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Saputo Inc.: Financial Results for the Second Quarter of Fiscal 2009, Ended September 30, 2008 Net earnings at $69.0 million, up 10.4% for the quarter Net earnings at $152.0 million, up 16.0% since the beginning of fiscal 2009 MONTREAL, QUEBEC--(MARKET WIRE)--Nov 4, 2008 -- Saputo Inc. (Toronto:SAP.TO - News) released today its financial results
for the second quarter of fiscal 2009, which ended September
30, 2008.
- Net earnings for the quarter totalled $69.0 million ($0.34 basic per share), an increase of $6.5 million compared to $62.5 million ($0.31 basic per share) for the same quarter last fiscal year. Included in the results of the same quarter last fiscal year is an income tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years. - Consolidated revenues for the quarter ended September 30, 2008 amounted to $1.454 billion, an increase of $165.0 million or 12.8% in comparison to $1.289 billion for the corresponding quarter last fiscal year. The increase is due mainly to our USA Dairy Products Sector, whose revenues increased by approximately $99 million. The inclusion of the activities of Alto Dairy Cooperative acquired on April 1(st), 2008 (Alto Acquisition), partially offset by a lower average block(1) market per pound of cheese and a less favourable byproduct market, explains the revenue increase as compared to the same period last fiscal year. Revenues from our Canada, Europe and Argentina (CEA) Dairy Products Sector increased by approximately $67 million. Higher selling prices in accordance with the increase in the cost of milk as raw material in Canada and in Argentina, and increased sales volume from our Dairy Products Division (Argentina) are the main factors explaining the revenue increase. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. - Consolidated EBITDA(2) amounted to $129.9 million, an increase of $5.8 million or 4.7% in comparison to $124.1 million for the same quarter last fiscal year. The increase results from higher EBITDA in our CEA Dairy Products Sector of approximately $10.2 million. The EBITDA of our USA Dairy Products Sector decreased by approximately $3 million and the EBITDA of our Grocery Products Sector decreased by approximately $1.4 million compared to same quarter last fiscal year. - EBITDA for the CEA Dairy Products Sector amounted to $94.8 million, an increase of 12.1% in comparison to the same quarter last fiscal year. This increase was mainly due to the increase in volumes in our Argentinean domestic and export markets and the continued benefits derived from rationalization activities completed in prior years in our Canadian operations. These positive factors were partially offset by less favourable byproduct market conditions. - EBITDA for the USA Dairy Products Sector totalled $31.1 million, a decrease of 8.8% compared to the same period last fiscal year. A less favourable by-product market and increased operational costs are the main factors contributing to this decrease, partially offset by the contribution of the Alto Acquisition and a more favourable relationship between the average block market per pound of cheese and the cost of milk as raw material. - EBITDA for the Grocery Products Sector amounted to $4.0 million, a decrease of 25.9% compared to the corresponding quarter last fiscal year. This is as a result of a decrease in sales volume and increased costs, which offset the benefits of the price increase that took effect in mid-November 2007. - Cash generated by operating activities amounted to $111.3 million, compared to $81.7 million for the same period last fiscal year. - In the second quarter, the Company issued shares for a cash consideration of $4.6 million, as part of the stock option plan and repaid $52.6 million of bank loans and paid $53.7 million in dividends.
(1) "Average block market" is the average daily price of a 40 pound
block of Cheddar traded on the Chicago Mercantile Exchange
(CME), used as the base price for the cheese.
(2) Measurement of results not in accordance with generally accepted
accounting principles
The Company assesses its financial performance based on its
EBITDA, this being earnings before interest, income taxes,
depreciation and amortization. EBITDA is not a measurement of
performance as defined by generally accepted accounting
principles in Canada, and consequently may not be comparable to
similar measurements presented by other companies.For more information on the results of the second quarter of fiscal 2009, please read the attached interim report for the quarter ended September 30, 2008, which forms an integral part of this press release. Dividends The Board of Directors declared a quarterly dividend of $0.14 per share payable on December 19, 2008 to common shareholders of record on December 8, 2008. Normal Course Issuer Bid The Company has the intention to purchase by means of open market transactions or such other means as may be permitted by the Toronto Stock Exchange (TSX) or a securities regulatory authority, for cancellation purposes, some of its common shares (Common Shares) by way of a normal course issuer bid (Bid) that will begin on November 13, 2008, subject to regulatory approval. Under the Bid, Saputo may repurchase for cancellation up to 10,340,377 Common Shares. This represents 5% of its 206,807,551 issued and outstanding Common Shares as of October 31, 2008. The average daily trading volume of Saputo's Common Shares over the most recently completed six (6) calendar months was 260,589. Accordingly, the Company is entitled to purchase, on any trading day, up to 65,147 common shares. These purchases will be made in accordance with applicable regulations over a maximum period of 12 months beginning on November 13, 2008 and ending on November 12, 2009. The consideration that the Company will pay for any Common Shares acquired by it under the Bid will be in cash at the market price of such Common Shares at the time of acquisition. Within the previous twelve months, Saputo did not purchase any of its Common Shares under the normal course issuer bid established in November 2007. The Company believes that the purchase by Saputo of its own shares may, in appropriate circumstances, be a responsible investment of funds on hand. To the knowledge of Saputo, no director, senior officer or associate of a director or senior officer of Saputo, person acting jointly or in concert with the Company, or person holding 10% or more of any class of equity securities of Saputo currently intends to sell any Common Shares under this normal course issuer bid. However, sales by such persons through the facilities of TSX may occur if the personal circumstances of any such person change or any such person makes a decision unrelated to these normal course purchases. The benefits to any such person whose Common Shares are purchased would be the same as the benefits available to all other holders whose Common Shares are purchased. Conference Call A conference call to discuss the second quarter results of fiscal 2009 will be held on Tuesday, November 4, 2008, at 2:30 PM, Eastern time. To participate in the conference call, dial 1.888.241.0326, ID number 69540175. To ensure your participation, please dial in approximately five minutes before the call. To listen to this call on the web, please enter http://events.onlinebroadcasting.com/saputo/110408/index.php in your web browser. For those unable to participate, a replay will be available until midnight, Eastern time, Tuesday, November 11, 2008. To access the replay, dial 1.800.695.9456, ID number 69540175. A replay of the conference call will also be available on the Company's web site at www.saputo.com. About Saputo Together, over the years, we have aspired to grow, exploring new opportunities while staying true to our culture. Our progress is owed to the continued dedication of our 9,200 employees, who, across 5 countries, team up every day to go further. They craft, market and distribute a wide range of high-quality products, including cheese, milk, yogurt, dairy ingredients and snack-cakes. Saputo is the 15th largest dairy processor in the world, the largest in Canada, the third largest in Argentina, among the top three cheese producers in the United States, and the largest snack-cake manufacturer in Canada. Consumers and customers in over 40 countries appreciate our products distributed under our well-known brands such as Saputo, Alexis de Portneuf, Armstrong, Baxter, Dairyland, Danscorella, De Lucia, Dragone, DuVillage 1860, Frigo, Kingsey, La Paulina, Nutrilait, Ricrem, Stella, Treasure Cave, HOP&GO!, Rondeau and Vachon. Saputo Inc. is a public company whose shares are traded on the Toronto Stock Exchange under the symbol SAP. Message to Shareholders We are pleased to present the results for the second quarter of fiscal 2009, which ended on September 30, 2008. Net earnings for the quarter ended September 30, 2008 totalled $69.0 million, an increase of $6.5 million or 10.4% compared to $62.5 million for the same quarter last fiscal year. Included in the results of the same quarter last fiscal year is an income tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years. Earnings before interest, income taxes, depreciation and amortization (EBITDA(1)) amounted to $129.9 million, an increase of $5.8 million or 4.7% in comparison to $124.1 million for the same quarter last fiscal year. The EBITDA of our Canada, Europe and Argentina (CEA) Dairy Products Sector increased by approximately $10.2 million. This increase was due to the increased volumes in our Argentinean domestic and export markets and the continued benefits derived from rationalization