Maple Leaf Reports 2002 First Quarter Financial Results
TORONTO, ONTARIO--
Operating Earnings Up 25%; Earnings Per Share Up 27%
Maple Leaf Foods Inc. (TSE:MFI) today reported its financial results for the first quarter ended March 31, 2002.
"The Company achieved another quarter of solid earnings growth, with good progress across all our operating groups in spite of industry wide margin pressure in both the pork and poultry sectors," said Michael H. McCain, President and Chief Executive Officer. "We are particularly pleased by the growth of our Bakery Products Group, including the significant contribution of Multi Marques."
Sales for the first quarter increased 16% to over $1.2 billion from less than $1.1 billion for the same period last year, while earnings from operations of $41.7 million increased from $30.8 million last year ($33.4 million before goodwill amortization). As explained in Note 1 to the financial statements, in accordance with a recent change in generally accepted accounting principles, the Company no longer amortizes its goodwill. Excluding goodwill amortization from last year's results, operating earnings for the first quarter increased by 25% compared to the prior year. The increase was driven by very strong results in the Bakery Products Group, and strong protein value chain results in both the Meat Products Group and the Agribusiness Group. Net earnings for the first quarter of $16.9 million ($0.14 per share) increased from $9.7 million ($0.09 per share) in 2001 ($12.0 million or $0.11 per share before goodwill amortization). Excluding goodwill amortization from last year's results, earnings per share for the quarter increased 27% quarter-over-quarter.
Other income for the first quarter of $1.6 million compared to $3.5 million for the same period last year, reflecting lower earnings from real estate operations. Interest expense for the quarter of $13.4 million decreased from $16.3 million for the prior year due to lower borrowing levels and lower interest rates.
The Company's cash flow from operating activities for the first quarter was a use of funds of $7.4 million compared to a use of funds of $34.0 million last year. The improved cash flow performance in 2002 was driven primarily by stronger earnings and a smaller first quarter investment in working capital.
Meat Products Group (branded value-added prepared meat products; fresh, frozen and branded value-added pork products; fresh, frozen and branded value-added chicken and turkey products; and global food marketing, distribution and trading)
Meat Product Group sales for the first quarter increased 7% to $737 million from $689 million last year, while earnings from operations of $12.5 million compared to $10.4 million for the same period last year ($11.5 million before goodwill amortization). Excluding goodwill amortization from last year's results, operating earnings increased by 8% quarter over quarter.
Maple Leaf Pork continued to achieve operational improvements, and recorded improved results over last year in spite of industry wide margin pressure. During the first quarter, Maple Leaf Medallion(TM) Naturally fresh pork was launched, Canada's first 100% vegetable grain fed pork, produced from hogs that are fed exclusively the Company's proprietary NutriMedallion(TM) feed. Maple Leaf Consumer Foods and Maple Leaf Foods International both had very strong quarters, recording substantial increases in profitability. In the poultry industry, commodity poultry margins continued to be challenged by depressed industry-wide poultry prices. While Maple Leaf Poultry was impacted by these industry conditions, it has benefited significantly from the development of its value-added branded poultry products, which has reduced the Company's exposure to commodity price fluctuations.
Agribusiness Group (research, development and supply of quality livestock nutrition products and services; pet food; swine production; and animal by-products recycling)
Agribusiness Group sales for the first quarter of $221 million increased by 9% from $202 million last year, while operating earnings of $17.3 million increased from $14.2 million for the same period last year ($14.6 million before goodwill amortization). Excluding goodwill amortization from last year's result, operating earnings increased 19% quarter-over-quarter. Shur-Gain and Landmark Feeds animal nutrition operations and Elite Swine, the Company's swine production business, all continued to record strong results. Rothsay, the Company's by-products recycling operations, also had improved financial performance compared to last year, when its results were adversely affected by high-energy prices.
Bakery Products Group (fresh, frozen and branded value-added bakery products, including frozen par-baked bakery products; and specialty pasta and sauces)
Bakery Product Group sales for the first quarter of $265 million increased 62% from $164 million for the same period last year. The increase was principally due to the inclusion of sales from Multi-Marques Inc. ("Multi-Marques"), of Quebec and the New York Bagel Company of the United Kingdom, both of which were purchased in the fourth quarter of 2001. Excluding the effect of these acquisitions, sales for the quarter increased by 7%.
