Commodity Prices Pressure Earnings; Improvements Expected in 2nd Half '08
TORONTO, July 24 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported
its financial results for the second quarter ended June 30, 2008.- Adjusted earnings (loss) per share of ($0.01) compared to $0.13 last
year, as higher grain and fuel costs outpaced price increases
- Restructuring of protein operations on track
- Brandon plant expansion ahead of plan
- Benefits from restructuring, stabilization of commodity markets and
pricing expected to improve earnings in the second half of 2008
Note: Adjusted earnings per share measures are defined as earnings per
share from continuing operations before restructuring and other related
costs and certain non-recurring tax adjustments."We fully expected the first half of 2008 to be very difficult for Maple
Leaf due to the extreme inflation and volatility in commodity markets." said
Michael H. McCain, President and CEO. "We are focused on persevering through
these unprecedented market conditions, maintaining our focus on executing the
structural changes we have committed to and passing on price increases to
offset the effects of commodity inflation. While the first half has been
pressured, we believe the second half of 2008 will show a substantial recovery
as markets stabilize and the early benefits of restructuring are realized."
Financial Overview
------------------
Earnings from continuing operations before restructuring and other
related costs ("Adjusted Operating Earnings") decreased by 64.1% to
$18.9 million for the quarter. High wheat and fuel costs compressed margins in
the Bakery Products Group as price increases implemented earlier in the year
were not sufficient to cover high input costs. Hog production operations
continued to be affected by lower hog prices and higher feed costs. In the
protein business, declining poultry processor margins and a higher Canadian
dollar were only partly offset by improved pork processor margins. Also
included in earnings for the quarter were costs of $3.1 million (2007:
$0.4 million) related to consulting and systems conversion initiatives.
Earnings per share from continuing operations before restructuring and
other related costs and certain non-recurring tax adjustments ("Adjusted EPS")
for the quarter were a loss of $0.01, compared to earnings of $0.13 last year.
Year-to-date earnings per share, on a comparable basis, were $0.03 compared to
$0.25 last year.Following is a summary of Adjusted EPS:
Second Quarter Year-To-Date
2008 2007 2008 2007
---- ---- ---- ----
EPS from continuing
operations $(0.07) $(0.05) $(0.07) $(0.01)
Restructuring and other
related costs,
net of tax(i) $0.07 $0.18 $0.11 $0.26
Adjusted EPS(ii)(iii) ($0.01) $0.13 $0.03 $0.25
Discontinued operations $0.04 $0.08
EPS before restructuring
and other related
costs(ii) ($0.01) $0.17 $0.03 $0.33
(i) Includes the per share impact of restructuring and other related
costs net of tax and minority interest and includes the recognition
of a tax benefit of $5.1 million in Q2 2007 related to the sale of
the animal nutrition business.
(ii) These are not recognized measures under Canadian GAAP. Management
believes that this is the most appropriate basis on which to
evaluate results, as restructuring and other related costs are not
representative of continuing operations.
(iii) Does not add due to rounding.
Business Segment Review
-----------------------
Following is a summary of Adjusted Operating Earnings by business segment:
Second Quarter Year-To-Date (iii)
($ millions) 2008 2007 Change 2008 2007 Change
---- ---- ------- ---- ----- --------
Meat Products Group $ 5.7 $ 15.0 (62.0%) $ 30.7 $ 36.5 (15.8%)
Agribusiness Group(i) 7.6 4.7 62.2% 4.8 5.5 (12.5%)
---------------------------------------------------
Protein Group 13.3 19.7 (32.5%) 35.5 42.0 (15.4%)
Bakery Products Group 8.7 33.4 (74.0%) 25.8 61.1 (57.7%)
Non-allocated Costs(ii) (3.1) (0.4) - (9.4) (0.5) -
---------------------------------------------------
$ 18.9 $ 52.7 (64.1%) $52.0 $102.5 (49.3%)
---------------------------------------------------
(i) Agribusiness Group excludes the results of the animal nutrition
business that are reported as discontinued operations.
