PREMIUM BRANDS HOLDINGS CORPORATION

Transcription

1 PREMIUM BRANDS HOLDINGS CORPORATION Interim Condensed Consolidated Financial Statements First Quarter Thirteen weeks and (Unaudited)

2 NOTICE OF NO AUDITOR REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Under National Instrument Continuous Disclosure Obligations, if an auditor has not performed a review of the interim financial statements, the financial statements must be accompanied by a notice indicating that they have not been reviewed by an auditor. The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity s auditor. May 8,

3 Consolidated Balance Sheets (Unaudited and in thousands of dollars) December 29, January 1, Current assets: Cash and cash equivalents 3,806 3,758 3,786 4,486 Accounts receivable 83,208 80,180 71,760 78,343 Other assets (note 4) Inventories 99,403 79,456 91,171 78,831 Prepaid expenses 8,227 6,631 5,967 13, , , , ,103 Capital assets 203, , , ,801 Intangible assets 78,012 71,994 75,628 77,087 Goodwill 167, , , ,417 Other assets (note 4) 4,743 4,866 2,733 2,250 Investment in associate 4,199 4,381 5,040 5,001 Deferred income taxes 26,196 32,575 36,582 41, , , , ,993 Current liabilities: Cheques outstanding 1,775 1,928 1,900 2,500 Bank indebtedness 18,786 11,179 14,513 18,061 Dividend payable (note 7) 6,196 6,188 6,001 5,958 Accounts payable and accrued liabilities 84,098 82,281 80,861 79,998 Current portion of long-term debt (note 5) 24, ,195 17,703 17,530 Current portion of provisions 3,595 3,848 2,924 2,924 Other , , , ,971 Long-term debt (note 5) 181,588 13, , ,915 Convertible unsecured subordinated debentures (note 6) 133, ,842 87,665 89,396 Puttable interest in subsidiaries 15,736 15,649 15,244 15,210 Deferred revenue 1,492 1,443 1,814 1,943 Provisions 4, ,569 8,360 Pension obligation 1,905 1,873 1,377 1,345 Other , , , ,240 Equity attributable to shareholders: Accumulated earnings 149, , , ,370 Accumulated dividends declared (161,074) (154,878) (136,498) (130,497) Retained earnings (deficit) (11,962) (6,962) (2,013) 2,873 Share capital (note 8) 209, , , ,057 Equity component of convertible debentures (note 6) 1,754 1,785 1,916 1,916 Reserves (note 9) 1, ,083 1,442 Non-controlling interest 919 1,581 1,511 1, , , , , , , , ,993 Approved by the Board of Directors (signed) George Paleologou Director (signed) Johnny Ciampi Director The accompanying notes are an integral part of these interim condensed consolidated financial statements. 1

4 Consolidated Statements of Operations (Unaudited and in thousands of dollars except per share amounts) Revenue 229, ,443 Cost of goods sold 184, ,644 Gross profit before depreciation and amortization 44,539 43,799 Selling, general and administrative expenses before depreciation and amortization 31,781 32,196 12,758 11,603 Depreciation of capital assets 3,943 3,306 Amortization of intangible assets 1,088 1,242 Amortization of other assets 1 3 Interest and other financing costs (note 10) 4,165 4,010 Amortization of financing costs Acquisition transaction costs Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized (gain) loss on foreign currency contracts (100) 300 Unrealized loss (gain) on interest rate swap contracts 100 (500) Restructuring costs (note 11) 1, Equity loss (income) in associate 182 (39) Earnings before income taxes 1,772 1,995 Provision for income taxes Current Deferred Earnings 1,166 1,161 Earnings (loss) for the period attributable to: Shareholders 1,196 1,115 Non-controlling interest (30) 46 1,166 1,161 Earnings per share Basic Diluted Weighted average shares outstanding (in 000 s) Basic 20,966 20,226 Diluted 21,060 20,323 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 2

5 Consolidated Statements of Comprehensive Earnings (Unaudited and in thousands of dollars) Earnings 1,166 1,161 Unrealized foreign exchange gain (loss) on investment in foreign operations 958 (509) Comprehensive earnings 2, Comprehensive earnings (loss) attributable to: Shareholders 2, Non-controlling interest (30) 46 2, The accompanying notes are an integral part of these interim condensed consolidated financial statements. 3