activities completed in prior years in our Canadian operations, partially offset by less favourable by-product market conditions. The EBITDA of our USA Dairy Products Sector decreased by approximately $3 million in comparison to the same quarter last fiscal year. The decrease in EBITDA can be attributed to a less favourable by-product market, which offset the contribution of Alto Dairy Cooperative's activities in the United States (US), acquired on April 1, 2008 (Alto Acquisition), and offset a more favourable relationship between the average block market(2) per pound of cheese and the cost of milk as raw material. The EBITDA of our Grocery Products Sector decreased by approximately $1.4 million in comparison to the same quarter last fiscal year. Revenues for the quarter ended September 30, 2008 amounted to $1.454 billion, an increase of $165.0 million or 12.8% in comparison to the $1.289 billion for the corresponding quarter last fiscal year. The increase is due mainly to our USA Dairy Products Sector, whose revenues increased by approximately $99 million. The inclusion of the Alto Acquisition, partially offset by a lower average block market per pound of cheese and a less favourable by-product market, explains the revenue increase as compared to the same period last fiscal year. Revenues from our CEA Dairy Products Sector increased by approximately $67 million. Higher selling prices in accordance with the increase in the cost of milk as raw material in Canada and in Argentina, and increased sales volume from our Dairy Products Division (Argentina) are the main factors explaining the revenue increase. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. Outlook(3) The Government of Canada introduced, in December 2007, amended regulations establishing new standards for cheese manufactured in and imported to Canada. These amendments will come into effect on December 14, 2008. Saputo has always met the Canadian and international standards for its manufactured products and will continue to meet them, including the requirements of the amended regulations. However, Saputo believes that it has legal grounds to challenge these new requirements. In this regard, on October 20, 2008, Saputo, along with two other dairy processors in Canada, filed an application in the Federal Court of Canada to challenge the amended regulations. Regardless of the outcome, we intend to mitigate the impact that these new standards will have on our results, while trying our utmost to minimize the effect on our customers. On October 22, 2008, we announced that we agreed to acquire the activities of Neilson Dairy, the dairy division of Weston Foods (Canada) Inc. for a purchase price of $465 million on a debt-free basis, payable in cash by drawing on available lines of credit and additional committed financing. Neilson Dairy employs approximately 390 people and produces, sells and distributes, primarily in Ontario, fluid milk and dairy beverages, cream products and non dairy creamers, butter, yogurt, juices and drinks under the Neilson brand and other brands. This transaction is subject to usual conditions, including approval by the Competition Bureau, and is expected to close on or about November 24, 2008. Neilson Dairy generates annual sales of approximately $600 million and annual EBITDA of approximately $50 million. This strategic transaction will allow our Canadian Dairy Products Division to increase its presence in the Ontario fluid milk and cream markets. In our Dairy Products Division (Europe), we continue to invest in capital expenditure programs in an effort to improve overall efficiencies. Also, the integration of this Division within Saputo is still ongoing. In our Dairy Products Division (Argentina), we continue to see increases in milk production and strive to seek volume growth both on the domestic and export markets. In addition, we will focus on efficiencies to improve overall operations. During the quarter, our Dairy Products Division (USA) continued to focus on possible synergies that can be derived from the Alto Acquisition completed on April 1, 2008. Capital projects have already been initiated with the goal of increasing operational efficiencies from the two facilities acquired. We also recently announced the closure of our Hinesburg, Vermont facility. This closure is the result of our ongoing evaluation to improve our overall performance. Production has been transferred to other facilities within the US. Costs connected with the closure will be approximately US$5.4 million after taxes, which includes an after tax fixed assets write down of approximately US$4.4 million. These costs will be mainly recorded in our fiscal 2009 third quarter. We expect annual after tax savings of approximately US$2.2 million which should commence at the beginning of fiscal 2010. Effective October 1, 2008, the United State Department of Agriculture (USDA) introduced changes to the manufacturing cost allowances used in the Class III product-price formula which were unsuccessfully appealed by various dairy groups. This will increase the manufacturing cost allowance and should benefit the USA Dairy Products Sector. The Division will continue to support its leading retail brands, sustaining the positive momentum from various marketing initiatives undertaken in the current and prior fiscal years. In the Bakery Division, we are keeping the focus on our brand leaders, a strategy that allows us to benefit from production efficiencies and sales performance. Since the beginning of the fiscal year, marketing funds have been oriented towards stimulating direct activities at the store level. We are in a very competitive market with continually increasing raw material and packaging costs. In an effort to mitigate the effects of these increasing costs, we are focusing on the optimization of recipes and manufacturing processes. Dividends The Board of Directors declared a quarterly dividend of $0.14 per share payable on December 19, 2008 to common shareholders of record on December 8, 2008. Normal Course Issuer Bid The Company has the intention to repurchase by way of a normal course issuer bid (Bid), for cancellation purposes, up to a maximum of 10,340,377 of its common shares. This represents 5% of its 206,807,551 issued and outstanding common shares as of October 31, 2008. These purchases will be made in accordance with applicable regulations over a maximum period of 12 months beginning on November 13, 2008 and ending on November 12, 2009, subject to regulatory approval. The consideration that the Company will pay for any common shares acquired by it under the Bid will be in cash at the market price of such common shares at the time of acquisition. The Company believes that the purchase of its own shares may, in appropriate circumstances, be a responsible investment of funds on hand. Within the previous twelve months, Saputo did not purchase any of its common shares under the normal course issuer bid established in November 2007. Management's Analysis The goal of the management report is to analyse the results of and the financial position for the quarter ended September 30, 2008. It should be read while referring to our consolidated financial statements and accompanying notes for the three- and six-month periods ended September 30, 2008 and 2007. The Company's accounting policies are in accordance with Canadian generally accepted accounting principles of the Canadian Institute of Chartered Accountants. All dollar amounts are in Canadian dollars unless otherwise indicated. This report takes into account material elements between September 30, 2008, and November 4, 2008, the date of this report, on which it was approved by the Board of Directors of Saputo Inc. (Company or Saputo). Additional information about the Company, including the annual report and the annual information form for the year ended March 31, 2008 can be obtained on Sedar at www.sedar.com. CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report, including the "Outlook" section, contains forward-looking statements within the meaning of securities laws. These statements are based, among others, on our current assumptions, expectations, estimates, objectives, plans and intentions regarding projected revenues and expenses, the economic and industry environments in which we operate or which could affect our activities, our ability to attract and retain clients and consumers as well as our operating costs, raw materials and energy supplies which are subject to a number of risks and uncertainties. Forward-looking statements can generally be identified by the use of the conditional tense, the words "may", "should", "would", "believe", "plan", "expect", "intend", "anticipate", "estimate", "foresee", "objective" or "continue" or the negative of these terms or variations of them or words and expressions of similar nature. Actual results could differ materially from the conclusion, forecast or projection stated in such forward-looking information. As a result, we cannot guarantee that any forward-looking statements will materialize. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause our actual results to differ materially from our current expectations are discussed throughout this MD&A and in our most recently filed Annual Report which is available on SEDAR at www.sedar.com. Forward-looking information contained in this report, including the "Outlook" section, is based on management's current estimates, expectations and assumptions, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Except as required by law, we do not undertake to update these forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf.
