating
to previously terminated cash flow hedges which were reclassified
from other assets to accumulated other comprehensive loss in the
amount of $8.7 million, net of future taxes of $4.2 million. On
adoption of the new standard, there was no significant
ineffectiveness in any of the Company's hedging relationships.
The following table illustrates the fair values of financial
instruments by type of hedging relationship:
-----------------------------------------------------------------
As at January 1, 2007
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 amount includes a currency revaluation loss
of $98.7 million that has been recorded in the accumulated
foreign currency translation adjustment, a component of
accumulated other comprehensive income.
The fair value of the Company's financial instruments used to
hedge commodity, interest rate, and foreign currency exposures as
at June 30, 2007 are as follows:
-----------------------------------------------------------------
As at June 30, 2007
Other
Current Current Long-term
Assets Liabilities Liabilities
-----------------------------------------------------------------
Futures contracts to hedge
commodity price exposure $ 379 $ 532 $ -
Cross currency interest
rate swaps to hedge U.S.
dollar-denominated notes
payable(i) - 35,203 126,152
Interest rate swaps to hedge
interest rate exposure - 4,299 3,950
Foreign currency contracts
to hedge transactions
denominated in foreign
currencies 3,960 - -
-----------------------------------------------------------------
Total $ 4,339 $ 40,034 $ 130,102
-----------------------------------------------------------------
-----------------------------------------------------------------
(i) The fair value amount includes a currency revaluation loss
of $105.5 million that has been recorded in the accumulated
foreign currency translation adjustment, a component of
accumulated other comprehensive income.
(b) Recent accounting pronouncements
In May 2007 the Accounting Standards Board issued CICA Handbook
Section 3031 "Inventories". The standard introduces changes to
the measurement and disclosure of inventory and converges with
international accounting standards. The standard is effective for
interim and annual periods relating to fiscal years beginning on
or after January 1, 2008. The Company has not yet determined the
impact the adoption of this standard will have on its financial
statements.
In October 2006, the Accounting Standards Board issued CICA
Handbook Section 1535, "Capital Disclosures", which establishes
standards for disclosing information about an entity's capital
and how it is managed. The standard is effective for interim and
annual financial statements relating to fiscal years beginning on
or after October 1, 2007. The Company does not expect that the
adoption of this standard will have a material impact on its
financial statements.
In October 2006, the Accounting Standards Board issued CICA
Handbook Section 3863, "Financial Instruments - Presentation".
The existing requirements related to presentation of financial
instruments have been carried forward unchanged. The standard is
effective for interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007. The Company
does not expect the adoption of this standard will have a
material impact on its financial disclosure and results of
operations.
(c) 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 second quarter of 2007, the Company recorded $32.5 million
in restructuring and other related costs ($28.4 million after tax).
The portion of these restructuring and other related costs that
related to continuing operations was $30.7 million and the balance is
disclosed as part of discontinued operations (Note 4(ii)). The most
significant item included in restructuring and other related costs
for the quarter is a goodwill impairment charge of $20.7 million that
relates to the Company's remaining hog and feed operations (Note 11).
The balance of these costs related to the closure of a primary pork
processing plant in Saskatoon, closure of a value-added meat
processing facility in Etobicoke, Ontario, further costs related to
the closure of a poultry plant in Nova Scotia, and retention bonuses
recorded.
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.
