PREMIUM BRANDS HOLDINGS CORPORATION

Transcription

1 PREMIUM BRANDS HOLDINGS CORPORATION Interim Condensed Consolidated Financial Statements Second Quarter Thirteen and twenty-six weeks and (Unaudited)

2 NOTICE OF NO AUDITOR REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Under National Instrument Continuous Disclosure Obligations, if an auditor has not performed a review of the interim financial statements, the financial statements must be accompanied by a notice indicating that they have not been reviewed by an auditor. The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity s auditor. August 6,

3 Consolidated Balance Sheets (Unaudited and in thousands of dollars) December 28, Current assets: Cash and cash equivalents 3,252 1,437 2,522 Accounts receivable 102,892 92,880 90,327 Inventories 119, , ,367 Prepaid expenses 6,820 7,746 7,349 Other assets (note 3) , , ,063 Capital assets 194, , ,579 Intangible assets 72,874 75,099 77,286 Goodwill 169, , ,442 Investment in associates 9,722 7,949 7,814 Deferred income taxes 26,342 26,697 25,865 Other assets (note 3) 3,133 3,222 4, , , ,311 Current liabilities: Cheques outstanding 3,966 5,689 2,280 Bank indebtedness 26,797 29,466 22,559 Dividend payable (note 6) 6,922 6,863 6,595 Accounts payable and accrued liabilities 113,104 94,288 98,227 Current portion of long-term debt (note 4) 147, ,222 23,549 Current portion of convertible unsecured subordinated debentures (note 5) 9, Current portion of provisions 1,152 2,219 4, , , ,433 Long-term debt (note 4) 10,301 11, ,557 Convertible unsecured subordinated debentures (note 5) 166, , ,727 Puttable interest in subsidiaries 14,639 14,498 15,541 Deferred revenue 3,458 1,103 1,381 Provisions 2,742 3,820 3,695 Pension obligation , , , ,286 Equity attributable to shareholders: Accumulated earnings 167, , ,461 Accumulated dividends declared (195,210) (181,376) (167,643) Deficit (27,992) (19,816) (13,182) Share capital (note 7) 224, , ,558 Equity component of convertible debentures 1,744 1,744 1,747 Reserves (note 8) 2,996 4,929 2,159 Non-controlling interest , , , , , ,311 Approved by the Board of Directors (signed) George Paleologou Director (signed) Johnny Ciampi Director The accompanying notes are an integral part of these interim condensed consolidated financial statements. 1

4 Consolidated Statements of Operations (Unaudited and in thousands of dollars except per share amounts) Revenue 322, , , ,110 Cost of goods sold 261, , , ,411 Gross profit before depreciation and amortization 60,788 59, , ,699 Selling, general and administrative expenses before depreciation and amortization 39,133 38,145 75,445 69,926 Other income (note 13) - - (4,703) - 21,655 21,015 37,574 33,773 Depreciation of capital assets 4,617 4,485 9,196 8,428 Amortization of intangible assets 1,110 1,092 2,227 2,180 Amortization of other assets Interest and other financing costs (note 9) 5,083 4,674 10,059 8,839 Amortization of financing costs Acquisition transaction costs Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized loss (gain) on foreign currency contracts 300 (200) 200 (300) Unrealized gain on interest rate swap contracts - (100) - - Restructuring costs (note 10) 4,479 3,222 7,844 4,519 Equity loss (income) in associates (81) (177) (59) 5 Earnings before income taxes 5,264 7,115 6,832 8,887 Provision for income taxes Current ,206 Deferred 1, ,192 1,557 1,792 1,263 2,398 Earnings 3,707 5,323 5,569 6,489 Earnings (loss) for the period attributable to: Shareholders 3,764 5,349 5,658 6,545 Non-controlling interest (57) (26) (89) (56) 3,707 5,323 5,569 6,489 Earnings per share Basic and diluted Weighted average shares outstanding (in 000 s) Basic 22,037 20,982 21,983 20,969 Diluted 22,146 21,076 22,092 21,064 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 2

