2010 annual report
Andrew Peller Limited 2010 Annual Report
Almost 50 years ago my grandfather, Andrew Peller, raised
a glass to toast his very first vintage. The Peller family proudly carries
on his tradition of crafting wine with an uncommon commitment to
quality; in fact, our goals today are higher than ever before as we aim
to produce wines that rank among the best in the world.
- John Peller
Thirty Bench
Hillebrand
Hillebrand Winery is the birthplace
of fine winemaking in Niagara.
More than 30 years ago, we
opened our cellar doors in
Niagara-on-the-Lake, the heart of
Ontario’s wine country. Hillebrand
received fourth place Winery
of the Year at the Canadian
Wine Access Awards while over
36 medals were awarded to
Hillebrand and Trius.
Perched high above Okanagan
Lake, our winery is located among
the rolling hills of Naramata Bench
Road. During this fiscal, Red
Rooster received over 34 medals
at various wine competitions.
Peller Estates
Red Rooster Winery
On the Cover: Sandhill – Winery of the Year, Canadian Wine Access Awards - Sandhill’s Small Lot Syrah 2007 and
Sandhill’s Small Lot Viognier 2008 won Best Red and Best White Wine of the Year, in addition to 79 other medals.
Thirty Bench is a producer of
premium wines grown exclusively
on estate vineyards in the
Beamsville Bench appellation,
a superior winegrowing region
on the Niagara Peninsula.
Thirty Bench received third place,
Winery of the Year, at the Canadian
Wine Access Awards and over 12
other medals throughout the year at
various competitions.
Peller Estates received
approximately 127 medals
internationally this year. Awarded
the highest Zagat rating,
‘Extraordinary’, Peller Estates
Winery Restaurant offers sweeping
vineyard views, and sumptuous wine
and food pairings that evolve with
the changing seasons.
Contents
1
Financial
Highlights
3
report to
Shareholders
12
Management’s
discussion
and analysis
26
Consolidated
financial statements
and notes
47
Shareholder
information
Andrew Peller Limited 2010 Annual Report
1
FINANCIAL AND OPERATING HIGHLIGHTS
FOR THE YEARS ENDED MARCH 31 IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
SALES AND EARNINGS
Net sales
Earnings before interest,amortization, income taxes and unusual items
Net earnings (loss) from continuing operations
Net earnings (loss)
FINANCIAL POSITION
Working capital
Total assets
Shareholders’ equity
PER SHARE
Net earnings (loss) per Class A share - basic and diluted
DIVIDENDS
Class A shares, non-voting
Class B shares, voting
SHAREHOLDERS’ EQUITY
MARKET VALUE
Class A - HIGH
Class A - LOW
Class B - HIGH
Class B - LOW
ANALYTICAL INFORMATION
Return on average shareholders’ equity
Return on average capital employed
Ratio of current assets to current liabilities
2010
2009
$
$ 263,151
27,354
9,526
21,661
29,968
263,716
113,665
Restated (1)
251,136
23,359
(1,444)
(125)
29,203
293,507
96,791
1.49
(0.01)
0.330
0.288
0.330
0.288
8.99
6.01
11.00
9.00
7.2%
9.1%
1.3:1
11.59
6.00
12.00
9.00
6.0%
7.8%
1.3:1
08
09
10
08
09
10
08
09
10
6
5
0
,
8
2
2
6
3
1
,
1
5
2
1
5
1
,
3
6
2
Net Sales
0
6
0
,
0
1
6
9
0
,
6
8
0
4
,
8
Net Earnings
from continuing operations
before financial instruments and
other expenses
0
8
6
,
2
0
1
1
9
7
,
6
9
5
6
6
,
3
1
1
Shareholders’ Equity
(1) comparative amounts have been restated to effect the sale of the Company’s beer business on October 1, 2009
2
Andrew Peller Limited 2010 Annual Report
CORPORATE PROFILE
Andrew Peller Limited (‘APL’ or the ‘Company’) is a leading producer and marketer of quality wines in Canada. With wineries
in British Columbia, Ontario and Nova Scotia, the Company markets wines produced from grapes grown in Ontario’s Niagara
Peninsula, British Columbia’s Okanagan and Similkameen Valleys and from vineyards around the world. The Company’s award-
winning premium and ultra-premium VQA brands include Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Calona Vineyards
Artist Series and Red Rooster. Complementing these premium brands are a number of popularly priced varietal wine brands
including Peller Estates French Cross in the East, Peller Estates Proprietors Reserve in the West, Copper Moon, XOXO and Croc
Crossing. Hochtaler, Domaine D’Or, Schloss Laderheim, Royal and Sommet are our key value-priced wine brands. The Company
imports wines from major wine regions around the world to blend with domestic wine to craft these popularly priced and value-
priced wine brands. With a focus on serving the needs of all wine consumers, the Company produces and markets premium
personal winemaking products through it’s wholly-owned subsidiary, Global Vintners Inc., the recognized world leader in personal
winemaking products. Global Vintners distributes products through over 250 Winexpert and Wine Kitz authorized retailers and
franchisees and more than 600 independent retailers across Canada, United States, United Kingdom, New Zealand and Australia.
Global Vintners award-winning premium and ultra-premium winemaking brands include Selection, Vintners Reserve, Island Mist,
Kenridge, Cheeky Monkey, Ultimate Estate Reserve, Traditional Vintage and Artful Winemaker. The Company owns and operates
more than 100 well-positioned independent retail locations in Ontario under the Vineyards Estate Wines, Aisle 43 and WineCountry
Vintners store names. The Company also owns Grady Wine Marketing Inc. based in Vancouver, and The Small Winemaker’s
Collection Inc. based in Ontario; both of these wine agencies are importers of premium wines from around the world and are
marketing agents for these fine wines. The Company’s products are sold predominately in Canada with a focus on export sales
for our icewine products.
Andrew Peller Limited 2010 Annual Report
3
REPORT TO SHAREHOLDERS
Despite the challenging economic environment experienced
during the year, we generated sales growth and improved
profitability across all of our distribution channels in fiscal
2010. With our strong market presence and profit margins,
combined with our much improved balance sheet and financial
position, we are well positioned for continued growth in the
years ahead.
“We are pleased with our strong operating and financial performance
through fiscal 2010, a solid achievement in the face of a challenging
economic environment.”
- commented John Peller, President & CEO.
4
Andrew Peller Limited 2010 Annual Report
Strong operating performance
Sales rose 4.8% in fiscal 2010 as the contribution from recent acquisitions, our successful programs to grow sales volumes of
our blended varietal table and premium wines through provincial liquor boards, the introduction of new products, and solid
performance by our premium personal winemaking business more than offset the negative impact of the global recession on our
export and estate winery businesses.
Gross margins declined slightly in fiscal 2010 compared with the prior year as cost control and production efficiency measures
helped to mitigate increased costs to the Company for the purchases of United States dollars, an increase in our sales mix of lower
margin wines as consumers traded down during the economic recession and higher costs for our grape and wine purchases. Most
importantly, these negative factors began to reverse themselves during the fourth quarter of the year with gross margins improving
significantly compared to the prior year period. We believe profitability will continue to improve as cost pressures ease and as we
continue our ongoing focus on enhancing production efficiency and productivity.
A key achievement during the year was the sale of our ownership interests in Granville Island Brewing Company Ltd. and Mainland
Beverage Distribution Ltd. to Creemore Springs Brewery Ltd. We were pleased to position Granville Island’s strong brand, quality
products and talented people with one of the country’s leading craft brewers, and the sale allows us to more effectively focus all
our efforts on growing our leading portfolio of premium and ultra-premium wine through best-in-class distribution practices in all
trade channels across Canada.
Andrew Peller Limited 2010 Annual Report
5
The sale of our beer business generated proceeds of approximately $26.2 million, of which $25.0 million was received during the
fiscal year and $0.2 million during the first quarter of fiscal 2011. We recorded a net gain of $11.9 million or $0.80 per common
share on the sale and used the proceeds to significantly reduce the Company’s long-term debt and bank indebtedness. With the
strengthening of our balance sheet, we are well positioned with the financial resources and flexibility to continue to execute our
proven strategies to enhance value to our shareholders and to take advantage of growth opportunities as they occur.
