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 7,

3 Consolidated Balance Sheets (Unaudited and in thousands of dollars) December 28, Current assets: Cash and cash equivalents 4,376 1,437 3,806 Accounts receivable 81,278 92,880 83,208 Inventories 116, ,729 99,403 Prepaid expenses 7,040 7,746 8,227 Other assets (note 3) , , ,937 Capital assets 182, , ,799 Intangible assets 74,327 75,099 78,012 Goodwill 169, , ,725 Investment in associate 9,787 7,949 4,199 Deferred income taxes 27,416 26,697 26,196 Other assets (note 3) 3,183 3,222 4, , , ,611 Current liabilities: Cheques outstanding 3,816 5,689 1,775 Bank indebtedness 19,520 29,466 18,786 Dividend payable (note 6) 6,912 6,863 6,196 Accounts payable and accrued liabilities 95,864 94,288 84,098 Current portion of long-term debt (note 4) 129, ,222 24,541 Current portion of provisions 2,161 2,219 3, , , ,991 Long-term debt (note 4) 11,369 11, ,588 Convertible unsecured subordinated debentures (note 5) 175, , ,630 Puttable interest in subsidiaries 14,635 14,498 15,736 Deferred revenue 3,518 1,103 1,492 Provisions 3,922 3,820 4,468 Pension obligation , , , ,810 Equity attributable to shareholders: Accumulated earnings 163, , ,112 Accumulated dividends declared (188,288) (181,376) (161,074) Deficit (24,834) (19,816) (11,962) Share capital (note 7) 224, , ,546 Equity component of convertible debentures 1,744 1,744 1,754 Reserves (note 8) 7,144 4,929 1,544 Non-controlling interest , , , , , ,611 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 266, ,181 Cost of goods sold 219, ,642 Gross profit before depreciation and amortization 47,528 44,539 Selling, general and administrative expenses before depreciation and amortization 36,312 31,781 Other income (note 13) (4,703) - 15,919 12,758 Depreciation of capital assets 4,579 3,943 Amortization of intangible assets 1,117 1,088 Amortization of other assets 1 1 Interest and other financing costs (note 9) 4,976 4,165 Amortization of financing costs Acquisition transaction costs - 33 Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized gain on foreign currency contracts (100) (100) Unrealized loss on interest rate swap contracts Restructuring costs (note 10) 3,365 1,297 Equity loss in associates Earnings before income taxes 1,568 1,772 Provision for income taxes Current Deferred (695) 248 (294) 606 Earnings 1,862 1,166 Earnings (loss) for the period attributable to: Shareholders 1,894 1,196 Non-controlling interest (32) (30) 1,862 1,166 Earnings per share Basic and diluted Weighted average shares outstanding (in 000 s) Basic 21,930 20,966 Diluted 22,043 21,060 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 1,862 1,166 Unrealized foreign exchange gain on investment in foreign operations 1, Comprehensive earnings 3,577 2,124 Comprehensive earnings (loss) attributable to: Shareholders 3,609 2,154 Non-controlling interest (32) (30) 3,577 2,124 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 1,862 1,166 Items not involving cash: Depreciation of capital assets 4,579 3,943 Amortization of intangible and other assets 1,118 1,089 Amortization of financing costs Change in value of puttable interest in subsidiaries Gain on sales of capital assets (4,702) (3) Accrued interest income (6) (6) Net unrealized gain on foreign currency and interest rate swap contracts (100) - Equity loss in associates Deferred revenue (124) (127) Accretion of convertible debentures, long-term debt, and provisions Change in value of cash conversion option liability - (170) Deferred income taxes (695) 248 3,072 7,250 Change in non-cash working capital 7,199 (12,443) 10,271 (5,193) Cash flows from financing activities: Long-term debt net 15,074 46,991 Bank indebtedness and cheques outstanding (11,819) 22,405 Dividends paid to shareholders (6,863) (6,188) Purchase of 7.00% Debentures under normal course issuer bid - (178) Other - (38) (3,608) 62,992 Cash flows from investing activities: Capital asset additions (12,038) (3,081) Business acquisitions - (54,347) Payments to shareholders of non-wholly owned subsidiaries (123) (114) Payment of provisions (58) (253) Collection of share purchase loans and notes receivable Investment in associate (note 13) (1,860) - Net proceeds from sale and leaseback of asset (note 13) 10,200 - Net proceeds from sales of assets 28 3 (3,789) (57,774) Increase in cash and cash equivalents 2, Effects of exchange on cash and cash equivalents Cash and cash equivalents beginning of period 1,437 3,758 Cash and cash equivalents end of period 4,376 3,806 Interest and other financing costs paid 6,065 5,793 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) Deficit Share capital Equity component of convertible debentures Reserves Noncontrolling interest Shareholders equity Balance as at December 29, 2012 (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 (6,196) (6,196) Purchase and cancellation of Debentures under normal course issuer bid - - (31) - - (31) Acquisition of additional interest in subsidiary (262) (632) (894) Effect of share based compensation plans Foreign currency translation adjustment Balance as at (11,962) 209,546 1,754 1, ,801 Deficit Share capital Equity component of convertible debentures Reserves Noncontrolling interest Shareholders equity Balance as at December 28, (19,816) 221,994 1,744 4, ,501 Common shares issued - 2, ,236 Earnings (loss) for the period attributable to: Shareholders 1, ,894 Non-controlling interest (32) (32) Dividends declared (note 6) (6,912) (6,912) Effect of share based compensation plans Foreign currency translation adjustment ,715-1,715 Balance as at (24,834) 224,230 1,744 7, ,902 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 5

