Canada Bread Reports Results for Second Quarter 2010

TORONTO, July 29 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the second quarter ended June 30, 2010. Second quarter highlights include:

    
    - Adjusted Operating Earnings were $30.4 million; $33.1 million last year
    - Net earnings were $20.7 million compared to $22.5 million last year
    - Basic EPS were $0.81 compared to $0.89 last year

    Note: Adjusted Operating Earnings are defined as earnings from operations
    before restructuring and other related costs and other income. Adjusted
    Earnings per Share ("Adjusted EPS") are defined as basic earnings per
    share adjusted for the impact of restructuring and other related costs,
    net of tax. Refer to the section entitled Reconciliation of Non-GAAP
    Financial Measures at the end of this news release.
    

"Our Fresh bakery business delivered steady results however, our second quarter results continued to be affected by a volume decline in our North American Frozen business and our U.K. specialty bakery operations," said Richard Lan, President and CEO. "We are taking steps to reduce costs and build volumes, and expect improvement through the remainder of 2010."

    
    Financial Overview
    ------------------
    

Sales for the second quarter declined to $402.1 million from $435.9 million in the prior year, mostly due to currency translation impacts of a stronger Canadian dollar on sales denominated in U.S. dollars and British pounds and lower volumes in the Frozen Bakery segment.

Adjusted Operating Earnings in the quarter decreased to $30.4 million from $33.1 million. The earnings decline in the second quarter mostly reflected the impact of lower sales volumes in the Frozen Bakery segment partly offset by increased operating earnings in the Fresh Bakery segment.

Net earnings in the second quarter declined to $20.7 million or $0.81 per share compared to $22.5 million or $0.89 per share last year as a result of lower Adjusted Operating Earnings and higher restructuring costs. Restructuring charges that were recorded in the second quarter mostly related to the restructuring of the specialty baked goods production in the U.K. and the previously announced construction of a new large-scale bakery and the related consolidation of three smaller bakery facilities in Ontario. The benefit of lower interest expenses in the quarter was offset by lower other income.

    
    Business Segment Review
    -----------------------
    

Following is a summary of sales by business segment:

    
    -------------------------------------------------------------------------
    ($ thousands)               Second Quarter             Year-to-Date
                         ----------------------------------------------------
                                 2010         2009         2010         2009
    -------------------------------------------------------------------------
    Fresh Bakery          $   282,530  $   290,258  $   539,719  $   553,261
    Frozen Bakery             119,532      145,660      244,275      295,782
    -------------------------------------------------------------------------
    Sales                 $   402,062  $   435,918  $   783,994  $   849,043
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Following is a summary of Adjusted Operating Earnings by business segment:

    
    -------------------------------------------------------------------------
    ($ thousands)               Second Quarter             Year-to-Date

                                 2010         2009         2010         2009
    -------------------------------------------------------------------------
    Fresh Bakery          $    27,515  $    25,379  $    48,206  $    38,197
    Frozen Bakery               2,871        7,762        2,504       16,294
    -------------------------------------------------------------------------
    Adjusted Operating
     Earnings             $    30,386  $    33,141  $    50,711  $    54,491
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Fresh Bakery
    ------------
    

Includes fresh bakery products, including breads, rolls, bagels, sweet goods, prepared sandwiches, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's(R) and Olivieri(R) and many leading regional brands.

Second quarter sales of $282.5 million were slightly lower than sales of $290.3 million in the same period last year, mostly due to increased trade investment in fresh bakery operations due to increased competitive pressure in the Canadian marketplace and lower sales volumes in the fresh sandwich business.

Adjusted Operating Earnings in the quarter increased to $27.5 million from $25.4 million in the same period last year as Fresh Bakery operations mostly benefited from a stronger Canadian dollar, which reduces the cost of U.S. dollar priced ingredients. These benefits were offset by inflationary costs, higher trade investment and increased brand support. Brand investment included advertising and promotional expenses to support Dempster's Oven Fresh(TM) and Dempster's(R) Pita, and the new Dempster's(R) Smart(TM) 16, a line extension of Dempster's(R) Smart(TM), which includes 16 whole grains and reduced sodium.