Net earnings from continuing operations, excluding gains or losses on non-hedge derivatives and other expenses rose to
$8.4 million for the year compared to $6.1 million in fiscal 2009. Including the impact of other expenses and the gain on the sale
of the beer business, net earnings for year were $21.7 million or $1.49 per Class A share compared to a loss of $0.1 million or $0.01
per Class A share in fiscal 2009.
In addition to our solid operating and financial performance in fiscal 2010, a number of significant accomplishments bode well for
continued growth in the years ahead.
eState WinerieS
Our estate winery business performed well in fiscal 2010, especially though the last half of the year as improved economic
conditions fostered increased visits to our vineyards in Ontario and British Columbia. However, while sales of our premium and
ultra-premium brands were strong, we did see some softening in demand as consumers reacted to the global economic recession
by increasing their purchases of lower priced wines. Fortunately, with our brands covering the complete spectrum of the Canadian
wine market, overall sales remained robust for the year.
6
Andrew Peller Limited 2010 Annual Report
We were very proud to have three of our estate wineries named among the top-five in the country at the Canadian Wine Access
Awards for 2009: Sandhill was awarded Winery of the Year; Thirty Bench Winemakers and Hillebrand were ranked third and fourth
respectively. With more than 200 Canadian wineries competing, this was a significant achievement.
We were also honoured with a number of other prestigious awards at domestic and international wine competitions during the
year. Sandhill’s Small Lot Syrah 2007 and Small Lot Viognier 2008 won best red and white wine of the year, in addition to 79 other
medals that were awarded to the Company. Peller Estates received approximately 127 medals nationally, while Hillebrand and Trius
were awarded 36 medals. Thirty Bench won 12 medals, Calona Vineyards 32 medals and Red Rooster 34 medals.
Among the most prominent of the awards was a Gold Medal presented to Thirty Bench Riesling 2007 at the International
Wine Challenge 2009 in the United Kingdom, as well as a silver medal, best in class, at the 2009 International Wine and Spirit
Competition. At the same competition, the Company won silver awards for Peller Estates Signature Series Chardonnay “Sur Lie”
2007 (Best in Class), Trius Icewine 2007, Peller Estates Vidal Icewine 2007, Peller Estates Oak Aged Icewine 2007, Peller Estates
Cabernet Franc Icewine 2007 and Peller Estates Riesling Icewine 2007.
At the Concours Mondial de Bruxelles 2009, silver medals were won by Peller Estates Signature Series Chardonnay “Sur Lie”
2007, Trius Red 2007, Trius Chardonnay Barrel Fermented 2007 and Thirty Bench Small Lot Riesling Triangle Vineyard 2007. At the
International Eastern Wine Competition, Trius Red 2007 won Double Gold while at the 2009 Effervescents du Monde Peller Estates
Ice Cuvée won a gold medal. At the 2009 Los Angeles International Wine Competition, the Company won Best in Class, gold
medals for Andrew Peller Signature Series Niagara Peninsula VQA Oak Aged Icewine 2007 and Andrew Peller Signature Series
Niagara Peninsula VQA Riesling Icewine 2007.
Andrew Peller Limited 2010 Annual Report
7
At the All Canadian Wine Championships, Peller Estates Ice Cuvée Rosé won Double Gold and Best Sparkling Wine of the Year,
Trius Chardonnay Barrel Fermented 2007 won Double Gold while gold medals were won by Peller Estates Ice Cuvée, Peller Estates
Private Reserve Rosé 2007 and Hillebrand Showcase Chardonnay Wild Ferment 2007. Sandhill Small Lot Syrah 2007 and Peller
Estate Private Reserve Pinot Noir 2007 were successful in being recognized as two of the top 11 British Columbia wines selected
to receive the Lieutenant Governor’s Award of Excellence for 2009. Our British Columbia wine portfolio also did well at the Grand
Harvest Awards achieving gold medals for Calona Vineyards Artist Series Sovereign Opal 2008, Peller Estates Private Reserve
Riesling 2008 and Red Rooster Pinot Gris 2008.
Looking ahead, we are accelerating our efforts to build awareness and consumer loyalty for all of our estate brands. Our popular
Wine Clubs have been introduced across the country and we have seen particular success with recent launches at Sandhill, Thirty
Bench and Red Rooster. A new initiative, Winemakers Challenge, offers consumers the opportunity to purchase the best of the
Company’s Ontario VQA wines through a state-of-the-art online portal. We remain relentless in our efforts to produce the highest
quality wines targeted at the growing demand for premium and ultra-premium wines across the country.
A number of new products were introduced during fiscal 2010 that broadened and extended our offering of estate wines. Trius
Brut Rosé was added to our portfolio of sparking wines and won Best Sparkling Wine Award at Cuvée 2010, while the new Trius
Sauvignon Blanc was being very well received. In British Columbia, we launched Sandhill Small Lots Chardonnay and Merlot; both
are receiving high accolades from the wine media.
8
Andrew Peller Limited 2010 Annual Report
value-priced BrandS
Our value-priced table wines continue to perform well with our Peller Estates French Cross / Proprietor’s Reserve selection
remaining the best-selling brand in Canada while Copper Moon, made with grapes harvested at night to increase the fruit flavour,
moved into the top-ten in all the Provinces where the brand was sold. Copper Moon also expanded its franchise during the year
with the launch of Pinot Grigio, Sauvignon Blanc, Shiraz and Merlot in Ontario, and into larger size formats of these varietals in
Western Canada.
XOXO, our product targeted at women between the ages of 18 and 34, also saw solid growth in fiscal 2010 as our innovative social
marketing programs through Facebook, Twitter and others proved highly successful. XOXO introduced its new White Zinfandel
Gamay seasonal listing to leverage the recent trend of increased consumption of rosé wines in the $10 price range.
vineyardS eState WineS / aiSle 43
Our established network of over 100 retail locations in Ontario once again generated strong growth and operating performance in
fiscal 2010. Over the last few years we have increased our presence in leading national grocery chains. The majority of our stores
are now well positioned in these convenient, high traffic locations. We are also continuing to expand our innovative Aisle 43 brand
within these national chains, a friendly, bright and appealing concept that fits well with our grocery chain partners. New products
were introduced during the year, which included our popular Copper Moon series. We will continue to add new brands and
upgrade our store locations going forward.
Andrew Peller Limited 2010 Annual Report
9
Wine agencieS
Sales at Grady Wine Marketing and Small Winemakers both outperformed the premium import wine markets in their respective
provinces, benefiting from strong brands and product portfolios that covered key price points. During the year, both agencies
leveraged their coverage by taking on the responsibility of selling Andrew Peller Limited’s premium VQA brands to selected
on-premise customers.
gloBal vintnerS
With the purchase of World Vintners in June 2008, we became the largest producer and seller of high quality personal winemaking
products in Canada with a growing export business to the United States and the United Kingdom. Leveraging this strong market
presence, personal winemaking sales rose in fiscal 2010 due to solid growth in Canada as well as a strong increase in export sales.
Since the acquisition, significant operating synergies and economies of scale have been achieved to enhance profitability.
Looking ahead, we will continue to build on our presence as the recognized world leader in personal winemaking products.
New programs are being launched to expand our leading brands, including Winexpert, Wine Kitz and Vineco, as well as sales
of our private label products through such leading national retailers as Costco. The recent introduction of the innovative Artful
Winemaker personal winemaking system in both the United States and Canada is also proving very popular.
10
Andrew Peller Limited 2010 Annual Report
an exciting future
The Canadian wine market remains strong, supported by a continuing movement toward the consumption of wine by an aging
population who favour the more sophisticated experience that wine offers as well as younger consumers who have more recently
adopted wine as their beverage of choice. Demand also continues to be boosted by the widely reported health benefits of
moderate wine consumption.
To capitalize on these strong industry fundamentals, we will continue to execute the same value-enhancing strategies that have
proved so successful over the last fifty years. Our long-term objective is to generate annual organic sales increases of approximately
4%. We met this goal in fiscal 2010 and we are confident we have the brands, the assets and the people to meet this target over
the long term.
Our proven sales and marketing efforts will continue to drive sales through all of our trade channels, including licensed
establishments, provincial liquor boards, our network of retail locations in Ontario, our estate wineries and our wine agencies. The
launch of new and re-positioned products will also contribute to our growth across all price points in the Canadian wine business.
