Canada Bread Reports 2007 Third Quarter Financial Results



    TORONTO, Oct. 25 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today
announced its financial results for the third quarter ended September 30,
2007.
    "We achieved solid results for the quarter against challenging market
conditions with unprecedented increases in commodity prices for flour and
dairy. Our results reflect our efforts to improve manufacturing and
distribution efficiencies and price increases implemented in 2006," said
Richard Lan, President and CEO. "Our UK business continues to be a growth
engine for our Company, and the recent acquisition of La Fornaia significantly
enhanced the range of premium, specialty bakery products we can provide our
customers in the UK and Europe."
    Sales for the third quarter increased 13% to $385.8 million from
$342.3 million last year, primarily driven by the contribution of acquisitions
in the U.K. Excluding acquisitions, sales increased by 4%.
    Earnings from operations for the third quarter increased 27% to
$34.1 million compared to $26.8 million last year due to increased
contribution from acquisitions in the U.K. and improved operating earnings in
the Frozen Bakery business. The Company continues to offset higher input costs
through a combination of reducing manufacturing and overhead costs and limited
price increases.
    Net earnings for the quarter increased to $21.1 million ($0.83 per share)
compared to a loss of $2.7 million (loss of $0.11 per share) in the prior
year. The prior year loss was impacted by a non-recurring tax adjustment of
$21.2 million taken to write down future tax assets related to the U.S. frozen
bakery business. Excluding the non-recurring tax adjustment, net earnings
increased by 14% from $18.5 million ($0.73 per share) in the prior year.
Year-to-date net earnings before restructuring and other related costs and
non-recurring tax adjustment(1) of $61.7 million ($2.43 per share) compared to
$60.8 million ($2.39 per share) last year. Year-to-date net earnings as
reported were $60.2 million ($2.37 per share) compared to $39.6 million ($1.56
per share) last year.

    
    -------------------------------------
    (1) This is not a recognized measure 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.


    Operating Review
    ----------------
    The following table summarizes operating earnings by business segment
before restructuring and other related costs:

    Earnings from Operations before Restructuring and Other Related Costs
    ---------------------------------------------------------------------

    ($ millions)           Third Quarter                  Year-to-Date
                   ---------------------------------------------------------
                      2007      2006    Change      2007      2006    Change
                      ----      ----    ------      ----      ----    ------
    Fresh Bakery      24.9      25.5       (2%)     72.7      73.9       (2%)
    Frozen Bakery      9.2       1.3      589%      25.4      13.1       94%
                   ---------------------------------------------------------
                      34.1      26.8       27%      98.1      87.0       13%
                   ---------------------------------------------------------
                   ---------------------------------------------------------

    Fresh Bakery (Fresh bakery products, specialty baked goods and hand-held
    ------------  snacks, and fresh pasta and sauces)

    Fresh Bakery sales increased 4% to $243.5 million in the third quarter
from $233.9 million last year, largely due to the benefit of price increases
implemented last year. Earnings from operations in the third quarter decreased
by 2% as the business experienced an unprecedented rise in raw material costs
that outpaced previously implemented price increases. Growth in higher margin
value-added categories, improvements in operating efficiencies across a number
of plants, and forward flour purchases helped to offset these increasing input
costs and some continuing volume decline in the fresh bread market. The
Company will attempt to mitigate increasing input costs with additional price
increases in the fourth quarter.

    Frozen Bakery (North American and U.K. frozen bakery products; including
    -------------  frozen par-baked and specialty bakery products)
    

