PREMIUM BRANDS HOLDINGS CORPORATION. Consolidated Financial Statements

Transcription

1 PREMIUM BRANDS HOLDINGS CORPORATION Consolidated Financial Statements Fiscal Years Ended and

2 March 15, 2018 Independent Auditor s Report To the Shareholders of Premium Brands Holdings Corporation We have audited the accompanying consolidated financial statements of Premium Brands Holdings Corporation and its subsidiaries, which comprise the consolidated balance sheets as at and and the consolidated statements of operations, comprehensive earnings, cash flows and changes in shareholders equity for the years then, and the related notes, which comprise significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers LLP PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7 T: , F: PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

3 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Premium Brands Holdings Corporation and its subsidiaries as at and and their financial performance and their cash flows for the years then in accordance with International Financial Reporting Standards. Chartered Professional Accountants

4 Consolidated Balance Sheets (in millions of Canadian dollars) Current assets: Cash and cash equivalents Accounts receivable (note 25) Inventories (note 3) Prepaid expenses and other assets Capital assets (note 4) Intangible assets (note 5) Goodwill (note 6) Investment in associates (note 7) Other assets , ,121.1 Current liabilities: Cheques outstanding Bank indebtedness (note 8) Dividends payable (note 15) Accounts payable and accrued liabilities Current portion of long-term debt (note 9) Current portion of provisions (note 10) Current portion of puttable interest in subsidiaries (note 11) Long-term debt (note 9) Puttable interest in subsidiaries (note 11) Deferred revenue Provisions (note 10) Pension obligation Deferred income taxes (note 21) Convertible unsecured subordinated debentures (note 12) Equity attributable to shareholders: Deficit (3.7) (33.3) Share capital (note 13) Reserves (note 14) Non-controlling interest , ,121.1 Commitments and contingencies (note 23) Subsequent events (note 30) Approved by the Board of Directors (signed) George Paleologou Director (signed) Johnny Ciampi Director The accompanying notes are an integral part of these consolidated financial statements.

5 Consolidated Statements of Operations (in millions of Canadian dollars except per share amounts) 52 weeks 53 weeks Revenue 2, ,857.5 Cost of goods sold (note 18) 1, ,506.7 Gross profit before depreciation, amortization, plant start-up costs Selling, general and administrative expenses before depreciation, amortization, plant start-up costs (note 18) Plant start-up costs (note 19) Depreciation of capital assets (note 4) Amortization of intangible assets (note 5) Interest and other financing costs (note 20) Acquisition transaction costs Change in value of puttable interest in subsidiaries (note 11) Accretion of provisions (note 10) Unrealized loss on foreign currency contracts Equity loss (income) in investments in associates (note 7) 0.5 (0.4) Earnings before income taxes Provision for income taxes (recovery) (note 21) Current Deferred (1.7) Earnings Earnings (loss) for the year attributable to: Shareholders Non-controlling interest - (0.1) Earnings per share from (note 16): Basic Diluted Weighted average shares outstanding (in millions): Basic Diluted The accompanying notes are an integral part of these consolidated financial statements.

6 Consolidated Statements of Comprehensive Earnings (in millions of Canadian dollars) 52 weeks 53 weeks Earnings Actuarial (loss) gain on pension plan assets (0.3) 0.2 Unrealized gain on interest rate swaps Unrealized foreign exchange loss on investment in foreign operations (11.0) (4.7) Comprehensive earnings Comprehensive earnings (loss) attributable to: Shareholders Non-controlling interest - (0.1) Unrealized foreign exchange gains and losses on investment in foreign operations are adjusted through earnings in the event of a disposal of the investment in the foreign operations. The accompanying notes are an integral part of these consolidated financial statements.