Efforts to increase export sales are proving effective. We also expect our personal winemaking business will continue to leverage its
strong market presence to build sales in Canada and through export markets.
Andrew Peller Limited 2010 Annual Report
11
We will continue to prudently investigate acquisitions that expand and complement our presence and brand profile in the Canadian
wine market. The additions to our family of brands completed over the last five years have made significant contributions to our
growth and performance and we will seek out additional acquisitions that strengthen our presence and enhance value for our
shareholders.
In closing, we would like to thank everyone in the Company for their dedication and hard work over the past year. Despite a very
difficult consumer economy in fiscal 2010, our team met the challenge to deliver strong growth and improved profitability.
During the coming year we will be celebrating our fiftieth year in business, a considerable achievement and a testament to the
values and entrepreneurial spirit of our Company’s founder, Andrew Peller. As we look ahead, we are confident the Canadian wine
market will remain healthy and growing and that we are well positioned to continue to build shareholder value for years to come.
Joseph A. Peller, Chairman
John E. Peller, President and CEO
12
Andrew Peller Limited 2010 Annual Report
MANAGEMENT’S DISCUSSION & ANALYSIS
FOR THE THREE MONTHS AND YEAR ENDED MARCH 31, 2010
The following management’s discussion and analysis (‘MD&A’)
provides a review of corporate developments, results of
operations and financial position for the three months and year
ended March 31, 2010 in comparison with those for the three
months and year ended March 31, 2009. This discussion is
prepared as of June 23, 2010 and should be read in conjunction
with the consolidated financial statements for the year ended
March 31, 2010 and 2009, and the accompanying notes contained
therein. All dollar amounts are expressed in Canadian dollars
unless otherwise indicated.
FORWARD-LOOKING INFORMATION
Certain statements in this Management’s Discussion & Analysis
may contain “forward-looking statements” within the meaning of
applicable securities laws, including the “safe harbour provisions”
of the Securities Act (Ontario) with respect to Andrew Peller
Limited (‘APL’ or the ‘Company’) and its subsidiaries. Such
statements include, but are not limited to, statements about
the growth of the business in light of the Company’s recent
acquisitions; its launch of new premium wines; sales trends in
foreign markets; its supply of domestically grown grapes; and
current economic conditions. These statements are subject to
certain risks, assumptions and uncertainties that could cause actual
results to differ materially from those included in the forward-
looking statements. The words “believe”, “plan”, “intend”,
“estimate”, “expect” or “anticipate” and similar expressions,
as well as future or conditional verbs such as “will”, “should”,
“would” and “could” often identify forward-looking statements.
We have based these forward-looking statements on our current
views with respect to future events and financial performance.
With respect to forward-looking statements contained in this
MD&A, the Company has made assumptions and applied certain
factors regarding, among other things: future grape, glass bottle
and wine prices; its ability to obtain grapes, imported wine, glass
and its ability to obtain other raw materials; fluctuations in the
U.S./Canadian dollar exchange rates; its ability to market products
successfully to its anticipated customers; the trade balance within
the domestic Canadian wine market; market trends; reliance on
key personnel; protection of its intellectual property rights; the
economic environment; the regulatory requirements regarding
producing, marketing, advertising and labeling of its products;
the regulation of liquor distribution and retailing in Ontario; the
application of federal and provincial environmental laws; and the
impact of increasing competition.
These forward-looking statements are also subject to the risks
and uncertainties discussed in the “Risk Factors” section and
elsewhere in this MD&A and other risks detailed from time to
time in the publicly filed disclosure documents of the Company
which are available at www.sedar.com. Forward-looking
statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which could cause
actual results to differ materially from those conclusions, forecasts
or projections anticipated in these forward-looking statements.
Because of these risks, uncertainties and assumptions, one should
not place undue reliance on these forward-looking statements.
The Company’s forward-looking statements are made only as
of the date of this MD&A, and except as required by applicable
law, Andrew Peller Limited undertakes no obligation to update
or revise these forward-looking statements to reflect new
information, future events or circumstances.
OVERVIEW
Andrew Peller Limited (‘APL’ or the ‘Company’) is a leading
producer and marketer of quality wines in Canada. With
wineries in British Columbia, Ontario and Nova Scotia, the
Company markets wines produced from grapes grown in
Ontario’s Niagara Peninsula, British Columbia’s Okanagan and
Similkameen Valleys and from vineyards around the world. The
Company’s award-winning premium and ultra-premium VQA
brands include Peller Estates, Trius, Hillebrand, Thirty Bench,
Sandhill, Calona Vineyards Artist Series and Red Rooster.
Complementing these premium brands are a number of
popularly priced varietal wine brands including Peller Estates
French Cross in the East, Peller Estates Proprietors Reserve in
the West, Copper Moon, XOXO and Croc Crossing. Hochtaler,
Domaine D’Or, Schloss Laderheim, Royal and Sommet are our
key value priced wine blends. The Company imports wines from
major wine regions around the world to blend with domestic wine
to craft these popularly and value priced wine brands. With a
focus on serving the needs of all wine consumers, the Company
produces and markets premium personal winemaking products
through its wholly-owned subsidiary, Global Vintners Inc. (“GVI”),
the recognized world leader in personal winemaking products.
Global Vintners distributes products through over 250 Winexpert
and Wine Kitz authorized retailers and franchisees and more than
600 independent retailers across Canada, United States, United
Kingdom, New Zealand and Australia. GVI’s award-winning
premium and ultra-premium winemaking brands include Selection,
Vintners Reserve, Island Mist, Kenridge, Cheeky Monkey, Ultimate
Estate Reserve, Traditional Vintage and Artful Winemaker. The
Company owns and operates more than 100 well positioned
independent retail locations in Ontario under the Vineyards Estate
Wines, Aisle 43 and WineCountry Vintners store names. The
Company also owns Grady Wine Marketing (“GWM”) based in
Vancouver, and The Small Winemaker’s Collection Inc. (“SWM”)
based in Ontario; both of these wine agencies are importers
of premium wines from around the world and are marketing
agents for these fine wines. The Company’s products are sold
predominately in Canada with a focus on export sales for its
icewine and personal winemaking products.
The Company’s stated mission is to build sales volumes of its
blended, premium and ultra-premium brands by delivering
to its customers and consumers the highest quality wines at
the best possible value. To meet this goal, the Company is
investing in improvements in the quality of grapes and wines,
its winemaking capabilities and in its quality management
programs. Over the long term, the Company believes premium
wine sales will continue to grow in Canada and these products
generate higher sales and increased profitability compared to
lower-priced table wines.
Andrew Peller Limited 2010 Annual Report
13
The Canadian Wine Market
The market for wine in Canada has continued to grow due to a
movement toward the consumption of wine made by an aging
population who favour the more sophisticated experience that
wine offers and young consumers who have more recently
adopted wine as their beverage of choice, as well as the widely
reported health benefits of moderate wine consumption. Imports
from major wine-producing countries, particularly Argentina and
Chile, continue to expand their share of the Canadian market,
in many cases supported by extensive government subsidy
programs that support lower prices that are unmatched in
Canada. Canada remains one of the world’s largest importers
of wine, resulting in significant growth in foreign wine sales in
Canada over the past five years. To ensure that fair and open
trade practices exist in the domestic Canadian wine market, the
Company is working closely with other Canadian wine producers
and the Canadian government to address this important issue. For
the year ended March 31, 2010, consumption of wine in Canada
(excluding Quebec, where the Company does not participate,
and excluding the refreshment wine category) rose by
approximately 2.7% after increasing by 2.9% in 2009. Imported
wines accounted for 64.3% of total volume in fiscal 2010.
Canadian-made wines experienced a slight increase in market
share to 35.7% from 35.3% in fiscal 2009. The Company’s
share of the total Canadian market in fiscal 2010 was 12.7%
compared to 12.4% in fiscal 2009. The Company’s share of
the Canadian domestic market increased from 35.2% in fiscal
2009 to 35.5% in fiscal 2010 primarily due to strong sales of
key brands such as Peller Estates and solid performance from
recent product introductions.
The Vintners Quality Alliance (‘VQA’), established in 1989, has
become recognized throughout the world as the appellation
system for Canadian wines that meet strict standards of
excellence. The Company’s sales of VQA designated wines
increased by 1.8% in fiscal 2010 compared to a 9.7% increase
in fiscal 2009. VQA sales in fiscal 2010 were impacted by a
move by provincial liquor boards to increase support to new
VQA wine brands.
