PREMIUM BRANDS HOLDINGS CORPORATION

Transcription

1 PREMIUM BRANDS HOLDINGS CORPORATION Interim Condensed Consolidated Financial Statements First Quarter Thirteen Weeks Ended March 31, and April 1, (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 CPA (Chartered Professional Accountants) Canada for a review of interim financial statements by an entity s auditor. May 14,

3 Consolidated Balance Sheets (in millions of Canadian dollars) Mar 31, Dec 30, Apr 1, Current assets: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses and other assets Capital assets Intangible assets Goodwill Investment in associates Other assets , , ,148.5 Current liabilities: Cheques outstanding Bank indebtedness Dividends payable (note 6) Accounts payable and accrued liabilities Current portion of long-term debt (note 3) Current portion of provisions Current portion of puttable interest in subsidiaries Long-term debt (note 3) Puttable interest in subsidiaries Deferred revenue Provisions Pension obligation Deferred income taxes Convertible unsecured subordinated debentures (note 4) Equity attributable to shareholders: Deficit (5.2) (3.7) (30.5) Share capital (note 5) Reserves Subsequent events (note 12) 1, , ,148.5 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.

4 Consolidated Statements of Operations (in millions of Canadian dollars except per share amounts) Mar 31, Apr 1, Revenue Cost of goods sold Gross profit before depreciation and amortization Selling, general and administrative expenses before depreciation and amortization Plant start-up costs (note 7) Depreciation of capital assets Amortization of intangible assets Interest and other financing costs (note 8) Acquisition transaction costs Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized gain on foreign currency contracts (0.1) - Equity loss in associates Other Earnings before income taxes Provision (recovery) for income taxes Current Deferred (0.6) Earnings Earnings per share: Basic Diluted Weighted average shares outstanding (in millions): Basic Diluted The accompanying notes are an integral part of these interim condensed consolidated financial statements.

5 Consolidated Statements of Comprehensive Earnings (in millions of Canadian dollars) Mar 31, Apr 1, Earnings Unrealized foreign exchange gain (loss) on investment in foreign operations 4.7 (1.4) Comprehensive earnings The accompanying notes are an integral part of these interim condensed consolidated financial statements.

6 Consolidated Statements of Cash Flows (in millions of Canadian dollars) Mar 31, Apr 1, Cash flows from (used in) operating activities: Earnings Items not involving cash: Depreciation of capital assets Amortization of intangible assets Change in value of puttable interest in subsidiaries Loss on disposal of assets Unrealized gain on foreign currency contracts (0.1) - Equity loss (income) in associates Deferred revenue 0.1 (0.1) Non-cash financing costs Accretion of provisions Deferred income taxes (recovery) (0.6) Change in non-cash working capital (38.9) 1.8 (10.9) 32.0 Cash flows from (used in) financing activities: Long-term debt net Bank indebtedness and cheques outstanding Dividends paid to shareholders (13.0) (11.4) 64.6 (5.9) Cash flows from (used in) investing activities: Capital asset additions (12.4) (14.1) Business acquisitions (note 10) (33.5) (11.8) Payments to shareholders of non-wholly owned subsidiaries (0.4) (0.6) Investment in associates (4.3) - Net change in share purchase loans and notes receivable Distribution from associates Net proceeds from disposal of assets (50.3) (26.2) Change in cash and cash equivalents 3.4 (0.1) Cash and cash equivalents beginning of period Cash and cash equivalents end of period Interest and other financing costs paid Income taxes paid The accompanying notes are an integral part of these interim condensed consolidated financial statements.

7 Consolidated Statements of Changes in Shareholders Equity (in millions of Canadian dollars) Deficit Share capital Reserves Noncontrolling interest Shareholders equity Balance as at December 31, 2016 (33.3) Common shares issued Earnings for the period attributable to shareholders Dividends declared (12.5) (12.5) Acquisition of additional interest in subsidiary - - (2.8) (0.5) (3.3) Effect of share based compensation plans Foreign currency translation adjustment - - (1.4) - (1.4) Balance as at April 1, (30.5) Balance as at December 30, (3.7) Common shares issued (note 5) Earnings for the period attributable to shareholders Dividends declared (note 6) (14.7) (14.7) Effect of share based compensation plans Foreign currency translation adjustment Balance as at March 31, (5.2) The accompanying notes are an integral part of these interim condensed consolidated financial statements.

