Maple Leaf Foods Reports 2007 Third Quarter Financial Results
TORONTO, Oct 25, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2007.
"In the past three months, the food industry continued to battle unprecedented food inflation related to wheat, corn and other input costs, in addition to the ongoing rise in the Canadian dollar," said Michael McCain, President and CEO. "Our value-added meat and bakery businesses are meeting these challenges by investing in our supply chains to reduce cost; realizing operating improvements in manufacturing, distribution and management processes; and offsetting these higher input costs through selective price increases. Our bakery operations achieved strong results in difficult markets, reflecting improved performances in Frozen Bakery and the UK bakery operations. We recorded significant financial gains resulting from the sale of our animal nutrition business, which provide us with a very strong balance sheet and cash to reinvest in our core businesses. The reorganization of our protein operations, which will significantly reduce our exposure to commodity and currency pressures, is on track to deliver the anticipated growth in our higher margin value-added categories."
Sales for the third quarter from continuing operations decreased 1% to $1.3 billion while earnings from continuing operations, before restructuring and other related costs, increased 14% to $38.6 million from $33.9 million last year. Management believes that this is the most appropriate measure on which to evaluate operating results, as restructuring and other related costs are not representative of continuing operations. In the third quarter of 2007, the Company recorded restructuring and other related costs as a part of continuing operations of $7.0 million ($5.5 million after tax).
Earnings per share from continuing operations before restructuring and other related costs were $0.06, compared to $0.05 last year, while year-to-date earnings per share on a comparable basis were $0.31 compared to $0.25 last year. The Company reported net earnings for the quarter of $220.4 million ($1.72 per share), including the gain on the sale of the animal nutrition business of $217.7 million, compared to a net loss of $22.3 million (loss of $0.17 per share) in the prior year.
The results of the animal nutrition business are 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:
Third Quarter Year-To-Date
---------------------------------------
2007 2006 2007 2006
---- ---- ---- ----
Reported EPS from continuing
operations $0.01 ($0.22) $0.00 ($0.02)
Restructuring and other related
costs, net of tax, and U.S.
tax adjustment (i) $0.05 $0.27 $0.31 $0.27
---------------------------------------
EPS from continuing operations
before restructuring and
other related costs and U.S.
tax adjustment (ii) $0.06 $0.05 $0.31 $0.25
Discontinued operations $1.71 $0.05 $1.80 $0.15
---------------------------------------
---------------------------------------
Total EPS before restructuring
and other related costs and
U.S. tax adjustment (ii) (iii) $1.77 $0.09 $2.10 $0.39
---------------------------------------
---------------------------------------
(i) Includes the per share impact of restructuring and other related
costs net of tax and minority interest and includes the recognition of a
tax benefit of $5.1 million in Q2 related to the sale of the animal
nutrition business and certain non-recurring tax adjustments in Q3, 2006.
(ii) 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.
(iii) Does not add due to rounding.
Sale of Animal Nutrition Business
---------------------------------
On July 20, 2007, Maple Leaf completed the sale of its animal nutrition business to Nutreco Holding BV for gross proceeds of $525 million. The Company recorded an after-tax gain during the third quarter of $218 million related to the transaction ($1.70 per share). Including the impact of a $20.7 million goodwill impairment charge and a $5.1 million tax benefit relating to the retained operations of the animal nutrition business recorded in earnings in the second quarter, the after-tax gain on the sale of the business is $202 million ($1.58 per share).
Earnings per share from discontinued operations in the third quarter of 2007 were $1.71 compared to $0.05 last year; and $1.80 for the first nine months of 2007 compared to $0.15 for the same period last year.
Proceeds from the sale of the animal nutrition business were used to pay down long-term debt, strengthening the Company's balance sheet to support future expansion of core business lines and potential acquisitions.
Operating Review
----------------
Earnings from continuing operations for the third quarter before restructuring and other related costs increased 14% from last year, reflecting a 27% decrease in Protein Group earnings, and a 31% increase in Bakery Products Group earnings. Year to date, Protein Group earnings from operations increased 14%, while Bakery Products Group earnings increased 19%.