6 Consolidated Statements of Cash Flows (Unaudited and in thousands of dollars) Cash flows from operating activities: Earnings 1,166 1,161 Items not involving cash: Depreciation of capital assets 3,943 3,306 Amortization of intangible and other assets 1,089 1,245 Amortization of financing costs Change in value of puttable interest in subsidiaries Gain on disposal of capital assets (3) (32) Accrued interest income (6) (7) Net unrealized gain on foreign currency contracts and interest rate swaps - (200) Equity loss (income) in associate 182 (39) Deferred revenue (127) (129) Accretion of convertible debentures, long-term debt, and provisions Change in value of cash conversion option liability (170) - Deferred income taxes ,250 6,581 Change in non-cash working capital (12,443) 2,665 (5,193) 9,246 Cash flows from financing activities: Long-term debt net 46,991 11,415 Bank indebtedness and cheques outstanding 22,405 (4,148) Dividends paid to shareholders (6,188) (5,958) Purchase of 7.00% Debentures under normal course issuer bid (178) - Other (38) - 62,992 1,309 Cash flows from investing activities: Capital asset additions (3,081) (11,230) Business acquisitions (54,347) - Payments to shareholders of non-wholly owned subsidiaries (114) (146) Payment of provisions (253) - Collection of share purchase loans and notes receivable Net proceeds from sales of assets 3 88 (57,774) (11,219) Increase (decrease) in cash and cash equivalents 25 (664) Effects of exchange on cash and cash equivalents 23 (36) Cash and cash equivalents beginning of period 3,758 4,486 Cash and cash equivalents end of period 3,806 3,786 Interest and other financing costs paid 1,458 1,968 Net income taxes paid The accompanying notes are an integral part of these interim condensed consolidated financial statements. 4

7 Consolidated Statements of Changes in Shareholders Equity (Unaudited and in thousands of dollars) Retained earnings (deficit) Share capital Equity component of convertible debentures Reserves Noncontrolling interest Shareholders equity Balance as at December 31, , ,057 1,916 1,442 1, ,753 Common shares issued - 2, ,093 Earnings for the period attributable to: Shareholders 1, ,115 Non-controlling interest Dividends declared (6,001) (6,001) Effect of share based compensation plans Foreign currency translation adjustment (509) - (509) Balance as at (2,013) 200,150 1,916 1,083 1, ,647 Deficit Share capital Equity component of convertible debentures Reserves Noncontrolling interest Shareholders equity Balance as at December 29, (6,962) 209,093 1, , ,945 Common shares issued Earnings (loss) for the period attributable to: Shareholders 1, ,196 Non-controlling interest (30) (30) Dividends declared (note 7) (6,196) (6,196) Purchase and cancellation of Debentures under normal course issuer bid - - (31) - - (31) Acquisition of additional interest in subsidiary (note 14) (262) (632) (894) Effect of share based compensation plans Foreign currency translation adjustment Balance as at (11,962) 209,546 1,754 1, ,801 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 5

8 For the 13-Week Periods Ended and 1. Corporate information and nature of business (the Company) is incorporated under the Canada Business Corporations Act. Through its subsidiaries, the Company owns a broad range of specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nevada and Washington State. Due to the seasonal nature of the Company s business, the results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year. In general, the first quarter is the Company s weakest, and the second and third quarters are its strongest. The Company s Board of Directors approved these interim condensed consolidated financial statements on May 8,. 2. Significant accounting policies Basis of presentation These interim condensed consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB). Accordingly, these interim condensed consolidated financial statements do not include all of the financial statement disclosures required by International Financial Reporting Standards (IFRS) for annual financial statements and should be read in conjunction with the Company s audited annual consolidated financial statements and notes for the fiscal year December 29,, which were prepared in accordance with IFRS, and are filed electronically through the System for Electronic Document Analysis and Retrieval (SEDAR) and are available at These interim condensed consolidated financial statements follow the same accounting policies and methods of computation as used in the annual consolidated financial statements of the Company, except as described in note 3 below. 3. Change in accounting policy As a result of the adoption of IFRS 11 Joint Arrangements, the Company changed the accounting for its joint venture to the equity method from the proportionate consolidation method retroactive to January 1,. Correspondingly, the Company s investment in the joint venture as at January 1, has been presented as an investment in associate and recorded at the net carrying amount of the assets and liabilities previously proportionately consolidated. The Company assessed whether the investment in the joint venture was impaired at January 1, and determined no impairment existed. The adjustments to the Company s previous financial statements are presented in the tables below. Adjustments to consolidated balance sheets December 31, January 1, Equity attributable to shareholders before accounting change 205, , ,753 Changes in assets: Cash and cash equivalents (262) (969) (374) Accounts receivable (419) (553) (487) Inventories (1,730) (987) (1,146) Prepaid expenses (26) (228) (115) Capital assets (8,623) (8,870) (9,181) Other assets 2, Investment in associate 4,381 5,040 5,001 Deferred income taxes 1,289 1,355 1,382 (2,790) (5,212) (4,920) Changes in liabilities: Cheques outstanding (6) (336) (4) Accounts payable and accrued liabilities (959) (234) (164) Current portion of long-term debt (115) (2,905) (3,006) Long-term debt (1,710) (1,737) (1,746) (2,790) (5,212) (4,920) Net change in net assets Equity attributable to shareholders after accounting change 205, , ,753 6