    Frozen Bakery sales in the third quarter increased 31% to $142.3 million
from $108.5 million last year. A significant portion of the increase reflected
the contribution from acquisitions in the United Kingdom. Organic growth was
5% in the third quarter driven by growth in the UK bagel business and price
increases in North America. Earnings from operations increased to $9.2 million
in the third quarter from $1.3 million last year. The North American frozen
bakery business achieved a solid quarter-over-quarter improvement in the
earnings against a low base for the comparative period as it increased
volumes, improved operating efficiencies and addressed issues that impacted
its bakery in Roanoke, Virginia last year. This plant, which is the Company's
largest par-baked facility, is undertaking a major warehouse expansion that
will significantly increase its storage capacity and further reduce costs.
    The U.K. bakery business benefited from the contribution of acquisitions
and continued organic growth, offset in part by higher flour and butter costs.
The Company is currently expanding freezer capacity at its Rotherham bagel
plant and installing a new high-speed croissant line at its Maidstone bakery
to support continued growth in these core categories. During the quarter, the
Company acquired La Fornaia, a leading producer of an extensive range of hand
formed specialty bakery products, from traditional Italian ciabatta and filled
focaccia to a range of organic, multi-seed breads and rolls. This acquisition
extends the company's product offering in the premium specialty bakery market
and enhances its new product innovation capabilities.

    Cash Flow and Financing
    -----------------------
    Cash flow from operating activities of $30.9 million for the third
quarter compared to $49.3 million in the prior year period decreased primarily
as a result of an increase in net working capital balances. Year-to-date cash
flow from operating activities was $88.1 million, an improvement of $18.2
million over the prior year driven by increased net earnings and an
improvement in net working capital balances in the current year.
    Interest expense for the third quarter was $1.4 million compared to
$0.8 million for the same period last year. Year-to-date interest expense was
$4.1 million compared to $2.6 million last year as a result of increased debt
incurred to finance acquisitions in 2006 and 2007.
    Capital expenditures on plant and equipment for the third quarter were
$22.1 million compared to $12.2 million last year. This significant increase
in capital expenditures reflects a substantial capacity expansion in the UK
croissant and ciabatta facilities and the construction of new warehouse
capacity at the Company's bakeries in Roanoke, Virginia and Rotherham, UK to
increase internal capacity and reduce warehousing and distribution costs.

    Forward-Looking Statements
    --------------------------
    This document may contain forward-looking information within the meaning
of applicable securities legislation. Forward looking information is based
upon a number of assumptions and is subject to a number of risks and
uncertainties, many of which are beyond the Company's control, that could
cause actual results to differ materially from those that are disclosed in or
implied by such forward looking information. Any forward-looking information
in this press release speaks as of the date of this press release. Canada
Bread does not undertake to update any such forward-looking information
whether as a result of new information, future events or otherwise. Additional
information about these assumptions and risks and uncertainties is contained
in the filings with securities regulators including the annual information
form and Management's Discussion and Analysis accompanying the financial
statements in the reports to shareholders. These filings are available on the
Company's website at www.canadabread.ca.

    Other Matters
    -------------
    On October 24, 2007, the Company declared a dividend of $0.06 per share
payable on January 2, 2008 to shareholders of record on December 14, 2007.
Unless indicated otherwise in writing at or before the time the dividend is
paid, each dividend paid by the corporation in 2007 or a subsequent year is an
eligible dividend for the purposes of the "Enhanced Dividend Tax Credit
System".
    Canada Bread, which is 88.0% owned by Maple Leaf Foods Inc., is a leading
manufacturer and distributor of fresh bakery products, frozen par-baked
products and fresh pasta and sauces. The Company had 2006 sales of
$1.3 billion and employs approximately 9,000 people at its operations across
North America and in the United Kingdom.


    
    Consolidated Financial Statements
    (Expressed in Canadian dollars)

    CANADA BREAD COMPANY,
    LIMITED

    Three and nine months ended September 30, 2007 and 2006



    CANADA BREAD COMPANY, LIMITED
    Consolidated Balance Sheets
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                           As at         As at         As at
                                    September 30, September 30,  December 31,
                                            2007          2006          2006
    -------------------------------------------------------------------------
                                      (Unaudited)   (Unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents      $    12,439   $     1,609   $         -
      Accounts receivable (Note 3)        72,712        39,520        57,272
      Inventories                         49,086        43,901        46,081
      Future tax asset - current           4,607         4,814         5,873
      Prepaid expenses                     7,431         4,360         3,576
      Other current assets (Note 2)       82,146             -             -
      -----------------------------------------------------------------------
                                     $   228,421   $    94,204   $   112,802

