Maple Leaf Foods Reports 2006 Year-End and Fourth Quarter Financial Results
TORONTO, Feb. 22, 2007 (Canada NewsWire via COMTEX News Network) -- Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the fourth quarter and year ended December 31, 2006.
"Our combined operations achieved significant improvements in the fourth quarter, resulting in a 27% increase in earnings before restructuring and other related costs. Although a strong result compared to last year, it does not reflect our true earnings potential or meet the financial targets we have set for the Company." said Michael McCain, President and CEO. "We are moving forward aggressively with a major reorganization of our protein businesses to re-align the Company's focus on value-added meats and meals and bakery consumer products. We expect 2007 will be a year of change as we align operations to the new protein business model. The reward for investors will be a simpler, more profitable Company with leading market shares in the higher margin, high growth meats and meals and bakery sectors of the global food industry, reduced exposure to currency and commodities, and lower earnings volatility."
The new strategy for the Company's protein business announced in the fourth quarter of 2006 involves simplifying hog production operations, reducing hogs processed annually from over 7 million currently to approximately 4.5 million, divesting of non-core operations including animal nutrition and non-core global businesses, and focusing on growth and innovation in the value added meats and meals and bakery businesses, where the Company has strong market positions and brand leadership.
In the fourth quarter of 2006, the Company recorded restructuring and other related costs of $44.9 million ($34.3 million after tax and minority interest), of which $29.8 million is related directly to the protein reorganization. The balance is related to the closure of a poultry facility in Nova Scotia, the closure of a bakery in Langley, B.C. and the write-off of an investment in a Caribbean flour operation.
Sales for the fourth quarter of $1.5 billion were consistent with the same period last year, while sales for the year decreased 4% to $5.9 billion, primarily due to the impact of currency. Earnings from operations before restructuring and other related costs for the fourth quarter increased 27% to $65.4 million, while operating earnings before restructuring and other related costs for the year decreased to $223.9 million compared to $263.0 million. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs are not representative of continuing operations.
The following table is a summary of net earnings and earnings per share ("EPS"):
<<
($ millions) Fourth Quarter Full Year
---------------------- ----------------------
2006 2005 Change 2006 2005 Change
------ ------ ------ ------ ------ ------
Net earnings as
reported (11.6) 18.2 (164%) 4.5 94.2 (95%)
Restructuring and other
related costs, net of
tax and minority
interest 34.3 - 49.9 8.4
U.S. tax adjustment net
of minority interest - - 18.6 -
-----------------------------------------------
Net earnings before
restructuring and
other related costs
and U.S. tax
adjustment(i) 22.7 18.2 25% 73.0 102.6 (29%)
-----------------------------------------------
-----------------------------------------------
EPS before restructuring
and other related costs
and U.S. tax
adjustment(i) $0.18 $0.14 $0.04 $0.57 $0.81 $(0.24)
The Company recorded a loss of $0.09 per share in the quarter after
restructuring and other related costs compared to earnings per share of $0.14
in 2005.
(i) These are not recognized measures under Canadian GAAP. Management
believes that this is the most appropriate basis on which to evaluate
operating results, as restructuring and other related costs and the non-
recurring U.S. tax adjustment are not representative of continuing
operations.
Operating Review
----------------
The following table reflects operating earnings by business segment before
restructuring and other related costs:
($ millions) Fourth Quarter Full Year
---------------------- ----------------------
2006 2005 Change 2006 2005 Change
------ ------ ------ ------ ------ ------
Meat Products Group 37.9 10.4 264% 74.4 59.9 24%
Agribusiness Group 4.2 18.9 (78%) 48.6 101.9 (52%)
---------------------- ----------------------
Protein Value Chain 42.1 29.3 44% 123.0 161.8 (24%)
Bakery Products Group 23.3 22.3 4% 100.9 101.2 -
---------------------- ----------------------
65.4 51.6 27% 223.9 263.0 (15%)
---------------------- ----------------------
---------------------- ----------------------
>>
Meat Products Group (branded value-added prepared meat products; fresh, frozen and branded value-added pork products; fresh, frozen and branded value-added chicken and turkey products; and global food marketing, distribution and trading)
Meat Products Group sales for the fourth quarter decreased 6% to $942 million compared to $998 million last year, while sales for the year decreased 9% to $3.7 billion compared to $4.1 billion last year. This decrease was due primarily to currency changes, a decline in volumes to Japan, and a 2% reduction in the number of hogs processed. Volumes in the Consumer Foods business also declined marginally as the Company exited non-profitable products.