8 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 1. Corporate information and nature of business Premium Brands Holdings Corporation (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, Ohio 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 7,. 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 28,, which were prepared in accordance with IFRS, 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. 3. Other assets December 28, Promissory note from associate 2,100 2,100 2,600 Notes receivable ,427 Employee share purchase loans Fair value of interest rate swaps Fair value of foreign currency forward contracts Other ,640 3,580 5,036 Less: current portion ,183 3,222 4,743 6

9 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 4. Long-term debt December 28, Facility A portion of a revolving term loan maturing in September with no principal payments until maturity. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank prime rate or 1.5% to 2.5% over the banker s acceptance rate ,000 Facility B revolving term loan maturing in September with quarterly principal payments of $3.5 million. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank prime rate or 1.5% to 2.5% over the banker s acceptance rate 26,700 10,500 65,590 Facility C non-revolving term loan maturing in September with no quarterly principal payments until the Company s Facility B is repaid at which time it will have quarterly payments of $3.5 million. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank prime rate or 1.5% to 2.5% over the banker s acceptance rate 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 % for the first quarter of, plus a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% 6,777 6,552 6,220 Non-revolving term loan maturing June 2016 with quarterly principal payments of $0.2 million. The loan bears interest at a rate that is calculated quarterly based on the subsidiary s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank s prime rate or 1.5% to 2.5% over the banker s acceptance rate 3,400 3,800 - Capital leases 3,278 3,764 5,320 Other ,065 Other non-revolving term loans - - 6,555 Unsecured notes payable - - 6, , , ,664 Financing costs (270) (337) (535) Current portion: Facility B and Facility C these loans have a maturity date of September 9, and therefore have been classified as current. The Company expects to finalize the renewal of these facilities in the second quarter of (126,700) (110,500) (14,000) Other (2,478) (2,722) (10,541) (129,178) (113,222) (24,541) 11,369 11, ,588 7

10 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 5. Convertible unsecured subordinated debentures Debt component 7.00% Debentures 5.75% Debentures 5.70% Debentures 5.50% Debentures Total Balance as at December 28, 11,390 55,626 55,333 54, ,057 Conversions of debentures to common shares (2,236) (2,236) Accretion Balance as at 9,344 55,856 55,500 54, , Dividends During the thirteen weeks, the Company declared dividends to shareholders of $6.9 million or $ per share. The record date of this dividend was as follows: Record date Amount Per share March 31, 6, , The March 31, dividend, which was paid subsequent to the quarter end, is reported as a current liability as at March 29,. 7. Share capital Common shares ( 000s) Share capital Balance as at December 28, 21, ,994 Common shares issued resulting from conversions of 7.00% Debentures 154 2,236 Balance as at 22, ,230 During the thirteen weeks, the Company issued 154,198 common shares resulting from the conversion of $2.2 million of 7.00% Debentures at the conversion price of $14.50 per share. After taking into account the 113,605 shares held in the Company s employee benefit plan that had not yet vested with the beneficiaries, the Company had 22,117,381 common shares outstanding at. 8