    Property and equipment               393,825       351,324       374,647

    Goodwill                             387,465       311,634       372,980

    Future tax asset - non-current           360           371           403

    Other intangibles                      4,596         5,438         5,321

    Other long-term assets                 1,779        64,473        58,115
    -------------------------------------------------------------------------
                                     $ 1,016,446   $   827,444   $   924,268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Bank indebtedness              $         -   $         -   $     1,130
      Accounts payable and accrued
       charges                           181,911       149,799       169,134
      Due to Maple Leaf Foods Inc.         7,757         3,008         9,336
      Dividends payable                    1,525         1,525         1,525
      Income and other taxes payable      21,131        19,932        23,336
      Current portion of long-term
       debt                               10,352           174         9,494
      -----------------------------------------------------------------------
                                     $   222,676   $   174,438   $   213,955

    Long-term debt                       126,857        46,348        86,471

    Future tax liability -
     non current                          29,382        30,023        29,611

    Other long-term liabilities           12,157         5,902         5,787

    Shareholders' equity (Note 4)        625,374       570,733       588,444
    -------------------------------------------------------------------------
                                     $ 1,016,446   $   827,444   $   924,268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    CANADA BREAD COMPANY, LIMITED
    Consolidated Statements of Earnings
    (In thousands of Canadian dollars, except share amounts)

    -------------------------------------------------------------------------
                              Three months ended           Nine months ended
                                    September 30,               September 30,
    (Unaudited)               2007          2006          2007          2006
    -------------------------------------------------------------------------
    Sales              $   385,849   $   342,344   $ 1,119,909   $   979,453
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings from
     operations before
     restructuring and
     other related
     costs             $    34,116   $    26,836   $    98,072   $    87,019
    Restructuring and
     other related
     costs (Note 6)              -             -        (2,192)            -
    -------------------------------------------------------------------------
    Earnings from
     operations        $    34,116   $    26,836   $    95,880   $    87,019
    Other income
     (expense)                  77           (40)          486           140
    -------------------------------------------------------------------------
    Earnings before
     interest and
     income taxes      $    34,193   $    26,796   $    96,366   $    87,159
    Interest expense         1,446           796         4,076         2,630
    -------------------------------------------------------------------------
    Earnings before
     income taxes      $    32,747   $    26,000   $    92,290   $    84,529
    Income taxes            11,660        28,715        32,068        44,967
    -------------------------------------------------------------------------
    Net earnings
     (loss) for the
     period            $    21,087   $    (2,715)  $    60,222   $    39,562
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss)
     per share
      - basic and
       diluted         $      0.83   $     (0.11)  $      2.37   $      1.56
    -------------------------------------------------------------------------
    Weighted average
     number of shares
     (millions)               25.4          25.4          25.4          25.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    CANADA BREAD COMPANY, LIMITED

    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                              Nine months ended September 30,
    (Unaudited)                                           2007          2006
    -------------------------------------------------------------------------

    Retained earnings, beginning of period         $   450,733   $   406,649

    Net earnings for the period                         60,222        39,562

    Inter-company acquisition (Note 8)                     (57)            -

    Dividends declared ($0.18 per share;
     2006: $0.18 per share)                             (4,575)       (4,575)

    -------------------------------------------------------------------------
    Retained earnings, end of period               $   506,323   $   441,636
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    Consolidated Statements of Comprehensive Income
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                              Three months ended           Nine months ended
                                    September 30,               September 30,
    (Unaudited)               2007          2006          2007          2006
    -------------------------------------------------------------------------

    Net earnings for
     the period        $    21,087   $    (2,715)  $    60,222   $    39,562

    Other comprehensive
     income (loss)
     (Note 5)

      Change in
       accumulated
       foreign
       currency
       translation
       adjustment           (8,689)          882       (18,730)        1,014