Earnings from operations before restructuring and other related costs for the fourth quarter increased significantly to $37.9 million from $10.4 million last year. Consumer foods operations achieved strong earnings growth in the quarter, benefiting from an improved sales mix and margins as a result of price increases implemented to offset higher raw material costs. Fresh pork operations benefited from initiatives to increase manufacturing efficiencies and reduce costs, improved sales and customer mix. The fresh poultry operations recorded a substantial increase in earnings, largely due to an improvement in underlying commodity prices.
Earnings from operations before restructuring and other related costs for the year increased to $74.4 million from $59.9 million in 2005. The consumer foods operations achieved excellent results in 2006, supported by its leading brands and market shares, and rising demand in both the food service and retail markets for fully cooked meats and meal solutions. The business also benefited from lower raw material costs earlier in the year, price increases to offset higher energy and related costs, and synergies related to the Schneider Foods acquisition. During the year, Maple Leaf extended its leadership in the value-added meats and meals category with the very successful launch of Schneiders Fully Cooked Sausages, Maple Leaf Grilled Meat Strips, and expansion of the very popular Maple Leaf Fully Cooked Roasts product line. Growth in the consumer foods group more than offset a year-over-year decline in the earnings of the fresh pork operations that was largely related to the ongoing impact of a high Canadian dollar on global competitiveness. Earnings from fresh poultry operations increased in 2006, as industry-wide processor margins recovered from the depressed levels of the prior year.
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 fourth quarter increased to $218.3 million from $212.3 million last year, while sales for the year increased to $815.9 million from $800.8 million, largely due to the consolidation of Cold Springs Farms, a Schneider Foods subsidiary that was previously accounted for on an equity basis. After excluding the sales of Cold Springs Farms, sales for the year decreased by 2%.
Earnings from operations before restructuring and other related costs for the fourth quarter declined to $4.2 million from $18.9 million last year. Although market hog prices increased marginally year over year, losses from hog operations increased as operations were impacted by a stronger Canadian dollar against the U.S. dollar and substantially higher feed costs. The Company had an effective ownership of 20% of the hogs it processed in the fourth quarter. As part of the protein reorganization, this business is being restructured to 100% ownership of significantly fewer hogs. Moving to a smaller, vertically integrated business model is expected to significantly reduce both the complexity and costs of the Company's hog production operations.
Earnings from operations before restructuring and other related costs for the year decreased to $48.6 million from $101.9 million in 2005, due to a year-over-year decline in hog prices, a weaker U.S. dollar resulting in lower realized hog prices, and increased feed and energy costs. Full-year earnings from hog production were also negatively affected in the second quarter by a one-time adjustment made to the inventory values of work-in-progress hogs, and the impact of short term hedging programs.
Earnings from the animal nutrition operations for the quarter and year were lower due principally to restructuring in the hog production business and associated reductions in volumes and margins related to feeding Company owned livestock, and changes made in sales prices in Western Canada. Earnings were also impacted by the costs of transitioning customers from the Company's three aging feed mills in Atlantic Canada into a new high-efficiency feed mill in Moncton, New Brunswick. As part of implementing the new business model, the Company is vertically integrating and re-sizing all protein operations to support growth in the value added meats and meals market. As a result, the Company is proceeding with the sale of its animal nutrition business, retaining only two feed mills in Western Canada to meet the future requirements of its own hog production operations.
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 fourth quarter increased 15% to $355.0 million compared to $308.7 million last year. Sales for the year increased 9% to $1.3 billion. Excluding acquisitions, sales increased by 8% in the fourth quarter and 6% for the year as a result of increased sales across all the bakery businesses.
Earnings from operations before restructuring and other related costs in the fourth quarter were $23.3 million compared to $22.3 million last year. Operating earnings from fresh bakery operations rose as a result of an improved sales mix, including strong sales of Dempsters Smart bread launched earlier in the year. Dempsters Smart is a white bread product made with a new enriched whole wheat flour that provides the health attributes of whole grain bread. The business also benefited from operating improvements and price increases implemented in the fourth quarter to offset rising wheat prices. This earnings increase in the fresh bakery was offset in part by lower earnings in the North American frozen bakery operations, due to higher input and distribution costs, and higher operating costs at the Roanoke, Virginia facility.