(1) Measurement of results not in accordance with generally accepted
accounting principles
The Company assesses its financial performance based on its
EBITDA, this being earnings before interest, income taxes,
depreciation and amortization. EBITDA is not a measurement of
performance as defined by generally accepted accounting
principles in Canada, and consequently may not be comparable to
similar measurements presented by other companies.
(2) "Average block market" is the average daily price of a 40 pound
block of Cheddar traded on the Chicago Mercantile Exchange
(CME), used as the base price for the cheese.
(3) We refer you to the cautionary statement regarding forward-
looking information set forth below under "Management Analysis".Operating Results Consolidated revenues for the quarter ended September 30, 2008 amounted to $1.454 billion, an increase of $165.0 million or 12.8% in comparison to the $1.289 billion for the corresponding quarter last fiscal year. Revenues from our USA Dairy Products Sector increased by approximately $99 million due to the Alto Acquisition, completed at the beginning of fiscal 2009, in addition to increased selling prices and a better product mix. These increases were partially offset by a lower average block market per pound of cheese of US$1.86 compared to US$1.98 for the same quarter last fiscal year, along with a less favourable by-product market. The revenues from our CEA Dairy Products Sector increased by approximately $67 million in comparison to the same quarter last fiscal year. Higher selling prices in our Canadian and Argentinean operations in accordance with the increase in the cost of milk as raw material and increased sales volume from our Argentinean activities are the main factors explaining the revenue increase. These positive factors were slightly offset by less favourable by-product market conditions. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. For the six-month period ended September 30, 2008, revenues totalled $2.815 billion, an increase of $300.0 million or 11.9% in comparison to the $2.515 billion for the corresponding period last fiscal year. Revenues from our USA Dairy Products Sector increased by approximately $200 million. The increase is due to the Alto Acquisition, increased selling prices and a higher average block market per pound of cheese. Revenues from our CEA Dairy Products Sector increased by approximately $100 million in comparison to the same period last fiscal year. Higher selling prices in our Canadian and Argentinean operations in accordance with the increase in the cost of milk as raw material and increased sales volume from our Argentinean activities are the main factors explaining the revenue increase. These positive factors were slightly offset by less favourable by-product market conditions. Revenues from our Grocery Products Sector remained approximately unchanged in comparison to the same period last fiscal year. During the six-month period ended September 30, 2008, the appreciation of the Canadian dollar eroded approximately $45 million in the Company's revenues in comparison to the same period last fiscal year. Consolidated earnings before interest, income taxes, depreciation and amortization (EBITDA), for the second quarter of fiscal 2009 amounted to $129.9 million, an increase of $5.8 million or 4.7% in comparison to $124.1 million for the same quarter last fiscal year. The EBITDA of our CEA Dairy Products Sector increased by approximately $10.2 million in comparison to the same quarter last fiscal year. This increase was mainly due to the increased volumes in our Argentinean domestic and export markets and the continued benefits derived from rationalization activities completed in prior years in our Canadian operations. These positive factors were partially offset by less favourable by-product market conditions. Our European operations had a minimal effect on EBITDA in the second quarter of fiscal 2009. The EBITDA of our USA Dairy Products Sector decreased by approximately $3 million compared to the same quarter last fiscal year. A less favourable by-products market and increased operational costs are the main factors contributing to this decrease, partially offset by the contribution of the Alto Acquisition and a more favourable relationship between the average block market per pound of cheese and the cost of milk as raw material. The EBITDA of our Grocery Products Sector decreased by approximately $1.4 million in comparison to the same quarter last fiscal year. This is as a result of a decrease in sales volume and increased costs, which offset the benefits of the price increase that took effect in mid-November 2007. For the six-month period ended September 30, 2008, EBITDA totalled $280.3 million, an increase of $28.7 million or 11.4% in comparison to the same period last fiscal year. Increased EBITDA from our CEA Dairy Products Sector of $20.3 million and from our USA Dairy Products Sector of $9.1 million offset a reduction of $0.7 million from our Grocery Products Sector. Since the beginning of the fiscal year, the appreciation of the Canadian dollar eroded approximately $3.3 million of the Company's EBITDA in comparison to the same period last fiscal year. Other Consolidated Results Items Depreciation expense for the second quarter of fiscal 2009 totalled $23.0 million, an increase of $3.3 million compared to the same quarter last fiscal year. For the six-month period ended September 30, 2008, depreciation expense amounted to $45.4 million, an increase of $5.5 million as compared to $39.9 million for the same period last fiscal year. In both cases, the increase is due mainly to the Alto Acquisition. Capital investments undertaken by all divisions in the prior fiscal year also contributed to increase depreciation expense in the current quarter. Net interest expense decreased by $0.5 million to $6.7 million for the quarter ended September 30, 2008 and decreased by $0.3 million to $13.4 million for the six-month period ended September 30, 2008 in comparison to the corresponding quarter of last fiscal year. Income taxes for the second quarter of fiscal 2009 totalled $31.3 million, reflecting an effective tax rate of 31.2% compared to 35.7% for the same quarter last fiscal year. During the second quarter of fiscal 2008, the company recorded a tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years for our Argentinean operations, for then expiring tax losses from which we did not benefit. Excluding this adjustment, last fiscal year's effective tax rate would have been 32.6% . Income taxes for the six-month period ended September 30, 2008 totalled $69.5 million, reflecting an effective tax rate of 31.4% in comparison to 33.8% for the same period last fiscal year. Our income tax rates vary and could increase or decrease based on the amount of taxable income derived and from which source, any amendments to tax laws and income tax rates and changes in assumptions and estimates used for tax assets and liabilities by the Company and its affiliates. Net earnings reached $69.0 million for the quarter ended September 30, 2008 compared to $62.5 million for the same quarter last fiscal year. For the six-month period ended September 30, 2008, net earnings totalled $152.0 million compared to $131.0 million for the corresponding period last fiscal year. These reflect the various factors analyzed above. Cash and Financial Resources For the three months ended September 30, 2008, cash generated by operating