Earnings from operations for the first quarter of $12.0 million increased from $6.2 million for the same period last year ($7.3 million before goodwill amortization). Excluding goodwill amortization from last year's results, operating earnings increased 64% quarter-over-quarter. The increase was attributable to the contribution from Multi-Marques and the New York Bagel Company, operational improvements at Canada Bread Company, Limited ("Canada Bread"), as well as growth in par-baked bread sales and profitability at Maple Leaf Bakery in the United States.
Subsequent to the end of the first quarter on April 11, 2002, the remaining 40% of the shares of Ben's Limited bakery of Atlantic Canada, not owned by Multi-Marques were acquired.
The Company declared a dividend of $0.04 per share payable on June 28, 2002 to shareholders of record on June 14, 2002.
Maple Leaf Foods Inc. is a leading Canadian food processing company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs more than 14,000 people at its operations across Canada, and in the United States, Europe and Asia. Maple Leaf Foods Inc. reported sales of $4.8 billion in 2001.
A conference call will be held at 3:00 p.m. (Toronto time) on May 1, 2002 to review Maple Leaf Foods' financial results for the first quarter ended March 31, 2002. The call will be hosted by Michael H. McCain, President & Chief Executive Officer; Tom P. Muir, Chief Financial Officer and Michael H. Vels, Executive Vice-President, Finance.
To participate in the call, please dial in to 1-888-617-9296. For those unable to participate playback will be made available an hour after the event at 1-800-558-5253 passcode #20519224.
A live webcast of the Annual Meeting will be available commencing at 11:00 a.m. at www.mapleleaf.com/live. A replay of the webcast will be available shortly after the AGM and will remain available for 90 days.
Maple Leaf Foods Inc.
Consolidated Statements of Earnings
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In thousands of Canadian dollars, Quarter ended
except per share amounts March 31,
(Unaudited) 2002 2001
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Sales $ 1,223,178 $ 1,054,901
Earnings from operations 41,707 30,834
Other income (note 4) 1,594 3,522
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Earnings before interest and taxes 43,301 34,356
Interest expense 13,356 16,333
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Earnings before income taxes 29,945 18,023
Income taxes 10,840 7,137
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Earnings before minority interest 19,105 10,886
Minority interest 2,215 1,167
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Net earnings for the period $ 16,890 $ 9,719
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Earnings per share
(basic and fully diluted) $ 0.14 $ 0.09
Dividends per share declared 0.04 0.04
Weighted average number of shares
(millions) 112.1 95.0
The accompanying notes to the consolidated financial statements
are an integral part of this statement.
Maple Leaf Foods Inc.
Consolidated Balance Sheets
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In thousands of Canadian As at
dollars As at March 31, December 31,
2002 2001 2001
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(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash $52,263 $47,422 $52,611
Accounts receivable (note 3) 211,170 248,488 248,064
Inventories 253,992 235,167 231,918
Prepaid expenses and
other assets 14,643 18,488 14,725
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532,068 549,565 547,318
Investments in associated
companies 57,652 85,371 58,303
Property and equipment 789,079 704,118 795,932
Other long-term assets 163,060 172,153 161,961
Future tax asset 14,963 15,942 14,602
Goodwill 402,597 326,199 402,636
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$1,959,419 $1,853,348 $1,980,752
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LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ - $30,574 $ -
Accounts payable and
accrued charges 435,028 389,089 488,226
Income and other taxes
payable 23,694 14,992 34,573
Current portion of
long-term debt 21,122 13,261 23,556
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479,844 447,916 546,355
Long-term debt 657,715 823,239 627,890
Future tax liability 53,188 43,408 51,417
Other long-term
liabilities 7,311 5,928 7,315
Minority interest 88,428 79,246 88,059
Shareholders' equity 672,933 453,611 659,716
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$1,959,419 $1,853,348 $1,980,752
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The accompanying notes to the consolidated financial statements are
an integral part of this statement.
Maple Leaf Foods Inc.