Following is a summary of earnings from continuing operations by business segment before restructuring and other related costs:
($ millions) Third Quarter Year-to-Date
------------------------ ------------------------
2007 2006 Change 2007 2006 Change
---- ---- ------ ---- ---- ------
Meat Products Group $ 11.6 $ 9.2 25% $ 47.8 $ 36.6 31%
Agribusiness Group(1) (4.2) 0.9 - 1.2 6.5 (81%)
------------------------ ------------------------
Protein Group 7.4 10.1 (27%) 49.0 43.1 14%
Bakery Products Group 31.2 23.8 31% 92.1 77.5 19%
------------------------ ------------------------
$ 38.6 $ 33.9 14% $141.1 $120.6 17%
------------------------ ------------------------
------------------------ ------------------------
(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, and lunch kits; value-added pork, poultry and turkey products;
and global meat sales.)
Meat Products Group sales for the third quarter declined 7% to $863 million, primarily due to exiting certain international markets as part of the Company's strategic re-alignment.
Earnings from continuing operations before restructuring and other related costs increased to $11.6 million from $9.2 million last year. The Company was able to offset most of the effects of rising fresh meat input costs in its processed meat and meals business through pricing. However, the consumer foods business experienced increased manufacturing and promotional costs related to the launch of Maple Leaf Simply Fresh chilled meals. This major expansion in the chilled meals category has received excellent consumer support and experienced continued growth in market share, with four new lines launched in the third quarter. The fresh poultry operations earnings increased despite rising live bird costs, driven primarily by improved plant efficiencies and higher commodity sales prices. Earnings in the fresh pork operations were impacted by the continued strengthening of the Canadian dollar.
A cornerstone of Maple Leaf's new protein strategy is to significantly reduce the volume of pork it processes to a level that supports the Company's requirements for further processed products and to consolidate all fresh pork processing at the Company's plant in Brandon, Manitoba. Supporting this strategy, Maple Leaf launched a second shift in the front end of the Brandon plant in early September, increasing hogs processed to approximately 13,000 daily. The plant is on schedule to reach 75,000 hogs per week in the fourth quarter. The Company also recently closed two pork plants in Saskatchewan and Manitoba respectively, which together processed approximately 1.7 million hogs per year.
Agribusiness Group (swine production and animal by-products recycling)
Agribusiness Group sales from continuing operations for the third quarter were consistent with last year at $53 million.
Operating results from continuing operations before restructuring and other related costs for the third quarter decreased to a loss of $4.2 million compared to earnings of $0.9 million last year. Sharp increases in feed prices and the continuing rise in the Canadian dollar, compounded by lower hog prices, had a negative impact on hog processor margins. The Company had an effective ownership of 19% of the hogs it processed in the third quarter. As part of its protein reorganization, Maple Leaf is reducing its sows under management from approximately 120,000 sows to approximately 35,000. Currently, the Company owns approximately 66,000 sows, with the restructuring of this component of the protein supply chain to be completed to mid 2008. Partially offsetting the reduction in hog production earnings, rendering by-product operations recorded increased earnings in the quarter due to strong prices for rendered products that track rising commodity grain prices.
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 third quarter increased 13% to $385 million from $342 million last year primarily driven by the contribution of acquisitions in the U.K. Excluding acquisitions, sales increased by 4%.
Operating earnings before restructuring and other related costs increased by 31% to $31.2 million due to increased contribution from acquisitions in the U.K. and improved operating earnings in the Frozen Bakery business. In the Fresh Bakery business, earnings were lower due to cost increases which the Company continues to offset through reducing manufacturing and overhead costs and price increases.
Profitability in the fresh bakery operations decreased as the business experienced an unprecedented rise in raw material costs that outpaced previously implemented price increases. Growth in higher margin value-added categories, improvements in operating efficiencies across a number of plants, and forward flour purchases helped to offset these increasing input costs and some continuing volume decline in the fresh bread market. The Company will attempt to mitigate increasing input costs with additional price increases in the fourth quarter.
The U.K. bakery operations benefited from the contribution of acquisitions and continued organic growth, offset in part by higher flour and butter costs. The Company is currently expanding freezer capacity at its Rotherham bagel plant and installing a new high-speed croissant line at its Maidstone bakery to support continued growth in these core categories. During the quarter, the Company acquired La Fornaia, a leading producer of an extensive range of hand formed specialty bakery products, from traditional Italian ciabatta and filled focaccia to a range of organic, multi-seed breads and rolls. This acquisition extends the Company's product offering in the premium specialty bakery market and enhances its new product innovation capabilities.