The U.K. bakery business had another strong quarter, although earnings growth was offset by higher marketing and promotional investments to continue to build market growth and the New York Bagel brand. In November, the Company completed the acquisition of the French Croissant Company Ltd. and Avance (U.K.) Ltd. These operations manufacture premium croissants products and fresh and frozen specialty bakery items such as baguettes with annual sales of approximately $85 million. Included in the fourth quarter results is one month's contribution from these acquisitions.
Bakery Group earnings from operations before restructuring and other related costs for the year were largely consistent at $100.9 million compared to $101.2 million in 2005. This was achieved despite a sharp increase in flour prices. Fresh Bakery operating earnings improved from last year due to price increases and an improved mix of higher margin bakery products, supported by an ongoing focus on new product innovation, higher nutrition products and investment in brand building. Fresh pasta earnings increased for the year, expanding whole grain higher nutrition product lines and adding capacity through investment in its manufacturing plant in British Columbia. Earnings also benefited from the contribution of acquisitions and increased production at the new bagel plant in Rotherham, England. Through these investments, the Company now operates one of the largest specialty bakeries in the United Kingdom, with leading market shares in the bagel and croissant categories.
The North American frozen bakery operations recorded increased sales and volumes for the year, but profitability declined due to record high wheat costs that were not fully recovered in pricing, higher energy and distribution costs, and operational issues at its Roanoke, Virginia facility.
Restructuring and Other Related Costs
-------------------------------------
As noted above, the Company recorded a charge for restructuring and other related costs of $44.9 million in the fourth quarter and $64.6 million for the full year. The following table is a summary of restructuring and other related costs for the fourth quarter of 2006 and the year:
<<
($ millions)
Fourth Quarter Full Year
-------------- --------------
Pork value chain re-organization 29.8 49.5
Bakery facility closures 5.5 5.5
Poultry plant closure 2.3 2.3
Impairment of an investment 7.3 7.3
-------------- --------------
Total 44.9 64.6
-------------- --------------
-------------- --------------
>>
The Company had previously estimated that the total restructuring and other related costs for the pork value chain would be between $80 million and $120 million. Management has revised these estimates based on more detailed plans, and now estimates that restructuring and other related costs to this reorganization will amount to between $100 million and $150 million including $49.5 million recorded in 2006. Of the total amount $35 million to $50 million represents cash costs. The total amount of restructuring and other related charges is partly dependent on whether certain facilities that are non-core to the Company strategy will be sold or closed.
In addition, the Company is initiating other improvements and restructuring and other related costs unrelated to the protein reorganization. Management anticipates that approximately $25 million related to these initiatives will be charged to earnings during 2007.
Cash Flow and Financing
-----------------------
Total debt, net of cash balances, was $1.2 billion at December 31, 2006. This represents an increase of $150.8 million from the prior year due largely to acquisitions made in the United Kingdom, increases in working capital, and share repurchases during 2006.
Cash flow from operating activities for the fourth quarter was $58.3 million compared to $125.6 million last year. The reduction in fourth quarter cash flow was caused primarily by lower net earnings and a significant decrease in the fourth quarter cash flows from changes in working capital. In the final quarter of 2005, working capital had decreased as a result of an increase in accounts receivable securitization by $35.6 million and an increase in accrued charges and taxes payable that were not as significant in 2006. Cash flows from operating activities for the year decreased to $132.0 million from $264.7 million in 2005. The decrease resulted from a reduction in net earnings and an increase in net working capital.
Interest expense for the fourth quarter was $24.9 million compared to $23.6 million last year due to higher short term interest rates and slightly higher average debt outstanding. Interest expense for the year increased slightly to $99.1 million compared to $98.3 million last year. At December 2006, 77% of indebtedness was not exposed to interest rate fluctuations.
Capital expenditures on plant and equipment for the fourth quarter increased to $65.0 million from $36.2 million last year, while expenditures for the year were $169.5 million compared to $152.1 last year. In 2006, the Company made significant investments in its consumer products business to support increased capacity, new product lines and further cost reductions. These investments included the relocation of the existing Schneiders Lunchmate manufacturing operation to a new facility in Guelph, Ontario that will double the production capacity and reduce manufacturing costs. The Company has also purchased and renovated a 185,000 square foot facility in Brampton, Ontario to manufacture a new line of branded, fully cooked meal entrees.
Other Income
------------
Other income for the fourth quarter of $0.9 million decreased from $2.9 million in the prior year when a gain from insurance proceeds was recognized.
