Message to Shareholders

Transcription

1 interim REPORT Third quarter ended September 27, 2014

2 Message to Shareholders Dear Shareholders, As Chairman of the Board and Chief Executive Officer of Lassonde Industries Inc., I am pleased to present the financial results for the third quarter of fiscal It should first be noted that, on July 25, 2014, the Company completed the acquisition of Apple & Eve, LLC ( A&E ) for a cash consideration of US$147.6 million, paid at the close of the transaction and subject to adjustments for working capital and other items. The Company owns a 90% stake in A&E, and members of the Lassonde family own the remaining 10% interest. Moreover, the interim consolidated financial statements for the third quarter of 2014 include the results of A&E from July 25, 2014 to September 27, 2014 and certain transaction fees related to the acquisition. The Company s sales totalled $315.0 million in the third quarter of 2014, up $57.4 million or 22.3% from $257.6 million in sales in the same period of Sales from A&E added $38.8 million to the Company s third-quarter sales. Excluding A&E s sales, the Company s third-quarter sales posted a year-over-year increase of $18.6 million (7.2%), mainly due to higher sales of private label products and a favourable foreign exchange impact, partly offset by higher trade spending that had an unfavourable impact on sales of national brands. For the first nine months of 2014, sales totalled $831.6 million, up 9.9% from $756.7 million in the first nine months of The Company s operating profit for the third quarter of 2014 totalled $20.0 million, down $2.1 million from operating profit of $22.1 million in the same quarter last year. Excluding the impact of the A&E acquisition, operating profit was up $2.0 million from last year s third quarter. This increase was mostly due to an improvement in the profitability of private label products in the United States partly offset by higher selling and administrative expenses. During the third quarter of 2014, the Company incurred $3.5 million in expenses related to the A&E acquisition. In addition, A&E posted a $0.6 million operating loss due, in part, to a $1.0 million increase in cost of sales attributable to an inventory step-up resulting from the acquisition. Operating profit for the first nine months of 2014 stood at $56.1 million, up $0.6 million from $55.5 million at the end of the first nine months of The Company s financial expenses went from $5.8 million in the third quarter of 2013 to $6.0 million this quarter, an increase that was mostly attributable to a higher interest expense related to the financing of the A&E acquisition. For the first nine months, financial expenses went from $16.7 million in 2013 to $15.3 million this fiscal year. Other (gains) losses went from a $0.6 million loss in the third quarter of 2013 to a $0.8 million gain in The 2013 third-quarter loss was mainly due to $0.2 million in foreign exchange losses and to a $0.4 million loss related to a change in the fair value of interest rate swaps. The $0.8 million gain in the third quarter of 2014 was due to foreign exchange gains. For the first nine months, the Other (gains) losses item was a $1.2 million gain in 2014 compared to a $0.4 million gain in Profit before income taxes stood at $14.9 million for the third quarter of 2014, down $0.8 million from $15.7 million in the same quarter of For the first nine months of 2014, profit before income taxes totalled $42.0 million, up $2.9 million from $39.1 million in the first nine months of An income tax expense at an effective rate of 26.4% (26.8% in 2013) brought the 2014 third-quarter profit to $10.9 million, down $0.6 million from $11.5 million in the same quarter last year. It should be noted that this quarter s result includes a net loss of $0.4 million from A&E and $2.3 million, net of tax, in acquisition-related costs. Profit attributable to the Company s shareholders totalled $10.6 million, resulting in basic and diluted earnings per share of $1.52 in the third quarter of In the third quarter of 2013, profit attributable to the Company s shareholders had totalled $11.2 million, resulting in basic and diluted earnings per share of $1.60. For the first nine months of 2014, profit attributable to the Company s shareholders totalled $28.9 million, resulting in basic and diluted earnings per share of $4.14 and, in the same nine-month period of 2013, profit had totalled $28.4 million, resulting in basic and diluted earnings per share of $

3 Messagee to Shareholders (continued) Cash flows from operating activities generated $11.0 million in cash during the third quarter of 2014, while they had generated $38.2 million in cash during the same period last year. Financing activities generated $141.4 million in the third quarter of 2014, while these activities had used $18.5 million in the same quarter of During g the third quarter of 2014, cash flows generated for the A&E acquisition totalled $140.7 million, leaving a difference of $19.2 million on a comparative basis. Investing activities used $168.3 million in the third quarter of 2014 compared to $5.0 million for thee same quarter of Excluding the $156.9 million in cash flows related to the A&E acquisition, investing cash flows increased $6.44 million year over year. At the end of the third quarter of 2014, the Company reported a cash and cash equivalents balance of $0.2 million and a bank overdraft of $11.3 million compared to a cash and cash equivalents balance of $12.0 million and a bank overdraft of $0.6 million at thee end of the third quarter of Sluggish growth in demand for fruit juice and beverages is continuing to impact the sales volumes of North American producers in this sector. In the Canadian market, the Company is seeing some weakness in demand, particularly in eastern Canada. The resulting increased competition has an impact on prices as well as on the sales volumes of the Company s national brands. Moreover, the Company s management is not seeing any signs that competitive activity will diminish overr the next quarter. However, the Company believes that it will be able to limit the impact of the increased competition with the strong performance of its private label products as well as with the favourable exchange impact from its U.S. dollar sales. The Company expects the A& &E acquisition to have a significant impact on its comparative financial data. To help measure this impact, it should be remembered that A&E recorded sales of approximately US$180 million for the 12-month period ended May 31, 2014 and an adjusted d EBITDA of approximately US$15 million. The Company also expects to incur integration costs of approximately $0.7 million during the last quarter of Barring any major external shocks and exclud ding future sales from A&E, thee Company remains optimistic about its ability to slightly increase its cons solidated sales in 2014 compared to those of In closing, I would like to recognize the efforts of our emplo yees, particularly those involve ed in the integration of A&E. Their work has helped to successfully position our Company in the face of a rapidly changing market. PIERRE-PAUL LASSONDE Chairman of the Board and Chief Executive Officer Lassonde Industries Inc. 755 Principale Streett Rougemont (Quebec) J0L 1M0 3

