Maple Leaf Foods Reports Results for Fourth Quarter and Fiscal 2008
- Adjusted Earnings per Share of $0.12 compared to $0.20 last year
- The packaged meats recall significantly affected the business by an estimated $59 million to $69 million before taxes, of which $19 million in one-time direct costs has been excluded in calculating Adjusted Earnings per Share
- Consumer confidence strengthening and volumes recovering in Meat Products Group
- Bakery margins improved as input costs declined
- Cost savings from protein restructuring contributed to earnings
- Net Loss per Share of ($0.12) compared to ($0.19) last year including
on-going effects and direct costs of the packaged meats recall
Note: Adjusted Earnings per Share measures are defined as earnings per share from continuing operations before one-time direct product recall, restructuring and other related costs and certain non- recurring tax adjustments. Adjusted Earnings per Share and Operating Earnings measures include on-going effects of the product recall, such as lower sales and higher supply chain costs.
"Last year was a historically challenging year on many fronts as we managed through unprecedented spikes in global commodity prices, financial market meltdowns, and the largest product recall in Canadian history," said Michael H. McCain, President and CEO. "Within this context, we are satisfied with the results we were able to deliver. They are a reflection of the diversity of our business, the capability of our people to manage through extreme adversity and the strength of our entire brand portfolio."
"While our profits were down 40% in the quarter, overshadowed by the product recall which, excluding one-time amounts, is estimated to have cost the Company $40 million to $50 million before taxes, there were many areas where we showed substantial improvement. These included normalizing our bakery margins after absorbing the impact of commodity markets earlier in the year, increasing benefits from our protein business restructuring, and steadily regaining consumer confidence in the Maple Leaf brand. Our packaged meats volumes have almost fully recovered, although we must demonstrate that consistently and we continue to experience significant margin compression. Overall we are pleased with the early progress made in recovering our packaged meats business, and are even more confident in the direction of our transformational efforts. We look forward to improving trends in 2009."
Financial Overview
------------------
Sales for the fourth quarter increased by 5.2% to $1.3 billion compared to the same period last year, and sales for the year were consistent at $5.2 billion. While sales were impacted by the divestiture or exit of non-core businesses and a decline in meat volumes in the second half of 2008 due to the recall, price increases, fluctuations in the Canadian dollar and contributions from acquisitions contributed to sales for the fourth quarter and year to date.
Fourth quarter earnings from continuing operations before one-time direct product recall, restructuring and other related costs ("Adjusted Operating Earnings") decreased 38.9% to $35.4 million and by 35.5% to $128.4 million for the year. Adjusted Earnings per Share was $0.12 compared to $0.20 last year and for the year was $0.29 compared to $0.51 last year.
Following is a summary of Adjusted Earnings per Share, defined as Earnings per Share ("EPS") from continuing operations before one-time direct product recall, restructuring and other related costs. On-going operational effects of the product recall, such as lower sales and higher supply chain costs are estimated to be $40 million to $50 million (before taxes) and have reduced Adjusted Operating Earnings and Adjusted Earnings per Share.
------------------
Fourth Quarter Full Year
Per share 2008 2007 2008 2007
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EPS from continuing operations $ (0.12) $ (0.19) $ (0.29) $ (0.18)
Restructuring and other related
costs $ 0.13 $ 0.47 $ 0.36 $ 0.81
One-time product recall costs $ 0.11 $ - $ 0.22 $ -
Tax benefit from lower future tax
rates (i) - (0.08) - (0.08)
Tax benefit related to animal
nutrition business - - - (0.04)
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Adjusted EPS 0.12 0.20 0.29 0.51
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(i) During the fourth quarter of 2007, the company recorded a significant
net tax benefit related to the enactment of lower future tax rates
Business Segment Review
-----------------------
Following is a summary of operating earnings from continuing operations
before one-time direct product recall, restructuring and other related costs
("Adjusted Operating Earnings") by business segment:
Fourth Quarter Full Year
($ millions) 2008 2007 Change 2008 2007 Change
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Meat Products
Group $ (2.1) $ 44.0 (104.7%) $ 29.5 $ 94.1 (68.7%)
Agribusiness
Group(i) 13.0 (8.6) 250.4% 30.1 (6.6) 555.2%
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Protein Group 10.9 35.4 (69.2%) 59.6 87.5 (31.9%)
Bakery Products
Group 26.6 25.7 3.7% 83.0 119.3 (30.4%)
Non-allocated
costs(ii) (2.1) (3.1) 31.0% (14.2) (7.7) (83.6%)
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$ 35.4 $ 57.9 (38.9%) $128.4 $199.1 (35.5%)
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(i) Agribusiness Group earnings for 2007 exclude the results of the
animal nutrition business that are reported as discontinued
operations.