8 Notes to the Interim condensed consolidated financial statements For the 13-Week Periods Ended March 31, and April 1, (Tabular amounts in millions of Canadian dollars except per share amounts and percentages) 1. Corporate information 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 premium food distribution and wholesale businesses with operations across Canada and the United States. 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 14,. 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 30,, 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 Company s annual consolidated financial statements. New accounting standards (i) IFRS 15 - Revenue from Contracts with Customers In January, the Company adopted IFRS 15. The new revenue standard, IFRS 15, replaces IAS 18 - Revenue, IAS 11 - Construction Contracts and the related interpretations. This standard addresses revenue recognition and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. IFRS 15 requires that revenue is recognized at the transaction price when certain contractual obligations are met but with any variable consideration elements of the price recognized when it is highly probable that there will be no reversal of that revenue. The adoption of this standard had no significant impact on our consolidated financial statements. (ii) IFRS 16 Leases In January 2016, the IASB issued IFRS 16 Leases with a mandatory effective date of January 1, The new standard will replace IAS 17 Leases and will carry forward the accounting requirements for lessors. IFRS 16 provides a new framework for lessee accounting that requires substantially all assets obtained through operating leases to be capitalized and a related liability to be recorded. The Company intends to adopt IFRS 16 in its consolidated financial statements for the annual period beginning January 1, The extent of the impact of the adoption of IFRS 16 has not yet been determined. However, given the quantity of operating leases the Company has entered into that will likely be captured under the new standard, it is expected to have a material impact to the Company's consolidated balance sheets. 1

9 Notes to the Interim condensed consolidated financial statements For the 13-Week Periods Ended March 31, and April 1, (Tabular amounts in millions of Canadian dollars except per share amounts and percentages) 3. Long-term debt Mar 31, Dec 30, Apr 1, Revolving term loan maturing in September 2021 with no principal payments until maturity. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of senior debt to cash flow and can fluctuate from 0.25% to 1.25% percentage points over the bank prime rate or 1.25% to 2.25% percentage points over the banker s acceptance rate US$6.1 million secured Industrial Development Revenue Bond (IRB) 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 factor that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% Capital leases, promissory notes, and other term loans Deferred financing costs (2.2) (2.2) (1.4) Current portion (3.8) (1.8) (2.4) Convertible unsecured subordinated debentures Debt component 4.60% Debentures 4.65% Debentures 5.00% Debentures Total Balance as at December 30, Conversions of debentures to common shares - - (0.5) (0.5) Accretion Balance as at March 31, Face value as at March 31, Share capital Common shares (millions) Share capital Balance as at December 30, Common shares issued resulting from business acquisitions Common shares issued due to conversions of convertible debentures Balance as at March 31, Dividends During the thirteen weeks March 31,, the Company declared dividends to shareholders of $14.7 million or $0.475 per share. The record dates of these dividends were as follows: Record date Amount Per share March 29,

10 Notes to the Interim condensed consolidated financial statements For the 13-Week Periods Ended March 31, and April 1, (Tabular amounts in millions of Canadian dollars except per share amounts and percentages) 7. Plant start-up costs Plant start-up costs consist of expenses associated with the start-up of new production capacity at one or more of the Company s businesses. During the thirteen weeks March 31,, the Company incurred $0.6 million in plant start-up costs consisting of: (i) $0.4 million for the reconfiguration of production between its British Columbia based bakery facilities, and (ii) $0.2 million for the commissioning of a new distribution and custom protein cutting facility in the Greater Toronto Area. 8. Interest and other financing costs March 31, April 1, Interest on convertible debentures Interest on long-term debt Interest on bank indebtedness Accretion of convertible debentures Amortization of deferred financing costs Other Segmented information March 31, April 1, Revenue: Specialty Foods Premium Food Distribution Gross profit before depreciation, amortization, and plant start-up costs: Specialty Foods Premium Food Distribution Selling, general and administrative expenses before depreciation and amortization: Specialty Foods Premium Food Distribution Corporate Segment earnings (loss) before depreciation, amortization, and plant start-up costs: Specialty Foods Premium Food Distribution Corporate (4.0) (3.6) Plant start-up costs: Specialty Foods Depreciation and amortization: Specialty Foods Premium Food Distribution Corporate

11 Notes to the Interim condensed consolidated financial statements For the 13-Week Periods Ended March 31, and April 1, (Tabular amounts in millions of Canadian dollars except per share amounts and percentages) March 31, April 1, Segment operating earnings (loss): Specialty Foods Premium Food Distribution Corporate (4.2) (3.8) Interest and other financing costs Acquisition transaction costs Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized gain on foreign currency contracts (0.1) - Equity loss in associates Provision for income taxes Other Earnings Capital asset additions: Specialty Foods Premium Food Distribution Corporate Revenue: Canada United States Mar 31, Dec 30, Apr 1, Total assets: Specialty Foods 1, Premium Food Distribution Corporate , , , Business acquisitions During the March 31,, the Company invested $59.3 million in the acquisition of the following businesses: Business Description Investment Purchase Date The Meat Factory Ltd. Frandon Seafoods Inc. Country Prime Meats Ltd. A manufacturer of branded cooked protein products for retail and foodservice customers across Canada A distributor of fresh and frozen seafood to retail and foodservice customers in the greater Montreal area A manufacturer of shelf stable meat snacks for primarily businesses owned by the Company 100% interest March 23, 100% interest March 23, 100% interest March 29, 4