The North American frozen bakery business achieved a solid quarter-over-quarter improvement in the earnings against a low base for the comparative period as it increased volumes, improved operating efficiencies and addressed issues that impacted its bakery in Roanoke, Virginia last year. This plant, which is the Company's largest par-baked facility, is undertaking a major warehouse expansion that will significantly increase its storage capacity and further reduce costs.
Restructuring and Other Related Costs
-------------------------------------
In the third quarter, the Company recorded a charge for restructuring and other related costs from continuing operations of $7.0 million. Including full-year amounts charged to earnings during 2006, the following is a summary of restructuring and other related costs incurred since the announcement of the Company's restructuring initiatives:
($ millions)
-------------------------------------------------
2006 2007
----------------------------------------- Total-
Full-year Q1 Q2 Q3 YTD to-date
-------------------------------------------------
Protein value chain
restructuring 47.5 4.1 3.8 6.1 14.0 61.5
Retention payments 2.0 3.3 3.3 0.6 7.2 9.2
Bakery plant closure 5.5 2.2 - - 2.2 7.7
Poultry plant closure 2.3 3.1 2.9 0.3 6.3 8.6
Impairment of a non-core
equity investment 7.3 - - - - 7.3
Goodwill impairment
related to retained
operations of the animal
nutrition business - - 20.7 - 20.7 20.7
-------------------------------------------------
64.6 12.7 30.7 7.0 50.4 115.0
Discontinued operations - 0.4 1.8 0.4 2.6 2.6
-------------------------------------------------
Total restructuring 64.6 13.1 32.5 7.4 53.0 117.6
-------------------------------------------------
-------------------------------------------------
Cash incurred and to
be incurred 25.4 8.2 6.6 3.0 17.8 43.2
Non-cash 39.2 4.9 25.9 4.4 35.2 74.4
-------------------------------------------------
64.6 13.1 32.5 7.4 53.0 117.6
-------------------------------------------------
-------------------------------------------------
The Company 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 in that period is $55 million to $75 million.
Cash Flow and Financing
-----------------------
Total debt, net of cash balances of $93.7 million, was $0.8 billion at the end of the third quarter, compared to $1.1 billion last year. Cash received from the sale of the animal nutrition business was mostly cash tax free and used to reduce long term debt in the third quarter. The remainder is intended to be used to repay long term debt maturing in the fourth quarter. Cash flow from operating activities for the third quarter was $24.6 million compared to $77.4 million last year while year-to-date was $6.6 million compared to $73.7 million in 2006. The decrease was largely attributable to an increase in working capital.
Interest expense including interest attributed to discontinued operations for the quarter was $23.7 million compared to $25.1 million last year. Year-to-date interest was $78.2 million, an increase of $4.0 million over last year. The decrease in the third quarter was due to lower debt balances attributable to the application of the animal nutrition proceeds. At the end of the third quarter, 72% of indebtedness was not exposed to interest rate fluctuations, compared to 83% in the previous year.
Capital expenditures on plant and equipment from continuing operations for the third quarter increased to $58.5 million compared to $34.5 million last year. This significant increase in capital expenditures reflects a number of initiatives to increase manufacturing and distribution efficiencies and capacity expansion in core businesses. These projects include a substantial expansion at the U.K. bagel and croissant facilities and the construction of a new warehouse at the Company's bakery in Roanoke, Virginia. The Company continued to support its expansion in the chilled meals market through capital investment at its plant in Brampton, Ontario. Capital investments were also made to support the consolidation of fresh pork processing at the Company's plant in Brandon, Manitoba.
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 December 31, 2007, to shareholders of record on December 14, 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 23,000 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 third 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 October 25, 2007 to review Maple Leaf Foods' third 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 3238339 followed by the number sign).
A webcast presentation of the third 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=1672872.