Taxes
-----
For the fourth quarter of 2006, the tax rate on regular earnings was 38% and the tax rate on restructuring and other related costs was 22%. On a net basis, due to the differential effective tax rates, the Company incurred a tax expense of $6.2 million applied against a loss before taxes of $3.6 million. The Company's tax rate for the year was 83.0% due to a number of unusual items including a $21.2 million non-recurring tax expense in the third quarter related to its U.S. frozen bakery business.
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 March 29, 2007, to shareholders of record on March 9, 2007. Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the corporation in 2007 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System.
Maple Leaf Foods Inc. is a leading Canadian food processing company. Headquartered in Toronto, Canada, the Company employs approximately 24,000 people at its operations across Canada and in the United States, Europe and Asia. The Company had sales of $5.9 billion in 2006.
An investor presentation related to the Company's fourth 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 10:00 a.m. EDT on February 22, 2007 to review Maple Leaf Foods' fourth 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 3213713 followed by the number sign).
A webcast presentation of the fourth quarter financial results will also be available at http://investor.mapleleaf.ca at 10:30 a.m. EDT via a link http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=88490&eventID=1479799. An archived replay of the webcast will be available following the call at each of the above links.
<<
Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three and twelve months ended December 31, 2006 and 2005
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at December 31,
2006 2005
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 64,494 $ 80,502
Accounts receivable (Note 3) 263,806 247,014
Inventories 427,846 400,848
Future tax asset - current 2,321 15,329
Prepaid expenses and other assets 11,986 12,104
-----------------------------------------------------------------------
770,453 755,797
Investments in associated companies 22,110 61,939
Property and equipment 1,187,398 1,137,317
Other long-term assets 282,091 261,907
Future tax asset - non-current 23,464 38,499
Goodwill 902,663 847,853
Other intangibles 87,547 86,468
-------------------------------------------------------------------------
$ 3,275,726 $ 3,189,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued charges $ 665,886 $ 669,941
Income and other taxes payable 20,457 31,727
Current portion of long-term debt 91,490 110,428
-----------------------------------------------------------------------
777,833 812,096
Long-term debt 1,186,538 1,032,829
Future tax liability 29,475 56,183
Other long-term liabilities 197,201 202,576
Minority interest 90,237 87,425
Shareholders' equity 994,442 998,671
-------------------------------------------------------------------------
$ 3,275,726 $ 3,189,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Twelve months ended
December 31, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
(As restated (As restated
Note 2(a)) Note 2(a))
Sales $ 1,514,806 $ 1,518,561 $ 5,895,218 $ 6,129,243
-------------------------------------------------------------------------
Earnings from
operations before
restructuring and
other related costs 65,409 51,653 $ 223,898 $ 263,034
Restructuring and
other related costs
(Note 4) (44,926) - (64,618) (13,157)
-------------------------------------------------------------------------
Earnings from
operations 20,483 51,653 159,280 249,877
Other income (Note 5) 863 2,896 3,026 6,977
-------------------------------------------------------------------------
Earnings before
interest and income
taxes 21,346 54,549 162,306 256,854
Interest expense 24,934 23,603 99,104 98,317
-------------------------------------------------------------------------
Earnings (loss)
before income taxes (3,588) 30,946 63,202 158,537
Income taxes (Note 7) 6,220 9,176 52,469 51,308
-------------------------------------------------------------------------
Earnings (loss) before
minority interest (9,808) 21,770 10,733 107,229
Minority interest 1,816 3,574 6,208 12,987
-------------------------------------------------------------------------
Net earnings (loss)
for the period $ (11,624) $ 18,196 $ 4,525 $ 94,242
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per
share - basic
(Note 6) $ (0.09) $ 0.14 $ 0.04 $ 0.74
Earnings (loss) per
share - diluted
(Note 6) $ (0.09) $ 0.14 $ 0.03 $ 0.72
Weighted average
number of shares
(millions) (Note 6) 127.0 127.5 127.5 126.8
Dividends declared
per share $ 0.04 $ 0.04 $ 0.16 $ 0.16
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Twelve months ended December 31,
2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 231,807 $ 159,129
Net earnings for the period 4,525 94,242
Dividends declared (20,387) (20,327)
Premium on repurchase of share capital (11,530) (1,237)
-------------------------------------------------------------------------
Retained earnings, end of period $ 204,415 $ 231,807