The following table provides a summary of costs recognized and cash
payments made in respect of the above-mentioned restructuring
initiatives in 2007 and the corresponding liability as at June 30,
2007, all on a pre-tax basis:
Asset
Impairment
and
Site accelerated
Severance closing depreciation
---------------------------------------------------------------------
Balance at December 31, 2006 $ 14,172 $ 5,031 $ -
Charges 2,560 1,931 4,893
Cash payments (1,395) (2,242) -
Non-cash items - - (4,893)
---------------------------------------------------------------------
Balance at March 31, 2007 $ 15,337 $ 4,720 $ -
Charges 2,093 736 1,320
Goodwill impairment (Note 11) - - 20,713
Cash payments (4,080) (2,034) -
Non-cash items - - (22,033)
---------------------------------------------------------------------
Balance at June 30, 2007 $ 13,350 $ 3,422 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
Retention Pension Total
---------------------------------------------------------------------
Balance at December 31, 2006 $ 3,015 $ - $ 22,218
Charges 3,735 - 13,119
Cash payments (484) - (4,121)
Non-cash items - - (4,893)
---------------------------------------------------------------------
Balance at March 31, 2007 $ 6,266 $ - $ 26,323
Charges 3,783 3,900 11,832
Goodwill impairment (Note 11) - - 20,713
Cash payments (653) - (6,767)
Non-cash items - (3,900) (25,933)
---------------------------------------------------------------------
Balance at June 30, 2007 $ 9,396 $ - $ 26,168
---------------------------------------------------------------------
---------------------------------------------------------------------
3. SUBSEQUENT EVENT
On July 20, 2007 the Company completed the sale of its animal
nutrition business. The Company received proceeds of $512 million and
estimates that it will record an after-tax gain of approximately
$210 million subject to normal closing adjustments in the third
quarter. This gain is based on estimated proceeds of $512 million and
June 30, 2007 carrying values of the net assets sold, and is subject
to change. This gain excludes a related goodwill impairment loss of
$20.7 million recorded in the second quarter as part of restructuring
and other related charges (Note 11).
4. DISCONTINUED OPERATIONS
(i) On July 20, 2007 the Company sold its animal nutrition
business, retaining only two mills in Western Canada to meet
future requirements of its hog production operations. As a
result, the Company has reclassified the portion of its animal
nutrition business that has been sold as discontinued
operations.
(ii) The results for discontinued operations were as follows:
---------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2007 2006 2007 2006
---------------------------------------------------------------------
Sales $ 158,547 $ 140,231 $ 303,849 $ 279,885
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings from
operations before
restructuring
and other related
costs $ 11,803 $ 13,565 $ 22,950 $ 25,543
Restructuring and
other related
costs (1,830) - (2,239) -
---------------------------------------------------------------------
Earnings from
operations $ 9,973 $ 13,565 $ 20,711 $ 25,543
Other income 108 138 169 225
---------------------------------------------------------------------
Earnings from
operations before
interest and
income taxes $ 10,081 $ 13,703 $ 20,880 $ 25,768
Interest expense 2,190 2,362 4,539 4,432
---------------------------------------------------------------------
Earnings before
income taxes $ 7,891 $ 11,341 $ 16,341 $ 21,336
Income taxes 3,104 4,890 6,357 8,940
---------------------------------------------------------------------
Net earnings from
discontinued
operations $ 4,787 $ 6,451 $ 9,984 $ 12,396
---------------------------------------------------------------------
---------------------------------------------------------------------
In calculating net earnings from discontinued operations, interest
expense has been allocated to these operations assuming a uniform
debt-to-equity ratio for all operating companies.
(iii) Assets held for sale and liabilities related to assets held for
sale comprised:
---------------------------------------------------------------------
As at As at As at
June 30, June 30, December 31,
Assets held for sale 2007 2006 2006
---------------------------------------------------------------------
Accounts receivable $ 56,559 $ 61,356 $ 62,063
Inventories 40,650 34,826 39,604
Future tax asset - current 193 193 193
Prepaid expenses and other assets 269 1,842 828
Investments in associated
companies 6,877 6,861 6,611
Property and equipment 85,650 86,091 88,398
Other long-term assets 2,200 2,915 3,090
Goodwill 77,871 77,897 77,922
Other intangibles 1,605 - 1,730
---------------------------------------------------------------------
$ 271,874 $ 271,981 $ 280,439
---------------------------------------------------------------------
Classified as:
Current $ 271,874 $ 98,217 $ 280,439
Long-term - 173,764 -
---------------------------------------------------------------------
$ 271,874 $ 271,981 $ 280,439
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
As at As at As at
Liabilities related to assets June 30, June 30, December 31,
held for sale 2007 2006 2006
---------------------------------------------------------------------
Accounts payable and
accrued changes $ 57,408 $ 55,934 $ 71,201
Income and other taxes payable 3,150 2,531 2,009
Long term debt 585 972 974
Other long term liabilities 290 - 290
---------------------------------------------------------------------
$ 61,433 $ 59,437 $ 74,474
---------------------------------------------------------------------
Classified as:
Current $ 61,433 $ 59,105 $ 74,474
Long-term - 332 -
---------------------------------------------------------------------
$ 61,433 $ 59,437 $ 74,474
---------------------------------------------------------------------
---------------------------------------------------------------------
5. 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 June 30, 2007,
trade accounts receivable being serviced under this program amounted
to $238.6 million (June 30, 2006: $241.1 million; December 31, 2006:
$241.5 million).