7 Consolidated Statements of Cash Flows (in millions of Canadian dollars) 52 weeks 53 weeks 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 Gain on sales of capital assets (0.2) - Net unrealized loss on foreign currency contracts Equity loss (income) in associates 0.5 (0.4) Deferred revenue 1.9 (0.2) Non-cash financing costs Accretion of provisions Deferred income taxes (1.7) Change in non-cash working capital (45.9) Cash flows from (used in) financing activities: Long-term debt net (53.5) Bank indebtedness and cheques outstanding Proceeds from convertible debentures net of issuance costs Repayment of convertible debentures - (0.7) Dividends paid to shareholders, net of dividends received from cancelled shares (48.9) (42.5) Share issuance and financing costs - (0.6) Cash flows from (used in) investing activities: Capital asset additions (64.9) (42.8) Business acquisitions (225.7) (189.2) Payments to shareholders of non-wholly owned subsidiaries (2.3) (1.7) Payment of provisions (1.8) (1.7) Purchase of shares for employee share loans - (1.6) Net change in share purchase loans and notes receivable Investment in associates net of distributions (16.5) 0.2 Net proceeds from sales of assets Other (0.1) (0.4) (310.5) (236.5) (Decrease) increase in cash and cash equivalents (4.3) 8.1 Cash and cash equivalents beginning of year Cash and cash equivalents end of year Supplemental cash flow information (note 26) The accompanying notes are an integral part of these consolidated financial statements.

8 Consolidated Statements of Changes in Shareholders Equity (in millions of Canadian dollars) Deficit Share capital Reserves Noncontrolling interest Shareholders equity Balance as at December 26, 2015 (57.9) Common shares issued (note 13) Earnings for the year attributable to: Shareholders Non-controlling interest (0.1) (0.1) Dividends declared (44.5) (44.5) Actuarial gain on pension obligation Effect of share based compensation plans - (3.3) (1.7) Foreign currency translation adjustment - - (4.7) - (4.7) Balance as at (33.3) Common shares issued (note 13) Earnings for the year attributable to: Shareholders Dividends declared (note 15) (50.6) (50.6) Actuarial (loss) on pension obligation (0.3) (0.3) Acquisition of additional interest in subsidiary (note 17) - - (3.2) (0.5) (3.7) Effect of share based compensation plans - (4.0) (0.4) Unrealized gain on interest rate swap Foreign currency translation adjustment - - (11.0) - (11.0) Balance as at (3.7) The accompanying notes are an integral part of these consolidated financial statements.

9 For the Fiscal Years Ended and 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. The Company s Board of Directors approved these consolidated financial statements on March 14, Significant accounting policies Basis of presentation The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis of measurement These consolidated financial statements have been prepared under the historical cost convention, except for puttable interests in subsidiaries, provisions, foreign exchange forward contracts, and interest rate swaps, which are measured at fair value. Principles of consolidation The consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries after elimination of intercompany transactions and balances. At, the Company owns controlling interest of between 60% and 94.1% in a number of companies. In all cases it holds options to purchase the third party interests in these businesses (calls), and in all cases, the third party stakeholders hold options that entitle them to require the Company to purchase their respective interests (puts). The dates in which the puts can be exercised range from any time to December 2021, with the purchase prices being based on formulas tied to the profitability of the respective businesses. Based on its majority ownership and control over the operations of these subsidiaries, the Company has consolidated 100% of their operations into its consolidated financial statements, and for the third party interests in these subsidiaries, it has recorded the puts as a financial liability (puttable interest in subsidiaries) at fair value on the consolidated balance sheet. Changes in the value of these financial liabilities are recognized in the consolidated statement of operations (change in value of puttable interest in subsidiaries). The fair value of the puttable interest in subsidiaries is based on the Company s best estimates of the future amounts and timing of the cash flows of these subsidiaries, including their revenues, expenses, working capital needs, capital expenditures, and financing structures. Changes in the value of the puts resulting from changes in the assumptions used to estimate future put exercise prices are recorded in earnings as determined. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The cost of the business combination is measured as the sum of the fair values of assets given, equity instruments issued, and liabilities incurred or assumed, in exchange for control of the businesses acquired. Acquisition related costs are expensed as incurred. The excess of the cost of a business combination over the fair value of the underlying identifiable assets acquired and liabilities assumed is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets acquired, the difference is recognized in the current period as a gain (acquisition bargain purchase gain) in the consolidated statement of operations. 1