4 Table of Contents Condensed Consolidated Statements of Income... 5 Condensed Consolidated Statements of Comprehensive Income (Loss)... 6 Condensed Consolidated Statements of Financial Position... 7 Condensed Consolidated Statements of Shareholders Equity... 8 Condensed Consolidated Statements of Cash Flows

5 Condensed Consolidated Statements of Income (in thousands of Canadian dollars unless otherwise indicated) Third quarters ended Nine months ended Notes Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Sales 314, , , ,697 Cost of sales 230, , , ,009 Selling and administrative expenses 64,979 49, , ,172 (Gains) losses on capital assets (2) 43 (5) , , , ,229 Operating profit 19,980 22,148 56,138 55,468 Financial expenses 6 5,967 5,795 15,322 16,749 Other (gains) losses 7 (842) 621 (1,172) (381) Profit before income taxes 14,855 15,732 41,988 39,100 Income tax expense 8 3,924 4,219 11,617 9,773 Profit 10,931 11,513 30,371 29,327 Attributable to: Company s shareholders 10,615 11,151 28,935 28,387 Non-controlling interest , ,931 11,513 30,371 29,327 Basic and diluted earnings per share (in $) Weighted average number of shares outstanding (in thousands) 6,988 6,988 6,988 6,988 5

6 Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands of Canadian dollars) Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Profit 10,931 11,513 30,371 29,327 Other comprehensive income (loss): To be reclassified subsequently to profit or loss: Net change in cash flow hedge: Gains (losses) on financial instruments designated as hedges 6,922 (2,329) 6,927 5,975 Reclassification of (gains) losses on financial instruments designated as hedges (2,534) (1,887) (8,399) (3,510) Taxes (1,185) 1, (668) 3,203 (3,079) (1,075) 1,797 Translation difference: Exchange difference on translating foreign operations 13,056 (3,567) 13,220 5,398 16,259 (6,646) 12,145 7,195 Not to be reclassified subsequently to profit or loss: Benefit cost of the defined benefit plans: Remeasurements of the net defined benefit asset or liability (443) 2,640 (3,359) 2,229 Taxes 119 (713) 910 (602) (324) 1,927 (2,449) 1,627 Total other comprehensive income (loss) 15,935 (4,719) 9,696 8,822 Comprehensive income (loss) 26,866 6,794 40,067 38,149 Attributable to: Company s shareholders 25,241 6,813 37,305 36,531 Non-controlling interest 1,625 (19) 2,762 1,618 26,866 6,794 40,067 38,149 6

7 Condensed Consolidated Statements of Financial Position (in thousands of Canadian dollars) Notes As at As at Sept. 27, 2014 Dec. 31, 2013 $ $ Assets Current Cash and cash equivalents Accounts receivable Inventories Other current assets Derivative instruments , ,855 12,564 4, ,319 13,473 97, ,338 14,626 6, ,131 Derivative instruments Property, plant and equipment Other intangible assets Net defined benefit asset Other long-term assets Goodwill , ,148 1,429 1, ,910 1,017, , ,069 7,295 1, , ,849 Liabilities Current Bank overdraft Accounts payable and accrued liabilities Income tax payable Other current liabilities Derivative instruments Current portion of long-term debt , ,635 2,660 7,209 1,665 14, , ,725 1,545 17,657 1,325 4, ,716 Derivative instruments Net defined benefit liability Long-term debt Deferred tax liabilities Other long-term liabilities ,103 28,763 2, , ,349 29,428 2, ,776 Shareholders equity Capital, reserves and retained earnings attributable to the Company s shareholders Non-controlling interest 371,736 30, ,879 1,017, ,455 19, , ,849 Approved by the Board of Directors Pierre-Paul Lassonde Director Luc Provencher Director 7