11 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 8. Reserves Noncontrolling interest reserve Foreign currency translation adjustment Share based compensation reserve Total Balance as at December 28, (262) 3,431 1,760 4,929 Effect of share based compensation plans Unrealized foreign exchange translation gain on investment in foreign operations - 1,715-1,715 Balance as at (262) 5,146 2,260 7, Interest and other financing costs Interest on convertible debentures 2,575 2,056 Interest on long-term debt 1,245 1,189 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 ,976 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 $3.4 million in restructuring costs consisting of: (i) $2.0 million for the reconfiguration of the Company s deli meats production capacity including a major realignment and expansion of the capacity of Freybe Gourmet Foods plant in Langley, BC; (ii) $0.9 million for the reconfiguration of the Company s sandwich production capacity including the construction of a new 180,000 square foot production facility in Columbus, OH; and (iii) $0.5 million in costs relating to the restructuring and rationalization of the Company s direct-to-store distribution business for the convenience store industry. 9

12 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 11. 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, and 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 172, ,323 Foodservice 94,670 90, , ,181 Gross profit before depreciation and amortization Retail 31,228 27,982 Foodservice 16,300 16,557 47,528 44,539 Selling, general and administrative expenses before depreciation and amortization Retail 21,872 18,154 Foodservice 12,766 12,061 Corporate 1,674 1,566 36,312 31,781 Other income Retail (4,703) - (4,703) - Segment earnings (loss) before depreciation and amortization Retail 14,059 9,828 Foodservice 3,534 4,496 Corporate (1,674) (1,566) 15,919 12,758 Depreciation of capital assets Retail 3,847 3,282 Foodservice Corporate ,579 3,943 Amortization of intangible and other assets Retail Foodservice ,118 1,089 Segment operating earnings (loss) Retail 9,578 5,941 Foodservice 2,422 3,460 Corporate (1,778) (1,675) 10,222 7,726 Interest and other financing costs 4,976 4,165 Amortization of financing costs Acquisition transaction costs - 33 Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized gain on foreign currency contracts (100) (100) Unrealized loss on interest rate swap contracts Restructuring costs 3,365 1,297 Equity loss in associates (Recovery of) provision for income taxes (294) 606 Earnings 1,862 1,166 10

13 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) Capital asset additions Retail 10,963 1,841 Foodservice 1,004 1,128 Corporate ,038 3,081 December 28, Total assets Retail 421, , ,034 Foodservice 195, , ,673 Corporate 58,501 57,713 59, , , ,611 Revenue Canada 205, ,368 United States 61,163 43, , ,181 December 28, Capital assets and goodwill Canada 306, , ,584 United States 45,329 35,179 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$11.6 million over the next nine months at a bl rate of C$ As at, these contracts had a fair value of $0.3 million favourable ( $0.2 million favourable) and during the thirteen weeks, the Company recorded in respect of these contracts an unrealized gain of $0.1 million ( unrealized gain of $0.1 million) in the consolidated statement 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. 11

14 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) Interest rate risk All of the Company s bank indebtedness and approximately 97% ( 93%) of its long-term debt bear interest at floating rates, while all of the Company s convertible unsecured subordinated debentures bear interest at fixed 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 $nil ( $0.1 million favourable), and during the thirteen weeks, the Company recorded in respect of the swaps no gain or loss ( unrealized loss of $0.1 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 $0.1 million in the Company s consolidated statement of operations. 13. Related party transactions During the thirteen weeks, the Company sold, as part of a sale and leaseback transaction, a distribution facility located in Surrey, BC to Pender West Income Properties Limited Partnership (Pender West LP). The sale was at fair value for net proceeds of $10.2 million and resulted in a gain of $4.7 million which is included in other income in the consolidated statement of operations. The terms of the new lease for the Surrey distribution facility include: (i) annual minimum lease payments of $0.7 million; (ii) an initial term of twenty years; and (iii) options to renew the lease for up to ten five-year periods at the greater of: (a) the lease payment at the time a specific renewal option is exercised; and (b) the lease rate at the end of the term just expiring adjusted in accordance with the annual percentage change in the Consumer Price Index, as published by Statistics Canada, compounded annually over the previous five years to a maximum increase of 15%. Concurrent with the sale the Company made an investment of $1.9 million in Pender West LP. Pender West LP is a related party to the Company due to: (i) the Company s Chairman indirectly owning a minority interest in Pender West LP; and (ii) the Company owning a 35% interest in Pender West LP. 14. Subsequent events Acquisition of Reddi Food Group Inc. Subsequent to, the Company purchased certain assets, including inventory, production equipment, and customer lists, from Reddi Food Group Inc. (Reddi) for $1.7 million. Reddi was a Calgary, AB based protein focused foodservice distribution company that serviced a variety of customers in the Alberta market. Concurrent with the transaction, Reddi ceased operations. 12