6. OTHER INCOME (EXPENSE)
---------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------------------------
Proceeds from
insurance claims $ 1,854 $ - $ 1,854 $ -
Rental 85 79 156 116
Gain (loss) on
sale of property
and equipment (377) 27 82 568
Gain (loss) from
real estate
operations (61) (43) (126) 1,135
Other - 9 3 135
---------------------------------------------------------------------
$ 1,501 $ 72 $ 1,969 $ 1,954
---------------------------------------------------------------------
---------------------------------------------------------------------
7. PENSIONS
During the quarter, the Company recorded $4.2 million related to net
benefit plan income including postretirement benefit costs (2006:
$3.7 million). For the six months ended June 30, 2007, the Company
recorded $8.1 million in net benefit plan income including
postretirement benefit costs (2006: $6.6 million).
8. INCOME TAXES
The Company recorded tax expense of $1.7 million in the second
quarter of 2007 on a loss from continuing operations of $1.9 million.
The reason for the variance from the Company's normal effective tax
rate on earnings of 36.3% is due to: (i) the recognition of a tax
benefit of $5.1 million related to outside basis differences on
shares of subsidiaries that will be sold as part of the sale of the
animal nutrition business, and (ii) the tax effect on restructuring
and other related costs which was recorded using an effective tax
rate of 11.6%. The low effective tax rate on restructuring and other
related costs was caused by the goodwill impairment charge which is
not deductible for tax purposes.
9. SHARE CAPITAL
The following table sets forth the continuity for shares issued and
outstanding during the year and the corresponding carrying value:
---------------------------------------------------------------------
Number of shares Share capital $
------------------------ ------------------------
2007 2006 2007 2006
---------------------------------------------------------------------
Balance at
January 1, 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)
---------------------------------------------------------------------
Balance at
March 31, 127,346,553 127,495,679 $ 771,911 $ 765,836
Exercise of
options 1,250,118 876,473 14,411 10,439
Repurchased for
cancellation(i) - (150,900) - (910)
---------------------------------------------------------------------
Balance at
June 30, 128,596,671 128,221,252 $ 786,322 $ 775,365
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) The Company repurchased for cancellation 461,900 common shares
during the first quarter of 2006 and 150,900 common shares
during the second quarter of 2006 pursuant to a normal course
issuer bid at an average exercise price of $13.48 per share and
$13.44 per share respectively. The excess of the purchase cost
over the carrying value of the shares was charged to retained
earnings.