Red table wines continued to grow in popularity, with total
Canadian volume sales rising 2.7% in fiscal 2010 compared
to 4.4% in fiscal 2009. Volume sales of the Company’s red wine
portfolio increased 7.5% in fiscal 2010 after an 11.1% increase in
fiscal 2009. Volume sales of white table wines in Canada rose 3.8%
in fiscal 2010 and 1.8% in fiscal 2009, while the Company’s sales of
white table wines were up 5.0% in fiscal 2010 compared to 3.8%
in fiscal 2009.
The Company believes that sales of personal winemaking
products declined in Canada by approximately 3.0% in fiscal
2010 after declining approximately 4.0% during the prior
year. Sales of the Company’s personal winemaking products
experienced a solid increase during the year driven primarily by
a full year’s contribution from acquisitions and a solid increase
in export sales to the United States and the United Kingdom
compared to fiscal 2009.
APL is focused on initiatives to reduce costs and enhance
its production efficiencies through an on-going review of
the Company’s operations. The Company continually reviews
its cost structure with a view to enhancing profitability. In
addition, the Company continues to expand and strengthen
distribution of its wines through provincial liquor boards, the
Company’s network of 102 Vineyards Estate Wines, Aisle 43 and
WineCountry Vintners retail locations, estate wineries, restaurants
and other licensed establishments. This distribution network
is supported by enhanced sales, marketing and promotional
programs. From time to time the Company also evaluates the
potential for acquisitions and partnerships, both in Canada and
internationally, to further complement its product portfolio and
market presence.
Recent Events
On May 25, 2010 the Company sold approximately six acres of
vineyard in the Okanagan Valley to Burrowing Owl Vineyards Ltd.
for proceeds of approximately $0.8 million. Proceeds were used to
reduce bank indebtedness.
Effective May 1, 2010 the Company completed the sale
of its ownership interests in Granville Island Brewing Company
Ltd. (“GIB”) and Mainland Beverage Distribution Ltd. (“MD”) to
Creemore Springs Brewery Ltd. Of the total proceeds from the
sale of approximately $26.2 million, $25.0 million was received
during the fiscal year ended March 31, 2010 and $0.2 million was
received during the first quarter of fiscal 2011. Proceeds were
used to reduce long-term debt and bank indebtedness. The
balance of the sale proceeds are expected to be received on May
1, 2012. The Company recorded an after tax gain on the sale of
approximately $11.9 million. The operating results of the beer
business have been classified as net earnings from a discontinued
operation in current and prior periods.
On October 8, 2008 the Company acquired 100% of SWM for
consideration of approximately $1.6 million. SWM is a premium
wine importer and marketing agent for fine wines in the Province
of Ontario. The Company imports wines from major wine regions
around the world and sells primarily to on-premise accounts in key
markets and through LCBO Vintages stores.
Effective June 30, 2008 the Company increased its annual
common share dividends. The dividend on Class A shares
increased 10% from $0.300 per share to $0.330 per share, while
the dividend on Class B shares increased 10% from $0.261 per
share to $0.288 per share.
On June 30, 2008 the Company acquired 100% of the common
shares of World Vintners Inc. (“WVI”), a producer and seller of high
quality consumer-made wine kits. The acquisition brought to the
Company a dedicated network of 75 franchised wine-on-premise
and retail outlets under the Wine Kitz brand name. WVI was
acquired for consideration of $9.6 million, including acquisition
costs. The Company has generated significant synergies in its wine
kit operations as a result of this acquisition through the closure of
its plant in Markham, Ontario and its Quebec distribution facility.
On June 13, 2008 the Company acquired 50% of the shares of
Rocky Ridge Vineyards Inc. (“Rocky Ridge”) of Cawston, British
Columbia for consideration of $3.9 million, including acquisition
costs. The Company previously owned 50% of the shares of Rocky
Ridge and as a result of this transaction Rocky Ridge became a
wholly-owned subsidiary of the Company.
14
Andrew Peller Limited 2010 Annual Report
Financial Statements and Accounting
Policies
The Company prepared its financial statements in Canadian
dollars in accordance with Canadian generally accepted
accounting principles (GAAP). The Company also utilizes EBITA
(defined as earnings before interest, amortization, non-hedge
derivative gains (losses), other income (expense), income taxes
and net earnings before a discontinued operation) to measure its
financial performance.
EBITA is not a recognized measure under GAAP; however,
management believes that EBITA is a useful supplemental
measure to net earnings, as it provides readers with an indication
of earnings available for investment prior to debt service, capital
expenditures and income taxes. Readers are cautioned that
EBITA should not be construed as an alternative to net earnings
determined in accordance with GAAP as an indicator of the
Company’s performance or to cash flows from operating, investing
and financing activities as a measure of liquidity and cash flows.
The Company’s method of calculating EBITA may differ from
the methods by which other companies calculate EBITA
and, accordingly, EBITA may not be comparable to measures
used by other companies.
Critical Accounting Estimates
During the year, management is required to make estimates
or rely on assumptions that are inherently uncertain. These
estimates can vary with respect to the level of judgment involved
and ultimately the impact that these estimates may have on
the Company’s financial statements. Estimates are deemed to
be critical when a different estimate could reasonably be used
or where changes are reasonably likely to occur which would
materially affect the Company’s financial position, or results
in operations. The Company’s significant accounting policies
are discussed in Note 1 of the Notes to the March 31, 2010
Consolidated Financial Statements; critical estimates inherent in
these accounting policies are set out below.
Accounts Receivable
The Company records an allowance for doubtful accounts to
reflect management’s best estimate of losses that may occur on
accounts receivable during the year. This allowance was recorded
through a charge to earnings and takes into consideration the
financial condition and recent payment patterns of customers and
the general state of the economy. Management believes that the
allowance is sufficient to cover any risk of potential losses. Credit
losses were within management’s expectations.
Inventory Valuation
Inventories are valued at the lower of cost and net realizable value.
The Company determines cost on a weighted average cost basis
using separate pools for domestic and imported wines.
All inventories are counted as close as possible to year end
without impacting the operations of the Company. Management
has provided an allowance for slow moving and obsolete
inventory which is considered to be sufficient for potential losses.
On April 1, 2008 the Company adopted the Canadian
Institute of Chartered Accountants (CICA) Handbook Section
3031“Inventories”. For details on the impact of the adoption
of the standard, refer to the Consolidated Financial Statements
for the year ended March 31, 2010.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less
accumulated amortization. Amortization is calculated on
a straight line basis in amounts that are sufficient to amortize
the cost over the estimated useful life of the asset. Details of the
amounts classified as property, plant and equipment are set out in
the Notes to the Consolidated Financial Statements.
Goodwill
Goodwill on the purchase of Hillebrand in 1993, Vineco
International Products in 1996, Brew King (now named Winexpert)
in 1997, Distrivin and Winexpert in 2004, Wine Not in 2005 and
Cascadia, Thirty Bench and Red Rooster in 2006 and WVI, Rocky
Ridge, Camelot Cellars and SWM in 2009 represents the excess of
purchase price of acquired businesses over the fair value of the net
assets acquired. Goodwill relating to the disposition of GIB and
MD is classified as part of discontinued operations – long-term
assets in the accompanying consolidated financial statements. The
Company determines an impairment of goodwill based on the
ability to recover the balance from expected future discounted
operating cash flows. Management has determined that there was
no impairment in goodwill as at March 31, 2010 and 2009.
Intangible assets
Intangible assets primarily relate to customer contracts, brands
and customer based relationships that have been acquired
through recent acquisitions. Management believes that brands do
not have a fixed or determinable life and consequently brands are
not amortized but are subject to annual impairment tests based
on a comparison of the carrying amount to the estimated fair
market value of the brands. The amortization periods related to
those intangible assets with finite lives are based on the expected
duration of the contracts and relationships acquired. These
intangible assets will be tested at least annually for impairment or
when events or circumstances arise that indicate impairment may
exist. Intangible assets relating to the disposition of GIB and MD
have been classified as part of discontinued operation – long-term
assets in the accompanying consolidated financial statements.
Fair value of financial instruments
Accounts receivable, accounts payable and accrued liabilities
and bank indebtedness are reflected in the consolidated financial
statements at carrying values, which approximate fair value due to
the short-term maturity of these instruments.