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Twelve months ended
December 31, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
(As restated (As restated
Note 2(b)) Note 2(b))
CASH PROVIDED BY (USED) IN
Operating activities
Net earnings (loss) $ (11,624) $ 18,196 $ 4,525 $ 94,242
Add (deduct) items
not affecting cash:
Depreciation and
amortization 36,456 33,550 143,105 132,489
Stock-based
compensation 3,367 2,826 10,384 8,425
Minority interest 1,816 3,574 6,208 12,987
Future income
taxes (15,774) (18,474) 75 (8,921)
Undistributed
(earnings)/losses
of associated
companies 989 (1,829) 770 (7,620)
Loss on repayment
of convertible
debenture - - - 1,108
Gain on sale of
property and
equipment (1,792) (4,394) (2,199) (5,814)
(Gain) loss on
sale of
investments 57 - 202 (363)
Other 3,455 (12,842) 7,090 (2,300)
Change in other
long-term
receivables 2,460 (45) 4,546 6,840
Change in
restructuring and
other related costs
(Note 4) 17,083 1,000 20,621 5,500
Increase in net
pension asset (20,925) (14,822) (55,322) (39,226)
Change in non-cash
operating working
capital 42,762 118,820 (7,994) 67,368
-----------------------------------------------------------------------
$ 58,330 $ 125,560 $ 132,011 $ 264,715
Financing activities
Dividends paid (5,081) (5,105) (20,387) (20,327)
Dividends paid to
minority interest (191) (320) (1,602) (1,031)
Increase in
long-term debt 103,908 275,537 247,311 592
Decrease in
long-term debt (8,941) (334,305) (128,098) (122,948)
Increase in share
capital 1,454 5,710 15,556 19,421
Shares repurchased
for cancellation - (1,989) (23,056) (1,989)
Other - (13,454) 2,357 (13,454)
-----------------------------------------------------------------------
$ 91,149 $ (73,926) $ 92,081 $ (139,736)
Investing activities
Additions to
property and
equipment (64,977) (36,190) (169,527) (152,130)
Proceeds from sale
of property and
equipment 2,629 6,491 7,836 9,746
Purchase of Canada
Bread shares - - - (7,004)
Purchase of net
assets of
businesses, net of
cash acquired
(Note 8) (70,663) - (80,986) (3,621)
Other 5,419 (1,495) 2,577 (3,238)
-----------------------------------------------------------------------
(127,592) (31,194) (240,100) (156,247)
Increase (decrease)
in cash and cash
equivalents 21,887 20,440 (16,008) (31,268)
Cash and cash
equivalents,
beginning of period 42,607 60,062 80,502 111,770
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $ 64,494 $ 80,502 $ 64,494 $ 80,502
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales (Note 2(a))
Meat Products Group $ 941,557 $ 997,570 $ 3,745,654 $ 4,102,383
Agribusiness Group 218,257 212,261 815,899 800,820
Bakery Products
Group 354,992 308,730 1,333,665 1,226,040
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$ 1,514,806 $ 1,518,561 $ 5,895,218 $ 6,129,243
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-------------------------------------------------------------------------
Earnings from
operations, before
restructuring and
other related costs
Meat Products Group $ 37,855 $ 10,425 $ 74,400 $ 59,881
Agribusiness Group 4,218 18,883 48,621 101,862
Bakery Products
Group 23,336 22,345 100,877 101,291
-------------------------------------------------------------------------
$ 65,409 $ 51,653 $ 223,898 $ 263,034
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property
and equipment
Meat Products Group $ 35,869 $ 12,925 $ 91,271 $ 59,287
Agribusiness Group 12,501 9,636 28,802 36,266
Bakery Products
Group 16,607 13,629 49,454 56,577
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$ 64,977 $ 36,190 $ 169,527 $ 152,130
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-------------------------------------------------------------------------
Depreciation and
amortization
Meat Products Group $ 16,657 $ 15,426 $ 66,987 $ 62,788
Agribusiness Group 7,699 6,150 29,691 24,502
Bakery Products
Group 12,100 11,974 46,427 45,199
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$ 36,456 $ 33,550 $ 143,105 $ 132,489
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As at December 31,
2006 2005
-------------------------------------------------------------------------
Total assets (Note 2(b))
Meat Products Group $ 1,551,502 $ 1,550,439
Agribusiness Group 702,534 639,622
Bakery Products Group 810,940 694,519
Non-allocated assets 210,750 305,200
-------------------------------------------------------------------------
$ 3,275,726 $ 3,189,780
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-------------------------------------------------------------------------
Goodwill
Meat Products Group $ 452,139 $ 452,815
Agribusiness Group 97,807 97,376
Bakery Products Group 352,717 297,662
-------------------------------------------------------------------------
$ 902,663 $ 847,853
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
1. THE COMPANY
Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") is a
leading Canadian-based food processing company, serving wholesale,
retail, food service, industrial and agricultural customers across
North America and internationally. The Company's results are
organized into three segments: Meat Products Group, Agribusiness
Group and Bakery Products Group.