10 For the Fiscal Years Ended and Fiscal year The fiscal year of the Company is the fifty-two week or fifty-three week period ending the nearest Saturday on or before December 31. Fiscal year was the fifty-two week period, and fiscal year was the fiftythree week period. Cash and cash equivalents Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest bearing securities with original maturities at the date of purchase of three months or less. Inventories Raw materials, finished goods, and concessionary equipment inventories are stated at the lower of cost and net realizable value. Cost includes raw materials, manufacturing labour, and direct and indirect overhead, and is determined using either the first-in first-out or weighted average cost methods. Net realizable value is the estimated selling price less applicable selling expenses. Capital assets Capital assets are stated at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition or construction of the capital assets. Capital assets are depreciated once they are complete and available for use. Depreciation is provided on a straight-line or declining balance basis over the period in use at the following annual rates, which are based on the expected useful lives of the assets: Buildings and leaseholds 2.5% to 5% or term of lease Machinery and equipment 5% to 30% Buildings and leaseholds include the buildings owned by the Company as well as significant leasehold improvements made to facilities leased by the Company. Machinery and equipment includes production equipment, distribution equipment, information technology equipment, vehicles, and office equipment. Intangible assets Intangible assets consist of acquired brand names and customer relationships. The Company sells many of its specialty food products under proprietary brand names, which have been determined to have an indefinite useful life as they are not expected to decline in value over time, and thus are not amortized but are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that they might be impaired. Under the requirements of the impairment test, the carrying values of the brand names are compared with their fair values and any excess is charged to earnings. Finite life intangible assets include customer relationships which are acquired as part of business combinations and are amortized on a straight-line basis over 15 to 20 years. Goodwill Goodwill represents the excess of the cost of an acquired business over the fair value of its underlying net identifiable assets at the time of acquisition. Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill impairment is assessed based on a comparison of the fair value of a cash generating unit (CGU) to the underlying carrying amount of the CGU s net assets, including goodwill. When the carrying amount of the CGU exceeds its fair value, the difference is charged to earnings. When the cost of an acquired business is less than the fair value of its underlying net identifiable assets at the time of acquisition, a bargain purchase gain is recognized in earnings. Impairment of non-financial assets Capital assets and finite life intangible assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the carrying value of a capital asset or a finite life intangible asset exceeds its recoverable amount, which is the greater of the value in use of the asset or its fair value less the cost to sell it. Any impairment recognized is measured as the amount by which the carrying value of the asset exceeds its recoverable amount. 2

11 For the Fiscal Years Ended and Investment in associates Associates are entities over which the Company has significant influence, but not control. Investment in associates is accounted for using the equity method, under which the investment is initially recorded at cost and the carrying value is adjusted thereafter to include the Company s pro-rata share of post-investment earnings or loss of the associate, and is reduced by the amount of cash distributions received from the associates. Joint ventures Joint ventures are entities in which the Company has a contractual arrangement that establishes joint control over the economic activities of the entity by the Company and another party. Joint ventures are accounted for using the equity method and are included with investment in associates. Long-term debt The Company s long-term debt is initially recognized at fair value, net of financing costs. Any difference between the proceeds, net of financing costs, and the redemption value is recognized in the consolidated statement of operations over the term of the debt using the effective interest rate method. Provisions Provisions are recognized when there is a probable outflow of economic resources from the Company and the amount of that outflow can be estimated reliably, although the timing or amount of the outflow may be uncertain, due to the outflow being contingent upon the occurrence of certain events, such as a business achieving defined financial targets over a particular period of time. Provisions are measured at the fair value of the estimated expenditure required to settle the future obligation, based on the most reliable evidence available at the reporting date. Changes in the value of provisions resulting from changes in the assumptions used to estimate the amounts and timing of future outflows are recorded in earnings. Convertible unsecured subordinated debentures (convertible debentures) The Company accounts for convertible debentures by allocating the proceeds of the debentures, net of financing costs, between debt and equity based on estimated fair values of the debt and conversion option, as determined by the residual valuation of the equity component. Under this approach, the debt component is valued first and the difference between the proceeds of the debentures and the fair value of the debt component is assigned to the equity component. Interest expense is recorded as a charge to earnings and is calculated at an effective rate with the difference between the coupon rate and the effective rate being credited to the debt component of the convertible debentures (accretion of convertible debentures) such that, at maturity the debt component is equal to the face value of the outstanding convertible debentures. Where the Company has the option to make a cash payment in lieu of issuing shares when a debenture holder submits a notice of conversion, the equity component is recorded as a financial liability and is included with the debt component balance of the convertible debentures. When the Company purchases and cancels its convertible debentures under a normal course issuer bid, the difference between the book value and fair value of the cancelled convertible debentures is recorded in earnings. Revenue recognition For products sold and delivered to customers by third party carriers, revenue is recognized at the time the goods leave the Company s possession, subject to being reasonably measured and collection being reasonably assured. For products sold through the Company s proprietary distribution networks, revenue is recognized when the product is delivered to the customer. Revenue is reported net of rebates, allowances and returns. Cost of goods sold Cost of goods sold includes raw materials, manufacturing labour costs and plant overhead costs but excludes depreciation and amortization. Leases Leases in which substantially all of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognized as an expense over the lease term. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases and are recorded as a component of long-term debt, and the corresponding leased asset is recorded in capital assets. Income taxes 3

