Canada Bread Reports Results for Third Quarter 2010
TORONTO, Oct. 28 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the third quarter ended September 30, 2010. Third quarter highlights include:
- Adjusted Operating Earnings of $32.4 million compared to
$36.9 million last year
- Adjusted EPS of $0.85 compared to $1.00 last year
- Net earnings of $14.0 million compared to $25.1 million last year
- Basic EPS of $0.55 compared to $0.99 last year
Note: Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income (expense). 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 benefited from price increases implemented earlier in the year, although rising wheat prices may require further pricing action," said Richard Lan, President and CEO. "While our frozen bakery business was impacted by continued weaker markets, initiatives are underway to increase volumes and reduce costs. We are also investing in promotions to support exciting new product innovation under the Dempster's(R) brand, that will support our continued leadership and growth in the higher nutrition bakery segment."
Financial Overview
------------------
Sales for the third quarter declined 3% to $411.4 million from $424.6 million in the prior year, mostly due to lower sales volumes and currency translation impacts of a stronger Canadian dollar on sales denominated in U.S. dollars and British pounds. Excluding currency impacts, sales declined by 1%.
Adjusted Operating Earnings in the quarter were $32.4 million, a decrease from a strong comparative quarter of $36.9 million last year. Earnings were affected by lower sales volumes and increased marketing and promotional activities in the Fresh Bakery business to support new product launches.
Net earnings in the third quarter declined to $14.0 million or $0.55 per share compared to $25.1 million or $0.99 per share last year as a result of lower Adjusted Operating Earnings and higher restructuring costs. Restructuring charges in the third quarter mostly related to severance obligations related to the future closure of three bakeries in Ontario, pending the completion of a new large scale bakery facility that is expected to be commissioned in mid-2011.
Business Segment Review
-----------------------
Following is a summary of sales by business segment:
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($ thousands) Third Quarter Year-to-Date
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2010 2009 2010 2009
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Fresh Bakery $285,232 $287,285 $824,951 $840,546
Frozen Bakery 126,132 137,270 370,407 433,052
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Sales $411,364 $424,555 $1,195,358 $1,273,598
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Following is a summary of Adjusted Operating Earnings by business segment:
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($ thousands) Third Quarter Year-to-Date
2010 2009 2010 2009
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Fresh Bakery $30,397 $33,260 $78,603 $71,457
Frozen Bakery 2,032 3,655 4,537 19,949
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Adjusted Operating Earnings $32,429 $36,915 $83,140 $91,406
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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.
Third quarter sales of $285.2 million were slightly lower than sales of $287.3 million in the same period last year mostly due to lower volumes in the sandwich and fresh bakery businesses.
Adjusted Operating Earnings in the quarter decreased to $30.4 million from $33.3 million in the same period last year, mostly due to lower volumes and additional advertising and promotional spending to support new product innovation. During the quarter, brand investment included marketing and promotional expenses to support Dempster's Smart(R) 16, a line extension of Dempster's Smart(R), which includes 16 whole grains and reduced sodium; the launch of Dempster's(R) rye bread in Ontario in the fourth quarter of 2010; and extensions in Dempster's Oven Fresh(R) line. In the fourth quarter, the fresh bakery business launched a significant promotional bread campaign with hockey superstar Sidney Crosby as the brand ambassador of Dempster's(R) to promote the benefits of breads, healthy eating and good nutrition.
Partly offsetting lower volumes and increased marketing and promotional costs were improved margin rates due to better net pricing and the impact of a stronger Canadian dollar, that was partly offset by inflationary cost impacts.
The construction of a new large scale fresh bakery facility in Hamilton, Ontario is proceeding on plan. Commissioning of this 375,000 square foot facility is scheduled to commence in mid 2011, allowing for the consolidation of production from three Ontario bakeries. The Company expects to incur restructuring costs totalling approximately $25 million, which includes $5 million in non-cash items.
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 8% to $126.1 million from $137.3 million last year, due in part to currency translation. Excluding currency impacts, sales declined by 2%.
Adjusted Operating Earnings in the quarter declined to $2.0 million compared to $3.7 million last year. While volumes in the North American frozen business were largely consistent with last year, earnings declined mostly due to increased factory overhead costs. Earnings in the U.K. operations were consistent with last year. Management continues to focus on increasing volumes in the North American frozen business. Cost improvements underway in the U.K. include the transfer of a production line to an existing low-cost scale facility in Maidstone, England in the second quarter that consolidates the majority of croissant production into one site.
Other Matters
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On October 27, 2010, Canada Bread Company, Limited declared a dividend of $0.06 per share payable on January 4, 2011 to shareholders of record at the close of business on December 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 $1.7 billion and employs approximately 8,000 people at its operations across North America and in the United Kingdom.