2. 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
(a) Accounting Changes
Effective January 1, 2006, the Company adopted retroactively,
with restatement of prior periods, the guidance presented in
Emerging Issues Committee ("EIC") Abstract 156 "Accounting by a
Vendor for Consideration Given to a Customer (Including a
Reseller of the Vendor's Products)". The EIC requires vendors
to classify certain consideration provided to customers as a
reduction of revenue rather than as cost of sales unless the
vendor receives, or will receive an identifiable benefit in
exchange for the consideration. The impact of the adoption of
this standard was a reduction in sales for the quarter of
approximately $87.4 million (2005: $79.6 million) and year-to-
date of approximately $369.4 million (2005: $333.3 million).
This accounting change had no impact on operating earnings, net
earnings or earnings per share.
(b) Comparative Figures
Certain 2005 comparative figures have been reclassified to
conform with the financial statement presentation adopted in
2006.
3. ACCOUNTS RECEIVABLE
Under revolving securitization programs the Company has sold certain
of its trade accounts receivable to financial institutions. The
Company retains servicing responsibilities and retains a limited
recourse obligation for delinquent receivables. At December 31, 2006,
trade accounts receivable being serviced under this program amounted
to $241.5 million (2005: $230.1 million).
4. RESTRUCTURING AND OTHER RELATED COSTS
2006
----
During the fourth quarter, the Company recorded restructuring and
other costs of $44.9 million ($34.8 million after tax). The majority
of these restructuring and other related costs relate to the pork
value chain reorganization, the closure of a poultry plant in Nova
Scotia and the closure of a fresh bakery plant in British Columbia.
During the third quarter, the Company recorded restructuring costs of
$19.7 million ($15.6 million after tax). These restructuring and
other related costs related to the write-down of certain hog
investments, the costs to exit certain non-core trading businesses,
and restructuring costs related to the combination of the fresh pork
and poultry businesses.
The following table provides a summary of costs recognized and cash
payments made in respect of the above restructuring initiatives in
2006 and the corresponding liability as at December 31, 2006.
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Site Asset
Severance closing impairment Retention Total
---------------------------------------------------------------------
2006
Restructuring
& Related
Costs
Charges
during third
quarter $ 4,400 $ 1,481 $ 13,811 $ - $ 19,692
Cash draw-
downs (211) (659) - - (870)
Non-cash
items (13,811) - (13,811)
---------------------------------------------------------------------
Balance at
September 30,
2006 $ 4,189 $ 822 $ - $ - $ 5,011
Charges
during
fourth
quarter $ 11,634 $ 4,836 $ 25,406 $ 3,050 $ 44,926
Cash draw-
downs (1,651) (627) - (35) (2,313)
Non-cash
items - - (25,406) - (25,406)
---------------------------------------------------------------------
Balance at
December 31,
2006 $ 14,172 $ 5,031 $ - $ 3,015 $ 22,218
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2005
----
During the first quarter of 2005, the Company recorded $13.2 million
in restructuring and other related costs ($8.8 million after tax) in
respect of certain plant closures and operational restructuring for
several of its businesses associated with the integration of
Schneider Corporation ("Schneider Foods"), the closure of the
Company's bakery in Peterborough, England, and other operational
restructuring items. Of the $13.2 million, $5.0 million represents
the write down of certain capital assets that were disposed of or
that have become impaired as a result of the restructuring and
$8.2 million relates to provisions for employee terminations,
facility exit costs, and other restructuring costs. Of the
$8.2 million in provisions, $1.6 million was paid in 2006 (2005:
$2.7 million) and $2.5 million was returned to earnings.