(ii) Non-allocated costs include costs related to the Company's
IT system conversion, certain shared services and consulting
expenses related to restructuring initiatives. Management believes
that not allocating these costs provides a more comparable
assessment of segment operating results.
(iii) Table does not add due to rounding.Meat Products Group (value-added processed packaged meats; chilled meal
entrees and lunch kits; value-added pork, poultry and turkey products;
and global meat sales.)
Adjusted Operating Earnings for the second quarter were $5.7 million
compared to $15.0 million last year, primarily due to a decline in fresh
poultry margins as a result of higher feed and related live bird costs and the
effect of a stronger Canadian dollar, which offset improvements in pork
processor margins. In the fresh pork business, although results improved over
last year, the Company did not realize the full benefit of improved industry
margins due to volatility of hog prices in the period. The packaged meat and
meals business was impacted by inflationary pressures and costs of investment
in innovation. The Company will continue to increase prices to manage rising
costs.
The restructuring of the Company's protein operations, which involves
significantly reducing the size of its hog and fresh pork operations and
expanding its value added meat and meals businesses, is proceeding on schedule
and is expected to be completed by the end of 2009. Early benefits were
realized from lower manufacturing overheads due to the closure of three
sub-scale processing plants, double-shifting the front-end processing at the
Brandon pork plant, and reduced administration expenses. The financial
benefits from these initiatives have to date been offset by start-up costs,
but management expects the restructuring to contribute on a net basis to
earnings in the second half of the year.
A key element of the restructuring is the consolidation of six pork
processing plants into one double-shifted operation in Brandon, Manitoba,
which will supply raw materials for the Company's packaged meat business. In
2007, the front-end processing at Brandon was increased from 45,000 to 75,000
hogs a week on two shifts, enabling the closure of two older facilities in
Saskatoon and Winnipeg. In July 2008, the back-end "cut" operations were
commissioned, thus finalizing the double-shift expansion of this factory. In
the first month of operations, the facility has been running at target volumes
with a smooth startup. This expansion will enable the closure of another
facility in Winnipeg at the end of the third quarter of 2008. The Company has
also commenced marketing its pork facility in Burlington, Ontario, which
processes over two million hogs annually. By consolidating these operations in
Brandon and reducing the number of pigs processed, significant cost reduction,
scale efficiencies and margin improvements are expected to be realized. The
successful start up of the Brandon second shift will also result in the
cessation of duplicate and start up costs of this project that have so far
been charged to earnings, primarily in the second quarter.
Concurrent with the Brandon expansion, expansion at the Lagimodiere Road
plant in Winnipeg has established an efficient operation for boning all of the
hams produced at the Brandon plant. The Lagimodiere plant will meet all the
Company's input requirements of boned hams for production of value-added
packaged meat products.
Two new distribution warehouses in Western Canada were commissioned
during 2008, allowing the consolidation of existing warehouses and third party
storage into these facilities, in Coquitlam and Saskatoon. Although start-up
costs associated with the commissioning of these facilities are expected,
reduced costs and improved efficiencies should contribute to earnings towards
the end of the year.
Agribusiness Group (swine production and animal by-products recycling)
Adjusted Operating Earnings for the second quarter were $7.6 million
compared to $4.7 million last year. The Company's rendering operations
achieved strong results in the quarter, benefiting from higher commodity
prices, and increased contributions from its biodiesel operations as higher
fuel prices and an increase in volumes contributed to profitability. The
Company's biodiesel facility in Montreal is now operating at full capacity.
Hog production losses for the period increased by $2.2 million compared
to last year, an improved performance compared to the first quarter of 2008.