5 Consolidated Statements of Comprehensive Earnings (Unaudited and in thousands of dollars) Earnings 3,707 5,323 5,569 6,489 Unrealized foreign exchange gain (loss) on investment in foreign operations (2,662) 1,825 (947) 2,783 Comprehensive earnings 1,045 7,148 4,622 9,272 Comprehensive earnings (loss) attributable to: Shareholders 1,102 7,174 4,711 9,328 Non-controlling interest (57) (26) (89) (56) 1,045 7,148 4,622 9,272 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 3

6 Consolidated Statements of Cash Flows (Unaudited and in thousands of dollars) Cash flows from operating activities: Earnings 3,707 5,323 5,569 6,489 Items not involving cash: Depreciation of capital assets 4,617 4,485 9,196 8,428 Amortization of intangible and other assets 1,112 1,094 2,230 2,183 Amortization of financing costs Change in value of puttable interest in subsidiaries Loss (gain) on disposal of capital assets 34 (38) (4,668) (41) Accrued interest income (5) (7) (11) (13) Unrealized loss (gain) on foreign currency and interest rate swap contracts 300 (300) 200 (300) Equity loss (income) in associates (81) (177) (59) 5 Deferred revenue (50) (121) (174) (248) Accretion of convertible debentures, long-term debt and provisions ,628 1,403 Change in value of cash conversion option liability (170) Deferred income taxes 1, ,192 12,357 12,314 15,429 19,564 Change in non-cash working capital (10,025) 4,952 (2,826) (7,491) 2,332 17,266 12,603 12,073 Cash flows from financing activities: Long-term debt net 17,437 (20,527) 32,511 26,464 Bank indebtedness and cheques outstanding 7,427 (10,674) (4,392) 11,731 Dividends paid to shareholders (6,912) (6,170) (13,775) (12,358) Purchase of 7.00% Debentures under normal course issuer bid - (41) - (219) Other - (16) - (54) 17,952 (37,428) 14,344 25,564 Cash flows from investing activities: Capital asset additions (17,145) (3,683) (29,183) (6,764) Business acquisitions (1,702) 505 (1,702) (53,842) Payments to shareholders of non-wholly owned subsidiaries (472) (750) (595) (864) Payment of provisions (2,268) (247) (2,326) (500) Collection of share purchase loans and notes receivable Investment in associates (note 13) - (2,638) (1,860) (2,638) Promissory note from associate Distribution from associate Net proceeds from sale and leaseback of asset (note 13) - 25,000 10,200 25,000 Net proceeds from other asset sales (21,314) 18,813 (25,103) (38,961) Increase (decrease) in cash and cash equivalents (1,030) (1,349) 1,844 (1,324) Effects of exchange on cash and cash equivalents (94) 65 (29) 88 Cash and cash equivalents beginning of period 4,376 3,806 1,437 3,758 Cash and cash equivalents end of period 3,252 2,522 3,252 2,522 Interest and other financing costs paid 1,725 1,942 7,790 7,735 Net income taxes paid 33 1, ,965 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 4

7 Consolidated Statements of Changes in Shareholders Equity (Unaudited and in thousands of dollars) Deficit Share capital Equity component of convertible debentures Reserves Noncontrolling interest Shareholders equity Balance as at December 29, 2012 (6,962) 209,093 1, , ,945 Common shares issued Earnings (loss) for the period attributable to: Shareholders 6, ,545 Non-controlling interest (56) (56) Payments to non-controlling interest (150) (150) Dividends declared (12,791) (12,791) Return of dividends for cancelled shares Effect of share based compensation plans - (406) - (810) - (1,216) Purchase and cancellation of debentures under normal course issuer bid - - (38) - - (38) Acquisition of additional interest in subsidiary (262) (632) (894) Foreign currency translation adjustment ,783-2,783 Balance as at (13,182) 209,558 1,747 2, ,025 Deficit Share capital Equity component of convertible debentures Reserves Noncontrolling interest Shareholders equity Balance as at December 28, (19,816) 221,994 1,744 4, ,501 Common shares issued - 2, ,724 Earnings (loss) for the period attributable to: Shareholders 5, ,658 Non-controlling interest (89) (89) Dividends declared (note 6) (13,834) (13,834) Effect of share based compensation plans - (92) - (986) - (1,078) Foreign currency translation adjustment (947) - (947) Balance as at (27,992) 224,626 1,744 2, ,935 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 5