10. EARNINGS PER SHARE
The following table sets forth the calculation of basic and fully
diluted earnings per share:
---------------------------------------------------------------------
Three months ended June 30,
2007 2006
---------------------------------------------------------------------
Weighted Weighted
Average Average
Net Number of Net Number of
Earnings Shares(ii) EPS Earnings Shares(ii) EPS
------------------------- ---------------------------
Basic
Continuing
operations $(6,458) 127.7 $(0.05) $14,735 127.8 $ 0.12
Discontinued
operations 4,787 127.7 0.04 6,451 127.8 0.05
---------------------------------------------------------------------
$(1,671) 127.7 $(0.01) $21,186 127.8 $ 0.17
Stock options(i) - 4.1 - - 2.1 (0.01)
Diluted
Continuing
operations $(6,458) 131.8 $(0.05) $14,735 129.9 $ 0.11
Discontinued
operations 4,787 131.8 0.04 6,451 129.9 0.05
---------------------------------------------------------------------
$(1,671) 131.8 $(0.01) $21,186 129.9 $ 0.16
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) Excludes the effect of 7.7 million options and restricted stock
units (2006: 9.5 million) to purchase common shares that are
anti-dilutive
(ii) In millions
---------------------------------------------------------------------
Six months ended June 30,
2007 2006
---------------------------------------------------------------------
Weighted Weighted
Average Average
Net Number of Net Number of
Earnings Shares(ii) EPS Earnings Shares(ii) EPS
-------------------------- ---------------------------
Basic
Continuing
operations $(1,192) 127.4 $(0.01) $26,062 127.8 $ 0.20
Discontinued
operations 9,984 127.4 0.08 12,396 127.8 0.10
---------------------------------------------------------------------
$ 8,792 127.4 $ 0.07 $38,458 127.8 $ 0.30
Stock options(i) - 3.6 - - 2.2 -
Diluted
Continuing
operations $(1,192) 131.0 $(0.01) $26,062 130.0 $ 0.20
Discontinued
operations 9,984 131.0 0.08 12,396 130.0 0.10
---------------------------------------------------------------------
$ 8,792 131.0 $ 0.07 $38,458 130.0 $ 0.30
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) Excludes the effect of 8.3 million options and restricted stock
units (2006: 9.5 million) to purchase common shares that are
anti-dilutive
(ii) In millions
11. GOODWILL
The Company entered into an agreement to sell the animal nutrition
business in the second quarter of 2007 and the terms and conditions
of sale placed certain restrictions on the operations of two feed
mills and resulted in a change in the Company's assessment of future
cash flows of its remaining feed and hog operations. As a result, the
Company has determined that the goodwill related to the remaining
feed and hog operations is fully impaired and has recorded an
impairment charge of $20.7 million in the second quarter.
The sale transaction closed on July 2007 and it is estimated that the
Company will record an after-tax gain of approximately $210 million
excluding this goodwill impairment loss (see Note 3) in the third
quarter.
In accordance with CICA Handbook Section 3062, "Goodwill and Other
Intangible Assets", the Company tests goodwill for possible
impairment on an annual basis and at any other time if an event
occurs or circumstances change that would more likely than not reduce
the fair value of a reporting unit below its carrying amount. During
the second quarter of 2007, the Company completed its annual goodwill
impairment test for all reporting units and determined that there was
no additional impairment in any other reporting units.
12. ACQUISITIONS AND DIVESTITURES
(a) 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 June 30, 2007 the Company
has not yet finalized the purchase price allocation.
(b) During the first 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.
(c) During the first and second quarter of 2007, the Company
completed a number of buy and sell transactions of certain hog
investment companies related to the realignment of its hog
production business. These transactions did not have a
significant impact on the financial position of the Company.
(d) 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%.
13. SUPPLEMENTAL CASH FLOW INFORMATION
---------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------------------------
Net interest paid $ 40,741 $ 37,507 $ 55,948 $ 49,648
Net income taxes
paid 13,352 15,621 25,242 43,059
---------------------------------------------------------------------
---------------------------------------------------------------------
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following:
---------------------------------------------------------------------
Six months ended June 30,
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)) (32,198) -
---------------------------------------------------------------------
Adjusted balance at the beginning
of the period $ (42,007) $ (18,558)
Change in accumulated foreign currency
translation adjustment - net(i) (7,590) 2,094
Change in unrealized derivative gain
on cash flow hedges - net(ii) 10,814 -
-------------------------------------------------------------------
Other comprehensive income for the period $ 3,224 $ 2,094
---------------------------------------------------------------------
Accumulated other comprehensive loss
as at June 30 $ (38,783) $ (16,464)
---------------------------------------------------------------------
---------------------------------------------------------------------
(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 taxes of $nil for the six
months ended June 30, 2007 (change for the quarter of
$6.7 million net of taxes of $nil).
(ii) Unrealized derivative gain on cash flow hedges is net of tax of
$5.2 million for the six months ended June 30, 2007 (change for
the quarter of $5.5 million net of taxes of $2.3 million).
The Company estimates that $4.2 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 $2.7 million (net
of tax of $1.3 million) was released to income from accumulated
other comprehensive loss, which is included in the net change
for the period.
SOURCE: Maple Leaf Foods Inc.Lynda Kuhn, Senior Vice-President, Communications & Consumer Affairs, (416)926-2026
www.mapleleaf.com