12 For the Fiscal Years Ended and The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets and liabilities are recognized based on differences between the value of the assets and liabilities used for financial statement purposes and those used for income tax purposes. Deferred income tax assets and liabilities are calculated using substantively enacted tax rates for the period in which the differences are expected to reverse. Deferred income tax assets are recognized only to the extent that management determines that it is more likely than not that the deferred income tax assets will be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment or substantive enactment. Foreign currency translation The Company s United States based operations have a functional currency of U.S. dollars and accordingly have been translated to Canadian dollars using the year end exchange rate for the consolidated balance sheet and the average exchange rate for the year for the consolidated statement of operations. Gains or losses resulting from translation adjustments are recorded as a component of reserves in shareholders equity until there is a realized reduction in the net investment in the U.S. operation. Foreign currency accounts of Canadian operations have been translated to Canadian dollars using the year end exchange rate for monetary assets and liabilities and the prevailing exchange rate at the time for income and expense transactions. Gains and losses resulting from this translation are recorded in earnings. Segment reporting Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief operating decision maker is responsible for allocating resources and assessing the performance of the operating segments. Financial instruments Under IFRS 9 Financial Instruments (IFRS 9), the Company recognizes a financial asset or financial liability only when the entity becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged, cancelled or expires. Financial assets initially recognized at fair value are classified either as measured at amortized cost or measured at fair value. Financial assets held solely for the purpose of collecting the contractual cash flows, where those cash flows represent only payments of principal and interest, are classified as measured at amortized cost, which includes a provision for credit losses. Under IFRS 9, the expected credit losses take into consideration potential future events and their impact on estimated credit losses of the Company. There were no material adjustments to credit losses required as a result of this change in guidance. Financial assets that are held both for the purpose of collecting the contractual cash flows and for selling the financial assets themselves are classified as measured at fair value and are re-measured each period, with any changes being recorded in either other comprehensive income or earnings. Financial liabilities are initially recognized at fair value and, with certain exceptions, are classified as measured at amortized cost. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value in subsequent periods. For derivatives that have not been designated as hedging instruments, the changes in their fair value are recognized in earnings. For derivatives to be designated as hedging instruments, the Company documents at the inception of the hedging transaction its risk management objectives and strategy and the economic relationship between the hedging instruments and the hedged items, including whether the hedging instrument is expected to offset changes in cash flows of the hedged items. Changes in the effective portion of the fair value of the derivatives that are designated as hedging instruments are recognized in reserves in the equity portion of the Company s consolidated balance sheet, while changes in any ineffective portion, if any, of the derivatives are recognized in earnings. The foreign currency contracts entered into by the Company are classified as measured at fair value and not hedging instruments, while the interest rate swap contracts entered into by the Company are classified as measured at fair value and designated as hedging instruments. Accounts receivable and notes and loans receivable are classified as measured at amortized cost. 4