Consolidated Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three and Nine months ended September 30, 2007 and 2006
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
September 30, September 30, December 31,
2007 2006 2006
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 93,727 $ 42,607 $ 64,494
Accounts receivable (Note 4) 233,973 193,090 201,743
Inventories 407,423 391,824 388,242
Future tax asset - current 11,939 15,930 2,128
Prepaid expenses and other
assets 27,391 15,309 11,158
Assets held for sale
(Note 3(iii)) - 274,194 280,439
-----------------------------------------------------------------------
774,453 932,954 948,204
Investments in associated
companies 902 41,887 15,499
Property and equipment 1,163,867 1,064,109 1,099,000
Other long-term assets 282,067 274,972 279,001
Future tax asset - non-current 18,159 14,939 23,464
Goodwill 833,131 767,425 824,741
Other intangibles 87,064 87,242 85,817
-------------------------------------------------------------------------
$ 3,159,643 $ 3,183,528 $ 3,275,726
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-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
charges $ 584,575 $ 607,098 $ 594,685
Income and other taxes payable 15,502 10,034 18,056
Current portion of long-term debt 80,485 11,657 91,084
Liabilities related to assets
held for sale (Note 3(iii)) - 68,855 74,474
-----------------------------------------------------------------------
680,562 697,644 778,299
Long-term debt 845,397 1,136,876 1,185,970
Future tax liability - non-current 73,405 46,168 29,867
Other long-term liabilities 276,132 209,185 196,911
Minority interest 77,402 93,456 90,237
Shareholders' equity 1,206,745 1,000,199 994,442
-------------------------------------------------------------------------
$ 3,159,643 $ 3,183,528 $ 3,275,726
-------------------------------------------------------------------------
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Sales $ 1,301,099 $ 1,320,633 $ 3,936,007 $ 3,963,395
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings from
continuing operations
before restructuring
and other related
costs 38,589 33,906 141,115 120,561
Restructuring and
other related costs
(Note 2) (6,972) (19,568) (50,397) (19,568)
-------------------------------------------------------------------------
Earnings from
continuing operations 31,617 14,338 90,718 100,993
Other income (expense)
(Note 5) 365 (39) 2,334 1,915
-------------------------------------------------------------------------
Earnings from
continuing operations
before interest and
income taxes 31,982 14,299 93,052 102,908
Interest expense 23,086 22,930 73,029 67,593
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 8,896 (8,631) 20,023 35,315
Income taxes (Note 7) 4,608 20,152 12,573 33,036
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before minority
interest 4,288 (28,783) 7,450 2,279
Minority interest 2,590 (608) 6,944 4,392
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations 1,698 (28,175) 506 (2,113)
Net earnings (loss)
from discontinued
operations - net of
income tax
(Note 3(ii)) 218,726 5,866 228,710 18,262
-------------------------------------------------------------------------
Net earnings (loss) $ 220,424 $ (22,309) $ 229,216 $ 16,149
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings (loss)
per share (Note 9)
From continuing
operations $ 0.01 $ (0.22) $ 0.00 $ (0.02)
From discontinued
operations 1.71 0.05 1.80 0.15
-------------------------------------------------------------------------
$ 1.72 $ (0.17) $ 1.80 $ 0.13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings (loss)
per share (Note 9)
From continuing
operations $ 0.01 $ (0.22) $ 0.00 $ (0.02)
From discontinued
operations 1.66 0.05 1.75 0.14
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$ 1.67 $ (0.17) $ 1.75 $ 0.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number
of shares (millions) 127.9 127.6 127.5 127.7
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Nine months ended September 30,
(Unaudited) 2007 2006
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 204,415 $ 231,807
Net earnings for the period 229,216 16,149
Dividends declared ($0.12 per share;
2006: $0.12 per share) (15,391) (15,306)
Premium on repurchase of share capital (Note 8) - (11,530)
-------------------------------------------------------------------------
Retained earnings, end of period $ 418,240 $ 221,120
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Nine months ended
September 30, September 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings (loss)
for the period $ 220,424 $ (22,309) $ 229,216 $ 16,149
Other comprehensive
income (loss) (Note 13)
Change in accumulated
foreign currency
translation
adjustment (6,132) 524 (13,722) 2,618
Change in net
unrealized
derivative loss on
cash flow hedges 7,459 - 18,273 -
-------------------------------------------------------------------------
$ 1,327 $ 524 $ 4,551 $ 2,618
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Comprehensive income
(loss) $ 221,751 $ (21,785) $ 233,767 $ 18,767
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The accompanying notes to the consolidated financial statements are an
integral part of these statements.