    
    Frozen Bakery
    -------------
    

Includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, foodservice and convenience channels in North America and the U.K. It includes national brands such as Tenderflake(R) and New York Bakery Co(R).

Sales declined to $119.5 million from $145.7 million last year, in part due to the unfavourable impact of a stronger Canadian dollar on the Company's sales in the U.S. and U.K. and lower sales volume in both the North American and U.K. frozen bakery businesses.

Adjusted Operating Earnings in the quarter declined to $2.9 million compared to $7.8 million last year, mostly due to the decline in sales volume and related operational inefficiencies. Management continues to expect the impact of lower volumes in North America to be transitory and is taking steps to reduce the cost base in the Company's U.K. operations.

    
    Other Matters
    -------------
    

On July 28, 2010, Canada Bread Company, Limited declared a dividend of $0.06 per share payable on October 1, 2010 to shareholders of record at the close of business on September 6, 2010. Unless indicated otherwise, by the Company, in writing at or before the time the dividend is paid, this dividend will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".

    
    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 objectives and goals, as well as statements with respect to beliefs, plans, 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.

In particular, these forward-looking statements are based on expectations concerning performance of the Company's business in general, and are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, United States and United Kingdom economies; the rate of exchange of the Canadian dollar to the U.S. dollar and the British pound; initiatives to restore sales volumes in the North American and U.K. frozen bakery businesses; initiatives to reduce its cost base in the U.K.; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified under the "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2009 will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking statements, which reflect the Company's expectations only as of the date hereof.

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 under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2009 including the section entitled "Risk Factors" that is available on SEDAR at www.sedar.com. The Company does not intend to, 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.

Canada Bread Company Limited, which is 90.0% 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 2009 sales of $1.7 billion and employs approximately 8,000 people at its operations across North America and in the United Kingdom.

    
    Reconciliation of Non-GAAP Financial Measures
    ---------------------------------------------
    

The following non-GAAP measures are referred to in this news release: Adjusted Operating Earnings and Adjusted EPS. Management believes that these non-GAAP measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.

Adjusted Operating Earnings

The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three and sixth month periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs, and other income (expense) are not representative of operational results.

    
    ($ thousands)               Three months ended          Six months ended
                                      June 30,                  June 30,
                                 2010         2009         2010         2009
    Net earnings          $    20,686  $    22,537  $    33,413  $    37,419
    Income taxes                8,046        9,461       13,027       15,633
    -------------------------------------------------------------------------
    Earnings before
     income taxes         $    28,732  $    31,998  $    46,440  $    53,052
    Interest expense              904        1,814        1,888        3,307
    Restructuring and
     other related costs          805          101        2,509          674
    Other income                  (55)        (772)        (127)      (2,542)
    -------------------------------------------------------------------------
    Adjusted Operating
     Earnings             $    30,386  $    33,141  $    50,710  $    54,491
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Adjusted Earnings per Share

The following table reconciles Adjusted Earnings per share to basic earnings per share as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three and six month periods ended as indicated below. Management believes this is the most appropriate basis on which to evaluate financial results, as restructuring and other related costs are not representative of operational results.

    
    ($ per share)               Three months ended          Six months ended
                                      June 30,                  June 30,
                                 2010         2009         2010         2009
    Basic Earnings per
     Share                $      0.81  $      0.89  $      1.31  $      1.47
    Restructuring and
     other related
     costs(i)                    0.02            -         0.07         0.02
    -------------------------------------------------------------------------
    Adjusted Earnings
     per Share(ii)        $      0.84  $      0.89  $      1.39  $      1.49
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (i)  Includes per share impact of restructuring and other related costs,
         net of tax.
    (ii) Does not add due to rounding.