North American hog producers benefited from an improvement in prices in the
second quarter, however, Canadian hog producers were disadvantaged by a
decline in the US dollar which reduces net revenues for finished hogs. The
Company continues to reduce the size of its hog production operation,
marketing 299,000 finished hogs during the quarter compared to 332,000 last
year and 338,000 in the first quarter of 2008. Following the sale of its
Alberta and Ontario investments, this number will decline to approximately
212,000 hogs per quarter by the end of July 2008. Restructuring of the core
hog production operations in Manitoba is materially complete and the Company
benefited from cost reductions in these operations during the quarter. High
feed prices and related production losses are resulting in some herd
liquidation in North America that should improve supply and demand dynamics
and contribute to improved hog production margins later in 2008 or early in
2009.
Bakery Products Group (fresh, frozen and branded value-added bakery
products, including frozen par-baked bakery products; and specialty pasta
and sauces)
Adjusted Operating Earnings for the quarter were $8.7 million compared to
$33.4 million last year. High wheat, fuel and other input costs compressed
margins as price increases implemented earlier in the year were not sufficient
to cover these rapid cost increases. Management anticipates that a decrease in
wheat prices from new crops, due to be harvested in August, and improved
supplies will lower costs toward the end of the year and restore margins. As
the rest of the year progresses, any further inflationary increases, such as
energy, or unanticipated increases in the cost of wheat will be managed by
further price increases. Bakery Products Group earnings were also impacted by
increased investments in marketing and innovation initiatives.
Earnings in the U.K. operations continue to track ahead of last year,
benefiting from the contribution of acquisitions in new product categories.
Bagel growth rates were slower in the first half of the year as production was
curtailed in the Company's U.K. bagel plant due to an oven fire. Growth rates
are expected to improve in the second half of the year as production rates and
advertising and promotion activities are restored from July 2008.
The North American frozen bakery operations are implementing changes to
increase capacity utilization and improve margins. This includes the closure
of a bagel facility in Toronto and transfer of production to other regional
plants. An expansion at the Company's Roanoke Virginia plant is expected to be
commissioned through the second half of 2008, improving product costs and
reducing freight and distribution costs to supply regional customers.
Other Matters
-------------
On July 24, 2008, Maple Leaf Foods Inc. declared a dividend of $0.04 per
share payable on September 30, 2008 to shareholders of record on September 8,
2008. Unless indicated otherwise, by the corporation, in writing at or before
the time the dividend is paid, each dividend paid by the corporation in 2008
or a subsequent year is an eligible dividend for the purposes of the "Enhanced
Dividend Tax Credit System."
On July 17, 2008, the Company purchased 458,800 additional shares in
Canada Bread for cash consideration of $32.6 million. The Company's ownership
interest in Canada Bread has increased from 88.0% to 89.8%, as a result of
this transaction.
Forward-Looking Statements
--------------------------
This document contains, and the Company's oral and written public
communications often contain, forward-looking statements that are based on
current expectations, estimates, forecasts and projections about the
industries in which the Company operates and beliefs and assumptions made by
the Management of the Company. Such statements include, but are not limited
to, statements with respect to our objectives and goals, as well as statements
with respect to our beliefs, plans, objectives, expectations, anticipations,
estimates and intentions. Words such as "expect", "anticipate", "intend",
"attempt", "may", "will", "plan", "believe", "seek", "estimate", and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve assumptions and risks and uncertainties that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed, implied or forecasted in such
forward-looking statements. The Company does not intend, and the Company
disclaims any obligation to update any forward-looking statements, whether
written or oral, or whether as a result of new information, future events or
otherwise except as required by law.
These forward-looking statements are based on a variety of factors and
assumptions including, but not limited to: the condition of the Canadian and
United States economies; the rate of appreciation of the Canadian dollar
versus the U.S. dollar and Japanese yen; the availability and saleability of
prices of livestock, raw materials, energy and supplies; product pricing; the
competitive environment and related market conditions; improvement of
operating efficiencies; continued access to capital; the cost of compliance
with environmental and health standards; adverse results from ongoing
litigation; no expected actions of domestic and foreign governments and the
general assumption that none of the risks identified under "Risk Factors" in
the Company's 2007 Annual Information Form will materialize. These assumptions
have been derived from information currently available to the Company
including information obtained by the Company from third-party industry
analysts.