9 For the 13-Week Periods Ended and Adjustments to consolidated statement of operations Earnings before accounting change 1,161 Changes in: Revenues (2,281) Cost of goods sold (1,794) Gross profit before depreciation and amortization (487) Selling, general, and administrative expenses before depreciation and amortization (66) (421) Depreciation of capital assets (313) Interest and other financing costs (66) Equity income in associate (39) Earnings before income taxes (3) Provision for (recovery of) income taxes Current (52) Deferred 49 (3) Net change in earnings - Earnings after accounting change 1,161 Adjustments to consolidated statement of cash flows Decrease in cash and cash equivalents before accounting change (69) Change in cash flows from: Operating activities (395) Financing activities (202) Investing activities 2 (595) Decrease in cash and cash equivalents after accounting change (664) Effects of exchange on cash and cash equivalents (36) Cash and cash equivalents, beginning of period 4,486 Cash and cash equivalents, end of period 3,786 7

10 For the 13-Week Periods Ended and 4. Other assets December 29, Promissory note from associate 2,600 2,600 - Notes receivable 1,427 1,437 1,497 Employee share purchase loans Fair value of interest rate swaps Fair value of foreign currency forward contracts Other ,036 5,059 2,836 Less: current portion ,743 4,866 2, Long-term debt December 29, Facility A - portion of a revolving term loan maturing in September 2014 with no principal payments until maturity. The loan bears interest at the bank s prime rate plus 0.5% to 1.5% or at the banker s acceptance rate plus 1.5% to 2.5% based on the Company s ratio of debt to cash flow calculated quarterly 15,000-15,000 Facility B - revolving term loan maturing in September 2014 with quarterly principal payments of $3.5 million. The loan bears interest at the bank s prime rate plus 0.5% to 1.5% or at the banker s acceptance rate plus 1.5% to 2.5% based on the Company s ratio of debt to cash flow calculated quarterly 65,590 17,250 46,700 Facility C - non-revolving term loan maturing in September 2014 with no quarterly principal payments until the Company s Facility B is repaid at which time it will have quarterly principal payments of $3.5 million. The loan bears interest at the bank s prime rate plus 0.5% to 1.5% or at the banker s acceptance rate plus 1.5% to 2.5% based on the Company s ratio of debt to cash flow calculated quarterly 100, , ,000 US$6.1 million secured Industrial Development Revenue Bond with no principal payments until maturity in July The bond bears interest at the weekly variable rate for such bonds, which averaged %, plus 1.0% to 2.0% based on the Company s ratio of debt to cash flow calculated quarterly 6,220 6,096 6,119 Non-revolving term loan maturing in March 2014 with monthly bl payments and bearing interest at 10% Non-revolving term loans maturing in July 2020 with monthly bl payments and bearing interest at the lender s variable mortgage rate, which averaged 4.0%, plus 0.5% to 1.5% 6,074 6,246 6,752 Unsecured notes payable bearing interest at a rate of 0.0% to 6.5% and due in 6,914 7,146 10,350 Capital leases 5,320 3,477 4,842 Other 1, , , ,724 Financing costs (535) (569) (836) Current portion (24,541) (127,195) (17,703) 181,588 13, ,185 8