8 Condensed Consolidated Statements of Shareholders Equity (in thousands of Canadian dollars) Share capital Contributed surplus Hedging reserve Foreign currency translation reserve Retained earnings Attributable to the Company s shareholders Noncontrolling interest Total shareholders equity $ $ $ $ $ $ $ $ Balance as at December 31, ,864 1,382 4,021 11, , ,455 19, ,073 Profit ,935 28,935 1,436 30,371 Other comprehensive income (loss) - - (1,075) 11,894 (2,449) 8,370 1,326 9,696 Dividends (8,314) (8,314) - (8,314) Investment of the non-controlling interest (Note 5) ,053 8,053 Adjustment (Note 12) (290) - Balance as at September 27, ,864 1,382 2,946 23, , ,736 30, ,879 8 Balance as at December 31, ,864 1,382 (304) 1, , ,891 17, ,205 Profit ,387 28, ,327 Other comprehensive income - - 1,797 4,720 1,627 8, ,822 Dividends (7,614) (7,614) - (7,614) Adjustment (370) - Balance as at September 28, ,864 1,382 1,493 6, , ,178 18, ,740 Additional information on shareholders equity is presented in Note 13. 8

9 Condensed Consolidated Statements of Cash Flows (in thousands of Canadian dollars) Nine months ended Notes Sept. 27, 2014 Sept. 28, 2013 $ $ Operating activities Profit 30,371 29,327 Adjustments for: Income tax expense 8 11,617 9,773 Interest income and expense 13,782 15,805 Depreciation and amortization 24,546 23,756 Amortization of unearned discounts and unused tax credits (298) (115) Change in fair value of financial instruments 1, Cost of the defined benefit plans recognized in profit or loss, net of contributions 2,394 (1,001) (Gains) losses on capital assets (5) 48 Unrealized foreign exchange (gains) losses (316) ,496 78,188 Change in non-cash operating working capital items 14 (20,474) 3,952 Income tax received 1,165 2,994 Income tax paid (11,556) (5,162) Interest received Interest paid (10,986) (14,236) Settlements of derivative instruments (502) (956) 41,346 64,904 Financing activities Change related to the revolving operating credit, net of transaction costs 65, Increase in long-term debt, net of transaction costs 78,942 (2,737) Repayment of long-term debt (20,903) (26,134) Dividends paid on Class A shares (3,848) (3,524) Dividends paid on Class B shares (4,466) (4,090) Investment of the non-controlling interest 5 8,053 - Settlement of retractable financial instruments 12 (11,818) (21,386) 111,073 (56,909) Investing activities Consideration paid on business combinations, net of acquired cash on hand 5 (159,990) - Acquisitions of property, plant and equipment (11,915) (18,572) Acquisitions of other intangible assets (4,167) (160) Net proceeds from the disposal of property, plant and equipment 18 3 (176,054) (18,729) Decrease in cash and cash equivalents (23,635) (10,734) Cash and cash equivalents at beginning 12,636 22,186 Impact of exchange rate changes on cash and cash equivalents (47) (61) Cash and cash equivalents at end 14 (11,046) 11,391 Additional cash flow information is presented in Note 14. 9

10 Table of Contents Note 1. Description of the Business Note 2. Statement of Compliance Note 3. Adoption of IFRS Standards Note 4. Seasonality or Cyclicality of Interim Operations Note 5. Business Combinations Note 6. Financial Expenses Note 7. Other (Gains) Losses Note 8. Income Tax Expense Note 9. Financial Instruments Note 10. Other Current Assets Note 11. Long-Term Debt Note 12. Other Liabilities Note 13. Shareholders Equity Note 14. Additional Cash Flow Information Note 15. Contingencies Note 16. Segment Information Note 17. Future Accounting Changes

11 Note 1. Description of the Business Lassonde Industries Inc. (the Company) is incorporated under the Canada Business Corporations Act and is listed on the Toronto Stock Exchange. The Company s head office is located at 755 Principale street in Rougemont, Quebec, Canada. The Company develops, manufactures and markets a wide range of ready-to-drink fruit and vegetable juices and drinks. The Company is the second largest producer of store brand fruit juices and drinks in the United States and a major producer of cranberry sauces. Furthermore, the Company develops, manufactures and markets specialty food products such as fondue broths and sauces, soups, sauces and gravies, packaged corn-on-the-cob, bruschetta toppings, tapenades, pestos and sauces for pasta and pizza. It imports selected wines from several countries of origin for packaging and marketing purposes. It also produces apple cider and cider-based beverages. Note 2. Statement of Compliance The Company s interim condensed consolidated financial statements have been prepared in compliance with IAS 34 Interim Financial Reporting and apply the same accounting policies as those described in the Company s annual consolidated financial statements for the year ended December 31, The Company s annual consolidated financial statements for the year ended December 31, 2013 were prepared in compliance with International Financial Reporting Standards (IFRS). These interim condensed consolidated financial statements do not include all of the information required under IFRS for complete financial statements and they should therefore be read in conjunction with the Company s annual consolidated financial statements for the year ended December 31, The Company s interim condensed consolidated financial statements and annual consolidated financial statements are available on the SEDAR website at and on the Company s website at The Board of Directors approved these interim condensed consolidated financial statements on November 7, Note 3. Adoption of IFRS Standards On January 1, 2014, the Company adopted a new standard, IFRIC 21 Levies, and amended versions of the standards IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement. All of these standards apply to fiscal years beginning on or after January 1, The adoption of this new standard and these amended versions of the standards had no significant impact on the Company s interim condensed consolidated financial statements for the third quarter of Note 4. Seasonality or Cyclicality of Interim Operations In the ordinary course of business, the Company is involved in apple and cranberry processing and packages corn-on-the-cob. These processing activities take place mainly from August to November. Processing the harvested crops generally increases inventory levels during the last quarter of the year. These processing activities generally have a favourable impact on the Company s profit in the last quarter of the year with respect to the accounting treatment of production overhead. More specifically, since the Company carries out, among other activities, maintenance on the equipment used to process apples and process and package corn-on-the-cob during the first three quarters of the fiscal year, certain production overheads are recognized in profit or loss for these periods. However, during the fourth quarter of the fiscal year, a portion of these production overheads is recognized in inventories in the Consolidated Statement of Financial Position, thereby creating a generally favourable impact on profit in the last quarter of the fiscal year. 11