activities before changes in non-cash working capital items amounted to $94.4 million, an increase of $3.3 million in comparison to the $91.1 million for the corresponding quarter last fiscal year. Since the beginning of the fiscal year, this figure amounted to $204.8 million, an increase of $20.2 million in comparison to the $184.6 million for the same period last fiscal year. Non-cash working capital items generated $16.9 million for the second quarter of fiscal 2009, compared to a use of $9.4 million for the corresponding quarter of fiscal 2008. The difference is mainly due to a decrease in inventory in our Dairy Products Division (USA) during the second quarter of fiscal 2008. For the six-month period ended September 2008, non-cash working capital items used $21.5 million, compared to a usage of $89.9 million for the same period last fiscal year. During the period, the Company made income tax payments for amounts relating to taxes payable, recorded at the end of last fiscal year, in addition to an increase in inventory, resulting in a usage of non-cash working capital items. Last year's usage was attributed to higher working capital items in our Dairy Products Division (USA) due to the increase in the average block market per pound of cheese in comparison to fiscal 2007 year-end. Investing activities comprised of additions to fixed assets of $27.3 million and $52.1 million for the three- and six-month periods ended September 30, 2008 respectively. For the six-month period ended September 30, 2008, the Company also used $161.0 million for the Alto Acquisition. Financing activities for the second quarter of fiscal 2009 consisted of a decrease in bank loans of $52.6 million, the issuance of shares for a cash consideration of $4.6 million, and the payments of $53.7 million in dividends. As at September 30, 2008, working capital stood at $424.3 million, an increase from the $416.3 million as at March 31, 2008. As at September 30, 2008, our interest bearing debt-to-equity ratio stood at 0.20, in comparison to 0.17 as at March 31, 2008, mainly resulting from the Alto Acquisition. The Company currently has available bank credit facilities of approximately $644 million, $135.7 million of which are drawn, essentially for our US and Argentinean operations. Should the need arise, the Company could make additional financing arrangements to pursue growth through acquisitions. Balance Sheet With regards to balance sheet items as at September 30, 2008 that varied compared to those as at March 31, 2008, we should note that the variation in most items is mainly due to the Alto Acquisition. The weakening of the Canadian dollar since March 31, 2008 resulted in the conversion of the balance sheets of foreign subsidiaries at higher rates, thus increasing the Canadian dollar values of balance sheet items. From an operational perspective, the lower average block market per pound of cheese has caused a decrease in our Dairy Products Division (USA) working capital items as at September 30, 2008 in comparison to March 31, 2008. The Company's total assets stood at $2.839 billion as at September 30, 2008 compared to $2.733 billion as at March 31, 2008. Share Capital Information Share capital authorized by the Company is comprised of an unlimited number of common and preferred shares. The common shares are voting and participating. The preferred shares can be issued in one or more series, and the terms and privileges of each series must be determined at the time of their creation.
Authorized Issued as at Issued as at
September 30, 2008 October 31, 2008
--------------------------------------------------------------------------
Common shares Unlimited 206,801,841 206,807,551
Preferred shares Unlimited None None
Stock options 9,547,433 9,417,390In the first two quarters of fiscal 2009, no common shares were purchased under the normal course issuer bid which became effective as of November 13, 2007. Follow-up on Certain Specific Items of the Analysis For an analysis of off-balance sheet arrangements, guarantees, contractual obligations, related party transactions, accounting standards, critical accounting policies and use of accounting estimates as well as risks and uncertainties, we encourage you to consult the comments provided in the 2008 annual report on pages 28 to 32 of the management's analysis, since there were no notable changes during the first two quarters of fiscal 2009. Following the announcement of the CICA relating to International Financial Reporting Standards, the Company is currently preparing a transition plan. Internal Controls over Financial Reporting The Chief Executive Officer and the Chief Financial Officer, together with management, have concluded after having conducted an evaluation and to the best of their knowledge that, as of September 30, 2008, no change in the Company's internal control over financial reporting occurred that could have materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting. Information by Sector CEA Dairy Products Sector For the quarter ended September 30, 2008, revenues from the CEA Dairy Products Sector amounted to $810.0 million, an increase of $66.7 million in comparison to the $743.3 million for the same quarter last fiscal year. Higher selling prices in both our Canadian and Argentinean operations in accordance with the increase in the cost of milk as raw material and increased sales volume from our Argentinean activities are the main factors explaining the revenue increase. This increase offsets less favourable by-product market conditions in the second quarter of fiscal 2009 as compared to the same quarter of fiscal 2008. Sales volumes for our Canadian operations remained stable. Revenues from our Dairy Products Division (Europe) were comparable to the same quarter last fiscal year. During the quarter, the weakening of the Canadian dollar added approximately $1.4 million of revenues to the Sector, essentially from our Argentinean operations. Since the beginning of the fiscal year, revenues from the CEA Dairy Products Sector totalled $1.565 billion, an increase of $100 million in comparison to the $1.465 billion for the corresponding period last fiscal year. The increase is attributed mainly to higher selling prices in our Canadian and Argentinean operations in accordance with the increase in the cost of milk as raw material and increased sales volume from our Argentinean activities. Less favourable by-product market conditions since the beginning of the fiscal year reduced revenues as compared to the same period last fiscal year. Sales volumes for our Canadian operations since the beginning of the fiscal year remained stable. For the six-month period ended September 30, 2008, the appreciation of the Canadian dollar eroded approximately $2.5 million of revenues to the Sector, essentially from our Argentinean operations. For the quarter ended September 30, 2008, EBITDA for the CEA Dairy Products Sector totalled $94.8 million, an increase of $10.2 million or 12.1% compared to the $84.6 million for the corresponding quarter last fiscal year. The EBITDA margin for the quarter increased to 11.7% in comparison to 11.4% for the same quarter last fiscal year. Our Dairy Products Division (Canada) performed well in the quarter despite unfavourable by-product market conditions that negatively impacted EBITDA by approximately $6 million compared to the same period last fiscal year. Also, we continue to benefit from rationalization activities completed in prior