(ii) Non-allocated costs include costs related to the Company's IT
system conversion, certain shared services and consulting expenses
related to restructuring initiatives. Management believes that not
allocating these costs provides a more comparable assessment of
segment operating results.
Meat Products Group (value-added processed packaged meats; chilled meal
entrees and lunch kits; value-added fresh pork, poultry and turkey
products)
Adjusted Operating Earnings for the fourth quarter were a loss of $2.1 million compared to earnings of $44.0 million last year. For the year, adjusted operating earnings were $29.5 million compared to $94.1 million last year. Adjusted Operating Earnings for the fourth quarter were impacted by an estimated $40 million to $50 million before taxes as a result of the packaged meats product recall that occurred in August, 2008. This reflected lower sales and higher supply chain costs, the suspension of price increases to offset rising meat costs, and delays in planned promotional activities. In addition, one-time recall costs were $18.5 million in the quarter and $37.5 million for the total year. These costs, primarily product destruction and facility sanitation, have been separately identified in the income statement. No further one-time costs are anticipated as the recall has been completed and all recalled product has been destroyed.
The Company has been making steady progress in stabilizing its manufacturing supply chain and rebuilding its packaged meat volumes and brand equity, reflecting a return in consumer confidence. However margins in this business will take some time to fully restore. The Company is pursuing an aggressive promotion and product innovation program to drive sales and profitability. The Company is also implementing enhanced food safety protocols across its packaged meat operations, including extensive testing, sanitization and workplace training that are based on global best practices and exceed regulatory requirements.
Earnings from poultry operations declined due to lower industry processor margins and the cost of a six week strike at the Company's Edmonton plant, while the fresh pork processing operations had a strong quarter, benefiting from efficiencies gained through the closure of three plants and the consolidation of production into scale plants in Brandon and Winnipeg. The ongoing restructuring of the protein business contributed materially to earnings in the quarter and year, and these initiatives will continue through 2009.
Agribusiness Group (swine production and animal by-products recycling)
Adjusted Operating Earnings for the fourth quarter rose to $13.0 million compared to a loss of $8.6 million in the prior year. Adjusted Operating Earnings for the year increased to $30.1 million from a loss of $6.6 million in 2007. Earnings in the quarter reflect the benefits from the restructuring of hog production operations. The Company has completed the sale of its Alberta and Ontario businesses and a small genetics business, and consolidated its remaining wholly owned operations in Manitoba. This resulted in a reduction in hogs under management to approximately 220,000 in the quarter approximately 20% of the supply into the Brandon processing plant. Agribusiness earnings also include a $3 million government stability grant received in the quarter related to previously owned hog production operations in Ontario. Earnings from the rendering operations increased in the fourth quarter, although pricing of rendered products continued to decline through the quarter and into 2009 as commodity markets normalized from the unprecedented high prices in the first half of 2008.
Bakery Products Group (fresh and frozen bakery products, including
breads, artisan, specialty and sweet goods, sandwiches and fresh pasta
and sauces)
Adjusted Operating Earnings for the fourth quarter increased to $26.6 million compared to $25.7 million last year. Adjusted operating earnings for the year declined significantly to $83.0 million compared to $119.3 million for 2007, reflecting the impact of high commodity prices earlier in 2008. During the quarter margins increased closer to long term historic levels as a result of lower wheat costs and price increases implemented in December 2007 and March 2008. Margins were not fully restored as the benefit from decreasing input costs was partially offset by the weakening Canadian dollar that affects the Canadian price for flour. North American bakery volumes remained consistent in the fourth quarter, supported by innovation and mix improvements.
The North American frozen bakery operations have made progress in implementing cost reduction and sales strategies to improve earnings. In the UK Bakery operations, commissioning of a new oven at the Rotherham bagel plant to replace an oven destroyed by a fire earlier in the year resulted in higher production costs and reduced earnings. These costs were offset by an $8.3 million insurance payment in the fourth quarter that is recorded in other income. Commissioning of the oven and a weak UK economy resulted in significantly lower sales of specialty bakery products. The business has increased promotional activity to restore growth in the bagel market. To increase operating efficiencies, two sub-scale plants were closed in the third quarter, with production shifted to other facilities to increase capacity utilization.