5. OTHER INCOME
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Three months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
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Gain on sale of property
and equipment $ 1,792 $ 2,078 $ 2,199 $ 3,498
Earnings (loss) from
real estate operations (50) (283) 1,047 283
Dividends received 93 71 458 510
Rental income 74 538 294 300
Earnings (loss) from
associated companies (989) 492 (770) 3,131
Gain (loss) on sale of
investments (57) - (202) 363
Loss on redemption of
convertible debenture - - - (1,108)
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$ 863 $ 2,896 $ 3,026 $ 6,977
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6. EARNINGS PER SHARE
The following table sets forth the calculation of basic and fully
diluted earnings per share:
---------------------------------------------------------------------
Three months ended December 31,
2006 2005
---------------------------------------------------------------------
Weighted Weighted
Net Average Net Average
(loss) Shares(ii) EPS Earnings Shares(ii) EPS
-------------------------- ---------------------------
Basic $(11,624) 127.0 $(0.09) $ 18,196 127.5 $ 0.14
Stock
options(i) - 1.6 - - 2.9 -
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Diluted $(11,624) 128.6 $(0.09) $ 18,196 130.4 $ 0.14
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Twelve months ended December 31,
2006 2005
---------------------------------------------------------------------
Weighted Weighted
Net Average Net Average
(loss) Shares(ii) EPS Earnings Shares(ii) EPS
-------------------------- ---------------------------
Basic $ 4,525 127.5 $ 0.04 $ 94,242 126.8 $ 0.74
Stock
options(i) - 1.8 - - 3.2 (0.02)
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Diluted $ 4,525 129.3 $ 0.03 $ 94,242 130.0 $ 0.72
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(i) Excludes the effect of approximately 11.7 million options and
restricted stock units to purchase common shares for the three
months ended December 31 (2005: 10.7 million) and 9.5 million
options and restricted stock units to purchase common shares for
the twelve months ended December 31 (2005: 10.3 million) that
are anti-dilutive
(ii) In millions
7. INCOME TAXES
In accordance with CICA Handbook section 3465, "Accounting for Income
Taxes", the Company reviews all available positive and negative
evidence to evaluate the recoverability of future tax assets. This
includes a review of the Company's cumulative losses in recent years,
the carry forward period related to the tax losses, and the tax
planning strategies available to the Company. Upon applying these
accounting rules to the Company's accumulated tax losses in the U.S.
frozen bakery business, there is now sufficient uncertainty
surrounding the timing and amount of losses that will be utilized.
Accordingly, in the third quarter the Company recorded a valuation
allowance of US$19.2 million ($21.2 million) against the full amount
of the related net future tax asset related to tax losses in the U.S.
8. ACQUISITIONS
(a) During the fourth quarter of 2006, the Company acquired the
remaining interest in several partly owned hog barn investments
that had been accounted for on an equity basis for a total of
$2.9 million and recorded goodwill of $0.2 million.
(b) On November 27, 2006, Canada Bread purchased The French
Croissant Company Ltd. ("FCC") and Avance U.K. Limited
("Avance"), two related bakeries in the U.K. for total
consideration of (pnds stlg)29.1 million ($63.9 million). FCC
markets croissants and specialty goods across the U.K., and
Avance is a leading supplier of fresh, frozen and long-life
specialty bakery items. The Company has not yet finalized the
purchase equation for these acquisitions
(c) On October 2, 2006, Canada Bread acquired the remaining
interest in Royal Touch Foods Inc. ("Royal Touch"), a pre-
packaged sandwich supplier based in Etobicoke, Ontario. The
Company paid $3.5 million, net of estimated cash acquired of
$0.8 million for the shares of Royal Touch. The investment in
Royal Touch had been accounted for on an equity basis prior to
this purchase. The purchase price is subject to an adjustment
based on the net assets of Royal Touch as at the acquisition
date. As at December 31, 2006 the purchase price adjustment has
not yet been determined.
9. SUBSEQUENT EVENTS
On January 16, 2007, the Company purchased 122,900 additional shares
in Canada Bread for $6.5 million. The Company's ownership interest in
Canada Bread has increased from 87.5% to 88.0%, as a result of this
transaction.
10. SUPPLEMENTAL CASH FLOW INFORMATION
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Three months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
---------------------------------------------------------------------
Net interest paid $ 36,447 $ 36,940 $ 96,222 $ 103,342
Net income taxes paid 14,433 14,832 67,072 54,053
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>>
SOURCE: Maple Leaf Foods Inc.
Lynda Kuhn, Vice-President, Public & Investor Relations,
(416) 926-2026,
www.mapleleaf.com