years as well as continuously review our processes and automation to become more efficient. In addition, the Division experienced higher operating costs which were offset by better efficiencies. For the second quarter ended September 30, 2008, our Dairy Products Division (Europe) had a minimal effect on EBITDA. The EBITDA of our Dairy Products Division (Argentina) showed a significant increase in comparison to the same quarter last fiscal year. This increase is due to higher sales volumes both in the domestic and export markets, following the continued benefit of the return of historical milk production volumes which was affected by floods in the first quarter of fiscal 2008. We also benefited from capital investments made in the previous fiscal years. Since the beginning of the fiscal year, EBITDA for the CEA Dairy Products Sector totalled $193.8 million, an increase of $20.2 million or 11.6% in comparison to the $173.6 million for the same period last fiscal year. This increase was mainly due to the increased volumes in our Argentinean domestic and export markets and the continued benefits derived from rationalization activities completed in prior years in our Canadian operations. These positive factors were partially offset by less favourable by-product market conditions. Our European operations had a minimal effect on EBITDA since the beginning of fiscal 2009. USA Dairy Products Sector Revenues for the USA Dairy Products Sector totalled $601.5 million for the quarter ended September 30, 2008, an increase of $98.7 million from the $502.8 million for the corresponding quarter last fiscal year. The Alto Acquisition completed on April 1, 2008, as well as selling price increases and a better product mix contributed approximately $118 million in additional revenues. An average block market per pound of cheese of US$1.86 for the current quarter, US$0.12 lower than the average block market per pound of cheese for the same quarter last fiscal year, decreased revenues by approximately $19 million. In addition, a slight reduction in sales volume as well as the continued downward trend of the by-product market during the quarter compared to the same quarter last fiscal year also contributed to decrease revenues. The appreciation of the Canadian dollar eroded approximately $2 million in revenues. Since the beginning of the fiscal year, revenues totalled $1.166 billion, an increase of $200 million in comparison to the $966 million for the same period last fiscal year. Additional revenues from the Alto Acquisition and increased selling prices offset reduced revenues due to a less favourable by-product market as well as lower sales volume in comparison to the same period last fiscal year. These factors combined increased revenues by approximately $201 million. The higher average block market per pound of cheese increased revenues by approximately $41 million, while the appreciation of the Canadian dollar eroded approximately $42 million in revenues. For the quarter ended September 30, 2008, the EBITDA totalled $31.1 million, a decrease of $3 million in comparison to the $34.1 million for the same quarter last fiscal year. This decrease is mainly due to market factors. The average block market per pound of cheese for the second quarter of fiscal 2009 was US$1.86 as compared to US$1.98 for the corresponding quarter last fiscal, a decrease of US$0.12. This decrease had a negative effect on the absorption of our fixed costs. The realization of our inventories was less favourable in the current quarter in comparison to the same quarter last fiscal year. This was due to a higher positive change in the average block market per pound of cheese during the second quarter of the prior fiscal year compared to this quarter. The relationship between the average block market per pound of cheese and the cost of milk as a raw material was nevertheless favourable as compared to the same period last fiscal year. Finally, the byproduct market was less favourable this quarter in comparison to the same quarter last fiscal year where the average whey market for the quarter was approximately US$0.26 compared to US$0.58 for the same period last fiscal year. These combined market factors had a negative impact of approximately $2 million on EBITDA. Increased EBITDA due to the Alto Acquisition, along with initiatives undertaken in the prior and current fiscal years with regards to improved operational efficiencies and increased selling prices, were offset by increased operational costs incurred during the second quarter of fiscal 2009. These factors combined negatively affected EBITDA by approximately $1 million in comparison to the same quarter last fiscal year. Since the beginning of the fiscal year, EBITDA totalled $77.2 million, an increase of $9.1 million in comparison to $68.1 million for the corresponding period last fiscal year. Positive market factors increased EBITDA by approximately $11 million for the six-month period ended September 30, 2008 in comparison to the same period last fiscal year. Additional EBITDA from the Alto Acquisition as well as initiatives undertaken in the prior and current fiscal years with regards to improved operational efficiencies and increased selling prices, were offset by increased operational costs. These factors combined decreased EBITDA by approximately $1 million in comparison to the same period last fiscal year. The appreciation of the Canadian dollar eroded approximately $3 million in EBITDA. Grocery Products Sector Revenues for the Grocery Products Sector totalled $42.0 million for the quarter, a $0.9 million decrease compared to the same quarter last fiscal year. Revenues were negatively impacted due to increased rebate programs in an effort to offset both the introduction of private label products by retailers and highly competitive selling prices. Partially offsetting this decrease was the price increase that took effect in mid-November 2007 net of volume decreases compared to the same quarter last fiscal year. Sales volume from our US co-packing activities increased slightly compared to the same quarter last fiscal year. During the quarter, the Division increased its market share in Canada despite increased competition. Since the beginning of fiscal 2009, revenues for the Grocery Products Sector totalled $84.4 million, relatively at the same level as compared to the corresponding period last fiscal year. EBITDA for the Grocery Products Sector amounted to $4.0 million, a $1.4 million decrease or 25.9% compared to the same quarter last fiscal year. EBITDA margin decreased from 12.6% in the second quarter of fiscal 2008 to 9.5% this quarter. In the quarter, the Division incurred additional costs in an effort to support its brands, along with a decrease in sales volume and increased operating costs related to higher ingredient, packaging, labour and energy costs totalling approximately $2.7 million compared to the same quarter last fiscal year. These factors offset the benefits from the price increase. Since the beginning of fiscal 2009, the EBITDA amounted to $9.2 million, a $0.7 million decrease as compared to the same period last fiscal year. EBITDA margin went from 11.7% last fiscal year to 10.9% this fiscal year. Also, the Division incurred higher ingredient, packaging, labour and energy costs along with additional costs for brand support totalling approximately $4.3 million offsetting the benefits from the price increase.
(signed) (signed)
Lino Saputo Lino A. Saputo, Jr.