11 For the 13-Week Periods Ended and 6. Convertible unsecured subordinated debentures Debt component 7.00% Debentures 5.75% Debentures 5.70% Debentures Total Balance as at December 29, 24,149 54,789 54, ,842 Conversions of debentures to common shares (453) - - (453) Purchase and cancellation of debentures under normal course issuer bid (140) - - (140) Change in value of cash conversion option liability - - (170) (170) Accretion Balance as at 23,736 55,003 54, ,630 Equity component 7.00% Debentures 5.75% Debentures Total Balance as at December 29, ,785 Purchase and cancellation of debentures under normal course issuer bid (31) - (31) Balance as at , Dividends During the thirteen weeks, the Company declared dividends to shareholders of $6.2 million or $0.294 per share. The record date of this dividend was as follows: Record date Amount Per share March 29, 6, , The March 29, dividend, which was paid subsequent to the quarter end, is reported as a current liability as at March 30,. 8. Share capital Common shares ( 000s) Share capital Balance as at December 29, 20, ,093 Common shares issued resulting from conversions of 7.00% Debentures Common shares cancelled (3) - Balance as at 20, ,546 During the thirteen weeks, the Company issued 31,239 common shares resulting from the conversion of $0.5 million of 7.00% Debentures at the conversion price of $14.50 per share. After taking into account the 94,917 shares held in the Company s employee benefit plan that had not yet vested with the beneficiaries, the Company had 21,075,454 common shares outstanding at. 9

12 For the 13-Week Periods Ended and 9. Reserves Noncontrolling interest reserve Foreign currency translation adjustment Share based compensation reserve Total Balance as at December 29, - (922) 1, Effect of share based compensation plans Acquisition of additional interest in subsidiary (note 14) (262) - - (262) Unrealized foreign exchange translation loss on investment in foreign operations Balance as at (262) 36 1,770 1, Interest and other financing costs Interest on convertible debentures 2,056 1,457 Interest on long-term debt 1,189 1,578 Interest on bank indebtedness Accretion of convertible debentures Accretion of long-term debt Change in value of cash conversion option liability of 5.70% convertible unsecured subordinated debentures (170) - Other ,165 4, Restructuring costs Restructuring costs consist of costs associated with the significant restructuring of one or more of the Company s businesses. During the thirteen weeks, the Company incurred $1.3 million in restructuring costs consisting of: (i) $0.9 million in charges associated with the restructuring and rationalization of the Company s direct-tostore delivery networks; (ii) $0.2 million in non-recurring charges associated with the Company s seafood initiatives, which include the startup of its new seafood processing facility and the integration of the businesses acquired from Harbour Marine Products Inc. (note 14); (iii) $0.1 million in costs relating to the transitioning of production from the Company s Richmond, BC deli meats processing facility to some of its other deli meats processing plants, including the facility acquired as part of the acquisition of Freybe Gourmet Foods Ltd. (note 14); and (iv) $0.1 million in restructuring costs associated with a variety of other initiatives, including moving the Company s head office to a new location in Richmond, BC. 10

13 For the 13-Week Periods Ended and 12. Segmented information The Company has two reportable segments, Retail and Foodservice as well as corporate costs (Corporate). The Retail segment consists of its specialty food manufacturing and retail distribution businesses. The Foodservice segment consists of its foodservice related businesses. Corporate consists of the Company s head office activities, including strategic leadership, finance and information systems. The operating segments within each reportable segment have been aggregated as they have similar economic characteristics. Revenue Retail 138, ,627 Foodservice 90,858 83, , ,443 Gross profit before depreciation and amortization Retail 27,982 28,741 Foodservice 16,557 15,058 44,539 43,799 Selling, general and administrative expenses before depreciation and amortization Retail 18,154 19,162 Foodservice 12,061 11,594 Corporate 1,566 1,440 31,781 32,196 Segment earnings (loss) before depreciation and amortization Retail 9,828 9,579 Foodservice 4,496 3,464 Corporate (1,566) (1,440) 12,758 11,603 Depreciation of capital assets Retail 3,282 2,671 Foodservice Corporate ,943 3,306 Amortization of intangible and other assets Retail Foodservice ,089 1,245 Segment operating earnings (loss) Retail 5,941 6,147 Foodservice 3,460 2,468 Corporate (1,675) (1,563) 7,726 7,052 Interest and other financing costs 4,165 4,010 Amortization of financing costs Acquisition transaction costs Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized (gain) loss on foreign currency contracts (100) 300 Unrealized loss (gain) on interest rate swap contracts 100 (500) Restructuring costs 1, Equity loss (income) in associate 182 (39) Provision for income taxes Earnings 1,166 1,161 11