Long-term debt has a floating interest rate and its carrying value,
as reflected in the consolidated financial statements, approximates
fair value. Interest on long-term debt has been fixed through the
use of an interest rate swap.
Andrew Peller Limited 2010 Annual Report
15
The Company purchases wine and other inventory items
throughout the year. These purchases are made in United States
dollars and Euros. The Company uses foreign exchange contracts
as a hedge against changes in currency values. The Company’s
strategy is to hedge approximately 50% - 80% of its foreign
exchange requirements prior to the beginning of each fiscal
quarter. The Company does not enter into foreign exchange
contracts for trading or speculative purposes. Contracts are
matched against forecasted purchases of inventory and other
purchases in U.S. dollars and Euros.
All financial instruments are initially recorded at fair value which
includes the Company’s interest rate swap and foreign exchange
contracts. The Company has not designated any of its financial
instruments as hedges and accordingly, changes to the fair value
of these instruments are recorded through earnings each period
as a net unrealized gain (loss) on derivative financial instruments.
Employee Future Benefits
The Company provides a defined benefit pension plan to
certain of its employees. The assumptions used to measure
the accrued benefit obligations and benefit costs are: discount
rate for expenses 7.0%, discount rate for obligations 5.5%,
expected long-term rate of return on plan assets 7.0% and rate of
compensation increase 4.0-5.0%. To measure the obligation for
past employment medical benefits, it was assumed that the health
care inflation rate would be 10% in fiscal 2011 reducing by 1%
each year for the next five years. The annual pension expense to
provide those benefits is approximately $440. All actuarial losses
are amortized over the expected remaining service life which is
estimated to be 7-14 years. On March 31, 2010 the Company
recognized an obligation to provide post employment medical
benefits to certain employees which arose as the result of the
Company’s acquisition of Cascadia Brands Inc. The obligation to
provide post employment medical benefits was not identified at
the time of the Cascadia acquisition. The recognition of the post
employment medical benefit obligation has resulted in an increase
to the employee future benefit liability of $2.6 million, an increase
to goodwill in the amount of $1.9 million and a reduction to future
income tax liability in the amount of $0.7 million.
Recently Adopted Accounting
Pronouncements
Effective for the year ended March 31, 2010, the Company adopted
the amended version of CICA Section 3862 “Financial Instruments –
Disclosures”. The amended standard requires enhanced disclosures
about the relative reliability of the data, or “inputs”, that an entity
uses to measure the fair values of its financial instruments.
Effective April 1, 2008 the Company adopted the following new
accounting standards that were issued by the CICA:
CICA Handbook Section 3031 “Inventories” replaced CICA
Handbook Section 3030, “Inventories” which provided guidance
on the determination of cost and its subsequent recognition as
an expense, including any write-down to net realizable value.
It also provided guidance on the cost formulas that are used to
assign costs to inventories and is effective for the Company’s fiscal
years beginning on April 1, 2008. As required, this standard has
been adopted prospectively and comparative amounts have not
been restated. This change predominately related to changes in
the application of overhead cost allocations to bulk and finished
goods inventory. As a result, on adoption of this standard, the
Company recorded an adjustment on April 1, 2008 to reduce
inventories by $2,725, to reduce future income taxes by $850
and to reduce opening retained earnings by $1,875.
The Company adopted CICA Emerging Issues Committee 173,
“Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities” that required an entity’s own credit risk and the risk of
counterparty to be taken into account when determining the fair
value of financial assets and financial liabilities including derivative
amounts. As a result, on adoption, the company recorded an
adjustment on January 1, 2009 to increase the fair value of
derivative financial instruments by $1,307, increase future income
taxes by $409 and increase opening retained earnings by $898.
Recently Issued Accounting Pronouncements
CICA Handbook Section 1582, “Business Combinations”, CICA
Handbook Section 1601, “Consolidated Financial Statements”,
and CICA Handbook Section 1602, “Non-controlling interests”
replace the former CICA Handbook Section 1581, “Business
Combinations” and CICA Handbook Section 1600, “Consolidated
Financial Statements” and establishes a new section for
accounting for a non-controlling interest in a subsidiary. These
sections provide the Canadian equivalent to IFRS 3, “Business
Combinations” and International Accounting Standard 27,
“Consolidated and Separate Financial Statements”. CICA
Handbook Section 1582 is effective for business combinations
for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after January 1,
2011. Section 1601 and Section 1602 apply to interim and annual
consolidated financial statements relating to years beginning on or
after January 1, 2011. The Company has the option to collectively
adopt Section 1582, Section 1601, and Section 1602 beginning
on April 1, 2010. Electing to adopt these standards in fiscal
2011 would minimize the impact of transitioning to International
Financial Reporting Standards for any business combinations
occurring during the year. The Company is currently evaluating the
impact of adoption of these standards.
CICA Emerging Issues Committee 175, “Multiple Deliverable
Revenue Arrangements” was released and requires a vendor
to allocate arrangement consideration at the inception of an
arrangement to all deliverables using the relative selling price
method. The new requirements are effective for fiscal years
beginning on or after January 1, 2011 with early adoption
permitted. The Company is currently evaluating the impact of the
adoption of this standard.
International Financial Reporting Standards
In February 2008, the Canadian Accounting Standards Board
(“AcSB”) confirmed that the use of International Financial
Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board will be required for fiscal years
beginning after January 1, 2011 for publicly accountable
profit oriented enterprises. The transition date will require the
Company to restate, for comparative purposes, amounts reported
for the year ending March 31, 2011 as if the Company had always
reported under IFRS.
16
Andrew Peller Limited 2010 Annual Report
Although IFRS uses a conceptual framework similar to Canadian
GAAP, differences in accounting policies will need to be
addressed. During fiscal 2009, the Company undertook an IFRS
diagnostic study with a view to assess the impact of the transition
on the Company’s accounting policies and to establish a project
plan to implement IFRS. Some key accounting areas where IFRS
differs from current policy and accounting alternatives were
identified. It was also determined that the implementation of
IFRS will require increased financial statement disclosure.
During fiscal 2010, the Company finalized its diagnostic study,
hired a dedicated resource to lead the IFRS implementation team
and engaged an external service provider to provide additional
assistance. Based on evaluations that are currently in progress,
the Company’s preliminary expectation is that the following
components will have the most impact on its quarterly and annual
consolidated financial statements beginning in the year ending
March 31, 2012:
• IFRS 1 – First-time Adoption of IFRS: During the year ended
March 31, 2012, the Company will be required to disclose
certain additional comparative financial information related to
its quarterly and annual reporting periods. These additional
disclosures will provide information that will allow the user
to reconcile amounts that were previously presented under
Canadian GAAP to IFRS for the interim and annual periods
occurring during the year ending March 31, 2011. IFRS 1 also
provides numerous exemptions to the general requirement to
retrospectively apply IFRS accounting policies. The Company is
currently evaluating the exemptions that it will utilize.
• IAS 41 – Agriculture: IAS 41 will require the Company
to measure its grape vines at their fair value less costs to sell.
Costs to sell are the incremental costs that would be required
to dispose of an asset if it were sold to a third party. Harvested
grapes will be measured at their fair value less costs to sell at
the point of harvest. This measurement will then become the
cost used in measuring the value of the Company’s inventories.
Prior to the adoption of IFRS, the Company recorded its
vineyards at cost less accumulated amortization and its
inventories at the lower of cost and net realizable value. The
Company is currently evaluating the direction and magnitude
of this application IAS 41, on the accounting for the Company’s
vineyards and inventories.
• IAS 16 – Property, Plant and Equipment: IAS 16 provides
options to record property, plant and equipment using a cost
or a revaluation model. There are also exemptions under IFRS
1 that provide an additional option for the Company to use
fair value as deemed cost at transition for an item of property,
plant and equipment. IAS 16 also contains detailed guidance
on the componentization of property, plant and equipment.
Currently, the Company records property, plant and equipment
at historical cost less accumulated amortization. The Company is
currently evaluating its options and requirements under IAS 16 in
combination with its options under IFRS 1.
• IAS 19 – Employee Benefits: There are currently different
options available to the Company under IFRS 1 and IAS 19
to record actuarial gains and losses upon transition to IFRS.