8 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 1. Corporate information and nature of business Premium Brands Holdings Corporation (the Company) is incorporated under the Canada Business Corporations Act. Through its subsidiaries, the Company owns a broad range of specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nevada, Ohio and Washington State. Due to the seasonal nature of the Company s business, the results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year. In general, the first quarter is the Company s weakest, and the second and third quarters are its strongest. The Company s Board of Directors approved these interim condensed consolidated financial statements on August 6,. 2. Significant accounting policies Basis of presentation These interim condensed consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB). Accordingly, these interim condensed consolidated financial statements do not include all of the financial statement disclosures required by International Financial Reporting Standards (IFRS) for annual financial statements and should be read in conjunction with the Company s audited annual consolidated financial statements and notes for the fiscal year December 28,, which were prepared in accordance with IFRS, are filed electronically through the System for Electronic Document Analysis and Retrieval (SEDAR) and are available at These interim condensed consolidated financial statements follow the same accounting policies and methods of computation as used in the annual consolidated financial statements of the Company. 3. Other assets December 28, Promissory note from associate 2,100 2,100 2,100 Notes receivable ,365 Employee share purchase loans Fair value of interest rate swaps Fair value of foreign currency forward contracts Other ,294 3,580 4,760 Less: current portion ,133 3,222 4,262 6

9 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 4. Long-term debt December 28, Facility A portion of a revolving term loan maturing in September with no principal payments until maturity. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank prime rate or 1.5% to 2.5% over the banker s acceptance rate ,300 Facility B revolving term loan maturing in September with quarterly principal payments of $3.5 million. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank prime rate or 1.5% to 2.5% over the banker s acceptance rate 45,000 10, ,000 Facility C non-revolving term loan maturing in September with no quarterly principal payments until the Company s Facility B is repaid at which time it will have quarterly payments of $3.5 million. The loan bears interest at a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank prime rate or 1.5% to 2.5% over the banker s acceptance rate 100, ,000 6,439 US$6.1 million secured Industrial Development Revenue Bond with no principal payments until maturity in July The bond bears interest at the weekly variable rate for such bonds, which averaged % for the first two quarters of, plus a rate that is calculated quarterly based on the Company s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% 6,539 6,552 - Non-revolving term loan maturing June 2016 with quarterly principal payments of $0.2 million. The loan bears interest at a rate that is calculated quarterly based on the subsidiary s ratio of debt to cash flow and can fluctuate from 0.5% to 1.5% over the bank s prime rate or 1.5% to 2.5% over the banker s acceptance rate 3,400 3,800 - Capital leases 2,417 3,764 4,000 Other ,222 Other non-revolving term loans - - 4,777 Unsecured notes payable , , ,583 Financing costs (191) (337) (477) Current portion: Facility B and Facility C these loans have a maturity date of September 9, and therefore have been classified as current. The Company expects to finalize the renewal of these facilities in the third quarter of (145,000) (110,500) (14,000) Other (2,544) (2,722) (9,549) (147,544) (113,222) (23,549) 10,301 11, ,557 7

10 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 5. Convertible unsecured subordinated debentures Debt component 7.00% Debentures 5.75% Debentures 5.70% Debentures 5.50% Debentures Total Balance as at December 28, 11,390 55,626 55,333 54, ,057 Conversions of debentures to common shares (2,724) (2,724) Accretion ,404 9,057 56,082 55,661 54, ,737 Current portion (9,057) (9,057) Balance as at - 56,082 55,661 54, , Dividends During the twenty-six weeks, the Company declared dividends to shareholders of $13.8 million or $ per share. The record dates of these dividends were as follows: Record date Amount Per share March 31, 6, June 30, 6, , The June 30, dividend, which was paid subsequent to the quarter end, is reported as a current liability as at. 7. Share capital Common shares ( 000s) Share capital Balance as at December 28, 21, ,994 Common shares issued resulting from conversions of 7.00% Debentures 188 2,724 Effect of share based compensation plans 4 (92) Balance as at 22, ,626 During the twenty-six weeks, the Company issued 187,852 common shares resulting from the conversion of $2.7 million of 7.00% Debentures at the conversion price of $14.50 per share. After taking into account the 108,743 shares held in the Company s employee benefit plan that had not yet vested with the beneficiaries, the Company had 22,151,035 common shares outstanding at. 8