      Change in
       unrealized
       derivative gain
       on cash flow
       hedges               (1,621)            -           232             -
    -------------------------------------------------------------------------
                           (10,310)          882       (18,498)        1,014
    -------------------------------------------------------------------------
    Comprehensive
     income (loss)     $    10,777   $    (1,833)  $    41,724   $    40,576
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    CANADA BREAD COMPANY, LIMITED
    Consolidated Statements of Cash Flows
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                              Three months ended           Nine months ended
                                    September 30,               September 30,
    (Unaudited)               2007          2006          2007          2006
    -------------------------------------------------------------------------

    CASH PROVIDED BY
     (USED IN)

    Operating
     activities
      Net earnings     $    21,087   $    (2,715)  $    60,222   $    39,562
      Add (deduct)
       items not
       affecting cash:
        Depreciation
         and
         amortization       12,194        11,020        36,936        33,404
        Future income
         taxes               1,057        19,049           988        15,530
        Loss (gain) on
         sale of
         property and
         equipment             (62)           62          (447)          (68)
      Other                 (1,096)           58        (1,387)       (1,010)
      Change in
       operating
       working capital      (2,280)       21,833        (8,262)      (17,607)
      -----------------------------------------------------------------------
                       $    30,900   $    49,307   $    88,050   $    69,811

    Financing
     activities
      Dividends paid        (1,525)       (1,525)       (4,575)       (4,575)
      Change in
       long-term debt       34,636       (31,559)       42,199       (42,137)
      -----------------------------------------------------------------------
                       $    33,111   $   (33,084)  $    37,624   $   (46,712)

    Investing
     activities
      Additions to
       property and
       equipment           (22,058)      (12,160)      (64,583)      (32,477)
      Proceeds from
       sale of property
       and equipment            62           637           788         1,443
      Acquisition of
       businesses
       (Note 8)            (40,235)            -       (48,469)       (1,865)
      Sale of
       intangible
       assets                  245             5           159            27
      -----------------------------------------------------------------------
                       $   (61,986)  $   (11,518)  $  (112,105)  $   (32,872)

    Increase
     (decrease) in
     cash and cash
     equivalents             2,025         4,705        13,569        (9,773)

    Cash and cash
     equivalents (bank
     indebtedness),
     beginning of
     period                 10,414        (3,096)       (1,130)       11,382
    -------------------------------------------------------------------------
    Cash and cash
     equivalents, end
     of period         $    12,439   $     1,609   $    12,439   $     1,609
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    CANADA BREAD COMPANY, LIMITED
    Segmented Financial Information
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                              Three months ended           Nine months ended
                                    September 30,               September 30,
    (Unaudited)               2007          2006          2007          2006
    -------------------------------------------------------------------------

    Sales
      Fresh Bakery     $   243,509   $   233,856   $   706,850   $   671,191
      Frozen Bakery        142,340       108,488       413,059       308,262
    -------------------------------------------------------------------------
                       $   385,849   $   342,344   $ 1,119,909   $   979,453
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from
     operations before
     restructuring and
     other related
     costs
      Fresh Bakery     $    24,955   $    25,507   $    72,725   $    73,927
      Frozen Bakery          9,161         1,329        25,347        13,092
    -------------------------------------------------------------------------
                       $    34,116   $    26,836   $    98,072   $    87,019
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to
     property and
     equipment
      Fresh Bakery     $     5,392   $     9,875   $    30,968   $    23,016
      Frozen Bakery         16,666         2,285        33,615         9,461
    -------------------------------------------------------------------------
                       $    22,058   $    12,160   $    64,583   $    32,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Fresh Bakery     $     6,470   $     5,723   $    19,176   $    17,222
      Frozen Bakery          5,724         5,297        17,760        16,182
    -------------------------------------------------------------------------
                       $    12,194   $    11,020   $    36,936   $    33,404
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                           As at         As at         As at
                                    September 30, September 30,  December 31,
                                            2007          2006          2006
    -------------------------------------------------------------------------
                                      (Unaudited)   (Unaudited)
    Total assets
      Fresh Bakery                   $   399,304   $   368,964   $   378,311
      Frozen Bakery                      515,709       367,435       529,360
      Non-allocated assets               101,433        91,045        16,597
    -------------------------------------------------------------------------
                                     $ 1,016,446   $   827,444   $   924,268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.