In its opening IFRS balance sheet, the Company may elect to
leave a portion of actuarial gains and losses unrecognized
or it may elect to recognize all cumulative actuarial gains
and losses. After the Company’s transition date of April 1,
2010, actuarial gains and losses may be amortized over a
period of time similar to the Company’s current treatment
under Canadian GAAP, recognized immediately in profit
or loss, or recognized immediately in other comprehensive
income. The Company has currently decided to recognize
all cumulative actuarial gains and losses in its opening IFRS
balance sheet and immediately recognize actuarial gains and
losses in other comprehensive income in its IFRS consolidated
financial statements. The Company is monitoring potential
future changes in this area, which may impact these preliminary
decisions. The differences in recognition criteria for post-
employment benefit liabilities compared to those under
Canadian GAAP may also impact the Company. An
evaluation of the amount of the impact is underway.
• IAS 36 – Impairment of Assets: Under Canadian GAAP,
impairment testing of property, plant and equipment and
intangible assets with finite lives involves comparing the
carrying value of an asset to its undiscounted cash flows when
an indication of impairment exists. If the undiscounted cash
flows expected to be generated from the asset are greater
than the carrying value, no impairment is recorded. This
initial step is not part of IFRS. Under IFRS, property, plant
and equipment and intangible assets with finite lives will be
assigned to cash generating units (“CGUs”). When there is
an indication of impairment, the carrying value of a CGU is
compared to the greater of the CGUs fair value and its value in
use using discounted cash flows to determine whether or not an
impairment charge should be recorded. Under Canadian GAAP,
the carrying value of an intangible asset with an indefinite life
is compared to its fair value to determine whether impairment
expense should be recorded. Under IFRS, intangible assets
with an indefinite life may be allocated to CGUs for impairment
testing. Under Canadian GAAP, goodwill is grouped with other
assets to form a reporting unit and the carrying value of a
reporting unit is compared to its fair value to determine whether
an impairment charge should be recorded for goodwill. Under
IFRS, goodwill will be allocated to CGUs for impairment testing
purposes. The grouping of assets and liabilities used to form a
reporting unit to test goodwill for impairment under Canadian
GAAP will be different from the grouping of assets and
liabilities used to form a CGU to test goodwill for impairment
under IFRS. IFRS also requires impairment charges to be
reversed in certain circumstances, except for impairment of
goodwill and intangible assets with an indefinite life. Reversal
of an impairment charge is not permitted under Canadian
GAAP. Management is currently evaluating the impact of the
applicable IFRS accounting standards.
Andrew Peller Limited 2010 Annual Report
17
• IAS 12 – Income Taxes: Future income tax balances will
change as a result of the other adjustments required to
transition from Canadian GAAP to IFRS.
The Company is currently evaluating the extent of other
changes and disclosures resulting from IAS 12.
This is not an exhaustive list as there are other less significant
areas that are expected to affect the Company’s consolidated
financial statements and disclosures. In addition, other areas
that will change as a result of IFRS may be identified as the
Company progresses through its transition.
During fiscal 2010 the Company made progress in other aspects
of its transition to IFRS. An information session was held for
the board of directors and senior management to facilitate the
development and maintenance of an appropriate level of financial
reporting expertise. Management has also provided regular
updates to the Finance, Audit and Risk Committee regarding its
transition progress and specific business and accounting policy
Results of Operations
choices. With regard to changes to the Company’s information
systems, a plan has been developed to leverage existing
accounting information system capabilities to meet the dual
reporting requirements for the year ended March 31, 2011. Under
the plan, current accounting information systems will be able to
produce reconciliations from Canadian GAAP to IFRS balances.
The Company is also assessing the impact of the conversion on
internal controls over financial reporting and disclosure controls
and procedures and will provide sufficient resources and training
to ensure an orderly transition.
The Company has developed and continues to monitor its
conversion plan for the transition that was effective April 1,
2010. IFRS accounting standards are continuing to evolve and
are therefore subject to change throughout the remainder of the
conversion process. The Company will continue to monitor any
IFRS accounting developments and update the conversion plan
as necessary.
The following table outlines key highlights for the year ended March 31, 2010, 2009 and 2008. With the Company’s entering into an
agreement effective October 1, 2009 to sell its ownership of GIB and MD, the results for the Company’s beer business have been classified
as earnings from a discontinued operation. The sale was completed on May 1, 2010.
FOR THE YEAR ENDED MARCH 31,
(in thousands of dollars except per share amounts)
Sales
Gross profit
Gross profit (% of sales)
Selling general and administrative expenses
Earnings before interest, taxes, amortization, other
income (loss) and unusual items
Unrealized gain (loss) on financial instruments and other expenses
Net and comprehensive earnings (loss) from continuing operations
Net and comprehensive earnings from a discontinued operation
Net and comprehensive earnings (loss)
Earnings (loss) per share from continuing operations Class A
Earnings (loss) per share from continuing operations Class B
Earnings (loss) per share – basic and diluted - Class A
Earnings (loss) per share – basic and diluted - Class B
Dividend per share – Class A (annual)
Dividend per share – Class B (annual)
2010
$
2009
$
2008
$
263,151
251,136
228,056
96,324
36.6%
68,970
27,354
1,597
9,526
12,135
21,661
$0.66
$0.57
$1.49
$1.30
$0.330
$0.288
93,691
37.3%
70,332
95,983
42.1%
67,874
23,359
28,109
(10,771)
718
(1,444)
10,563
1,319
(125)
($0.10)
($0.09)
($0.01)
($0.01)
$0.330
$0.288
818
11,381
$0.73
$0.63
$ 0.78
$ 0.68
$0.300
$0.261
Sales increased 4.5% and 4.8% for the three months and year
ended March 31, 2010 respectively compared to the prior year
periods primarily due to ongoing initiatives to grow sales of the
Company’s premium and blended varietal wines sold through
provincial liquor control boards, new product launches that
occurred during fiscal 2010 and to the full year’s earnings’ impact
from the acquisitions of WVI and SWM. Sales in fiscal 2010 have
been negatively affected by the impact of the global economic
slowdown on export and estate winery sales.
During fiscal 2010 and in fiscal 2009 the Company launched a
number of new products through provincial liquor stores and
the Company’s network of retail stores. Sales of VQA wines in
the current year were impacted by a move by provincial liquor
boards to increase support to new VQA wine brands and by
the consumer trading down to lower priced wines through the
economic recession. The Company continued to invest in its sales
and marketing efforts with the aim to grow sales volumes of its
products through new and increased advertising and promotional
18
Andrew Peller Limited 2010 Annual Report
initiatives in all trade channels, increased sales staff focused on
the licensee channel, investment in the new Aisle 43 retail stores,
training of retail staff and additional investments to increase
tourism at its estate wineries.
Gross profit as a percentage of sales was 37.6% and 36.6% during
the three months and year ended March 31, 2010 compared to
29.2% and 37.3% in the prior year periods. The decrease in gross
profit percentage for the year was due to the increased cost to the
Company of purchasing United States dollars, an increase in the
sales mix of lower margin wines, the increased use of higher
priced domestic grapes used to produce cellared in Canada
wine and an increase in the cost of domestic grapes and wine
purchased on international markets. Gross profit improved in
the fourth quarter of 2010 as these factors began to reverse
themselves as the cost to the Company of purchasing United
States dollars improved and the price of wine purchased on
international markets began to decline. Management believes the
Company’s gross profit margins have stabilized and will continue
to grow as cost pressures ease and the value of the Canadian
dollar improves. Management remains focused on efforts to
enhance production efficiency and productivity to further improve
overall profitability.
Selling and administrative expenses as a percentage of sales were
30.6% and 26.2% during the fourth quarter and for the fiscal year
compared to 29.3% and 28.0% respectively in the same periods
last year. During the fourth quarter of fiscal 2010, losses on foreign
exchange contracts for the entire year in the amount of $2.3
million were recorded. Excluding the impact of this adjustment,
selling and administrative expenses as a percentage of sales
were 26.8% and 25.3% during the fourth quarter of fiscal 2010.
The decrease in selling and administrative expenses was the
result of the Company’s ongoing focus on reducing costs and the
realization of synergies on acquisitions.