MAPLE LEAF FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings (loss)
from continuing
operations $ 1,698 $ (28,174) $ 506 $ (2,112)
Add (deduct) items
not affecting cash:
Depreciation and
amortization 35,722 32,168 105,704 97,542
Stock-based
compensation 3,389 2,198 10,474 7,017
Minority interest 2,590 (608) 6,944 4,392
Future income taxes (133) 14,033 (11,016) 15,849
Loss (gain) on sale
of property and
equipment (173) 298 (255) (270)
Loss (gain) on sale
of investments (162) - (162) 145
Goodwill impairment
(Note 10) - - 20,713 -
Change in other
long-term receivables 2,296 30 114 2,086
Increase in pension
asset (8,634) (10,135) (36,726) (34,397)
Change in restructuring
provision 3,285 14,901 10,718 13,811
Other (5,081) (1,680) (8,504) 2,581
Change in operating
working capital 3,800 39,010 (74,819) (43,538)
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Cash provided by
operating activities
of continuing
operations $ 38,597 $ 62,041 $ 23,691 $ 63,106
Cash provided by
(used in) operating
activities of
discontinued
operations (13,969) 15,310 (17,086) 10,575
-------------------------------------------------------------------------
$ 24,628 $ 77,351 $ 6,605 $ 73,681
Financing activities
Dividends paid (5,167) (5,080) (15,391) (15,306)
Dividends paid to
minority interest (184) (463) (618) (1,411)
Net increase
(decrease) in
long-term debt (378,703) (11,644) (259,539) 23,844
Increase in share
capital (Note 8) 5,242 720 20,344 14,102
Shares repurchased
for cancellation
(Note 8) - (14,799) - (23,056)
Purchase of
treasury stock (4,692) - (4,692) -
Other (86) 3 7,291 2,357
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Cash provided by
(used in) financing
activities of
continuing
operations $ (383,590) $ (31,263) $ (252,605) $ 530
Cash provided by
(used in) financing
activities of
discontinued
operations - - (389) 402
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$ (383,590) $ (31,263) $ (252,994) $ 932
Investing activities
Additions to property
and equipment (58,511) (34,506) (170,236) (95,875)
Proceeds from sale
of property and
equipment 1,334 783 3,120 5,008
Acquisition of
businesses
- net of cash
acquired (Note 11) (51,192) (5,000) (64,623) (10,323)
Proceeds on sale of
investments (Note 11) 2,091 - 3,713 -
Proceeds on disposal
of business (Note 11) - - 5,470 -
Purchase of Canada
Bread shares (Note 11) - - (6,521) -
Other 1,262 3,767 1,383 (3,169)
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Cash used in investing
activities of
continuing
operations $ (105,016) $ (34,956) $ (227,694) $ (104,359)
Cash provided by
(used in) investing
activities of
discontinued
operations 507,456 (2,087) 503,316 (8,149)
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$ 402,440 $ (37,043) $ 275,622 $ (112,508)
Increase (decrease)
in cash and cash
equivalents 43,478 9,045 29,233 (37,895)
Cash and cash
equivalents, beginning
of period 50,249 33,562 64,494 80,502
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $ 93,727 $ 42,607 $ 93,727 $ 42,607
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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 Nine months ended
September 30, September 30,
(Unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Sales (i)
Meat Products Group $ 862,961 $ 925,777 $ 2,637,653 $ 2,804,097
Agribusiness Group 53,158 52,828 180,507 180,625
Bakery Products
Group 384,980 342,028 1,117,847 978,673
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$ 1,301,099 $ 1,320,633 $ 3,936,007 $ 3,963,395
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Earnings (loss) from
continuing operations,
before restructuring
and other related
costs (i)
Meat Products Group $ 11,582 $ 9,227 $ 47,794 $ 36,545
Agribusiness Group (4,247) 836 1,223 6,475
Bakery Products
Group 31,254 23,843 92,098 77,541
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$ 38,589 $ 33,906 $ 141,115 $ 120,561
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Additions to property
and equipment (i)
Meat Products Group $ 32,022 $ 17,258 $ 93,146 $ 55,402
Agribusiness Group 3,790 6,284 10,416 7,626
Bakery Products
Group 22,699 10,964 66,674 32,847
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$ 58,511 $ 34,506 $ 170,236 $ 95,875
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Depreciation and
amortization (i)
Meat Products Group $ 17,621 $ 16,324 $ 52,211 $ 50,330
Agribusiness Group 5,327 4,444 14,984 12,885
Bakery Products
Group 12,774 11,400 38,509 34,327
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$ 35,722 $ 32,168 $ 105,704 $ 97,542
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As at As at As at
September 30, September 30, December 31,
2007 2006 2006
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Total assets (i)
Meat Products Group $ 1,592,649 $ 1,538,755 $ 1,551,502
Agribusiness Group 460,053 405,771 422,095
Bakery Products Group 869,776 707,390 810,940
Non-allocated assets 237,165 257,418 210,750
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$ 3,159,643 $ 2,909,334 $ 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.