Reconciliation of Non-GAAP Financial Measures
---------------------------------------------
The following non-GAAP measures are referred to in this news release: Adjusted Operating Earnings and Adjusted EPS. Management believes that these non-GAAP measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.
Adjusted Operating Earnings
The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three- and nine-month periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results as restructuring and other related costs and other income (expense) are not representative of operational results.
Three months ended September 30,
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($ thousands) 2010 2009
-------------------------------------------------------------------------
Fresh Frozen Consoli- Fresh Frozen Consoli-
Bakery Bakery dated Bakery Bakery dated
Net earnings $13,980 $25,050
Income taxes 7,055 10,482
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Earnings from operations
before income taxes 21,035 35,532
Interest expense 949 673
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Earnings from operations
before income taxes and
interest expense 21,984 36,205
Restructuring and other
related costs 10,229 283 10,512 0 597 597
Other income (67) 0 (67) 113 0 113
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Adjusted Operating
Earnings $30,397 $2,032 $32,429 $33,260 $3,655 $36,915
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Nine months ended September 30,
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($ thousands) 2010 2009
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Fresh Frozen Consoli- Fresh Frozen Consoli-
Bakery Bakery dated Bakery Bakery dated
Net earnings $47,394 $62,469
Income taxes 20,082 26,115
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Earnings from operations
before income taxes 67,476 88,584
Interest expense 2,837 3,980
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Earnings from operations
before income taxes and
interest expense 67,340 2,973 70,313 71,419 21,145 92,564
Restructuring and other
related costs 11,457 1,564 13,021 (81) 1,352 1,271
Other income (194) 0 (194) 119 (2,548) (2,429)
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Adjusted Operating
Earnings $78,603 $4,537 $83,140 $71,457 $19,949 $91,406
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Adjusted Earnings per Share
The following table reconciles adjusted earnings per share to basic earnings per share as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three- and nine-month periods ended as indicated below. Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.
Three months ended Nine months ended
($ per share) September 30, September 30,
2010 2009 2010 2009
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Basic Earnings per Share $ 0.55 $ 0.99 $ 1.86 $ 2.46
Restructuring and other
related costs(i) 0.30 0.02 0.38 0.04
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Adjusted Earnings per
Share(ii) $ 0.85 $ 1.00 $ 2.24 $ 2.50
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(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
Nine months ended September 30, 2010 and 2009
CANADA BREAD COMPANY, LIMITED
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
September 30, September 30, December 31,
2010 2009 2009
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(Unaudited) (Unaudited)
Assets
Current assets
Cash and cash equivalents $ 106,961 $ 24,549 $ 57,698
Accounts receivable 63,840 70,879 63,620
Due from Maple Leaf Foods Inc. 1,361 - -
Inventories 56,046 58,266 56,659
Future tax asset 4,259 4,878 1,640
Prepaid expenses and
other assets 7,539 7,065 4,438
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$ 240,006 $ 165,637 $ 184,055
Property and equipment 391,486 392,695 387,252
Goodwill 380,845 392,456 386,807
Other intangible assets 15,125 18,775 16,678
Other long-term assets 11,522 10,616 11,620
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$ 1,038,984 $ 980,179 $ 986,412
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 8,070 $ 4,357 $ 4,247
Accounts payable and
accrued charges 196,490 169,361 172,172
Due to Maple Leaf Foods Inc. - 4,971 3,817
Dividends payable 1,525 1,525 1,525
Income and other taxes payable 13,049 13,610 13,155
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$ 219,134 $ 193,824 $ 194,916
Long-term debt 3,117 - 2,547
Future tax liability 29,856 34,079 33,338
Other long-term liabilities 8,271 8,639 8,524
Shareholders' equity 778,606 743,637 747,087
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$ 1,038,984 $ 980,179 $ 986,412
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
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Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2010 2009 2010 2009
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Sales $ 411,364 $ 424,555 $1,195,358 $1,273,598
Cost of goods sold 324,476 335,413 948,327 1,023,257
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Gross margin $ 86,888 $ 89,142 $ 247,031 $ 250,341
Selling, general and
administrative expenses 54,459 52,227 163,891 158,935
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Earnings from operations
before the following: $ 32,429 $ 36,915 $ 83,140 $ 91,406
Restructuring and other
related costs (10,512) (597) (13,021) (1,271)
Other income (expense) 67 (113) 194 2,429
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Earnings before interest
and income taxes $ 21,984 $ 36,205 $ 70,313 $ 92,564
Interest expense 949 673 2,837 3,980
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Earnings before
income taxes $ 21,035 $ 35,532 $ 67,476 $ 88,584
Income taxes 7,055 10,482 20,082 26,115