Actual results may differ materially from those predicted by such
forward-looking statements. While the Company does not know what impact any of
these differences may have on its business, results of operations, financial
condition and the market price of its securities may be materially adversely
affected. Factors that could cause actual results or outcomes to differ
materially from the results expressed or implied by forward-looking statements
are discussed more fully in the Company's Management's Discussion and Analysis
for the year ended December 31, 2007, which is available on SEDAR at
www.sedar.com.
Maple Leaf Foods Inc. is a leading food processing company, headquartered
in Toronto, Canada. The Company employs approximately 23,500 people at its
operations across Canada and in the United States, the United Kingdom and
Asia. The Company had sales of $5.2 billion in 2007.
An investor presentation related to the Company's second quarter
financial results is available at www.mapleleaf.com and can be found under
Investor Relations on the Quarterly Results page. A conference call will be
held at 11:00 a.m. EDT on July 24, 2008 to review Maple Leaf Foods' second
quarter financial results. To participate in the call, please dial
416-641-6143 or 866-542-4241. For those unable to participate, playback will
be made available an hour after the event at 416-695-5800 / 800-408-3053
(Passcode 3265946 followed by the number sign).
A webcast presentation of the second quarter financial results will also
be available at http://investor.mapleleaf.ca via a link
http://events.startcast.com/events/91/B0027.Consolidated Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three and six months ended June 30, 2008 and 2007
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
June 30, June 30, December 31,
2008 2007 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 16,419 $ 50,249 $ 28,222
Accounts receivable 239,596 207,449 202,285
Inventories 388,746 387,009 351,064
Future tax asset - current 39,886 9,415 25,409
Prepaid expenses and other assets 23,922 23,856 16,529
Assets held for sale - 348,376 10,092
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708,569 1,026,354 633,601
Investments in associated companies 2,656 1,068 1,207
Property and equipment 1,172,268 1,104,217 1,126,727
Other long-term assets 312,423 278,608 303,360
Future tax asset - non-current 39,011 18,270 22,837
Goodwill 856,758 802,403 817,477
Other intangibles 93,263 85,521 92,635
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$ 3,184,948 $ 3,316,441 $ 2,997,844
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 10,092 $ 10,667 $ 9,845
Accounts payable and accrued
charges 534,754 565,025 550,528
Income and other taxes payable 7,243 21,144 12,881
Current portion of long-term debt 12,251 74,787 17,945
Liabilities related to assets
held for sale - 61,433 -
-----------------------------------------------------------------------
564,340 733,056 591,199
Long-term debt 1,089,793 1,257,611 855,281
Future tax liability - non-current 68,349 7,013 61,935
Other long-term liabilities 247,530 249,269 248,448
Minority interest 81,586 83,269 79,554
Shareholders' equity 1,133,350 986,223 1,161,427
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$ 3,184,948 $ 3,316,441 $ 2,997,844
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MAPLE LEAF FOODS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Sales $ 1,355,301 $ 1,318,773 $ 2,558,564 $ 2,634,908
Cost of goods sold 1,204,824 1,149,931 2,252,161 2,298,703
-------------------------------------------------------------------------
Gross margin $ 150,477 $ 168,842 $ 306,403 $ 336,205
Selling, general and
administrative
expenses 131,587 116,175 254,415 233,679
-------------------------------------------------------------------------
Earnings from
continuing operations
before restructuring
and other related
costs $ 18,890 $ 52,667 $ 51,988 $ 102,526
Restructuring and
other related costs (11,618) (30,715) (19,340) (43,425)
-------------------------------------------------------------------------
Earnings from
continuing
operations $ 7,272 $ 21,952 $ 32,648 $ 59,101
Other income 1,933 1,501 1,918 1,969