    CANADA BREAD COMPANY, LIMITED
    Notes to Consolidated Financial Statements
    (Tabular amounts in thousands of Canadian dollars)

    Nine months ended September 30, 2007 and 2006
    -------------------------------------------------------------------------

    1.  THE COMPANY

        Canada Bread Company, Limited ("Canada Bread" or "the Company") and
        its subsidiaries operate in the bakery industry across North America
        and internationally. Its principal business is the manufacture and
        sale of bakery and pasta products, including fresh bread, rolls,
        bagels and par-baked bread. Canada Bread is 88% owned by Maple Leaf
        Foods Inc. ("Maple Leaf") as at September 30, 2007.

    2.  SIGNIFICANT ACCOUNTING POLICIES

        The unaudited interim consolidated financial statements should be
        read in conjunction with the annual consolidated financial statements
        for the year ended December 31, 2006. These unaudited interim
        consolidated financial statements have been prepared in accordance
        with Canadian generally accepted accounting principles using the same
        accounting policies as were applied in the consolidated financial
        statements for the year ended December 31, 2006, except for the
        following:

        (a) Accounting changes

            Effective January 1, 2007 the Company prospectively adopted the
            guidance presented in CICA Handbook Sections 1530 "Comprehensive
            Income" ("Section 1530"), Section 3855 "Financial Instruments -
            Recognition and Measurement" ("Section 3855"), and Section 3865
            "Hedges" ("Section 3865").

            On January 1, 2007 the Company recorded the following
            transitional adjustment to the consolidated balance sheet as a
            result of the adoption of the new standards:

            -----------------------------------------------------------------

            Increase in other current assets                       $   3,369
            Increase in future tax asset - non-current                    85
            Increase in other long-term liabilities                   (3,616)
            Accumulated other comprehensive loss - cash flow hedges      162

            -----------------------------------------------------------------

            (i)   Comprehensive Income

            In accordance with Section 1530, the Company has presented
            comprehensive income and its components as part of the financial
            statements to show unrealized gains and losses that are not
            included in income. In accordance with the new standard,
            $5.3 million relating to unrealized losses resulting from the
            translation of self-sustaining operations which had previously
            been classified as unrealized foreign currency adjustment within
            shareholders' equity is now presented within accumulated other
            comprehensive income.

            (ii)  Financial Instruments

            In accordance with Section 3855, the Company has classified all
            financial assets as either held for trading, available for sale,
            held-to-maturity or loans and receivables. All financial
            liabilities are classified as either held for trading or as other
            liabilities. Financial assets and liabilities classified as held
            for trading are measured at fair value with changes in fair value
            recognized in net income in the period in which they arise.
            Financial assets classified as available-for-sale are measured at
            fair value with gains and losses recognized in other
            comprehensive income until the underlying financial asset is
            derecognized or becomes impaired. Held-to-maturity investments,
            loans and receivables and other liabilities are measured at
            amortized cost. Gains or losses on financial assets and
            liabilities carried at amortized cost are recognized in earnings
            when the financial asset or financial liability is derecognized
            or impaired. All derivative instruments, including any embedded
            derivatives that are required to be separated from their host
            instruments, are recorded at fair value with changes in fair
            value being recorded in income unless the derivative is
            designated as a cash flow hedge or a hedge of a net investment in
            a self-sustaining foreign operation. The Company completed a
            detailed review of its financial instruments and its contracts
            and determined that the fair value of embedded derivative
            instruments, which required separation from their host
            instruments, was not significant.