Earnings before interest, amortization, non-hedge derivative
gains (losses), other expenses, income taxes and net earnings
from a discontinued operation (“EBITA”) were $4.1 million
and $27.4 million for the three months and year ended March
31, 2010 respectively compared to a loss of $0.1 and profit of
$23.4 million in the same periods in fiscal 2009. The increase
is primarily due to improved sales and reduced selling and
administrative expenses, partially offset by a lower gross margin
percentage in the current year.
Interest expense in the fourth quarter of fiscal 2010 declined
to $1.9 million from $2.1 million in last year’s fourth quarter
due primarily to the reduction in debt from the proceeds on
sale of the Company’s beer business and certain one-time
adjustments related to changes in the Company’s lending
agreements on its operating debt partially offset by higher
interest rates. Interest expense was higher in fiscal 2010 due
to high debt levels and higher interest rates on the Company’s
long-term debt. The Company expects to benefit from lower
interest costs going forward.
Amortization expenses were $1.8 million and $8.0 million for the
three months and year ended March 31, 2010 compared to $2.2
million and $7.8 million in the prior year periods. The changes
were due primarily to the impact of acquisitions and the sale of
the beer business in fiscal 2010.
The Company incurred a non-cash gain in fiscal 2010 of
approximately $3.9 million related to the mark-to-market
adjustments on an interest rate swap and a loss on foreign
exchange contracts of $0.7 million partially offset by other
expenses of $1.6 million primarily related to impairment charges
on certain investments made by the Company. Under CICA
accounting standards, these financial instruments must be
reflected in the Company’s financial statements at fair value each
reporting period. These instruments are considered to be effective
economic hedges and have enabled management to mitigate
the volatility of changing costs and interest rates during the year.
Other expenses in fiscal 2009 included carrying charges for the
Company’s Port Moody facility. The Company closed this facility
effective December 31, 2005.
Net and comprehensive earnings from continuing operations,
excluding the gains or losses on derivative financial instruments
and the impact of other expenses, were $0.6 million and $8.4
in the fourth quarter and fiscal year compared to a loss of $3.0
million and a profit of $6.1 million respectively for the same
periods in fiscal 2009. Operating results for the Company’s beer
business have been classified as a discontinued item. Net and
comprehensive earnings include an after-tax gain on the sale
of the beer business of approximately $11.9 million. Net and
comprehensive earnings for the three months and year ended
March 31, 2010 were $0.6 million or $0.04 per Class A share and
$21.7 million or $1.49 per Class A share respectively compared
to net losses of $3.2 million or $0.23 per Class A share and $0.1
million or $0.01 per Class A share respectively for the same
periods in the prior year.
In spite of reduced consumer spending during most of fiscal 2010
due to a challenging economic environment, the Company has
experienced modest increases in sales through the majority of
its trade channels and these increases are expected to continue
into the upcoming year. The Company expects to benefit in fiscal
2011 from the higher value of the Canadian dollar and moderating
prices for the purchase of imported wine. The Company uses
foreign exchange contracts to protect against changes in foreign
currency rates and accordingly has locked in $21.0 million in U.S.
dollar contracts at rates averaging $1.0267 Canadian and $2.6
million in Euros at rates averaging $1.433 Canadian for fiscal 2011.
Andrew Peller Limited 2010 Annual Report
19
Quarterly Performance (unaudited)
The following table outlines key quarterly highlights. With the Company’s entering into an agreement effective October 1, 2009 to sell
its ownership in GIB and MD, the results for the Company’s beer business have been classified as net earnings (loss) from a discontinued
operation. The sale was completed on May 1, 2010.
($000 except per share amounts)
Q4 10
Q3 10
Q2 10
Q1 10
Q4 09
Q3 09
Q2 09 Q1 09
Sales
Gross profit
59,295
71,945
66,961
64,950
56,749
71,342
65,808
57,237
22,281
25,430
24,816
23,797
16,598
27,617
26,656
22,820
Gross profit (% of sales)
37.6%
35.3%
37.1%
36.6%
29.2%
38.7%
40.5%
39.9%
$
$
$
$
$
$
$
$
EBITA
4,129
8,527
6,750
7,948
(48)
9,261
7,642
6,504
Unrealized gain (loss) on financial
instruments and other expenses
401
(144)
213
1,127
(67)
(9,412)
(1,073)
(219)
Net & comprehensive earnings (loss)
from continuing operations
838
3,588
1,762
3,338
(3,087)
(2,713)
2,084
2,272
Net & comprehensive earnings (loss)
from a discontinued operation
Net & comprehensive earnings (loss)
EPS – Class A basic & diluted
EPS – Class B basic & diluted
(200)
11,940
638
15,528
$0.04
$0.04
$1.07
$0.93
482
2,244
$0.16
$0.14
(87)
3,251
$0.22
$0.19
(162)
740
(3,249)
(1,973)
($0.23)
($0.13)
($0.20)
($0.12)
360
2,444
$0.17
$0.15
381
2,653
$0.18
$0.16
The third quarter of each year is historically the strongest in terms
of sales, gross profit and net and comprehensive earnings due
to increased consumer purchasing of the Company’s products
during the holiday season. Sales in the fourth quarter of fiscal
2010 increased by 4.5% over the comparable period in fiscal
2009 due to increased sales through provincial liquor boards
and stable revenues at its retail stores partially offset by lower
estate wine and export sales. Sales in the first quarter of fiscal
2010 were impacted by higher purchases from the LCBO in June
in anticipation of a potential strike which negatively affected
second quarter results. Sales in the fourth quarter were positively
impacted by strong purchases by provincial liquor boards due
to the Easter holiday occurring very early in April. Gross profit
for the three months ended March 31, 2010 increased to 37.6%
of sales due primarily to the decreased cost to the Company of
purchasing United States dollars and a decrease in the price of
wine purchased on international markets. Net and comprehensive
earnings from continuing operations, not including the gains or
losses on derivative financial instruments, other expenses and
income from a discontinued operation, were $0.6 million for the
fourth quarter of fiscal 2010 compared to a loss of $3.0 million in
the fourth quarter of fiscal 2009. Results for fiscal 2010 included
an after tax gain on the sale of the beer business of approximately
$11.9 million in the third quarter.
20
Andrew Peller Limited 2010 Annual Report
Liquidity and Capital Resources
As at
($000)
Current Assets
Property, Plant & Equipment
Goodwill
Intangibles and Other Assets
Discontinued Operation
Total Assets
Current Liabilities
Long-term Debt
Long-term Derivative Financial Instruments
Employee Future Benefits
Future Income Tax
Discontinued Operation
Shareholders’ Equity
Total Liabilities & Shareholders’ Equity
The changes to the Company’s balance sheet at March 31, 2010
compared to March 31, 2009 are primarily due to the sale of
GIB and MD on October 1, 2009. The resulting reduction in
bank indebtedness and long-term debt, and a lower investment
in inventory partially offset by a reduction in accounts payable
and accrued charges also impacted working capital during
the period. The Company’s beer business has been classified
as a discontinued operation in current and prior periods. The
Company recognized additional post employment medical
benefit liabilities in the fourth quarter of the fiscal year related
to commitments acquired through the previously completed
Cascadia acquisition.
As at March 31, 2010 bank indebtedness and long-term debt
decreased to $102.7 million compared to $129.9 million
at March 31, 2009. The change was due primarily to proceeds
from the sale of GIB and MD, increased cash flow from
operating activities due to higher net earnings and lower levels
of inventory partially offset by lower levels of accounts payable
and accrued charges.
Inventory at March 31, 2010 decreased by approximately
$11.2 million compared to the end of fiscal 2009 as the
Company increased its efforts to reduce working capital
during the year primarily through a reduction in finished
goods inventory. Inventory is dependent on the increased
use of domestically grown grapes used in the sale of premium
and ultra-premium wines which are held for a longer period
than imported wine. These grapes are typically aged for one
to three years before they are sold. The cost of domestically
grown grapes is also significantly higher than wine purchased
on international markets.