11 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 8. Reserves Noncontrolling interest reserve Foreign currency translation adjustment Share based compensation reserve Total Balance as at December 28, (262) 3,431 1,760 4,929 Effect of share based compensation plans - - (986) (986) Unrealized foreign exchange translation loss on investment in foreign operations - (947) - (947) Balance as at (262) 2, , Interest and other financing costs Interest on convertible debentures 2,600 2,065 5,175 4,121 Interest on long-term debt 1,246 1,540 2,491 2,729 Interest on bank indebtedness Accretion of convertible debentures ,404 1,097 Accretion of long-term debt Change in value of cash conversion option liability (170) Other ,083 4,674 10,059 8, Restructuring costs Restructuring costs consist of costs associated with the significant restructuring of one or more of the Company s businesses. During the twenty-six weeks, the Company incurred $7.8 million in restructuring costs consisting of: (i) $3.4 million for the reconfiguration of the Company s deli meats production capacity including a major realignment and expansion of the capacity of Freybe Gourmet Foods plant in Langley, BC; (ii) $3.0 million for the reconfiguration of the Company s sandwich production capacity including the construction of a new 180,000 square foot production facility in Columbus, OH; and (iii) $1.4 million in costs relating to the restructuring and rationalization of the Company s direct-to-store distribution business for the convenience store industry. 9

12 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) 11. Segmented information The Company has two reportable segments, Retail and Foodservice as well as corporate costs (Corporate). The Retail segment consists of its specialty food manufacturing and retail distribution businesses, the Foodservice segment consists of its foodservice related businesses, and Corporate consists of the Company s head office activities, including strategic leadership, finance and information systems. The operating segments within each reportable segment have been aggregated as they have similar economic characteristics. Revenue Retail 203, , , ,628 Foodservice 118, , , , , , , ,110 Gross profit before depreciation and amortization Retail 39,966 39,706 71,194 67,688 Foodservice 20,822 19,454 37,122 36,011 60,788 59, , ,699 Selling, general and administrative expenses before depreciation and amortization Retail 23,388 23,700 45,260 41,854 Foodservice 13,734 12,774 26,500 24,835 Corporate 2,011 1,671 3,685 3,237 39,133 38,145 75,445 69,926 Other income Retail - - (4,703) (4,703) - Segment earnings (loss) before depreciation and amortization Retail 16,578 16,006 30,637 25,834 Foodservice 7,088 6,680 10,622 11,176 Corporate (2,011) (1,671) (3,685) (3,237) 21,655 21,015 37,574 33,773 Depreciation of capital assets Retail 3,844 3,798 7,691 7,080 Foodservice ,296 1,126 Corporate ,617 4,485 9,196 8,428 Amortization of intangible and other assets Retail ,262 1,215 Foodservice ,112 1,094 2,230 2,183 Segment operating earnings (loss) Retail 12,106 11,598 21,684 17,539 Foodservice 5,936 5,622 8,358 9,082 Corporate (2,116) (1,784) (3,894) (3,459) 15,926 15,436 26,148 23,162 Interest and other financing costs 5,083 4,674 10,059 8,839 Amortization of financing costs Acquisition transaction costs Change in value of puttable interest in subsidiaries Accretion of provisions Unrealized loss (gain) on foreign currency contracts 300 (200) 200 (300) Unrealized gain on interest rate swap contracts - (100) - - Restructuring costs 4,479 3,222 7,844 4,519 Equity loss (income) in associates (81) (177) (59) 5 Provision for income taxes 1,557 1,792 1,263 2,398 Earnings 3,707 5,323 5,569 6,489 10