12 Notes to the Interim condensed consolidated financial statements For the 13-Week Periods Ended March 31, and April 1, (Tabular amounts in millions of Canadian dollars except per share amounts and percentages) During the March 31, the Company also entered into a definitive agreement to acquire Concord Premium Meats Ltd. (Concord), an Ontario based manufacturer of branded and customized protein solutions for retailers and foodservice customers across Canada. This transaction, which was subject to approval by the Competition Bureau of Canada (the Bureau), received a no-action letter from the Bureau on May 7, and is now expected to be completed at the end of May. The following table summarizes the preliminary estimates of the fair values of the assets acquired and consideration paid for acquisitions completed during the March 31, : Net assets acquired: Net working capital 10.9 Capital assets 15.1 Intangible assets brand names 12.6 Intangible assets customer relationships 0.8 Goodwill 24.3 Deferred income taxes (4.4) Investment: Cash (net of cash acquired) 33.5 Common shares issued 15.4 Funded debt assumed 2.4 Unsecured promissory note 6.2 Provision for contingent consideration 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 March 31,, the Company had outstanding foreign currency contracts for the purchase of US$28.5 million at a bl rate of C$ and the sale of US$40.3 million at a bl rate of C$ over the next twelve months. As at March 31,, these contracts had a fair value of $0.1 million ( $nil) and during the thirteen weeks March 31,, the Company recorded an unrealized gain of $0.1 million ( $nil) in its earnings. Based on the outstanding contracts as at March 31, for the net purchase of U.S. dollars, a change of $0.01 in the value of the U.S. dollar relative to the Canadian dollar would result in an unrealized gain (if the U.S. dollar strengthens) or an unrealized loss (if the U.S. dollar weakens) of approximately $0.1 million in its earnings. Interest rate risk All of the Company s bank indebtedness and approximately 97% ( 96%) of its long-term debt bear interest at floating rates. The Company manages its interest rate exposure by using a variety of strategies, including entering into, from time to time, interest rate swap contracts. In August 2015, the Company entered into interest rate swap contracts (the Swaps) fixing the rate of interest on $75.0 million of its long-term debt at an effective rate of % plus 1.25% to 2.25%, depending on its ratio of debt to cash flow, until September. The Company designated the Swaps as a cash flow hedge and determined that the swaps had no ineffectiveness, and correspondingly, changes in their fair market value are recognized in other comprehensive income. As at March 31,, the Swaps had a fair market value of $0.5 million ( $nil), and during the thirteen weeks March 31, the Company recorded no gain or loss ( $nil) in other comprehensive income for them. As at March 31,, a change of 0.25 percentage points in the effective interest rate for the remaining term of the swaps would results in an unrealized gain (if interest rates increase) or an unrealized loss (if interest rates decrease) of approximately $0.2 million in its consolidated statements of comprehensive earnings. 5

13 Notes to the Interim condensed consolidated financial statements For the 13-Week Periods Ended March 31, and April 1, (Tabular amounts in millions of Canadian dollars except per share amounts and percentages) 12. Subsequent Events Acquisition Activities Subsequent to March 31,, the Company entered into the following transactions: (i) The Company entered into a definitive agreement to acquire substantially all of the assets and operating divisions of Oberto Sausage Company (Oberto), a Seattle based manufacturer of branded and customized beef jerky and other protein based snack foods for retailers in Canada and across the United States. The transaction, which is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act as well as customary closing conditions, is expected to be completed at the end of May. (ii) The Company acquired Penguin Meats Supply Ltd. (Penguin), a protein distributor to foodservice and retail customers across British Columbia. (iii) The Company increased its investment in Vancouver based McLean Meats Inc. to 66.2% from the previous 36.2%. The total expected investment associated with the purchase of the above three businesses is approximately $242.4 million. Financing Activities Subsequent to March 31,, the Company completed the following financing activities: (i) The issuance of $172.5 million of convertible unsecured subordinated debentures (New Debentures) resulting in net proceeds of $164.9 million after underwriting fees of $6.9 million and transaction costs of approximately $0.7 million. The New Debentures bear interest at an annual rate of 4.65% payable semi-annually, have a maturity date of April 30, 2025 and are convertible into common shares of the Company at a price of $ per share. The net proceeds from the New Debentures will be used to reduce existing indebtedness under the Company s revolving credit facility, which, in turn, will be drawn on to fund: (i) the acquisition of Concord; (ii) the redemption of the Company s outstanding 5.00% debentures to the extend they are not converted to common shares; and (iii) future strategic acquisitions and capital projects as they may arise. (ii) The issuance of $172.7 million of subscription receipts (the Sub Receipts) at a price of $ per Sub Receipt, which is expected to result in net proceeds of $164.9 million after underwriting fees of $6.9 million and transaction costs of $0.9 million. Each Sub Receipt represents the right of the holder to receive, upon closing of the Oberto acquisition, without payment of additional consideration, one common share of the Company. The release of the proceeds of the Sub Receipts offering is subject to completion of the Oberto acquisition and, correspondingly, in conjunction with a draw on the Company s revolving senior credit facility, will be used to fund the Oberto acquisition. (iii) The issuance of a notice of intention to redeem its 5.00% convertible unsecured subordinated debentures, $22.7 million of which were outstanding as at the end of the first quarter of. The 5.00% debentures mature in April 2020 and have a conversion price of $44.65 per share. Correspondingly, substantially all of the 5.00% debentures are expected to be converted to common shares. 6