13 For the Fiscal Years Ended and Cheques outstanding, bank indebtedness, dividends payable, accounts payable and accrued liabilities, long-term debt and convertible debentures are classified as measured at amortized cost. Impairment of financial assets Financial assets are assessed for indications of impairment at the balance sheet date. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the financial assets have been negatively impacted. The factors used to determine whether objective evidence of impairment exists include the financial condition of the obligor and delinquencies in payments of interest or principal. If objective evidence exists that financial assets are impaired, the carrying amount of the financial assets are reduced to their fair value, either directly or indirectly through the use of an allowance account and the difference is charged to earnings. Hedging instruments The Company, from time to time, uses interest rate swap contracts (swaps) to manage risks associated with fluctuations in interest rates, and all such interest rate swap contracts are used only for risk management purposes. In 2015, the Company entered into swaps which it has designated as a cash flow hedge and applied hedge accounting. As a result, changes in the fair value of these contracts are recognized in comprehensive earnings. The Company uses foreign currency forward contracts to manage exchange risks associated with its U.S. dollar payments and receipts. The Company has not applied hedge accounting to its outstanding foreign currency forward contracts, and accordingly, changes in the fair value of these contracts are recognized in earnings. The Company may choose to apply hedge accounting to its foreign currency contracts in the future. Critical accounting estimates and judgments The preparation of financial statements requires management to use judgment in applying its accounting policies and to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to: (i) Inventories Internally manufactured products are valued at the lower of cost and net realizable value, where cost includes raw materials, manufacturing labour and overhead. Inherent in the determination of the cost and valuation of such inventories are certain management judgments and estimates with regards to the allocation of overhead and determining the net realizable value. (ii) Goodwill and intangible assets The Company assesses the impairment of goodwill and intangible assets with indefinite lives on an annual basis and finite life intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors which could trigger an impairment review include significant underperformance relative to plan, a change in the Company s business strategy, or significant negative industry or economic trends. Assessing impairment of goodwill and intangible assets with indefinite lives requires significant judgement including identifying appropriate cash generating units, making estimates with regards to the amounts and timing of future cash flows and the discount rates to be used to value such cash flows. (iii) Capital assets Capital assets are recorded at cost and then depreciated over their estimated useful lives. A significant amount of judgment is required to estimate the useful life of an asset. Changes in the life of an asset are reflected prospectively through changes in future depreciation rates. (iv) Income tax provision The provision for deferred income taxes is based on changes in the estimated temporary differences between the value of the assets and liabilities used for tax purposes and those used for accounting purposes. In determining these temporary differences, certain management judgments and estimates are required. Furthermore, deferred income tax assets are recognized only to the extent that management determines that it is more likely than not that the deferred income tax assets will be realized. 5

14 For the Fiscal Years Ended and (v) Puttable interest in subsidiaries Puttable interest in subsidiaries is calculated based on projections of future cash flows of the applicable subsidiaries. These projections include the cash flows expected to be generated by the subsidiary s operations, as well as cash flows generated by or used in its financing and investing activities. A significant amount of judgment is required in estimating the amounts and timing of these cash flows. (vi) Convertible unsecured subordinated debentures The determination of reasonable fair market values for the debt and equity components of convertible unsecured subordinated debentures is based on a variety of quantitative and qualitative factors, including comparative information for other similar financial instruments, and correspondingly requires a significant amount of judgment. (vii) Business acquisitions and contingent consideration The allocation of the purchase price associated with the acquisition of a business requires a significant amount of judgment in terms of identifying and determining: (i) the fair market values of the tangible and intangible assets purchased; and (ii) the fair value of liabilities assumed. Furthermore, when an acquisition involves contingent consideration, there is also significant judgment involved in determining the value, if any, of such consideration. (viii) Provisions Provisions represent management s best estimate of the fair value of future costs associated with contingent consideration and lease restoration costs. The final settlement of these amounts depends upon future events and as a result, a significant amount of judgment is required in estimating them. (ix) Plant start-up costs Plant start-up costs consist of costs associated with the start-up of new production capacity and/or the reconfiguration of existing capacity to capture operational benefits at one or more of the Company s businesses. The determination of plant start-up and reconfiguration costs requires a significant amount of judgement with regards to the identification and allocation of applicable costs. Share based compensation plans The Company has employee benefit plans, which provide common share awards, all of which are purchased on the open market, to eligible directors, officers, executives, and employees of the Company and its subsidiaries. The employee benefit plan grants are treated as equity-settled share based payments, with the shares granted being measured at their fair value on the grant date. This fair value is then expensed based on a graded vesting pattern over the associated vesting period, with the deferred portion recognized as a component of reserves in shareholders equity. The Company s unvested shares acquired pursuant to the employee benefit plan are recorded as a reduction to the Company s outstanding share capital, and are recognized as outstanding share capital as they legally vest and ownership is transferred to the beneficiary. Employee future benefit plan The Company has a defined benefit pension plan covering certain employees. Benefits under this plan are based on years of service and the employee s compensation level. The Company accrues its obligations under the defined benefit pension plan and the related costs, net of plan assets. The cost of pension benefits earned by employees is actuarially determined using the projected benefit method prorated on service and management s best estimate of expected plan investment performance, salary escalation and retirement ages of employees. For the purpose of calculating the expected rate of return on plan assets, the fair value method is used. Any net actuarial gain or loss of the benefit obligation and the fair value of plan assets is recognized as a component of comprehensive earnings and as an adjustment to retained earnings (deficit). Non-controlling interest Non-controlling interest is presented in the consolidated balance sheet as a component of shareholders equity. Earnings per share Basic earnings per share is calculated using the earnings for the period attributable to the shareholders of the Company, divided by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the basic weighted average number of shares outstanding during the period is increased to 6