12 Note 5. Business Combinations 5.1 Apple & Eve, LLC Description of the business combination On July 25, 2014, a 90%-owned U.S. subsidiary of the Company acquired 100% of the units of Apple & Eve, LLC (A&E) after a final agreement was signed on July 3, 2014 with US Juice Partners, LLC. Founded in 1975, A&E markets national brand juices in the U.S. market. Headquartered in Port Washington, New York, A&E has no production establishment but relies on a network of contract packaging specialists to manufacture its products. With this business combination, the Company will gain a foothold in the national brand juice business in the U.S. and strengthen its presence in this market Sources of funds and fair value of the consideration transferred as at the transaction date As at July 25, 2014 $ Sources: Term loan - increase 81,105 Canadian revolving operating credit facility i) 52,000 U.S. revolving operating credit 1,601 Non-controlling interest ( Canada Inc.) ii) 8,053 Cash 20, ,866 Acquisition-related costs (2,408) Costs related to increasing the term loan (1,709) Contingent consideration receivable iii) (805) Consideration receivable from US Juice Partners, LLC iv) (630) Fair value of the consideration transferred iv) 157,314 i) Before the close of the business combination, the Company obtained required consents from lenders to ensure compliance with its restrictive covenants regarding business combinations. ii) iii) iv) Canada Inc. invested an additional amount of $8,053,000 (US$7,500,000) in cash in Pappas Lassonde Holdings, Inc. (PLH) to maintain its 10.0% interest level. The investment was recognized in the Company s shareholders equity as an investment of the non-controlling interest. The agreement signed with US Juice Partners, LLC contains an indemnification clause of a maximum amount of US$3,150,000 related to its representations and warranties. The preliminary acquisition-date fair value of the contingent consideration recognized, in an amount of $805,000, was measured based on management s estimates of probable minimum future volumes to be achieved. Subsequent changes in the fair value of the contingent consideration receivable from US Juice Partners, LLC will be recognized in the profit or loss of the period in which they arise in cost of sales. Subject to changes following the finalization of the working capital adjustment with US Juice Partners, LLC. 12

13 5.1.3 Costs related to the acquisition and financing As at September 27, 2014, the total acquisition- and financing-related costs are as follows: Acquisition-related costs i) 4,204 Costs related to increasing the term loan ii) 2,136 6,340 i) Recognized in selling and administrative expenses in the Condensed Consolidated Statement of Income. $ ii) Recognized as a reduction to the carrying amount of the term loan and amortized over the remaining term of the term loan using the effective interest rate method Assets acquired and liabilities assumed at the acquisition date The preliminary fair value allocation of assets acquired and liabilities assumed at the acquisition date is as follows, based on the estimated purchase price: Assets Cash and cash equivalents 1,866 Accounts receivable 14,163 Inventories 28,464 Other current assets 816 Property, plant and equipment 659 Other intangible assets 99,469 Other long-term assets ,529 Liabilities Accounts payable and accrued liabilities 23,802 Net identifiable assets acquired 121,727 $ Determination of fair value The fair value of assets acquired and liabilities assumed recognized at the acquisition date was determined based on the Company s assumptions and estimates. The estimated purchase price allocation is preliminary and is subject to change until recognition of the business combination has been finalized, following reception of the final fair value measurement report of acquired assets prepared by a third party appointed by the Company, and following finalization of the working capital adjustment with US Juice Partners, LLC. Accounts receivable Receivables were recognized at fair value, which does not differ significantly from their gross contractual value and expected receipts. Property, plant and equipment Property, plant and equipment were recognized at fair value, which does not differ significantly from their net carrying value at the transaction closing date. 13