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 asset - 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
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(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 as at December 31,
2006 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 September 30, 2007 are as follows:
-----------------------------------------------------------------
As at September 30, 2007
Other
Current Current Long-term
Assets Liabilities Liabilities
-----------------------------------------------------------------
Futures contracts to hedge
commodity price exposure $ 7,203 $ 80 $ -
Cross currency interest
rate swaps to hedge U.S.
dollar-denominated notes
payable(i) - 34,858 152,513
Foreign currency contracts
to hedge transactions
denominated in foreign
currencies 3,381 - -
-----------------------------------------------------------------
Total $ 10,584 $ 34,938 $ 152,513
-----------------------------------------------------------------
-----------------------------------------------------------------
(i) The fair value amount includes a currency revaluation loss
of $129.1 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 statements.
(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 third quarter of 2007, the Company recorded $7.4 million
in restructuring and other related costs ($5.9 million after tax).
The portion of these restructuring and other related costs that
related to continuing operations was $7.0 million and the balance is
disclosed as part of discontinued operations (Note 3 (ii)).
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 3(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 10).
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 portion of these restructuring and other related costs that
related to continuing operations was $12.7 million and the balance is
disclosed as part of discontinued operations. 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
September 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 10) - - 20,713
Cash payments (4,080) (2,034) -
Non-cash items - - (22,033)
---------------------------------------------------------------------
Balance at June 30, 2007 $ 13,350 $ 3,422 $ -
Charges 2,338 631 3,795
Cash payments (3,503) (1,177) -
Non-cash items - (589) (3,795)
---------------------------------------------------------------------
Balance at September 30, 2007 $ 12,185 $ 2,287 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
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 10) - - 20,713
Cash payments (653) - (6,767)
Non-cash items - (3,900) (25,933)
---------------------------------------------------------------------
Balance at June 30, 2007 $ 9,396 $ - $ 26,168
Charges 641 - 7,405
Cash payments (1,861) - (6,541)
Non-cash items - - (4,384)
---------------------------------------------------------------------
Balance at September 30, 2007 $ 8,176 $ - 22,648
---------------------------------------------------------------------
---------------------------------------------------------------------
3. 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, for gross
proceeds of $524.8 million. 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 Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------
Sales $ 38,793 $ 137,132 $ 342,642 $ 417,017
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings from
operations before
restructuring and
other related
costs $ 2,701 $ 12,385 $ 25,651 $ 37,928
Restructuring and
other related
costs (433) (124) (2,672) (124)
---------------------------------------------------------------------
Earnings from
operations $ 2,268 $ 12,261 $ 22,979 $ 37,804
Other income (7) 23 162 248
---------------------------------------------------------------------
Earnings from
operations before
interest and
income taxes $ 2,261 $ 12,284 $ 23,141 $ 38,052
Interest expense 608 2,145 5,147 6,577
---------------------------------------------------------------------
Earnings before
income taxes $ 1,653 $ 10,139 $ 17,994 $ 31,475
Income taxes 643 4,273 7,000 13,213
---------------------------------------------------------------------
Net earnings from
discontinued
operations before
gain on sale $ 1,010 $ 5,866 $ 10,994 $ 18,262
Gain on sale of
business (net of
income taxes of
$65.9 million) 217,716 - 217,716 -
---------------------------------------------------------------------
Net earnings from
discontinued
operations $ 218,726 $ 5,866 $ 228,710 $ 18,262
---------------------------------------------------------------------
---------------------------------------------------------------------
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 of the animal nutrition business in the comparative
periods comprised:
---------------------------------------------------------------------
As at As at
September 30, December 31,
Assets held for sale 2006 2006
---------------------------------------------------------------------
Accounts receivable $ 63,785 $ 62,063
Inventories 35,896 39,604
Future tax asset - current 193 193
Prepaid expenses and other assets 1,490 828
Investments in associated companies 6,860 6,611
Property and equipment 83,710 88,398
Other long-term assets 2,863 3,090
Goodwill 79,397 77,922
Other intangibles - 1,730
---------------------------------------------------------------------
$ 274,194 $ 280,439
---------------------------------------------------------------------
Classified as:
Current $ 274,194 $ 280,439
Long-term - -
---------------------------------------------------------------------
$ 274,194 $ 280,439
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
As at As at
Liabilities related to assets September 30, December 31,
held for sale 2006 2006
---------------------------------------------------------------------
Accounts payable and accrued charges $ 64,937 $ 71,201
Income and other taxes payable 2,945 2,009
Long-term debt 973 974
Other long-term liabilities - 290
---------------------------------------------------------------------
$ 68,855 $ 74,474
---------------------------------------------------------------------
Classified as:
Current $ 68,855 $ 74,474
Long-term - -
---------------------------------------------------------------------
$ 68,855 $ 74,474
---------------------------------------------------------------------
---------------------------------------------------------------------
4. 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 September 30,
2007, trade accounts receivable being serviced under this program
amounted to $228.9 million (September 30, 2006: $229.6 million;
December 31, 2006: $241.5 million).