14 For the 13-Week Periods Ended and Capital asset additions Retail 1,841 10,626 Foodservice 1, Corporate ,081 11,230 December 29, Total assets Retail 434, , ,227 Foodservice 185, , ,697 Corporate 59,904 56,770 57, , , ,703 Revenue Canada 185, ,993 United States 43,813 36, , ,443 December 29, Capital assets and goodwill Canada 340, , ,887 United States 30,940 30,058 30, , , , Financial instruments Foreign currency risk In order to reduce the risk associated with purchases denominated in currencies other than the Canadian dollar, the Company, from time to time, enters into foreign currency contracts. The Company does not hold foreign currency contracts for speculative purposes. As at, the Company had outstanding foreign currency contracts for the purchase of US$11.6 million over the next nine months at a bl rate of C$1.0028, and for the purchase of 0.8 million over the next six months at a bl rate of C$ As at, these contracts had a fair value of $0.2 million favourable ( $0.3 million unfavourable) and during the thirteen weeks, the Company recorded in respect of these contracts an unrealized gain of $0.1 million ( unrealized loss of $0.3 million) in the consolidated statements of operations. Based on the outstanding contracts as at for the purchase of U.S. dollars, a change of $0.01 in the value of the Canadian dollar relative to the U.S. dollar would result in an unrealized gain (if the Canadian dollar weakens) or an unrealized loss (if the Canadian dollar strengthens) of approximately $0.1 million in its consolidated statement of operations. 12

15 For the 13-Week Periods Ended and Interest rate risk All of the Company s bank indebtedness and approximately 93% ( 89%) of its long-term debt bear interest at floating rates. The Company manages some of its interest rate exposure by entering into, from time to time, interest rate swap contracts (swaps). As at, the Company had in place swaps relating to $100.0 million of its long-term debt. These swaps had a fair value of $0.1 million favourable ( $0.4 million favourable), and during the thirteen weeks, the Company recorded in respect of the swaps an unrealized loss of $0.1 million ( unrealized gain of $0.5 million) in the consolidated statement of operations. As at, a change of 0.25 percentage points in the effective interest rate for the remaining term of the swaps would result in a gain (if interest rates increase) or loss (if interest rates decrease) of approximately $0.4 million in the Company s consolidated statement of operations. 14. Acquisitions On January 11,, the Company increased its interest in Made-Rite Meat Products LP from 50% to 70% by purchasing a portion of the other partner s interest in the business for $0.9 million. On January 24,, the Company acquired certain segments of the business of Harbour Marine Products Inc., namely its salmon and sushi grade tuna processing businesses, for $2.0 million, including transaction and working capital adjustments. On March 27,, the Company completed the acquisition of Freybe Gourmet Foods Ltd. (Freybe) for approximately $55.0 million. The purchase price consisted of $51.4 million in cash and the assumption of $3.6 million in funded debt. This amount is subject to adjustment if Freybe s net working capital at closing is determined to be above or below a defined normalized amount. Furthermore, the purchase price will be increased by up to $1.25 million per year for each of the next four years if Freybe is able to achieve certain performance targets (the contingent consideration). The contingent consideration is included at its discounted present value of $4.0 million in provisions on the consolidated balance sheet. The following table summarizes the preliminary estimates of the fair values of the assets acquired, liabilities assumed and consideration paid for these acquisitions: Net assets acquired: Net working capital 9,475 Capital assets 37,862 Intangible assets 6,886 Goodwill 13,027 Deferred revenue (170) Deferred income taxes (6,110) Non-controlling interest 632 Reserves ,864 Investment: Cash consideration 54,347 Funded debt assumed 3,555 Provisions for contingent consideration (gross value $5.0 million) 3,962 61,864 13

16 For the 13-Week Periods Ended and 15. Subsequent events Sale and leaseback Subsequent to, the Company completed the sale and leaseback of Freybe s (note 14) production facility (the Freybe plant). The Freybe plant was sold to a newly formed entity (the entity) in which the Company holds a 35% interest. The net proceeds from this transaction were $22.8 million consisting of $25.0 million generated from the sale of the Freybe plant partially offset by the Company s $2.2 million investment in the entity. Dividend increase Subsequent to, the Company announced an increase in its quarterly dividend of 6.3% to $ per share from $0.294 per share. The new dividend rate will be effective for shareholders of record at June 28, with the first dividend under the revised rate being payable on July 15,. 14