Chairman of the Board President and
Chief Executive Officer
November 4, 2008
NOTICE
The consolidated financial statements of Saputo Inc. for the three-month
and the six-month periods ended September 30, 2008 and 2007 have not been
reviewed by an external auditor.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except per share amounts)
(unaudited)
For the three-month periods For the six-month periods
ended September 30 ended September 30
2008 2007 2008 2007
--------------------------------------------------------------------------
Revenues $1,453,544 $1,288,982 $2,815,454 $2,515,717
Cost of sales,
selling and
administrative
expenses 1,323,598 1,164,910 2,535,191 2,264,130
--------------------------------------------------------------------------
Earnings before
interest,
depreciation
and income taxes 129,946 124,072 280,263 251,587
Depreciation of
fixed assets 22,962 19,670 45,357 39,938
--------------------------------------------------------------------------
Operating income 106,984 104,402 234,906 211,649
Interest on
long-term debt 4,834 4,684 9,431 9,724
Other interest, net 1,826 2,482 4,014 4,031
--------------------------------------------------------------------------
Earnings before
income taxes 100,324 97,236 221,461 197,894
Income taxes 31,296 34,712 69,470 66,923
--------------------------------------------------------------------------
Net earnings $69,028 $62,524 $151,991 $130,971
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings per share (Note 8)
Net earnings
Basic $0.34 $0.31 $0.74 $0.64
Diluted $0.33 $0.30 $0.73 $0.63
--------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of dollars)
(unaudited)
For the six-month periods
ended September 30
2008 2007
-------------------------------------------------------------------------
Net earnings $151,991 $130,971
Net change in unrealized losses on
translation of financial statements
of self-sustaining operations 36,841 (84,961)
-------------------------------------------------------------------------
Comprehensive income $188,832 $46,010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of dollars)
(unaudited)
For the six-month periods
ended September 30
2008 2007
-------------------------------------------------------------------------
Retained earnings, beginning of period $1,206,568 $1,085,081
Net earnings 151,991 130,971
Dividends (53,718) (45,084)
Excess of purchase price of share
capital over carrying value - (72,258)
-------------------------------------------------------------------------
Retained earnings, end of period $1,304,841 $1,098,710
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SEGMENTED INFORMATION
(in thousands of dollars)
(unaudited)
For the three-month periods For the six-month periods
ended September 30 ended September 30
2008 2007 2008 2007
--------------------------------------------------------------------------
Revenues
Dairy Products
CEA(1) $810,066 $743,234 $1,565,070 $1,465,257
USA 601,511 502,836 1,166,022 966,001
--------------------------------------------------------------------------
1,411,577 1,246,070 2,731,092 2,431,258
Grocery Products 41,967 42,912 84,362 84,459
--------------------------------------------------------------------------
$1,453,544 $1,288,982 $2,815,454 $2,515,717
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before
interest,
depreciation and
income taxes
Dairy Products
CEA $94,850 $84,623 $193,894 $173,622
USA 31,141 34,068 77,155 68,088
--------------------------------------------------------------------------
125,991 118,691 271,049 241,710
Grocery Products 3,955 5,381 9,214 9,877
--------------------------------------------------------------------------
$129,946 $124,072 $280,263 $251,587
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Depreciation of
fixed assets
Dairy Products
CEA $9,480 $8,968 $18,845 $18,297
USA 11,615 8,926 22,778 18,056
--------------------------------------------------------------------------
21,095 17,894 41,623 36,353
Grocery Products 1,867 1,776 3,734 3,585
--------------------------------------------------------------------------
$22,962 $19,670 $45,357 $39,938
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operating income
Dairy Products
CEA $85,370 $75,655 $175,049 $155,325
USA 19,526 25,142 54,377 50,032
--------------------------------------------------------------------------
104,896 100,797 229,426 205,357
Grocery Products 2,088 3,605 5,480 6,292
--------------------------------------------------------------------------
$106,984 $104,402 $234,906 $211,649
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Interest 6,660 7,166 13,445 13,755
--------------------------------------------------------------------------
Earnings before
income taxes 100,324 97,236 221,461 197,894
Income taxes 31,296 34,712 69,470 66,923
--------------------------------------------------------------------------
Net earnings $69,028 $62,524 $151,991 $130,971
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) Canada, Europe and Argentina
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the three-month periods For the six-month periods
ended September 30 ended September 30
2008 2007 2008 2007
--------------------------------------------------------------------------
Cash flows related
to the following
activities:
Operating
Net earnings $69,028 $62,524 $151,991 $130,971
Items not affecting
cash
Stock based
compensation 1,981 2,075 3,812 4,157
Depreciation of
fixed assets 22,962 19,670 45,357 39,938
Gain on disposal
of fixed assets (422) (429) (3,480) (425)
Future income taxes 859 7,229 7,304 9,567
Deferred share units 454 251 814 705
Funding of employee
plans in excess
of costs (487) (172) (990) (344)
--------------------------------------------------------------------------
94,375 91,148 204,808 184,569
Changes in non-cash
operating working
capital items 16,938 (9,444) (21,509) (89,887)
--------------------------------------------------------------------------
111,313 81,704 183,299 94,682
--------------------------------------------------------------------------
Investing
Business
acquisitions
(Note 11) (393) - (160,996) (253,188)
Additions to
fixed assets (27,265) (23,894) (52,067) (41,585)
Proceeds on
disposals of
fixed assets 2,940 1,783 7,069 1,982
Other assets (1,511) (105) (2,600) 2,183
--------------------------------------------------------------------------
(26,229) (22,216) (208,594) (290,608)
--------------------------------------------------------------------------
Financing
Bank loans (52,612) 41,713 (88,604) 36,590
Issuance of
share capital 4,596 11,851 11,568 21,599
Repurchase of
share capital - (44,866) - (81,472)
Dividends (53,718) (45,084) (53,718) (45,084)
--------------------------------------------------------------------------
(101,734) (36,386) (130,754) (68,367)
--------------------------------------------------------------------------
(Decrease) increase
in cash and cash
equivalents (16,650) 23,102 (156,049) (264,293)
Effect of exchange
rate changes on cash
and cash equivalents 4,257 1,608 5,267 4,930
Cash and cash
equivalents
(bank indebtedness),
beginning of period 27,321 (7,179) 165,710 276,894
--------------------------------------------------------------------------
Cash and cash
equivalents,
end of period $14,928 $17,531 $14,928 $17,531
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Supplemental information
Interest paid $1,707 $2,411 $12,297 $13,490
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Income taxes paid $26,039 $21,672 $79,381 $60,961
--------------------------------------------------------------------------
--------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
September 30, 2008 March 31, 2008
(unaudited) (audited)
---------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $14,928 $165,710
Receivables 480,378 408,973
Inventories (Note 4) 560,809 533,686
Income taxes 5,645 10,252
Future income taxes 20,166 17,150
Prepaid expenses and other assets 27,913 43,729
---------------------------------------------------------------------------
1,109,839 1,179,500
Portfolio investment 41,343 41,343
Fixed assets (Note 5) 967,142 871,739
Goodwill 597,077 522,546
Trademarks and other intangibles 38,479 38,043