5. OTHER INCOME
---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------
Proceeds from
insurance claims $ - $ - $ 1,854 $ -
Rental 76 27 232 143
Gain (loss) on
sale of property
and equipment 173 (298) 255 270
Gain (loss) from
real estate
operations 112 (38) (14) 1,097
Other 4 270 7 404
---------------------------------------------------------------------
$ 365 $ (39) $ 2,334 $ 1,914
---------------------------------------------------------------------
---------------------------------------------------------------------
6. PENSIONS
During the quarter, the Company recorded $3.9 million related to net
benefit plan income including postretirement benefit costs (2006:
$3.3 million). For the nine months ended September 30, 2007, the
Company recorded $12.0 million in net benefit plan income including
postretirement benefit costs (2006: $9.9 million).
7. INCOME TAXES
The Company recorded tax expense of $4.6 million and $12.6 million
for the three months and nine months ended September 30, 2007,
respectively. The reason for the variance from the Company's normal
effective tax rate on earnings is primarily due to: (i) the
recognition of a tax benefit of $5.1 million in the second quarter
related to outside basis differences on shares of subsidiaries that
were sold as part of the sale of the animal nutrition business in the
third quarter, and (ii) the tax effect on restructuring and other
related costs which was recorded using an effective tax rate of
16.0%. The low effective tax rate on restructuring and other related
costs was caused by the goodwill impairment charge of $20.3 million
recorded in the second quarter, which is not deductible for tax
purposes.
8. 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
Exercise of
options 545,600 72,700 5,639 720
Repurchased for
cancellation(i) - (1,296,800) - (7,843)
---------------------------------------------------------------------
Balance at
September 30, 129,142,271 126,997,152 $ 791,961 $ 768,242
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) The Company repurchased for cancellation 461,900 common shares
during the first quarter of 2006, 150,900 common shares during
the second quarter of 2006, and 1,296,800 common shares during
the third quarter of 2006 pursuant to a normal course issuer
bid at an average exercise price of $13.48 per share, $13.44
per share, and $11.41 per share, respectively. The excess of
the purchase cost over the carrying value of the shares was
charged to retained earnings.
(ii) The Company repurchased 307,600 common shares by a trust during
the third quarter for cash consideration of $4.7 million for
the purpose of funding grants under the Restricted Share Unit
plan. The shares have been recorded as treasury stock, a
separate component of shareholders' equity.