14 Other intangible assets The Company has appointed a third party to assist in the valuation of the other intangible assets acquired. The relief from royalty method has been the basis for the valuation of A&E s trade name and trademarks. The lost profits approach was applied in valuing the non-compete agreements. After considering the contribution of all other assets to the realization of cash flows, a multi-period excess earnings method was used to derive the value of client relationships. The relief from royalty method, the lost profits approach and the multi-period excess earnings method are all primarily based upon expected discounted cash flows according to currently available information, such as A&E s historical and projected revenues, customer attrition rates and certain other relevant assumptions. Estimated As at useful lives July 25, 2014 Years $ Other intangible assets Client relationships 15 62,368 Trade name and trademarks 20 36,469 Software Non-compete agreements , Goodwill arising from the business combination As at July 25, 2014 $ Consideration transferred 157,314 Less: Fair value of net identifiable assets acquired 121,727 Goodwill 35,587 With the acquisition of A&E, the Company will penetrate the U.S. national brand market using A&E s sales force. The Company will increase its critical mass to support its U.S. customers and will achieve economies of scale. The business combination will also generate benefits from the pooling of logistics and distribution and provide A&E with a broad range of products that can be introduced in the U.S. under the A&E brand or under the Company s existing brands. Goodwill recognized as part of the business combination is tax deductible on a straight-line basis over 15 years. The half-year rule applies Contract existing between acquirer and seller before the acquisition date The Company already had a business relationship with A&E before negotiations for the business combination began. A&E had been using the contract packaging services of one of the Company s subsidiaries to manufacture its products. The existing contract between the subsidiary and A&E, concluded in December 2013, had been determined using market conditions. Consequently, the Company has neither benefitted from advantages nor experienced disadvantages related to this contract following the business combination and did not recognize any gain or loss in the purchase price allocation at the acquisition date Impact of the business combination on the Company s financial performance The Company s consolidated profit for the third quarter of 2014 includes sales amounting to $38,822,000 and a net loss of $407,000 generated from A&E s business in the United States. If the business combination had been completed on January 1, 2014, the Company s consolidated sales and consolidated profit, for the nine months ended September 27, 2014, would have stood at $934,204,000 and $34,124,000, respectively. The Company considers these pro forma figures to be an approximate measurement of the financial performance of the combined business over a nine-month period and that they provide a baseline against which to compare the financial performance of future periods. 14

15 To determine the Company s pro forma consolidated sales and profit if A&E had been acquired on January 1, 2014, the Company: eliminated the sales of Clement Pappas and Company, Inc. (CPC) to A&E for the period of January 1 to July 25, 2014; calculated depreciation of property, plant and equipment acquired and amortization of other intangible assets acquired based on the preliminary fair value arising from initial recognition of the business combination rather than the carrying amounts recognized in the pre-acquisition financial statements; calculated the borrowing costs on the Company s net indebtedness after the business combination; and excluded the acquisition-related costs that were recognized in profit or loss and the seller s transaction costs recognized in the pre-acquisition financial statements. In the ordinary course of business, A&E has commitments under purchase contracts for raw materials, services, operating leases and contract packaging services to manufacture its products. 5.2 Non-significant business combination and acquisition of other intangible assets Description of the non-significant business combination On August 29, 2014, a Canadian subsidiary of the Company entered into a non-significant business combination for a preliminary consideration transferred of $3,107,000. In addition, the Company s subsidiary made a commitment to purchase, by August 28, 2015, property, plant and equipment, namely, a plant and its land, for a total amount of $1,500,000 if certain conditions are met by the seller Acquisition of other intangible assets As part of this business combination, the Company s subsidiary also acquired a client relationship for a preliminary amount of $4,100,000. This client relationship will be amortized on a straight-line basis over 7 years. Note 6. Financial Expenses Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Interest on long-term debt 4,438 4,058 11,540 13,911 Amortization of non-cash financial expenses ,389 2,055 Interest and other bank expenses Change in fair value of financial instruments designated as financial liabilities at fair value through profit or loss , ,994 5,837 15,511 16,920 Financial revenues (27) (42) (189) (171) 5,967 5,795 15,322 16,749 15

16 Note 7. Other (Gains) Losses Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Exchange (gains) losses (759) 205 (1,292) (570) Change in fair value of derivative instruments held for trading Other gains (94) - (130) - (842) 621 (1,172) (381) Note 8. Income Tax Expense Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Current tax 5, ,402 3,880 Deferred tax (1,687) 3, ,893 3,924 4,219 11,617 9,773 The Company estimates the quarterly income tax rate based on the tax rate that the Company expects to face for the fiscal year. The tax rate for the fiscal year is based on the geographic distribution of profit before income taxes, the exchange rate applicable to profit before income taxes in foreign currencies, non-deductible expenses and non-taxable income. 16

17 Note 9. Financial Instruments 9.1 Classification The classifications and carrying values of financial instruments are as follows: As at September 27, 2014 Loans and receivables FVTPL i) Other financial liabilities Derivatives used as hedges Total carrying value $ $ $ $ $ Financial assets Cash and cash equivalents Accounts receivable 142, ,896 Derivative instruments ,145 5, , , ,247 Financial liabilities Bank overdraft 11, ,252 Accounts payable and accrued liabilities , ,635 Derivative instruments - 1, ,665 Participating loans ii) - 7, ,204 Long-term debt iii) iv) , ,176 11,252 8, , ,932 i) Financial assets and liabilities at fair value through profit or loss. This category includes assets and liabilities held for trading and financial instruments designated by the Company as financial assets and liabilities at fair value through profit or loss. ii) Includes the current portion and the long-term portion, as presented in Note 12. iii) Includes the current portion of long-term debt. iv) The fair value of long-term debt is $416,124,