Other assets (Note 6) 78,032 75,257
Future income taxes 7,002 5,048
---------------------------------------------------------------------------
$2,838,914 $2,733,476
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILITIES
Current liabilities
Bank loans $135,672 $222,584
Accounts payable and accrued liabilities 438,234 409,323
Income taxes 90,465 111,511
Future income taxes 21,131 19,790
---------------------------------------------------------------------------
685,502 763,208
Long-term debt 234,124 225,830
Other liabilities 24,247 13,972
Future income taxes 124,900 111,306
---------------------------------------------------------------------------
1,068,773 1,114,316
---------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 9) 549,834 536,921
Contributed surplus (Note 10) 25,039 22,085
Retained earnings 1,304,841 1,206,568
Accumulated other comprehensive loss (Note 3) (109,573) (146,414)
---------------------------------------------------------------------------
1,770,141 1,619,160
---------------------------------------------------------------------------
$2,838,914 $2,733,476
---------------------------------------------------------------------------
---------------------------------------------------------------------------NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (tabular amounts are in thousands of dollars except information on options and shares) (unaudited) 1 - Accounting Policies The unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and applied in the same manner as the most recently audited financial statements. During the six-month period, the Company adopted Section 3031 of the CICA Handbook, Inventories. The adoption of this section has no impact on the consolidated financial statements. The unaudited consolidated financial statements do not include all the information and notes required according to generally accepted accounting principles for annual financial statements, and should therefore be read in conjunction with the audited consolidated financial statements and the notes included in the Company's annual report for the year ended March 31, 2008. 2 - Foreign Currency Translation The balance sheet accounts of the self-sustaining companies operating outside Canada are translated into Canadian dollars using the exchange rates at the balance sheet dates. Statement of earnings accounts are translated into Canadian dollars using the average monthly exchange rates in effect during the periods. The unrealized losses on translation of the financial statements of self-sustaining operations account presented in accumulated other comprehensive loss represents accumulated foreign currency losses on the Company's net investments in companies operating outside Canada. The change in the unrealized losses on translation of the financial statements of self-sustaining operations account for the period resulted mainly from the change in value of the Canadian dollar as compared to the currencies of our foreign subsidiaries. Foreign currency accounts of the Company and its subsidiaries are translated using the exchange rates at the balance sheet date for monetary assets and liabilities and the prevailing exchange rates at the time of transactions for income and expenses. Non-monetary items are translated at the historical exchange rates. Gains or losses resulting from this translation are included in the cost of sales, selling and administrative expenses.
For the three-month periods For the six-month periods
ended September 30 ended September 30
2008 2007 2008 2007
---------------------------------------------------------------------------
Foreign exchange gain $98 $213 $460 $615
---------------------------------------------------------------------------
3 - Accumulated Other Comprehensive Loss
September 30, 2008 Year ended
March 31, 2008
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumulated other
comprehensive loss,
beginning of period $(146,414) $(82,664)
Other comprehensive gain (loss) 36,841 (63,750)
---------------------------------------------------------------------------
Accumulated other comprehensive
loss, end of period $(109,573) $(146,414)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumulated other comprehensive loss represents unrealized losses on
translation of financial statements of self-sustaining operations.
4 - Inventories
The following table presents the components of the inventories:
September 30, 2008 March 31, 2008
---------------------------------------------------------------------------
Finished goods $360,253 $322,550
Raw materials, work in
process and supplies 200,556 211,136
---------------------------------------------------------------------------
$560,809 $533,686
---------------------------------------------------------------------------
---------------------------------------------------------------------------The amount of inventories recognized as an expense for the three - and six-month periods ended September 30, 2008, is $1,200,605,000 and $2,290,186,000 respectively.
5 - Fixed Assets
September 30, 2008 March 31, 2008
--------------------------------------------------------------------------
Net Net
Accumulated book Accumulated book
Cost depreciation value Cost depreciation value
--------------------------------------------------------------------------
Land $34,814 $- $34,814 $34,117 $- $34,117
Buildings 368,112 80,759 287,353 337,789 74,679 263,110
Furniture,
machinery
and
equipment 1,116,170 476,369 639,801 997,317 431,054 566,263
Rolling
stock 12,447 7,954 4,493 12,478 7,662 4,816
Held for
sale 681 - 681 3,433 - 3,433
--------------------------------------------------------------------------
$1,532,224 $565,082 $967,142 $1,385,134 $513,395 $871,739
--------------------------------------------------------------------------
--------------------------------------------------------------------------Fixed assets held for sale represent mainly machinery, equipment and buildings in Canada and the United States that will be disposed of as a result of certain plant closures. During the six-month period, a gain of $3,507,000 was recognized on the sale of fixed assets held for sale. The net book value of fixed assets under construction, that are not being amortized, amounts to $74,054,000 as at September 30, 2008 ($46,593,000 as at March 31, 2008), and consists mainly of machinery and equipment.
6 - Other Assets
September 30, 2008 March 31, 2008
--------------------------------------------------------------------------
Net accrued pension
plan assets $57,779 $56,239
Taxes receivable 11,950 10,822
Other 8,303 8,196
--------------------------------------------------------------------------
$78,032 $75,257
--------------------------------------------------------------------------
--------------------------------------------------------------------------7 - Employee Pension and Other Benefit Plans The Company provides benefit and defined contribution pension plans as well as other benefit plans such as health insurance, life insurance and dental plans to eligible employees and retired employees. Pension and other benefit plan obligations are affected by factors such as interest rates, adjustments arising from plan amendments, changes in assumptions and experience gains or losses. The costs are based on a measurement of the pension and other benefit plan obligations and the pension fund assets.
Total benefit costs for the three- and six-month periods ended September 30
are as follows:
For the three-month periods For the six-month periods
ended September 30 ended September 30
2008 2007 2008 2007
---------------------------------------------------------------------------
Pension plans $5,212 $5,348 $10,389 $10,217
Other benefits plans 298 241 624 600
---------------------------------------------------------------------------
$5,510 $5,589 $11,013 $10,817
---------------------------------------------------------------------------
---------------------------------------------------------------------------
8 - Earnings per Share
Earnings per share for the three- and six-month periods ended September 30,
2007 were retroactively restated to reflect the 100% stock dividend (see
note 9).