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Earnings from
continuing operations
before interest and
income taxes $ 9,205 $ 23,453 $ 34,566 $ 61,070
Interest expense 21,868 25,352 43,531 49,943
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes $ (12,663) $ (1,899) $ (8,965) $ 11,127
Income taxes (4,079) 1,749 (1,959) 7,965
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Earnings (loss) from
continuing operations
before minority
interest $ (8,584) $ (3,648) $ (7,006) $ 3,162
Minority interest 769 2,810 2,357 4,354
-------------------------------------------------------------------------
Net loss from
continuing
operations $ (9,353) $ (6,458) $ (9,363) $ (1,192)
Net earnings from
discontinued
operations
- net of income tax - 4,787 - 9,984
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Net earnings (loss) $ (9,353) $ (1,671) $ (9,363) $ 8,792
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Basic earnings (loss)
per share
from continuing
operations $ (0.07) $ (0.05) $ (0.07) $ (0.01)
from discontinued
operations - 0.04 - 0.08
-------------------------------------------------------------------------
$ (0.07) $ (0.01) $ (0.07) $ 0.07
-------------------------------------------------------------------------
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Diluted earnings (loss)
per share
from continuing
operations $ (0.07) $ (0.05) $ (0.07) $ (0.01)
from discontinued
operations - 0.04 - 0.08
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$ (0.07) $ (0.01) $ (0.07) $ 0.07
-------------------------------------------------------------------------
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Weighted average
number of shares
(millions) 126.9 127.7 127.1 127.4
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MAPLE LEAF FOODS INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net earnings (loss)
for the period $ (9,353) $ (1,671) $ (9,363) $ 8,792
Other comprehensive
income (loss)
Change in accumulated
foreign currency
translation
adjustment 1,507 (6,704) 8,234 (7,590)
Change in unrealized
derivative loss
on cash flow hedges (1,593) 5,491 (4,639) 10,814
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$ (86) $ (1,213) $ 3,595 $ 3,224
-------------------------------------------------------------------------
Comprehensive income
(loss) $ (9,439) $ (2,884) $ (5,768) $ 12,016
-------------------------------------------------------------------------
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Six months ended June 30,
(Unaudited) 2008 2007
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 390,784 $ 204,415
Net earnings (loss) for the period (9,363) 8,792
Dividends declared ($0.08 per share; 2007:
$0.08 per share) (10,448) (10,224)
Premium on shares repurchased for cancellation (5,515) -
Premium on shares issued from Restricted
Share Unit Trust (822) -
-------------------------------------------------------------------------
Retained earnings, end of period $ 364,636 $ 202,983
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MAPLE LEAF FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
Operating activities
Net loss from
continuing
operations $ (9,353) $ (6,458) $ (9,363) $ (1,192)
Add (deduct) items not
affecting cash:
Depreciation and
amortization 38,637 34,889 73,709 69,982
Stock-based
compensation 3,923 3,414 8,186 7,085
Minority interest 769 2,810 2,357 4,354
Future income taxes (8,944) (7,472) (9,248) (10,883)
Loss (gain) on sale
of property and
equipment 37 377 118 (82)
Change in other
long-term receivables 52 128 396 (2,182)
Decrease in net
pension asset (5,031) (11,668) (11,062) (28,092)
Asset impairments and
change in restructuring
provisions 7,381 24,425 11,344 28,146
Other (66) (6,632) (3,631) (3,423)
Change in non-cash
operating working
capital (87,636) (38,447) (111,905) (78,619)
-------------------------------------------------------------------------
Cash provided by
(used in) operating
activities of
continuing
operations $ (60,231) $ (4,634) $ (41,837) $ (14,906)
Cash provided by
(used in) operating
activities of
discontinued
operations - 4,232 - (3,117)
-------------------------------------------------------------------------