18 As at December 31, 2013 Loans and receivables FVTPL i) Other financial liabilities Derivatives used as hedges Total carrying value $ $ $ $ $ Financial assets Cash and cash equivalents 13, ,473 Accounts receivable 97, ,303 Derivative instruments ,121 6, , , ,167 Financial liabilities Bank overdraft Accounts payable and accrued liabilities , ,725 Derivative instruments - 1, ,972 Retractable financial instruments - 11, ,751 Participating loans ii) - 6, ,304 Long-term debt iii) iv) , , , , ,565 i) Financial assets and liabilities at fair value through profit or loss. This category includes assets and liabilities held for trading and financial instruments designated by the Company as financial liabilities at fair value through profit or loss. ii) Includes the current portion and the long-term portion, as presented in Note 12. iii) Includes the current portion of long-term debt. iv) The fair value of long-term debt is $278,777, Fair Value The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is established based on market information available at the date of the Condensed Consolidated Statement of Financial Position. In the absence of an active market for a financial instrument, the Company uses the valuation methods described below to determine the fair value of the instrument. To make the assumptions required by certain valuation models, the Company relies mainly on external, readily observable market inputs, when available. Assumptions or inputs that are not based on observable market data are used in the absence of external data. These assumptions or factors represent management s best estimates of the ones that would be used by market participants for these instruments. The credit risk of the counterparty and the Company s own credit risk have been taken into account in estimating the fair value of all financial assets and financial liabilities, including derivative instruments. 18

19 The following valuation assumptions and/or methods were used to estimate the fair value of financial instruments: The fair values of cash and cash equivalents, accounts receivable excluding the contingent consideration receivable, bank overdraft and accounts payable and accrued liabilities are approximately equal to their carrying values due to their short-term maturities; The fair value of the contingent consideration receivable is measured based on management s estimates of probable minimum future volumes to be achieved; The fair value of long-term debt, including finance leases, is determined based on the discounted cash flow method and calculated using current interest rates for instruments with similar terms and remaining maturities that the Company could have obtained on the market at the measurement date; The fair value of the Company s derivative instruments, including foreign exchange forward contracts, interest rate swaps and total return swaps on frozen concentrated orange juice, is determined using valuation techniques and calculated as the present value of estimated future cash flows using an appropriate exchange rate and interest rate yield curve. Assumptions are based on market conditions prevailing on the reporting date. The derivative instruments reflect the estimated amounts that the Company would receive or pay to settle the contracts at the end of each reporting period; and The fair value of participating loans is estimated using the present value of future cash flows. The amount repayable as expected principal of the participating loans is calculated as follows: 3.0% of 6.5 times the adjusted consolidated EBITDA of CPC for the four quarters preceding the redemption less outstanding debt plus cash on hand. Recognized financial instruments are classified using a fair value hierarchy that categorizes the inputs used in fair value measurement techniques into three levels. This hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In some cases, the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Assessing the significance of a particular input to the entire measurement requires judgment, taking into account factors specific to the asset or liability. Adjustments to arrive at measurements based on fair value, such as costs to sell when measuring fair value less costs to sell, shall not be taken into account when determining the level of the fair value hierarchy within which a fair value measurement is categorized. All financial instruments measured at fair value in the Condensed Consolidated Statement of Financial Position were classified according to a hierarchy comprising three levels: Level 1: valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities; Level 2: valuation based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable; and inputs that are derived mainly from or corroborated by observable market data using correlation or other forms of relationship; Level 3: valuation techniques based on a significant portion of inputs not observable in the market. The Company s policy is to recognize transfers into and out of the different hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the third quarters and the nine months ended September 27, 2014 and September 28, 2013, no financial instruments were transferred between levels 1, 2 and 3. 19

20 The following tables present the financial instruments measured at fair value on a recurring basis, classified using the hierarchy described above: As at September 27, 2014 Level 1 Level 2 Level 3 Total $ $ $ $ Financial assets Contingent consideration receivable Derivative instruments: Designated as hedges - 5,145-5,145-5, ,980 Financial liabilities Derivative instruments: Held for trading - 1,530-1,530 Designated as hedges Participating loans - - 7,204 7,204-1,665 7,204 8,869 As at December 31, 2013 Level 1 Level 2 Level 3 Total $ $ $ $ Financial assets Derivative instruments: Held for trading Designated as hedges - 6,121-6,121-6,391-6,391 Financial liabilities Derivative instruments: Held for trading - 1,972-1,972 Participating loans - - 6,304 6,304 Retractable financial instruments i) ,751 11,751-1,972 18,055 20,027 i) The fair value of retractable financial instruments is estimated using the present value of the expected future per share redemption price, which is calculated as follows: 6.4 times the average annual adjusted consolidated EBITDA of CPC for the two full fiscal years preceding redemption less outstanding debt plus cash on hand divided by the number of CPC shares outstanding. The fair value also takes into account the minimum price guaranteed by the Company in case the existing put and call provisions are exercised. 20