            (iii) Hedge Accounting

            The Company's existing hedging relationships as at December 31,
            2006 continue to qualify for hedge accounting under the new
            standard. The Company continues to designate hedges as either
            fair value hedges, cash flow hedges or hedges of a net investment
            in a self-sustaining foreign operation. For a fair value hedge,
            changes in the fair value of the hedging derivative are
            recognized in income together with the offsetting change on the
            hedged item attributable to the hedged risk. For cash flow and
            net investment hedges, changes in the fair value of the hedging
            derivative, to the extent effective, are recorded in other
            comprehensive income (loss) and are subsequently recognized in
            income when the hedged item affects income. Any ineffectiveness
            in hedging relationships is recognized as income or loss
            immediately.

            On adoption the Company recognized an increase in other current
            assets of $3.4 million, an increase in other long term
            liabilities of $3.6 million and an increase in accumulated other
            comprehensive loss of $0.2 million (net of future taxes of
            $0.1 million) to recognize the fair value of interest rate and
            cross currency interest rate swaps used to hedge the Company's
            interest rate and foreign currency exposure. On adoption of the
            new standards, there was no ineffectiveness in these hedging
            relationships. The following table illustrates the fair values of
            financial instruments by type of hedging relationship:

            -----------------------------------------------------------------
                                                       As at January 1, 2007
                                                         Other         Other
                                                       Current     Long-term
                                                        Assets   Liabilities
            -----------------------------------------------------------------

            Cross currency interest rate swaps to
             hedge the net investment in self-
             sustaining foreign operations(i)      $    59,803   $         -
            Interest rate swaps to hedge interest
             rate exposure                                   -         3,616
            -----------------------------------------------------------------
            Total                                  $    59,803   $     3,616
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            (i) The fair value amount includes a currency revaluation gain of
                $ 56.4 million, which has been recorded in the unrealized
                foreign currency translation adjustment, a component of
                accumulated other comprehensive income.

            The fair value of the Company's financial instruments used to
            hedge interest rate and foreign currency exposures as at
            September 30, 2007 are as follows:

            -----------------------------------------------------------------
                                                    As at September 30, 2007
                                           Other                       Other
                                         Current       Current     Long-term
                                          Assets   Liabilities   Liabilities
            -----------------------------------------------------------------

            Cross currency interest
             rate swaps to hedge the
             net investment in self-
             sustaining foreign
             operations(i)           $    81,060   $         -   $         -
            Interest rate swaps to
             hedge interest rate
             exposure                          -           329         1,616
            Foreign currency
             contracts to hedge
             transactions denominated
             in foreign currencies         1,086             -             -
            -----------------------------------------------------------------
            Total                    $    82,146   $       329   $     1,616
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            (i) The fair value amount includes a currency revaluation gain of
                $ 80.1 million, which has been recorded in the unrealized
                foreign currency translation adjustment, a component of
                accumulated other comprehensive income.

        (b) Recent accounting pronouncements

            In May 2007 the Accounting Standards Board issued CICA Handbook
            Section 3031 "Inventories". The standard introduces changes to
            the measurement and disclosure of inventory and converges with
            international accounting standards. The standard is effective for
            interim and annual periods relating to fiscal years beginning on
            or after January 1, 2008. The Company has not yet determined the
            impact the adoption of this standard will have on its financial
            statements.

            In October 2006, the Accounting Standards Board issued CICA
            Handbook Section 1535, "Capital Disclosures", which establishes
            standards for disclosing information about an entity's capital
            and how it is managed. The standard is effective for interim and
            annual financial statements relating to fiscal years beginning on
            or after October 1, 2007. The Company does not expect that the
            adoption of this standard will have a material impact on its
            financial statements.

            In October 2006, the Accounting Standards Board issued CICA
            Handbook Section 3863, "Financial Instruments - Presentation".
            The existing requirements related to presentation of financial
            instruments have been carried forward unchanged. The standard is
            effective for interim and annual financial statements relating to
            fiscal years beginning on or after October 1, 2007. The Company
            does not expect that the adoption of this standard will have a
            material impact on its financial statements.