For the three-month periods For the six-month periods
ended September 30 ended September 30
2008 2007 2008 2007
---------------------------------------------------------------------------
Net earnings $69,028 $62,524 $151,991 $130,971
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average
number of common
shares
outstanding 206,722,954 204,929,788 206,489,084 205,968,222
Dilutive options 2,624,376 1,608,658 2,624,376 1,608,658
---------------------------------------------------------------------------
Dilutive number of
common shares
outstanding 209,347,330 206,538,446 209,113,460 207,576,880
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic earnings
per share $0,34 $0,31 $0,74 $0,64
Diluted earnings
per share $0,33 $0,30 $0,73 $0,63When calculating dilutive earnings per share, 1,612,988 options were excluded from the calculation because their exercise price was higher than the average market value. In the previous period no options were excluded. Shares purchased during the six-month period ended September 30, 2007, under the normal course issuer bid, were excluded from the calculation of earnings per share as of the date of purchase (none in 2008). 9 - Share Capital Authorized The authorized share capital of the Company consists of an unlimited number of common and preferred shares. The common shares are voting and participating. The preferred shares may be issued in one or more series, the terms and privileges of each series to be determined at the time of their creation.
September 30, 2008 March 31, 2008
--------------------------------------------------------------------------
Issued
206,801,841 common shares
(205,962,964 at March 31, 2008) $549,834 $536,921
--------------------------------------------------------------------------
--------------------------------------------------------------------------On November 6, 2007, the Company declared a 100% stock dividend, whereby the shareholders of the Company received an additional share for every share held. The stock dividend was applicable to shareholders of record as of the close of business on December 10, 2007, which had the same effect as a two-for-one stock split of the Company's outstanding common shares. All references made to prior fiscal year's number and prices of common shares have been adjusted to reflect this stock dividend. 838,877 common shares (869,707 in 2007) for an amount of $11,572,000 ($21,599,000 in 2007) were issued during the six-month period ended September 30, 2008, pursuant to the share option plan. For share options granted since April 1, 2002, the amount previously accounted for as an increase to contributed surplus was also transferred to share capital upon the exercise of options. For the six-month period ended September 30, 2008, the amount transferred from contributed surplus was $1,341,000 ($4,880,000 in 2007). Pursuant to the normal course issuer bid, which began on November 13, 2007, the Company may purchase for cancellation up to 10,272,848 common shares until November 12, 2008. During the six-month period ended September 30, 2008, the Company did not purchase any common shares relating to this normal course issuer bid. Share option plan The Company established a share option plan to allow for the purchase of common shares by key employees, officers and directors of the Company. The total number of common shares which may be issued pursuant to this plan cannot exceed 28,000,000 common shares. Options granted prior to July 31, 2007 may be exercised at a price equal to the closing quoted value of the shares on the day preceding the grant date. Options granted thereafter may be exercised at a price not less than the weighted average market price for the five trading days immediately preceding the date of grant. The options vest at 20% per year and expire ten years from the grant date. Options issued and outstanding as at the period end are as follows:
September 30, 2008 March 31, 2008
---------------------------------------------------------------------------
Weighted Weighted
average average
Granting Exercise Number of exercise Number of exercise
period price options price options price
---------------------------------------------------------------------------
1999 from $8.06 to $9.37 - - 20,480 $9.22
2000 $9.85 95,888 $9.85 111,404 $9.85
2001 $6.75 208,812 $6.75 217,836 $6.75
2002 from $9.50 to $11.50 280,846 $9.52 409,246 $9.52
2003 $15.18 569,726 $15.18 745,912 $15.18
2004 $11.25 975,126 $11.25 1,203,594 $11.25
2005 $16.53 1,038,686 $16.53 1,138,316 $16.53
2006 $18.08 1,288,200 $18.08 1,383,476 $18.08
2007 $16.35 1,821,746 $16.35 1,933,324 $16.35
2008 $23.09 1,655,415 $23.09 1,729,840 $23.09
Current $27.81 1,612,988 $27.81 - -
---------------------------------------------------------------------------
9,547,433 $16.78 8,893,428 $16.52
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Options exercisable at
the end of the period 4,469,125 $14.83 3,535,818 $13.56
Changes in the number of options are as follows:
September 30, 2008
---------------------------------------------------------------------------
Weighted
Number of average
options exercise price
---------------------------------------------------------------------------
Balance at beginning of period 8,893,428 $16.52
Options granted 1,634,393 $27.81
Options exercised (838,877) $13.79
Options cancelled (141,511) $19.82
---------------------------------------------------------------------------
Balance at end of period 9,547,433 $16.78
---------------------------------------------------------------------------
---------------------------------------------------------------------------The exercise price of the options granted in fiscal 2009 is $27.81, which corresponds to the weighted average market price for the five trading days immediately preceding the date of grant. The fair value of options granted in fiscal 2009 was estimated at $4.98 per option, using the Black Scholes option pricing model with the following assumptions:
September 30, 2008 March 31, 2008
--------------------------------------------------------------------------
Risk-free interest rate: 3.0% 4.0%
Expected life of options: 5 years 5 years
Volatility: 19% 25%
Dividend rate: 1.7% 2.1%A compensation expense of $1,981,000 ($1,749,000 after income taxes) and $3,812,000 ($3,349,000 after income taxes) relating to share options was recorded in the statement of earnings for the three- and six-month periods ended September 30, 2008, respectively. A compensation expense of $2,075,000 ($1,848,000 after income taxes) and $4,157,000 ($3,696,000 after income taxes) was recorded for the three- and six-month periods ended September 30, 2007.
10 - Contributed Surplus
Year ended
September 30, 2008 March 31, 2008
--------------------------------------------------------------------------
Contributed surplus,
beginning of period $22,085 $18,864
Stock based compensation 3,812 8,279
Excess tax benefit that results from
the excess of the deductible amount over
the compensation cost recognized 483 974
Amount transferred to share capital (1,341) (6,032)
--------------------------------------------------------------------------
Contributed surplus, end of period $25,039 $22,085
--------------------------------------------------------------------------
--------------------------------------------------------------------------11 - Business Acquisition On April 1, 2008 the Company acquired the activities of Alto Dairy Cooperative in the United States for a cash consideration of $160,996,000. The fair values attributed to the assets acquired were $33,311,000 to receivables, $24,273,000 to inventories, $474,000 to prepaid expenses, $31,173,000 to accounts payable, $70,840,000 to fixed assets and $63,271,000 to goodwill. The final allocation of the purchase price will be completed this fiscal year. Contact: Contacts:
Saputo Inc.
Karine Vachon
Advisor, Communications
514-328-3377
http://www.saputo.com
Source: Saputo Inc.
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