21 9.3 Change in the fair value of financial instruments classified in Level 3 The following table presents the change in the fair value of financial instruments classified in Level 3, measured at fair value on a recurring basis: Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Fair value at beginning 6,633 17,009 18,055 37,853 New financial asset Change in fair value i) ii) , Settlements - - (12,034) (21,602) Exchange difference iii) 30 (227) Fair value at end 8,039 17,151 8,039 17,151 i) Includes the impact of revisions to assumptions made and of the passage of time. ii) iii) Recognized in profit or loss as financial expenses. Recognized in other comprehensive income in the exchange difference on translating foreign operations. 9.4 Sensitivity analysis of the Level 3 inputs The fair value of the participating loans is estimated using valuation techniques based on a significant portion of inputs not observable in the market. The fair value is estimated using the present value of future cash flows. The factors that mostly influence this valuation are the discount rate, expected future adjusted consolidated EBITDA reflecting a growth rate based on the historical trends of CPC, and the expected free cash flows of CPC. Sensitivity analyses of the fair value of participating loans were calculated based on reasonably possible changes made to each key assumption without considering simultaneous changes to several of these key assumptions. A change in one assumption could trigger a change in another assumption, which could amplify or mitigate the impact of the change in these assumptions on the fair value of this financial instrument. The actual impacts of changes in assumptions on the fair value of this financial instrument may differ from the estimated impacts below. The Company did not perform a sensitivity analysis of the fair value of the contingent consideration receivable for the third quarter of 2014, considering that the amount is preliminary and subject to changes upon the finalization of the recognition of the business combination. The indemnification amount related to the contingent consideration receivable can fluctuate from US$0 to a maximum amount of US$3,150,000 according to the agreement signed with US Juice Partners, LLC. The sensitivity analysis of the fair value of the contingent consideration receivable will be presented in the annual consolidated financial statements of the Company for the year ending December 31, Change in assumption Impact on fair value given Increase in Decrease in assumption assumption $ $ Discount rate 1% (97) 99 Expected future adjusted consolidated EBITDA in excess of anticipated growth 5% 484 (484) 21

22 Note 10. Other Current Assets As at As at Sept. 27, 2014 Dec. 31, 2013 $ $ Sales tax receivable 4,883 6,982 Tax credits receivable 2,210 2,509 Prepaid expenses 5,372 5,020 Other ,564 14,626 Note 11. Long-Term Debt 11.1 Term credit facility On April 23, 2014, the Company locked in the interest rate of one tranche of the term credit facility, an interest rate that was renewable in May This tranche now bears interest at a rate of 3.95% (previously 6.50%) until it matures in January On September 4, 2014, the Company locked in the interest rate of one tranche of the term credit facility, an interest rate that was renewable in September This tranche now bears interest at a rate of 4.05% (previously 5.90%) until it matures in September Term loan On July 3, 2014, upon the signing of the A&E acquisition agreement, the Company s term loan agreement was amended such that it could use the clause entitling it to borrow an additional US$75,000,000. On July 25, 2014, the Company obtained US$75,000,000 with the same terms and conditions as the current loan to finance the business combination. Transaction costs related to the increase in the term loan, in an amount of approximately US$1,979,000, are amortized over the remaining term of the term loan using the effective interest rate method. Note 12. Other Liabilities As at As at Sept. 27, 2014 Dec. 31, 2013 $ $ Current Participating loans 5,578 5,318 Retractable financial instruments - 11,751 Other 1, ,209 17,657 Long-term Participating loans 1, Unearned discounts and unused tax credits 814 1,293 2,440 2,279 22

23 12.1 Retractable financial instruments On June 27, 2014, through one of its subsidiaries, the Company acquired, from a member of the Pappas family, a 6.0% interest in PLH, which owns 100% of CPC s share capital. The total purchase price of the acquired shares, recorded as a settlement of retractable financial instruments, totalled $11,818,000 (US$11,070,000) and was paid out of the Company s working capital. The shares thus acquired have raised the Company s interest in PLH and its CPC subsidiary from 84.0% to 90.0%. The remaining 10.0% is owned by members of the Lassonde family. Before the close of this transaction, the Company obtained the required consents from certain lenders to ensure compliance with restrictive covenants. At the close of this transaction, the Company adjusted the non-controlling interest in the Condensed Consolidated Statement of Shareholders Equity to reflect the impact of this transaction. Note 13. Shareholders Equity 13.1 Dividend per share During the first nine months of 2014, the Company declared and paid dividends of $1.19 per share ($1.09 per share during the first nine months of 2013) to the holders of Class A and B shares Dividends paid to related parties Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Canada Inc. 1,506 1,469 4,481 4,105 Key management personnel ,519 1,483 4,522 4, Subsequent share repurchase Since the end of the third quarter of 2014 and until November 5, 2014, the Company did not repurchase any Class A subordinate voting shares. Note 14. Additional Cash Flow Information 14.1 Change in non-cash operating working capital items Nine months ended Sept. 27, 2014 Sept. 28, 2013 $ $ Accounts receivable (26,840) 11,505 Inventories (15,261) 11,777 Other current assets 3,162 (2,294) Accounts payable and accrued liabilities 17,674 (17,170) Other current liabilities i) (20,474) 3,952 i) Does not include changes related to participating loans and retractable financial instruments. 23