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Net earnings $ 13,980 $ 25,050 $ 47,394 $ 62,469
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Earnings per share -
basic and diluted $ 0.55 $ 0.99 $ 1.86 $ 2.46
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Weighted average
number of shares
(millions) 25.4 25.4 25.4 25.4
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)
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Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2010 2009 2010 2009
-------------------------------------------------------------------------
Net earnings $ 13,980 $ 25,050 $ 47,394 $ 62,469
Other comprehensive loss (6,798) (23,530) (11,300) (22,610)
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Comprehensive income $ 7,182 $ 1,520 $ 36,094 $ 39,859
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Nine months ended September 30,
(Unaudited) 2010 2009
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Retained earnings, beginning of period $ 658,541 $ 587,163
Net earnings 47,394 62,469
Dividends declared ($0.18 per share;
2009: $0.18 per share) (4,575) (4,575)
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Retained earnings, end of period $ 701,360 $ 645,057
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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) 2010 2009 2010 2009
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities
Net earnings $ 13,980 $ 25,050 $ 47,394 $ 62,469
Add (deduct) items not
affecting cash:
Depreciation and
amortization 13,089 13,551 38,160 41,706
Future income taxes (4,490) (1,303) (6,423) (2,099)
Loss (gain) on sale of
property and equipment (62) 131 (109) 461
Amortization of
terminated interest
rate swap 659 672 1,976 1,317
Change in provision
for restructuring and
other related costs 9,746 367 10,093 (607)
Other (244) (562) (170) (2,593)
Change in non-cash
operating working
capital 11,869 (6,722) 5,668 (34,810)
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Cash provided by
operating activities $ 44,547 $ 31,184 $ 96,589 $ 65,844
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Financing activities
Dividends paid (1,525) (1,525) (4,575) (4,575)
Net increase (decrease)
in long-term debt 697 (15,038) 570 (4,518)
Settlement of interest
rate swaps with Maple
Leaf Foods Inc. - - - (8,502)
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Cash used in financing
activities $ (828) $ (16,563) $ (4,005) $ (17,595)
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Investing activities
Additions to property
and equipment (25,778) (6,081) (47,888) (30,447)
Proceeds from sale
of property and
equipment 55 46 740 515
Other 91 (7) 4 (952)
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Cash used in investing
activities $ (25,632) $ (6,042) $ (47,144) $ (30,884)
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Increase in cash and cash
equivalents $ 18,087 $ 8,579 $ 45,440 $ 17,365
Net cash and cash
equivalents, beginning
of period 80,804 11,613 53,451 2,827
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Net cash and cash
equivalents, end of
period $ 98,891 $ 20,192 $ 98,891 $ 20,192
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Net cash and cash
equivalents is comprised
of:
Cash and cash equivalents $ 106,961 $ 24,549 $ 106,961 $ 24,549
Bank indebtedness (8,070) (4,357) (8,070) (4,357)
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Net cash and cash
equivalents, end of
period $ 98,891 $ 20,192 $ 98,891 $ 20,192
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CANADA BREAD COMPANY, LIMITED
Segmented Financial Information
(In thousands of Canadian dollars)
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Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2010 2009 2010 2009
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Sales
Fresh Bakery $ 285,232 $ 287,285 $ 824,951 $ 840,546
Frozen Bakery 126,132 137,270 370,407 433,052
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$ 411,364 $ 424,555 $1,195,358 $1,273,598
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Earnings from operations
before restructuring and
other related costs and
other income (expense)
Fresh Bakery $ 30,397 $ 33,260 $ 78,603 $ 71,457
Frozen Bakery 2,032 3,655 4,537 19,949
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$ 32,429 $ 36,915 $ 83,140 $ 91,406
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Additions to property
and equipment
Fresh Bakery $ 19,819 $ 4,246 $ 33,309 $ 15,677
Frozen Bakery 5,959 1,835 14,579 14,770
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$ 25,778 $ 6,081 $ 47,888 $ 30,447
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Depreciation and
amortization
Fresh Bakery $ 7,309 $ 6,757 $ 20,574 $ 20,816
Frozen Bakery 5,780 6,794 17,586 20,890
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$ 13,089 $ 13,551 $ 38,160 $ 41,706
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As at As at As at
September 30, September 30, December 31,
2010 2009 2009
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(Unaudited) (Unaudited)
Total assets
Fresh Bakery $ 460,994 $ 447,100 $ 441,020
Frozen Bakery 449,114 493,270 476,681
Non-allocated assets 128,876 39,809 68,711
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$ 1,038,984 $ 980,179 $ 986,412
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Goodwill
Fresh Bakery $ 157,146 $ 155,949 $ 155,946
Frozen Bakery 223,699 236,507 230,861
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$ 380,845 $ 392,456 $ 386,807
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For further information: Lynda Kuhn, SVP Communications, 416-926-2026, www.canadabread.ca
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