9. EARNINGS PER SHARE
The following table sets forth the calculation of basic and fully
diluted earnings per share:
---------------------------------------------------------------------
Three months ended September 30,
2007 2006
---------------------------------------------------------------------
Weighted Weighted
Average Average
Net Number of Net Number of
Earnings Shares(ii) EPS Earnings Shares(ii) EPS
-------------------------- --------------------------
Basic
Continuing
operations $ 1,698 127.9 $ 0.01 $(28,175) 127.6 $ (0.22)
Discontinued
operations 218,726 127.9 1.71 5,866 127.6 0.05
---------------------------------------------------------------------
$220,424 127.9 $ 1.72 $(22,309) 127.6 $ (0.17)
Stock
options(i) - 3.6 (0.05) - 1.4 -
Diluted
Continuing
operations $ 1,698 131.5 $ 0.01 $(28,175) 129.0 $ (0.22)
Discontinued
operations 218,726 131.5 1.66 5,866 129.0 0.05
---------------------------------------------------------------------
$220,424 131.5 $ 1.67 $(22,309) 129.0 $ (0.17)
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) Excludes the effect of 6.1 million options and restricted stock
units (2006: 10.0 million) to purchase common shares that are
anti-dilutive
(ii) In millions
---------------------------------------------------------------------
Nine months ended September 30,
2007 2006
---------------------------------------------------------------------
Weighted Weighted
Average Average
Net Number of Net Number of
Earnings Shares(ii) EPS Earnings Shares(ii) EPS
-------------------------- --------------------------
Basic
Continuing
operations $ 506 127.5 $ - $ (2,113) 127.7 $ (0.02)
Discontinued
operations 228,710 127.5 1.80 18,262 127.7 0.15
---------------------------------------------------------------------
$229,216 127.5 $ 1.80 $ 16,149 127.7 $ 0.13
Stock
options(i) - 3.2 (0.05) - 1.9 (0.01)
Diluted
Continuing
operations $ 506 130.7 $ - $ (2,113) 129.6 $ (0.02)
Discontinued
operations 228,710 130.7 1.75 18,262 129.6 0.14
---------------------------------------------------------------------
$229,216 130.7 $ 1.75 $ 16,149 129.6 $ 0.12
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) Excludes the effect of 6.4 million options and restricted stock
units (2006: 9.5 million) to purchase common shares that are
anti-dilutive
(ii) In millions
10. GOODWILL IMPAIRMENT
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.
11. ACQUISITIONS AND DIVESTITURES
(a) On August 17, 2007 the Company acquired La Fornaia Ltd. a leading
producer of an extensive range of quality, specialty breads from
traditional Italian ciabatta to organic breads and crisp breads
for a total consideration of pnds stlg 18.8 million
($40.0 million). The Company has not yet finalized the purchase
equation for this acquisition.
(b) On August 31, 2007 the Company purchased an additional interest
in its subsidiary Cold Springs Farms Limited ("Cold Springs") for
$5.0 million in cash with a remaining obligation to pay an
additional $5.0 million in the third quarter of 2008. The Company
has not yet finalized the purchase equation for this acquisition.
(c) On February 26, 2007 the Company acquired 100% ownership of the
shares in Patisserie Chevalier Inc. ("Chevalier") for
$7.9 million. Chevalier is a leading producer of single-portion
snack cake products in Quebec. As at September 30, 2007 the
Company has not yet finalized the purchase price allocation.
(d) 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.
(e) During the first, second and third quarters of 2007, the Company
completed several transactions comprising both the purchase and
sale of interests in 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.
(f) 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%.
12. SUPPLEMENTAL CASH FLOW INFORMATION
---------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------
Net interest paid $ 9,116 $ 10,127 $ 65,064 $ 59,775
Net income taxes
paid 19,550 9,580 44,792 52,639
---------------------------------------------------------------------
---------------------------------------------------------------------
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following:
---------------------------------------------------------------------
Nine months ended September 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) (13,722) 2,618
Change in unrealized derivative loss
on cash flow hedges - net(ii) 18,273 -
-------------------------------------------------------------------
Other comprehensive income for the period $ 4,551 $ 2,618
---------------------------------------------------------------------
Balance at end of period $ (37,456) $ (15,940)
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) Balance at the beginning of the current 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 nine
months ended September 30, 2007 (change for the quarter of
$6.1 million net of taxes of $nil).
(ii) Change in unrealized derivative loss on cash flow hedges is net
of tax of $9.1 million for the nine months ended September 30,
2007 (change for the quarter of $7.5 million net of taxes of
$3.9 million).
The Company estimates that $1.7 million of net unrealized
derivative loss included in other comprehensive income will be
reclassified into net earnings within the next twelve months.
The actual amount of this reclassification will be impacted by
future changes in the fair value of financial instruments
designated as cash flows hedges and the actual amount
reclassified could differ from this estimated amount. During
the quarter, a loss of approximately $1.6 million net of taxes
$0.8 million was released to income from accumulated other
comprehensive loss, which is included in the net change for the
period.
14. SUBSEQUENT EVENT
On October 1, 2007 the Company granted 1.5 million Restricted Share
Units under the Restricted Share Unit Plan. Awards granted under the
Restricted Share Unit Plan are satisfied by shares to be purchased on
the open market via a trust established for that purpose.
SOURCE Maple Leaf Foods Inc.