13 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) Capital asset additions Retail 27,593 5,085 Foodservice 1,505 1,519 Corporate ,183 6,764 December 28, Total assets Retail 451, , ,376 Foodservice 199, , ,700 Corporate 57,312 57,713 59, , , ,311 Revenue Canada 252, , , ,118 United States 69,335 46, ,498 89, , , , ,110 December 28, Capital assets and goodwill Canada 306, , ,022 United States 56,929 35,179 32, , , , Financial instruments Foreign currency risk In order to reduce the risk associated with purchases denominated in currencies other than the Canadian dollar, the Company, from time to time, enters into foreign currency contracts. The Company does not hold foreign currency contracts for speculative purposes. As at, the Company had outstanding foreign currency contracts for the purchase of US$6.8 million over the next six months at a bl rate of C$ As at, these contracts had a fair value of $nil ( $0.4 million favourable) and during the thirteen and twenty-six weeks, the Company recorded in respect of these contracts unrealized losses of $0.3 million and $0.2 million, respectively ( unrealized gains of $0.2 million and $0.3 million, respectively) in the consolidated statement of operations. Based on the outstanding contracts as at for the purchase of U.S. dollars, a change of $0.01 in the value of the Canadian dollar relative to the U.S. dollar would result in an unrealized gain (if the Canadian dollar weakens) or an unrealized loss (if the Canadian dollar strengthens) of approximately $0.1 million in its consolidated statement of operations. 11

14 Notes to the Interim Condensed Consolidated Financial Statements For the 13-Week and 26-Week Periods Ended and (Unaudited and in thousands of dollars except per share amounts and percentages) Interest rate risk All of the Company s bank indebtedness and approximately 97% ( 93%) of its long-term debt bear interest at floating rates, while all of the Company s convertible unsecured subordinated debentures bear interest at fixed rates. The Company manages some of its interest rate exposure by entering into, from time to time, interest rate swap contracts (swaps). As at, the Company had swaps in place relating to $100.0 million of its long-term debt which expire in October. These swaps had a fair value of $nil ( $0.1 million favourable), and during the thirteen and twenty-six weeks, the Company recorded in respect of the swaps no gain or loss ( unrealized gain of $0.1 million and $nil respectively) in the consolidated statement of operations. As at, a change of 0.25 percentage points in the effective interest rate for the remaining term of the swaps would result in a gain (if interest rates increase) or loss (if interest rates decrease) of approximately $0.1 million in the Company s consolidated statement of operations. 13. Related party transactions During the twenty-six weeks, the Company sold, as part of a sale and leaseback transaction, a distribution facility located in Surrey, BC to Pender West Income Properties Limited Partnership (Pender West LP). The sale was at fair value for net proceeds of $10.2 million and resulted in a total gain of $7.2 million. Based on the Company s 35% interest in Pender West LP, 35% or approximately $2.5 million of the gain was deferred and included in deferred revenue on the consolidated balance sheet and the remainder of the gain of approximately $4.7 million recognized as other income in the consolidated statement of operations. The terms of the new lease for the Surrey distribution facility include: (i) annual minimum lease payments of $0.7 million; (ii) an initial term of twenty years; and (iii) options to renew the lease for up to ten five-year periods at the greater of: (a) the lease payment at the time a specific renewal option is exercised; and (b) the lease rate at the end of the term just expiring adjusted in accordance with the annual percentage change in the Consumer Price Index, as published by Statistics Canada, compounded annually over the previous five years to a maximum increase of 15%. Concurrent with the sale the Company made an investment of $1.9 million in Pender West LP and maintained its interest in Pender West LP at 35%. Pender West LP is a related party to the Company due to: (i) the Company s Chairman indirectly owning a minority interest in Pender West LP; and (ii) the Company owning a 35% interest in Pender West LP. 14. Acquisition On April 2,, the Company purchased certain assets, including inventory and production equipment from Reddi Food Group Inc. (Reddi) for $1.7 million. Reddi was a Calgary, AB based protein focused foodservice distribution company that serviced a variety of customers in the Alberta market. Concurrent with the transaction, Reddi ceased operations. The following table summarizes the preliminary estimates of the fair values of the assets acquired and consideration paid for this acquisition: Net assets acquired: Net working capital 783 Capital assets 390 Goodwill 529 Investment: Cash consideration 1,702 1,702 1, Subsequent event New Senior Credit Facility Subsequent to, the Company signed a commitment letter with its senior lenders for a new senior credit facility that will replace the Company s current senior credit facilities which have a maturity date of September 9,. 12