            Comparative figures

            Certain 2006 comparative figures have been reclassified to
            conform to the financial statement presentation adopted in 2007
            and the year ended 2006.

    3.  ACCOUNTS RECEIVABLE

        Under revolving securitization programs, the Company has sold, with
        limited recourse, certain of its trade accounts receivable to
        financial institutions. The Company retains servicing
        responsibilities and assumes limited recourse obligations for
        delinquent receivables. At September 30, 2007, trade accounts
        receivable being serviced under this program amounted to
        $70.0 million (September 30, 2006: $70.0 million; December 31, 2006:
        $70.0 million).

    4.  SHAREHOLDER'S EQUITY

        Shareholders' equity consists of the following:

        ---------------------------------------------------------------------
                                                         As at         As at
                                                  September 30,  December 31,
                                            2007          2006          2006
        ---------------------------------------------------------------------

        Share capital (25,416,812
         common shares)              $   142,965   $   142,965   $   142,965
        Retained earnings                506,323       441,636       450,733
        Accumulated other
         comprehensive loss (Note 5)     (23,914)      (13,868)       (5,254)

        ---------------------------------------------------------------------
                                     $   625,374   $   570,733   $   588,444
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    5.  ACCUMULATED OTHER COMPREHENSIVE LOSS

        Accumulated other comprehensive loss consists of the following:

        ---------------------------------------------------------------------
                                              Nine months ended September 30,
                                                          2007          2006
        ---------------------------------------------------------------------

        Balance at the beginning of the period     $    (5,254)  $   (14,882)
        Transition adjustment as of January 1, 2007
         (Note 2(a))                                      (162)            -
        ---------------------------------------------------------------------
        Adjusted balance at the beginning of the
         period                                    $    (5,416)  $   (14,882)

          Change in accumulated foreign currency
           translation adjustment(i)                   (18,730)        1,014
          Change in unrealized derivative gain on
           cash flow hedges - net(ii)                      232             -
          -------------------------------------------------------------------
          Other comprehensive income (loss) for
           the period                              $   (18,498)  $     1,014
        ---------------------------------------------------------------------
        Accumulated other comprehensive loss as at
         September 30                              $   (23,914)  $   (13,868)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i)  Change in accumulated foreign currency translation adjustment is
             net of taxes of $nil for the nine months ended September 30,
             2007 (change for the quarter of $8.7 million, net of taxes of
             $nil).

        (ii) Change in unrealized derivative gain on cash flow hedges is net
             of tax of $ 0.1 million for the nine months ended
             September 30, 2007 (change for the quarter of $1.6 million, net
             of taxes of $0.8 million).

             The Company estimates that $1.1 million of net derivative gains
             included in other comprehensive loss will be reclassified into
             net earnings within the next 12 months. The actual amount of
             this reclassification will be impacted by future changes in the
             fair value of financial instruments designated as cash flows
             hedges and the actual amount reclassified could differ from this
             estimated amount. During the quarter, a gain of approximately
             $1.7 million (net of tax of $0.9 million) was released to income
             from accumulated other comprehensive loss, which is included in
             the net change for the period.

    6.  RESTRUCTURING

        During the fourth quarter of 2006, the Company recorded restructuring
        and other related costs of $5.5 million ($3.7 million after tax).
        These costs related to the closure of a fresh bakery plant in British
        Columbia, and lease termination costs related to the winding down of
        the fresh waffle business in Ontario. During the first quarter of
        2007, additional costs of $2.2 million ($1.5 million after tax) were
        incurred relating to these closures. The following table provides a
        summary of the costs recognized and cash payments made in respect of
        these restructuring and other related initiatives during the past
        four quarters as well as the related liability as at
        September 30, 2007.