Liquidity and capital Resources: On December 16 2008, the company issued $70 million (before issuance costs) in equity units comprising subscription receipts and equity warrants. This transaction was structured to provide the Company with flexibility in managing its capital base and resources and to strengthen the balance sheet. This combined with a reduction in capital spending and improved working capital management resulted in a significant improvement in the Company's financial position compared to the last quarter.
Other Income: The Company recorded other income for the fourth quarter of $13.8 million, compared to $2.2 million last year. Other income included insurance proceeds of $8.3 million to cover costs related to an oven fire that occurred at the Company's UK bagel plant earlier in the year. For the year-to-date, $14.7 million in insurance payments related to this fire have been received. The Agribusiness operations also received net insurance proceeds of $4.7 million in the fourth quarter to compensate for losses resulting from a fire in a sow barn.
Other Matters
-------------
On February 24, 2009, Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on March 31, 2009 to shareholders of record on March 10, 2009. Unless indicated otherwise, by the Company, in writing at or before the time the dividend is paid, each dividend paid by the corporation in 2009 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System."
An investor presentation related to the Company's fourth quarter and full year 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 February 24, 2009 to review Maple Leaf Foods' fourth quarter and full year financial results. To participate in the call, please dial 416-641-6111 or 866-696-5911. For those unable to participate, playback will be made available an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 3282092 followed by the number sign.) A webcast presentation of the fourth quarter and full year financial results will also be available at http://investor.mapleleaf.ca via a link http://events.startcast.com/events6/91/C0006/Default.aspx.
The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website and will be available on SEDAR at sedar.com as of March 2, 2009.
Forward-Looking Statements
--------------------------
This document contains, and the Company's oral and written public communications often contain, forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to our objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific statements include, but are not limited to, statements with respect to our expectations concerning improving business trends in 2009, our expectation that there will be no additional one time product recall costs in 2009, our expectations concerning the timing of margin recovery in our packaged meats business and our expectations concerning continuing restructuring initiatives in 2009. Words such as "expect," "anticipate," "intend," "attempt," "may," "will," "plan," "believe," "seek," "estimate," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.
In particular, the specific forward-looking statements contained in this document are based on a variety of factors and assumptions including, but not limited to: with respect to the forward looking statement concerning continuing restructuring initiatives, the assumption that the Company will be able to execute these initiatives in 2009. In addition, expectations concerning performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian and United States economies; the rate of exchange of the Canadian dollar to the U.S. dollar and Japanese yen; expected recovery of sales following the product recall; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the protein business transformation or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation that would not be covered by insurance; no unexpected actions of domestic and foreign governments; and the general assumption that none of the risks identified under "Risk Factors" in the Company's Management Discussion and Analysis will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party industry sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward looking statements, which reflect the Company's expectations only as of the date hereof.
Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking statements are discussed more fully in the Company's Management Discussion and Analysis including in the section entitled "Risk Factors" that will be available on SEDAR at www.sedar.com. The Company does not intend, and the Company disclaims any obligation to update any forward-looking statements, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.
Maple Leaf Foods Inc. is a leading food processing company, headquartered in Toronto, Canada. The Company employs approximately 24,000 people at its operations across Canada and in the United States, the United Kingdom and Asia. The Company had sales of $5.2 billion in 2008.