15 For the Fiscal Years Ended and include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. The dilutive effect of convertible debentures is determined using the if-converted method. Accounting standards and amendments issued but not yet adopted The IASB periodically issues new standards and amendments or interpretations to existing standards. The new pronouncements listed below are those that management considers most significant. They are not int to be a complete list of new pronouncements that may affect the consolidated financial statements. (i) IFRS 15 Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which supersedes IAS 11, Construction Contracts and a number of revenue-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. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to control its use and obtain the benefits from the good or service. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company has analyzed the potential impact of IFRS 15 and does not believe it will have a material impact on its 2018 consolidated financial statements. (ii) IFRS 16 Leases 3. Inventories In January, 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 sheet. Raw materials Finished goods Concessionary equipment for sale Capital assets Land, buildings and leaseholds Machinery and equipment Total Cost Accumulated depreciation (54.5) (157.5) (212.0) Net book value Cost Accumulated depreciation (62.1) (175.9) (238.0) Net book value

16 For the Fiscal Years Ended and Land, buildings and leaseholds Machinery and equipment Total Net book value as at December 26, Acquired through business acquisitions (note 17) Additions Disposals - (0.3) (0.3) Depreciation, including discontinued operation (7.8) (19.6) (27.4) Foreign currency exchange adjustment (1.4) (0.6) (2.0) Net book value as at Acquired through business acquisitions (note 17) Additions Disposals - (0.7) (0.7) Depreciation (9.0) (21.9) (30.9) Foreign currency exchange adjustment (3.7) (2.4) (6.1) Net book value as at Intangible assets Brand names Customer relationships Total Cost Accumulated amortization - (32.9) (32.9) Net book value Cost Accumulated amortization - (42.7) (42.7) Net book value Net book value as at December 26, Additions resulting from business acquisitions (note 17) Adjustments to purchase price allocations of prior year acquisitions Amortization - (7.6) (7.6) Foreign currency exchange adjustment (0.1) (0.2) (0.3) Net book value as at Additions resulting from business acquisitions (note 17) Amortization - (10.2) (10.2) Foreign currency exchange adjustment (0.3) (0.5) (0.8) Net book value as at