                  Consolidated Interim Financial Statements
                  (Expressed in Canadian dollars)


                  CANADA BREAD COMPANY,
                  LIMITED

                  Three months ended June 30, 2010 and 2009



    CANADA BREAD COMPANY, LIMITED
    Consolidated Balance Sheets
    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
                                             As at        As at        As at
                                           June 30,     June 30, December 31,
                                              2010         2009         2009
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents        $    88,875  $    21,124  $    57,698
      Accounts receivable                   70,032       68,020       63,620
      Due from Maple Leaf Foods Inc.           978           76            -
      Inventories                           57,790       58,140       56,659
      Future tax asset                       1,770        5,436        1,640
      Prepaid expenses and other assets      5,323        6,571        4,438
      -----------------------------------------------------------------------
                                       $   224,768  $   159,367  $   184,055

    Property and equipment                 382,044      410,456      387,252

    Goodwill                               384,379      405,877      386,807

    Other intangible assets                 15,482       20,245       16,678

    Other long-term assets                  11,849       10,453       11,620
    -------------------------------------------------------------------------
                                       $ 1,018,522  $ 1,006,398  $   986,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Bank indebtedness                $     8,071  $     9,511  $     4,247
      Accounts payable and accrued
       charges                             183,182      179,756      172,172
      Due to Maple Leaf Foods Inc.               -            -        3,817
      Dividends payable                      1,525        1,525        1,525
      Income and other taxes payable        10,022       12,576       13,155
      Current portion of long-term debt          -           42            -
      -----------------------------------------------------------------------
                                       $   202,800  $   203,410  $   194,916

    Long-term debt                           2,420       14,997        2,547

    Future tax liability                    32,055       35,726       33,338

    Other long-term liabilities              8,299        8,623        8,524

    Shareholders' equity                   772,948      743,642      747,087
    -------------------------------------------------------------------------
                                       $ 1,018,522  $ 1,006,398  $   986,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CANADA BREAD COMPANY, LIMITED
    Consolidated Statements of Earnings
    (In thousands of Canadian dollars, except share amounts)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2010         2009         2010         2009
    -------------------------------------------------------------------------
    Sales                 $   402,062  $   435,918  $   783,994  $   849,043

    Cost of goods sold        317,045      350,578      623,852      687,844
    -------------------------------------------------------------------------
    Gross margin          $    85,017  $    85,340  $   160,142  $   161,199

    Selling, general
     and administrative
     expenses                  54,631       52,199      109,432      106,708
    -------------------------------------------------------------------------
    Earnings from
     operations before
     the following:       $    30,386  $    33,141  $    50,710  $    54,491

    Restructuring and
     other related costs         (805)        (101)      (2,509)        (674)

    Other income                   55          772          127        2,542
    -------------------------------------------------------------------------
    Earnings before
     interest and income
     taxes                $    29,636  $    33,812  $    48,328  $    56,359

    Interest expense              904        1,814        1,888        3,307
    -------------------------------------------------------------------------
    Earnings before income
     taxes                $    28,732  $    31,998  $    46,440  $    53,052

    Income taxes                8,046        9,461       13,027       15,633
    -------------------------------------------------------------------------
    Net earnings          $    20,686  $    22,537  $    33,413  $    37,419
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share -
     basic and diluted    $      0.81  $      0.89  $      1.31  $      1.47
    -------------------------------------------------------------------------
    Weighted average
     number of shares
    (millions)                   25.4         25.4         25.4         25.4
    -------------------------------------------------------------------------



    CANADA BREAD COMPANY, LIMITED
    Consolidated Statements of Comprehensive Income
    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2010         2009         2010         2009
    -------------------------------------------------------------------------
    Net earnings          $    20,686  $    22,537  $    33,413  $    37,419

    Other comprehensive
     income (loss)             16,506       (2,874)      (4,502)         920
    -------------------------------------------------------------------------
    Comprehensive income  $    37,192  $    19,663  $    28,911  $    38,339
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars, except share amounts)
    -------------------------------------------------------------------------
                                                    Six months ended June 30,
    (Unaudited)                                            2010         2009
    -------------------------------------------------------------------------
    Retained earnings, beginning of period          $   658,541  $   587,163

    Net earnings                                         33,413       37,419

    Dividends declared ($0.12 per share; 2009:
     $0.12 per share)                                    (3,050)      (3,050)
    -------------------------------------------------------------------------
    Retained earnings, end of period                $   688,904  $   621,532
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CANADA BREAD COMPANY, LIMITED
    Consolidated Statements of Cash Flows
    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2010         2009         2010         2009
    -------------------------------------------------------------------------