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three and twelve months ended December 31, 2008 and 2007
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
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As at December 31,
2008 2007
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 365,518 $ 28,222
Accounts receivable 139,144 202,285
Inventories 377,414 351,064
Income and other taxes recoverable 20,971 -
Future tax asset - current 19,787 25,409
Prepaid expenses and other assets 32,289 16,529
Assets held for sale - 10,092
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$ 955,123 $ 633,601
Property and equipment 1,169,435 1,126,727
Other long-term assets 329,070 304,567
Future tax asset - non-current 24,854 22,837
Goodwill 876,261 817,477
Other intangible assets 97,358 92,635
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$ 3,452,101 $ 2,997,844
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 8,894 $ 9,845
Accounts payable and accrued charges 600,924 550,528
Income and other taxes payable - 12,881
Current portion of long-term debt 179,244 17,945
Other current liabilities 28,456 -
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$ 817,518 $ 591,199
Long-term debt 1,200,224 855,281
Future tax liability - non-current 37,903 74,115
Other long-term liabilities 179,039 248,448
Non-controlling interest 74,447 79,554
Shareholders' equity 1,142,970 1,149,247
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$ 3,452,101 $ 2,997,844
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MAPLE LEAF FOODS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales $ 1,339,704 $ 1,273,633 $ 5,242,602 $ 5,209,640
Cost of goods
sold 1,184,003 1,075,111 4,622,409 4,523,448
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Gross margin $ 155,701 $ 198,522 $ 620,193 $ 686,192
Selling, general
and administrative
expenses 120,351 140,581 491,778 487,136
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Earnings from
continuing
operations
before the
following $ 35,350 $ 57,941 $ 128,415 $ 199,056
Product recall,
restructuring
and other
related costs (40,570) (71,907) (102,812) (122,304)
Other income 13,789 2,244 24,864 4,578
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Earnings (loss)
from continuing
operations
before interest
and income taxes $ 8,569 $ (11,722) $ 50,467 $ 81,330
Interest expense 22,795 21,093 88,651 94,122
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Loss
from continuing
operations
before income
taxes $ (14,226) $ (32,815) $ (38,184) $ (12,792)
Income taxes (2,336) (11,772) (8,538) 801
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Loss
from continuing
operations before
minority interest $ (11,890) $ (21,043) $ (29,646) $ (13,593)
Non-controlling
interest 2,685 2,695 7,211 9,639
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Net loss
from
continuing
operations $ (14,575) $ (23,738) $ (36,857) $ (23,232)
Net earnings (loss)
from discontinued
operations - net
of income tax - (1,666) - 218,196
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Net earnings (loss)
for the period $ (14,575) $ (22,072) $ (36,857) $ 194,964
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Basic earnings
(loss) per share
From continuing
operations $ (0.12) $ (0.19) $ (0.29) $ (0.18)
From discontinued
operations - 0.01 - 1.71
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$ (0.12) $ (0.17) $ (0.29) $ 1.53
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Diluted earnings
(loss) per share
From continuing
operations $ (0.12) $ (0.19) $ (0.29) $ (0.18)
From discontinued
operations - 0.01 - 1.68
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$ (0.12) $ (0.17) $ (0.29) $ 1.50
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Weighted average
number of shares
(millions) 126.4 127.0 126.7 127.3
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MAPLE LEAF FOODS INC.
Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Twelve months ended December 31,
2008 2007
-------------------------------------------------------------------------
Retained earnings, beginning of year $ 378,604 $ 204,415
Net earnings (loss) for the year (36,857) 194,964
Dividends declared ($0.16 per share;
2007: $0.16 per share) (20,769) (20,775)
Premium on shares repurchased for cancellation (5,515) -
Premium on shares issued from Restricted Share
Unit Trust (814) -
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Retained earnings, end of year $ 314,649 $ 378,604
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Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Net earnings (loss)
for the period $ (14,575) $ (22,072) $ (36,857) $ 194,964
Other comprehensive
income (loss)
Change in
accumulated
foreign
currency
translation
adjustment (5,626) (2,314) (6,579) (16,036)
Change in net
unrealized
derivative
loss on cash
flow hedges (8,016) 4,347 (10,329) 22,620
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$ (13,642) $ 2,033 $ (16,908) $ 6,584
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Comprehensive
income (loss) $ (28,217) $ (20,039) $ (53,765) $ 201,548
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MAPLE LEAF FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
CASH PROVIDED BY
(USED) IN (Unaudited) (Unaudited)
Operating activities