17 For the Fiscal Years Ended and 6. Goodwill Balance beginning of year Additions resulting from business acquisitions (note 17) Adjustments to purchase price allocations of prior year acquisitions 0.2 (2.6) Foreign currency exchange adjustment (1.9) (0.9) Balance end of year In assessing goodwill for impairment at October 1,, the Company compared the recoverable amount, using the discounted cash flow method, to the carrying amount of each cash generating unit within the specific business segment. The recoverable amount of each cash generating unit was based on budgeted cash flows for the next three years, a terminal value based on a long-term growth rate of 3%, and a discount rate of 13.4%. 7. Investment in associates Balance beginning of year Investment and note receivable from associates Distribution from associates (0.3) (0.2) Equity (loss) income in in investment in associates (0.5) 0.4 Balance end of year During, the associates had revenues of $63.6 million and a loss of $1.3 million ( revenue of $71.5 million and income of $1.0 million), and as at the associates had assets of $79.9 million and liabilities of $52.4 million ( $60.4 million and $38.6 million). 8. Bank indebtedness Bank indebtedness consists of amounts drawn on operating lines of credit. As at, the Company had total available operating lines of $48.1 million ( $33.3 million). All of the Company s operating lines bear interest at floating rates based on bank prime rates, banker s acceptance rates, or LIBOR and are secured by specific assets of the Company including an assignment of certain inventories and accounts receivable. 9

18 For the Fiscal Years Ended and 9. Long-term debt 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 52-weeks ( %), 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 and other term loans Financing costs (2.2) (1.5) Current portion (1.8) (2.2) The Company s term loans and IRB are collateralized by an assignment of inventories, accounts receivable, insurance policies, fixed charges on capital assets and a general lien on all other assets of the Company. In addition, they contain financial covenants that require the maintenance of certain ratios regarding fixed charge coverage and debt to cash flow. At, the Company was in compliance with all such covenants. Scheduled principal repayments on long-term debt are as follows: Thereafter

19 For the Fiscal Years Ended and 10. Provisions Provisions for contingent consideration associated with acquisitions Provision for lease restoration Total Balance as at December 26, Provisions arising from business acquisitions (note 17) Accretion Cash payments (1.7) - (1.7) Settlement through issuance of shares of subsidiary (0.5) - (0.5) Balance as at Provisions arising from business acquisitions (note 17) Accretion Cash payments (1.8) - (1.8) Settlement through issuance of shares of subsidiary (0.5) - (0.5) Balance as at Current portion Non-current Puttable interest in subsidiaries Balance beginning of year Change in value of puttable interest in subsidiaries Puttable interest resulting from business acquisitions (note 17) Addition arising from issuance of shares of subsidiary Cash distributions to non-controlling shareholders with puttable interests (2.3) (1.7) Foreign currency exchange adjustment (0.5) (0.2) Balance end of year Current portion Non-current

20 For the Fiscal Years Ended and 12. Convertible unsecured subordinated debentures Changes in the allocated debt components of the Company s convertible unsecured subordinated debentures for were as follows: Debt component 4.60% Debentures 4.65% Debentures 5.50% Debentures 5.00% Debentures Total Balance as at December 26, Issuance net of issuance costs Conversions to common shares - - (56.7) (2.8) (59.5) Repayment at maturity or upon redemption - - (0.7) - (0.7) Accretion Balance as at Changes in the allocated debt components of the Company s convertible unsecured subordinated debentures for were as follows: Debt component 4.60% Debentures 4.65% Debentures 5.00% Debentures Total Balance as at Conversions of debentures to common shares - (0.1) (43.0) (43.1) Accretion Balance as at Cash Conversion Option All of the Company s convertible unsecured subordinated debentures outstanding as at have a Cash Conversion Option. If the Company elects to utilize the Cash Conversion Option, it will pay the holder an amount based on the daily volume weighted average price of its common shares on the Toronto Stock Exchange as measured over a period of ten consecutive trading days commencing on the third day following the conversion date. As a result of having the Cash Conversion Option, the convertible debentures are deemed to have no equity component, and the fair value of the Cash Conversion Option is considered to be a financial liability and is included in the balance of the convertible debentures on the Company s consolidated balance sheet. Changes in the fair value of the Cash Conversion Option are recorded each period in the Company s earnings. On August 3,, the Company redeemed its 5.50% Debentures resulting in $56.7 million of the 5.50% Debentures converted at the option of the debenture holders into common shares of the Company, and $0.7 million of the 5.50% Debentures being retired through a cash payment. 12