Consolidated Statements of Cash Flows
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In thousands of Canadian dollars Quarter ended March 31,
(Unaudited) 2002 2001
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CASH PROVIDED BY (USED IN):
Operating activities
Net earnings for the period $16,890 $9,719
Add (deduct) items not affecting
cash:
Depreciation 24,129 19,928
Amortization - 2,654
Minority interest 2,215 1,167
Future income taxes 2,413 (44)
Undistributed earnings of
associated companies (568) 9,432
Loss (gain) on sale of property and
equipment (77) 87
Other (5,152) 7,816
Change in other long-term
receivables 2,883 257
Change in non-cash operating
working capital (50,177) (85,059)
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(7,444) (34,043)
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Financing activities
Dividends paid (4,492) (3,804)
Dividends paid to minority interest (1,481) (516)
Increase in long-term debt 27,391 106,247
Convertible debenture interest paid (1,370) (1,370)
Increase in share capital 2,935 479
Shares repurchased for cancellation - (1,218)
Other (959) 296
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22,024 100,114
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Investing activities
Additions to property and equipment (18,570) (7,005)
Proceeds from sale of property and
equipment 2,423 79
Purchase of net assets of
businesses - (42,836)
Change in other investments, net 1,219 338
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(14,928) (49,424)
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Increase (decrease) in cash and
cash equivalents (348) 16,647
Cash and cash equivalents,
beginning of period 52,611 201
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Cash and cash equivalents, end of
period 52,263 16,848
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The accompanying notes to the consolidated financial statements
are an integral part of this statement.
Maple Leaf Foods Inc.
Consolidated Statements of Retained Earnings / Deficit
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In thousands of Canadian dollars Quarter ended March 31,
(Unaudited) 2002 2001
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Retained earnings (deficit),
beginning of period
as previously reported $ 3,310 $ (32,889)
Adjustment to reflect change
in accounting for
foreign currency translation (note 1[c]) $ (1,493)
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As restated $ 1,817 $ (32,889)
Net earnings for the period 16,890 9,719
Dividends declared
($0.04 per share; 2001 - $0.04 per share) (4,492) (3,804)
Premium on repurchase of share capital - (654)
Convertible debenture charge (1,135) (1,131)
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Retained earnings (deficit), end of period $ 13,080 $ (28,759)
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The accompanying notes to the consolidated financial statements
are an integral part of this statement.
Maple Leaf Foods Inc.
Segmented Financial Information
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Pro-forma for the
Quarter ended quarter ended
In thousands of Canadian dollars, March 31, March 31,
(Unaudited) 2002 2001 2001(i)
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Sales
Meat Products Group $737,354 $689,402 $689,402
Agribusiness Group 220,677 201,886 201,886
Bakery Products Group 265,147 163,613 163,613
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$1,223,178 $1,054,901 $1,054,901
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Earnings from operations
Meat Products Group $12,455 $10,396 $11,501
Agribusiness Group 17,299 14,190 14,590
Bakery Products Group 11,953 6,248 7,274
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$41,707 $30,834 $33,365
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Capital expenditures
Meat Products Group $4,604 $1,476 $1,476
Agribusiness Group 7,434 2,537 2,537
Bakery Products Group 6,532 2,992 2,992
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$18,570 $7,005 $7,005
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Depreciation and amortization
Meat Products Group $10,062 $10,041 $8,936
Agribusiness Group 4,005 4,523 4,123
Bakery Products Group 10,062 8,018 6,992
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$24,129 $22,582 $20,051
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As at As at
In thousands of Canadian dollars, March 31, December,
2002 2001 2001
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(Unaudited) (Unaudited)
Total assets
Meat Products Group $703,964 $729,242 $724,137
Agribusiness Group 467,599 450,515 457,862
Bakery Products Group 620,838 462,815 627,017
Non-allocated assets 167,018 210,776 171,736
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$1,959,419 $1,853,348 $1,980,752
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(i) Effective January 1, 2002, in accordance with recent changes in
generally accepted accounting principles, the Company no longer
amortizes goodwill. The pro-forma effect of this change, as
if goodwill had not been amortized in 2001, is presented above.
The accompanying notes to the consolidated financial statements
are an integral part of this statement.
/T/
Maple Leaf Foods Inc. Notes to Consolidated Financial Statements
(Quarters Ended March 31, 2002 and March 31, 2001) (Tabular
amounts in thousands of Canadian Dollars except for per share
amounts)
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, 2001. 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,
2001 except for the following:
(a) Business Combinations, Goodwill and Other Intangible Assets
In September 2001, the Canadian Institute of Chartered Accountants
(CICA) issued Handbook Sections 1581 "Business Combinations" and
3062 "Goodwill and Other Intangible Assets". The new standards
require the purchase method of accounting for business
combinations and require that goodwill no longer be amortized but
instead be tested for impairment at least annually. The standards
require that specified intangible assets be recognized and
reported apart from goodwill. The Company has adopted these new
standards as of January 1, 2002 and has discontinued amortization
of all existing goodwill. Effective July 1, 2001, goodwill arising
on business combinations completed after June 30, 2001 was not
amortized.