Net loss from continuing
operations $ (14,575) $ (23,738) $ (36,857) $ (23,232)
Add (deduct)
items not
affecting cash:
Depreciation
and amortization 38,157 35,477 149,219 141,181
Stock-based
compensation 5,134 4,866 17,160 15,340
Non-controlling
interest 2,686 2,695 7,212 9,639
Future income
taxes (1,489) (35,274) (23,254) (46,290)
Gain on sale
of property
and equipment (651) (2,086) (4,724) (2,341)
Gain on sale
of investments - (14) - (176)
Amortization of
terminated
interest rate swaps 732 1,723 4,391 3,721
Change in fair value
of derivative
financial
instruments 14,600 3,818 12,851 (1,085)
Change in other
long-term
receivables 334 (2,071) 893 (1,957)
Increase in net
pension asset (11,290) (11,308) (27,489) (48,034)
Asset impairments
and change in
provision for
restructuring
and other related
costs 9,067 69,917 37,859 101,348
Other 2,174 10,962 6,066 5,363
Change in non-cash
operating working
capital 141,991 44,176 52,156 (30,643)
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Cash provided by
operating activities
of continuing
operations $ 186,870 $ 99,143 $ 195,483 $ 122,834
Cash used in
operating activities
of discontinued
operations - - - (17,086)
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$ 186,870 $ 99,143 $ 195,483 $ 105,748
Financing
activities
Dividends paid (5,069) (5,384) (20,769) (20,775)
Dividends paid
to non-controlling
interest (156) (183) (755) (801)
Net increase
(decrease) in
long-term debt 32,914 (74,908) 392,285 (335,474)
Proceeds on
issuance of
share capital 1,133 600 5,143 20,944
Shares repurchased
for cancellation - - (11,814) -
Issuance of
equity units 69,106 - 69,106 -
Purchase of
treasury stock - (25,362) (11,341) (30,054)
Other 1,210 909 1,994 8,200
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Cash provided by
(used in)
financing
activities of
continuing
operations $ 99,138 $ (104,328) $ 423,849 $ (357,960)
Cash used in
financing activities
of discontinued
operations - - - (389)
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$ 99,138 $ (104,328) $ 423,849 $ (358,349)
Investing
activities
Additions to
property and
equipment (48,512) (66,424) (206,220) (236,660)
Proceeds from
disposal of
property and
equipment 2,500 6,668 19,727 9,788
Acquisition of
business -
net of cash
acquired (8) (390) (62,962) (65,013)
Proceeds on sale
of investments 1,053 - 1,053 3,713
Proceeds on
disposal of
business - - - 5,470
Purchase of
Canada Bread shares - - (32,643) (6,521)
Other (405) 138 (40) 1,521
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Cash used in
investing activities
of continuing
operations $ (45,372) $ (60,008) $ (281,085) $ (287,702)
Cash provided
by investing
activities of
discontinued
operations - - - 503,316
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$ (45,372) $ (60,008) $ (281,085) $ 215,614
Increase
(decrease) in
cash and cash
equivalents 240,636 (65,193) 338,247 (36,987)
Cash and cash
equivalents,
beginning of
period 115,988 83,570 18,377 55,364
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Cash and cash
equivalents,
end of period $ 356,624 $ 18,377 $ 356,624 $ 18,377
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MAPLE LEAF FOODS INC.
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales
Meat Products
Group $ 846,316 $ 820,402 $ 3,303,694 $ 3,458,055
Agribusiness
Group 49,180 60,449 232,999 240,956
Bakery Products
Group 444,208 392,782 1,705,909 1,510,629
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$ 1,339,704 $ 1,273,633 $ 5,242,602 $ 5,209,640
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Earnings from
operations,
before
restructuring
and other
related costs and
other income
Meat Products
Group $ (2,087) $ 43,983 $ 29,455 $ 94,087
Agribusiness
Group 12,980 (8,632) 30,132 (6,620)
Bakery Products
Group 26,601 25,653 82,979 119,297
Non-allocated
costs (2,144) (3,063) (14,151) (7,708)
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$ 35,350 $ 57,941 $ 128,415 $ 199,056
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Capital Expenditures
Meat Products
Group $ 31,645 $ 39,074 $ 133,238 $ 132,220
Agribusiness
Group 1,963 4,652 11,577 15,068
Bakery Products
Group 14,904 22,698 61,405 89,372
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$ 48,512 $ 66,424 $ 206,220 $ 236,660
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Depreciation and
amortization
Meat Products
Group $ 19,164 $ 16,595 $ 75,712 $ 68,806
Agribusiness
Group 3,969 5,552 16,221 20,536
Bakery Products
Group 15,024 13,330 57,286 51,839
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$ 38,157 $ 35,477 $ 149,219 $ 141,181
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As at December 31,
2008 2007
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Total assets
Meat Products Group $ 1,677,671 $ 1,560,244
Agribusiness Group 318,387 302,999
Bakery Products Group 922,158 823,137
Non-allocated assets 533,885 311,464
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$ 3,452,101 $ 2,997,844
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Goodwill
Meat Products Group $ 450,431 $ 450,929
Agribusiness Group 14,445 2,058
Bakery Products Group 411,385 364,490
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$ 876,261 $ 817,477
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SOURCE Maple Leaf Foods Inc.