21 For the Fiscal Years Ended and 13. Share capital Common shares (millions) Share capital Balance as at December 26, Common shares issued resulting from conversions of convertible debentures Common shares issued resulting from business acquisitions Effect of share based compensation plans - (3.3) Balance as at Common shares issued resulting from conversions of convertible debentures (note 12) Common shares issued resulting from business acquisitions and investments in associates (note 7 and 17) Effect of share based compensation plans - (4.0) Balance as at The Company is authorized to issue an unlimited number of common shares. The holders of common shares are entitled to: dividends, in proportion to the number of shares held by them, if, as and when declared by the Company s Board of Directors; one vote per share at meetings of the holders of common shares of the Company; and upon liquidation, dissolution or winding-up of the Company, participation in the distribution of the remaining property and assets of the Company. After taking into account the 0.1 million shares held in the Company s Employee Benefit Plan that had not yet vested with the beneficiaries, the Company had 30.9 million shares outstanding at. 14. Reserves Noncontrolling interest reserve Foreign currency translation adjustment Interest rate swaps Share based compensation reserve Total Balance as at December 26, 2015 (0.3) Effect of share based compensation plans Unrealized foreign exchange translation gain on foreign operations - (4.7) - - (4.7) Balance as at (0.3) Effect of additional investment in Made Rite (3.2) (3.2) Effect of share based compensation plans Unrealized gain on interest rate swaps Unrealized foreign exchange translation loss on foreign operations - (11.0) - - (11.0) Balance as at (3.5)

22 For the Fiscal Years Ended and 15. Dividends During, the Company declared dividends to shareholders of $50.6 million or $1.68 per share. The record dates of these dividends were as follows: Record date Amount Per share March 31, June 30, September 29, dividends declared Accumulated dividends declared beginning of year Accumulated dividends declared end of year Earnings per share (in millions of shares and dollars, except per share amounts) Weighted average number of shares outstanding Adjustment for shares held pursuant to the employee benefit plan Diluted weighted average number of shares outstanding Net earnings attributable to shareholders Basic earnings per share $ 2.70 $ 2.39 Diluted earnings per share $ 2.69 $ 2.38 The Company has two sources of potential dilution to its earnings per share: convertible debentures which are convertible into shares, and the vesting of shares acquired pursuant to the Company s employee benefit plan. The convertible debentures were determined to be anti-dilutive and are therefore excluded from the calculation of the diluted weighted average number of shares outstanding. 14

23 For the Fiscal Years Ended and 17. Business acquisitions During the 52 weeks, the Company invested $243.9 million in the acquisition of the following businesses: (in millions of dollars) Business Description Investment Purchase Date Made-Rite Meat Products (Made-Rite) Interprovincial Meat Sales (IMS) Ravensbergen Leadbetter Foods Inc. (Leadbetter) Skilcor Food Products (Skilcor) Buddy s Kitchen (Buddy s) Raybern Foods (Raybern s) A manufacturer of beef jerky and other meat snack products A wholesaler of high quality protein products to retailers, foodservice distributors and manufacturers located in the Maritimes A distributor of an exclusive line of premium gelato making ingredients imported from Europe to foodservice customers across western Canada A manufacturer of specialty bacon, fresh and frozen burgers and portioncut steaks for retail and foodservice customers across Canada A manufacturer of cooked protein products including back ribs A manufacturer of artisan-quality ready-to-eat meal solutions for airlines and retail customers in the Mid-western U.S. A manufacturer of branded heat-andserve sandwiches for retail customers across the U.S. Purchase of the minority interest of 30% as well as Made-Rite s leased facility Jan 12, 80% interest Jan 27, 100% interest Feb 8, 100% interest Sep 15, 100% interest Sep 22, 100% interest Nov 17, 100% interest Nov 21, The following table summarizes the preliminary estimates of the fair values of the assets acquired and consideration paid for the acquisitions: Net assets acquired: Net working capital 24.3 Capital assets 40.1 Intangible assets brand names 14.9 Intangible assets customer relationships 47.5 Goodwill Deferred income taxes Reserves NCI Puttable Interest Investment: Cash Funded debt assumed 5.5 Common shares 11.9 Provisions 0.8 (6.0) (1.1)