24 14.2 Cash and cash equivalents In the Condensed Consolidated Statements of Cash Flows, cash and cash equivalents include the following items: As at As at As at Sept. 27, 2014 Dec. 31, 2013 Sept. 28, 2013 $ $ $ Cash ,245 10,948 Cash equivalents 71 3,228 1,080 Bank overdraft (11,252) (837) (637) (11,046) 12,636 11, Non-cash transactions Transactions that had no cash impact on investing activities were as follows: a) Acquisition of property, plant and equipment, for which an amount of $1,002,000 was unpaid as at September 27, 2014 ($2,673,000 as at December 31, 2013); and b) Investment tax credit receivable related to investments in property, plant and equipment of $835,000 as at September 27, 2014 ($971,000 as at December 31, 2013). Note 15. Contingencies 15.1 Proceedings and claims In the ordinary course of business, the Company is exposed to various proceedings and claims. The Company assesses the validity of these proceedings and claims. Provisions are made whenever a penalty seems probable and a reliable estimate can be made of the amount. Management believes that any settlement arising from these claims will not have a significant effect on the Company s current consolidated financial position or on profit or loss. Therefore, no provision has been recognized in the Company s interim condensed consolidated financial statements. Note 16. Segment Information The Company has determined that it has only one reportable operating segment, i.e., the development, manufacturing and marketing of a wide range of ready-to-drink fruit and vegetable juices and drinks and of specialty food products; the importation, packaging and marketing of selected wines from several countries of origin; and the production of apple cider and cider-based beverages. This single reportable operating segment generates revenues from the sale of these products and from rendering services related to the sale of these products. Sales are attributed to the geographic segment based on the location where the Company has transferred the significant risks and rewards of ownership of the goods to the buyer. The geographic segment of non-current assets and goodwill are based on the locations of the assets Sales by geographic segment Third quarters ended Nine months ended Sept. 27, 2014 Sept. 28, 2013 Sept. 27, 2014 Sept. 28, 2013 $ $ $ $ Canada 142, , , ,435 United States 170, , , ,063 Other 1,408 1,103 4,856 4, , , , ,697 24

25 16.2 Certain non-current assets and goodwill by geographic segment As at September 27, 2014 Canada United States Total $ $ $ Property, plant and equipment 155,379 94, ,654 Other intangible assets 11, , ,148 Goodwill 5, , , , , ,712 As at December 31, 2013 Canada United States Total $ $ $ Property, plant and equipment 156,437 91, ,428 Other intangible assets 7, , ,069 Goodwill 5, , , , , ,242 Note 17. Future Accounting Changes The International Accounting Standards Board (IASB) issued several standards that are mandatory but not yet applicable for the third quarter ended September 27, Only the standards that could have an impact on the consolidated financial statements of the Company have been disclosed below. Standard Issue date Effective date i) Impact ii) IFRS 15 Revenue From Contracts With Customers May 2014 January 1, 2017 In assessment IFRS 9 Financial Instruments July 2014 January 1, 2018 In assessment Annual improvements to IFRS ( Cycle) September 2014 July 1, 2016 In assessment i) Applicable to fiscal years beginning on or after: ii) Impact on the consolidated financial statements estimated by the Company IFRS 15 Revenue From Contracts With Customers The IASB issued IFRS 15, which will replace the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets From Customers and SIC-31 Revenue - Barter Transactions Involving Advertising Services. This new standard sets out the requirements for recognizing and disclosing revenue that apply to all contracts with customers IFRS 9 Financial Instruments The IASB issued the final version of IFRS 9, which completes the replacement of IAS 39 Financial Instruments: Recognition and Measurement with an objective of improving and simplifying the accounting of financial instruments. The final version of IFRS 9 replaces the previously issued versions of this standard and introduces the following items: a logical approach to classification and measurement of financial assets and liabilities; a single forward-looking impairment model based on expected credit losses; a substantially-reformed approach to hedge accounting. 25

26 17.3 Annual improvements to IFRS ( Cycle) The IASB amended several standards as part of its annual improvement process: Standard IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 7 Financial Instruments: Disclosures IAS 19 Employee Benefits IAS 34 Interim Financial Reporting Changes in methods of disposal. Subject of amendment Servicing contracts and applicability of the amendment to IFRS 7 to condensed interim financial statements. Discount rate: regional market issue. Disclosure of information elsewhere in the interim financial report. 26