In connection with the Section 3062 transitional goodwill
impairment evaluation, the Company is required to assess whether
goodwill is impaired as of January 1, 2002. The Company has up to
six months to determine the fair value of its reporting units and
compare that to the reporting units' carrying amounts. To the
extent a reporting units' carrying amount exceeds its fair value,
the Company must perform a second step to measure the amount of
impairment in a manner similar to a purchase price allocation.
This second step is to be completed no later than December 31,
2002. Any transitional impairment will be recognized as an effect
of a change in accounting principle and will be charged to opening
retained earnings as of January 1, 2002. The Company has not yet
determined the impact of this transitional goodwill impairment
assessment on its financial statements.
Effective January 1, 2002, the Company had unamortized goodwill of
$402.6 million which is no longer being amortized. This change in
accounting policy is not applied retroactively and the amounts
presented for prior periods have not been restated for this
change. To enable consistent comparison to prior periods, the
following selected pro-forma financial information is provided for
2001, assuming no goodwill amortization for 2001:
/T/
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Quarter Ended March 31,
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2002 2001
Earnings from operations as reported $ 41,707 $ 30,834
Add back goodwill amortization 2,531
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Pro-forma earnings from operations $ 41,707 $ 33,365
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Pro-forma net earnings for the period $ 16,890 $ 12,014
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Earnings per share as reported
(basic and diluted) $0.14 $0.09
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Pro-forma earnings per share
(basic and diluted) $0.14 $0.11
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/T/
(b) Stock-based compensation and other stock-based payments
Effective January 1, 2002, the Company adopted the new CICA
Handbook Section 3870, which requires that a fair value based
method of accounting be applied to certain types of stock option
awards. The new standard requires that for stock option awards
such as those awarded by the Company, the effect on reported net
earnings be disclosed on a pro-forma basis in the notes to the
financial statements as if the Company had accounted for these
stock option awards under the fair value method.
During the first quarter of 2002, the Company awarded 89,000 stock
options to employees (135,000 in the first quarter of 2001). The
estimated fair value of options issued during the quarter was $0.4
million ($0.4 million for options issued in the first quarter of
2001). For the purposes of pro-forma disclosure, this estimated
fair value is amortized to income over the vesting period of the
related options. For the three months ended March 31, 2002 and
March 31, 2001, the amortization of these stock option awards
would have had no material impact on net earnings.
(c) Foreign Currency Translation
A revision to section 1650 of the CICA Handbook eliminated
deferral and amortization of foreign currency translation
differences resulting from the translation of long-term monetary
assets and liabilities denominated in foreign currencies. All such
translation differences are now charged directly to income. The
Company adopted the revision retroactively, effective January 1,
2002, without restating the financial statements of any prior
period. Application of the recommendation would not have
materially affected net earnings reported in 2001. In total, the
adoption of the standard results in a cumulative reduction to
retained earnings at January 1, 2002 of $1.5 million.
(d) Comparative figures
Certain comparative figures have been reclassified to conform with
the financial statement presentation adopted in the current year.
2. Acquisitions
On October 12, 2001 Canada Bread Company Limited, ("Canada
Bread"), a 68% owned subsidiary of the Company, acquired the
remaining 75% interest in Multi-Marques Inc., to now hold 100%.
The Company has not yet completed the determination of fair values
of the individual assets and liabilities acquired or its
restructuring and integration plans for the operations acquired.
Accordingly, the allocation of the purchase cost to the assets and
liabilities acquired is preliminary and will change as
restructuring plans are finalized. No restructuring costs have
been accrued in the preliminary purchase accounting included in
these financial statements, or accrued with respect to any
restructuring of existing Canada Bread operations that may result
from integration plans, when finalized.
Subsequent to the end of the first quarter on April 11, 2002,
Canada Bread acquired the remaining 40% interest in Ben's Limited,
a bakery business in Atlantic Canada, to now hold 100%.
3. Accounts Receivable
Under revolving securitization programs, the Company has sold,
with limited recourse, certain of its trade accounts receivable to
financial institutions. The Company retains servicing
responsibilities and assumes limited recourse obligations for
delinquent receivables. At March 31, 2002, trade accounts
receivable amounting to $175.3 million (March 31, 2001 - $112.5
million) had been sold under these programs.
4. Other Income
/T/
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Quarter Ended March 31,
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2002 2001
Earnings from associated companies $ 162 $ 255
Dividends received 14 --
Gain on sale of investments, net 954 --
Gain on real estate operations 318 2,813
Gain (loss) on sale of property
& equipment 77 (87)
Other 69 541
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$ 1,594 $ 3,522
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/T/