        ---------------------------------------------------------------------
                                         Site   Accelerated
                           Severance  closing  Depreciation  Retention  Total
        ---------------------------------------------------------------------
        2006 Restructuring
         and other related
         Costs

        Charges during
         fourth quarter      $ 2,525   $ 1,428   $ 1,531   $     -   $ 5,484
        Cash payments              -       (67)        -         -       (67)
        Non-cash items             -         -    (1,531)        -    (1,531)
        ---------------------------------------------------------------------
        Balance at
         December 31, 2006   $ 2,525   $ 1,361   $     -   $     -   $ 3,886
        Charges during first
         quarter             $     -   $   269   $ 1,861   $    62   $ 2,192
        Cash payments              -      (193)        -         -      (193)
        Non-cash items             -         -    (1,861)        -    (1,861)
        ---------------------------------------------------------------------
        Balance at March 31,
         2007                $ 2,525   $ 1,437   $     -   $    62   $ 4,024
        Cash payments           (571)     (177)        -        (8)     (756)
        ---------------------------------------------------------------------
        Balance at June 30,
         2007                $ 1,954   $ 1,260   $     -   $    54   $ 3,268
        Cash payments            (47)     (638)        -         -      (685)
        ---------------------------------------------------------------------
        Balance at
         September 30, 2007  $ 1,907   $   622   $     -   $    54   $ 2,583
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  PENSIONS

        During the quarter, the Company recorded $3.2 million related to net
        benefit plan expense (2006: $2.6 million). For the first nine months
        of 2007, the Company recorded $8.4 million in net benefit plan
        expense (2006: $7.7 million)

    8.  ACQUISITIONS

        On August 17, 2007 the Company acquired La Fornaia Ltd. ("La
        Fornaia") a leading producer of an extensive range of quality,
        specialty breads from traditional Italian ciabatta to organic breads
        and crisp breads for total consideration of (pnds stlg)18.8 million
        ($40.0 million). The Company has allocated (pnds stlg)0.9 million
        ($1.9 million) of the purchase price to the identifiable net assets
        of La Fornaia at the acquisition date, and (pnds stlg)17.9 million
        ($38.1 million) to goodwill. The Company has not yet finalized the
        purchase equation for this acquisition.

        On February 26, 2007 the Company acquired 100% ownership in
        Pâtisserie Chevalier Inc. ("Chevalier") for $8.2 million. Chevalier
        is a leading producer of single-portion snack cake products in
        Quebec. As at September 30, 2007 the Company has not yet finalized
        the purchase equation for this acquisition.

        On November 27, 2006, the Company purchased The French Croissant
        Company Ltd. ("FCC") and Avance U.K. Limited ("Avance"), two related
        bakeries in the U.K. for total consideration of
        (pnds stlg)29.1 million ($63.9 million). FCC markets croissants and
        specialty goods across the U.K., and Avance is a leading supplier of
        fresh, frozen and long-life specialty bakery items. The Company has
        not yet finalized the purchase equation for these acquisitions.

        On October 2, 2006, the Company acquired the shares of Royal Touch
        Foods Inc. ("Royal Touch") for $8.1 million, net of estimated cash
        acquired of $0.8 million. The Company purchased 50% of the Royal
        Touch shares from Maple Leaf and acquired the remaining shares from
        an unrelated third party for the same price. During the second
        quarter of 2007 the purchase price was adjusted due to changes in
        working capital and accruals on closing. The difference between these
        adjustments and the carrying amount of the investment held by Maple
        Leaf of $0.1 million is recorded as a reduction of retained earnings.
        As at September 30, 2007 the Company has finalized the purchase
        equation.

    9.  SUPPLEMENTAL CASH FLOW INFORMATION

        ---------------------------------------------------------------------
                              Three months ended           Nine months ended
                                    September 30,               September 30,
                              2007          2006          2007          2006
        ---------------------------------------------------------------------
        Net interest
         paid          $     1,523   $       792   $     4,195   $    2,879
        Net income
         taxes paid          9,575         5,502        31,722       33,570
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
    





For further information:

For further information: Lynda Kuhn, Senior Vice President,
Communications and Consumer Affairs, (416) 926-2026, www.canadabread.ca


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