$ (60,231) $ (402) $ (41,837) $ (18,023)
Financing activities
Dividends paid (5,262) (5,133) (10,448) (10,224)
Dividends paid to
minority interest (184) (183) (416) (434)
Net increase in
long-term debt 103,810 45,784 221,334 117,627
Increase in share
capital 1,513 12,887 3,110 15,102
Purchase of
treasury stock (4,992) - (11,341) -
Shares repurchased
for cancellation (11,814) - (11,814) -
Other (1,816) (729) (1,301) 7,377
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Cash provided by
financing activities
of continuing
operations $ 81,255 $ 52,626 $ 189,124 $ 129,448
Cash provided by
(used in) financing
activities of
discontinued
operations - 9 - (389)
-------------------------------------------------------------------------
$ 81,255 $ 52,635 $ 189,124 $ 129,059
Investing activities
Additions to
property and
equipment (62,654) (59,300) (108,364) (111,725)
Proceeds from sale
of property and
equipment 2,524 1,040 10,545 1,786
Acquisition of
businesses
- net of cash
acquired (87) (2,628) (61,659) (13,431)
Proceeds on sale
of investments - 1,622 - 1,622
Proceeds on disposal
of business - - - 5,470
Purchase of Canada
Bread shares - - - (6,521)
Other 210 (2,787) 141 121
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Cash used in investing
activities of
continuing
operations $ (60,007) $ (62,053) $ (159,337) $ (122,678)
Cash used in investing
activities of
discontinued
operations - (813) - (4,140)
-------------------------------------------------------------------------
$ (60,007) $ (62,866) $ (159,337) $ (126,818)
Increase (decrease)
in cash and
cash equivalents (38,983) (10,633) (12,050) (15,782)
Net cash and cash
equivalents,
beginning of period 45,310 50,215 18,377 55,364
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Net cash and cash
equivalents,
end of period $ 6,327 $ 39,582 $ 6,327 $ 39,582
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MAPLE LEAF FOODS INC.
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Sales
Meat Products Group $ 856,638 $ 878,966 $ 1,619,183 $ 1,774,692
Agribusiness Group 61,567 64,445 120,161 127,349
Bakery Products Group 437,096 375,362 819,220 732,867
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$ 1,355,301 $ 1,318,773 $ 2,558,564 $ 2,634,908
-------------------------------------------------------------------------
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Earnings from
continuing operations
before restructuring
and other related
costs
Meat Products Group $ 5,718 $ 15,033 $ 30,730 $ 36,514
Agribusiness Group 7,596 4,684 4,816 5,505
Bakery Products Group 8,671 33,391 25,828 61,053
Non-allocated costs (3,095) (441) (9,386) (546)
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$ 18,890 $ 52,667 $ 51,988 $ 102,526
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Capital expenditures
Meat Products Group $ 38,756 $ 24,406 $ 71,851 $ 61,124
Agribusiness Group 4,077 3,986 6,976 6,626
Bakery Products Group 19,821 30,908 29,537 43,975
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$ 62,654 $ 59,300 $ 108,364 $ 111,725
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Depreciation and
amortization
Meat Products Group $ 19,552 $ 17,204 $ 37,578 $ 34,590
Agribusiness Group 4,333 4,769 8,167 9,657
Bakery Products Group 14,752 12,916 27,964 25,735
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$ 38,637 $ 34,889 $ 73,709 $ 69,982
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As at As at As at
June 30, June 30, December 31,
2008 2007 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Total assets
Meat Products Group $ 1,716,978 $ 1,603,563 $ 1,560,244
Agribusiness Group 251,004 652,496 302,999
Bakery Products Group 901,740 823,844 823,137
Non-allocated assets 315,226 236,538 311,464
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$ 3,184,948 $ 3,316,441 $ 2,997,844
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Goodwill
Meat Products Group $ 450,930 $ 450,643 $ 450,929
Agribusiness Group 12,922 2,042 2,058
Bakery Products Group 392,906 349,718 364,490
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$ 856,758 $ 802,403 $ 817,477
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