    CASH PROVIDED BY (USED IN):

    Operating activities
      Net earnings        $    20,686  $    22,537  $    33,413  $    37,419
      Add (deduct) items
       not affecting cash:
        Depreciation and
         amortization          12,380       14,078       25,071       28,155
        Future income taxes       108         (872)      (1,933)        (796)
        Loss (gain) on sale
         of property and
         equipment                  5          138          (47)         330
        Amortization of
         terminated interest
         rate swap                659          645        1,317          645
        Change in provision
         for restructuring
         and other related
         costs                   (725)        (433)         347         (974)
      Other                       (20)      (1,388)          75       (2,031)
      Change in non-cash
       operating working
       capital                  1,514       (7,096)      (6,201)     (28,088)
    -------------------------------------------------------------------------
    Cash provided by
     operating activities $    34,607  $    27,609  $    52,042  $    34,660
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Financing activities
      Dividends paid           (1,525)      (1,525)      (3,050)      (3,050)
      Net increase (decrease)
       in long-term debt          109        1,272         (127)      10,520
      Settlement of interest
       rate swaps with Maple
       Leaf Foods Inc.              -       (8,502)           -       (8,502)
    -------------------------------------------------------------------------
    Cash used in financing
     activities           $    (1,416) $    (8,755) $    (3,177) $    (1,032)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Investing activities
      Additions to property
       and equipment          (14,554)      (9,524)     (22,110)     (24,366)
      Proceeds from sale of
       property and equipment       -           77          685          469
      Other                      (137)         255          (87)        (945)
    -------------------------------------------------------------------------
    Cash used in investing
     activities           $   (14,691) $    (9,192) $   (21,512) $   (24,842)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Increase in cash and
     cash equivalents     $    18,500  $     9,662  $    27,353  $     8,786

    Net cash and cash
     equivalents, begin-
     ning of period            62,304        1,951       53,451        2,827
    -------------------------------------------------------------------------
    Net cash and cash
     equivalents, end of
     period               $    80,804  $    11,613  $    80,804  $    11,613
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CANADA BREAD COMPANY, LIMITED
    Segmented Financial Information
    (In thousands of Canadian dollars)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2010         2009         2010         2009
    -------------------------------------------------------------------------

    Sales
      Fresh Bakery        $   282,530  $   290,258  $   539,719  $   553,261
      Frozen Bakery           119,532      145,660      244,275      295,782
    -------------------------------------------------------------------------
                          $   402,062  $   435,918  $   783,994  $   849,043
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from operations
     before restructuring and
     other related costs and
     other income
      Fresh Bakery        $    27,515  $    25,379  $    48,206  $    38,197
      Frozen Bakery             2,871        7,762        2,504       16,294
    -------------------------------------------------------------------------
                          $    30,386  $    33,141  $    50,710  $    54,491
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to property
     and equipment
      Fresh Bakery        $     9,407  $     5,703  $    13,491  $    11,431
      Frozen Bakery             5,147        3,821        8,619       12,935
    -------------------------------------------------------------------------
                          $    14,554  $     9,524  $    22,110  $    24,366
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Fresh Bakery        $     6,476  $     6,911  $    13,265  $    14,059
      Frozen Bakery             5,904        7,167       11,806       14,096
    -------------------------------------------------------------------------
                          $    12,380  $    14,078  $    25,071  $    28,155
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             As at        As at        As at
                                           June 30,     June 30, December 31,
                                              2010         2009         2009
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)

    Total assets
      Fresh Bakery                     $   456,530  $   443,964  $   441,020
      Frozen Bakery                        458,575      516,077      476,681
      Non-allocated assets                 103,417       46,357       68,711
    -------------------------------------------------------------------------
                                       $ 1,018,522  $ 1,006,398  $   986,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Fresh Bakery                     $   157,120  $   155,962  $   155,946
      Frozen Bakery                        227,259      249,915      230,861
    -------------------------------------------------------------------------
                                       $   384,379  $   405,877  $   386,807
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE Canada Bread Company, Limited

For further information: For further information: Lynda Kuhn, SVP Communications, 416-926-2026, www.canadabread.ca


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