March 31,
2010
$ $
116,351
95,728
37,473
14,164
-
263,716
86,383
47,633
1,667
4,530
9,838
-
113,665
263,716
March 31,
2009
134,818
98,234
35,684
14,838
9,933
293,507
105,615
71,549
5,963
2,824
10,428
337
96,791
293,507
Accounts receivable are predominately with provincial liquor
boards and to a lesser extent licensed establishments and
independent retailers of consumer made wine kits. Accounts
receivable increased slightly during fiscal 2010 due primarily
to strong sales during the month of March. The Company has
$12.6 million dollars of accounts receivable with provincial
liquor boards all of which are expected to be collectible. The
balance of $10.3 million represents amounts due from licensees,
export customers and independent retailers of consumer made
wine kits. The amount of accounts receivable that is beyond 60
days is $0.9 million. Against this amount, an allowance for doubtful
accounts of $0.3 million has been provided which the Company
has determined to represent a reasonable estimate of amounts
that may not be collectible.
Andrew Peller Limited 2010 Annual Report
21
Contractual Obligations
The following table outlines the Company’s contractual obligations, including long-term debt, operating leases, and commitments on short-
term forward foreign exchange contracts used to hedge the currency risk on U.S. dollar purchases.
As at March 31, 2010 ($000)
Long-Term Bank Loan
Swap Agreement
Operating Leases
Pension Obligations
Foreign Exchange Contracts
Long-Term Grape Contracts
Total Long-Term Obligations
Total
$
54,436
15,665
20,655
3,841
20,655
269,919
385,171
<1 year
2-3 years
4-5 years
>5 years
$
6,158
3,911
3,878
575
20,655
20,190
55,367
$
$
$
10,666
10,666
26,946
6,609
5,455
886
-
42,141
65,757
5,145
2,820
658
-
41,342
60,631
-
8,502
1,722
-
166,246
203,416
The ratio of debt to equity decreased to 0.90:1 at March 31,
2010 compared to 1.34:1 at March 31, 2009 due primarily to the
use of proceeds from the sale of GIB and MD to reduce bank
indebtedness and long-term debt. At March 31, 2010 the Company
had unutilized debt capacity in the amount of $19.4 million on its
operating loan facility.
On November 10, 2009, the Company modified the terms of its
operating loan facility to increase the borrowing limit to $75.0
million. The loan is a one-year committed facility incurring interest
at the Royal Bank of Canada prime lending rate plus 2.75%.
On January 26, 2010, the Company modified its existing term loan.
The modified term loan will continue to be repayable in monthly
principal payments of $0.444 million plus interest and matures on
April 30, 2015. The Company maintains an interest rate swap which
effectively fixes the interest rate on the term loan at 5.64%. Under
terms of the modified loan, the Company currently pays additional
interest of 0.95% based on leverage and a funding premium of
1.05% which is renegotiated annually. Effective May 1, 2010, the
funding premium was reduced by 0.25%.
Management expects to generate sufficient cash flow from
operations to meet its debt servicing, principal payment and
working capital requirements over both the short and the long term
through increased profitability and strong management of working
capital and capital expenditures. The Company closed its Port
Moody B.C. winery effective December 31, 2005. The Company
continually reviews all of its assets to ensure appropriate returns on
investment are being achieved and fit with the Company’s long-
term strategic objectives.
Common Shares Outstanding
During fiscal 2010, the Company generated cash from operating
activities, after changes in non-cash working capital items, of $17.5
million compared to $8.2 million in the same period last year. Cash
flow from operating activities increased due to stronger earnings
performance and improved management of working capital,
principally by a reduction in inventories partially offset by
a decrease in accounts payable and accrued liabilities.
Investing activities of approximately $5.8 million were made in fiscal
2010 compared to $23.8 million in the prior year. The decrease
in fiscal 2010 is primarily related to the $9.6 million acquisition of
WVI and a $3.9 million investment in acquiring the remaining
50% equity interest in Rocky Ridge in fiscal 2009. Excluding
acquisitions, capital spending was $5.0 million for the year ended
March 31, 2010 compared to $10.0 million in the prior year.
Working capital as at March 31, 2010 was $30.0 million compared
to $29.2 million as at March 31, 2009. Shareholders’ equity as at
March 31, 2010 was $113.7 million or $7.63 per common share
compared to $96.8 million or $6.50 per common share as at March
31, 2009. The increase in shareholders’ equity is due to the gain
on the Company’s sale of GIB and MD, higher net earnings from
continuing operations for the period and the impact of unrealized
gains (losses) on derivative financial instruments.
The dividend on Class A shares increased 10% from $0.300 per
share to $0.330 per share effective June 30, 2008. The dividend
on Class B shares increased 10% from $0.261 per share to $0.288
per share.
The Company is authorized to issue an unlimited number of Class A and Class B common shares. Class A shares are non-voting and are
entitled to a dividend in an amount equal to 115% of any dividend paid or declared on Class B shares. Class B shares are voting and
convertible into Class A shares on a one-for-one basis.
Shares outstanding
June 23, 2010
March 31, 2010
March 31, 2009
Class A shares
Class B shares
Total
11,888,241
3,004,041
14,892,282
11,888,241
3,004,041
14,892,282
11,888,241
3,004,041
14,892,282
22
Andrew Peller Limited 2010 Annual Report
Strategic Outlook and Direction
Andrew Peller Limited is committed to a strategy of growth that
focuses on the expansion of its core business as a producer and
marketer of quality wines through the development of leading
brands that meet the needs of our consumers and customers.
The market for wine in Canada has continued to grow due to a
movement toward the consumption of wine made by an aging
population who favour the more sophisticated experience that
wine offers and young consumers who have more recently
adopted wine as their beverage of choice, as well as the widely
reported health benefits of moderate wine consumption. The
share of the market held by domestic producers increased
moderately in fiscal 2010. During the year, the Company
began to experience a slight weakness in certain trade channels,
specifically its estate winery and export sales, due to weak
consumer spending being experienced across North America.
Growth was moderate in sales to liquor boards across the
country and through the Company’s 102 retail stores in Ontario.
Sales of blended varietal table wines increased during the
year and these products produced a lower percentage margin
than ultra-premium wines. Andrew Peller Limited has focused
its product development and sales and marketing initiatives
aimed at capitalizing on this trend. The Company will continue
to closely monitor its costs and will react quickly if there is any
further significant change in gross profit margin.
The Company expects to continue to launch new blended varietal
and ultra-premium brands in fiscal 2011 and increase its use of
unique package formats. The Company will also make packaging
design changes that are consistent with its continued move to be
more environmentally friendly. Increased focus will be made on
expanding distribution through the Company’s direct to home
trade channels to provide consumers with more access to our
extensive brand portfolio.
These product launches and directed spending behind key
brands through all of the Company’s distribution channels will
receive increased marketing and sales support during the year.
The Company expects to make additional investments in
capital expenditures to support its ongoing commitment
to producing the highest-quality wines and to improve
productivity and efficiencies.
Investments made over the past few years are expected to
continue to result in increased sales and improved profitability
going forward.
From time to time the Company evaluates investment
opportunities, including acquisitions, which could support its
strategic direction.
The sale of the Company’s interest in its ownership of GIB and
MD completed on May 1, 2010 will allow the Company to more
effectively focus on its key strengths and long-term strategies to
build its leading portfolio of premium and ultra premium wines
through all its trade channels. The proceeds from the sale were
used to reduce bank indebtedness and long-term debt.
Despite the economic slowdown in Canada over the last year,
the Company expects it will continue to grow sales while gross
profit is expected to increase moderately. Lower pricing on
domestic grapes and imported wine and the higher value of the
Canadian dollar will be mostly offset by the Province of Ontario’s
introduction of a special wine levy on Cellared in Canada (“CIC”)
wines sold through the Company’s retail store network. The
Province of Ontario introduced, as part of the harmonized sales
tax, a discriminatory tax in the form of a special levy, effective July
1, 2010, on CIC wines that are sold through private retail stores
in Ontario. CIC is wine that is produced through the blending
of wine made from domestic grapes with wine purchased on
international markets. Imported and domestic wine that is sold
through the LCBO will not incur any additional taxation. The
special levy will put pressure on gross profit, on domestic grape
prices and will negatively impact future domestic grape purchases.
The Company estimates that the cost of the levy, on an annual
basis, will amount to approximately $4.3 million.
The Company’s product portfolio covers the complete spectrum
of price levels within the Canadian wine market and expects that,
while there may be a modest reduction in purchases of ultra-
premium wine, this is expected to be mitigated by an increase in
sales of blended varietal wines. In addition, the Company will be
accelerating its efforts to generate production efficiencies and
reducing overhead costs to enhance its overall profitability.
Risks and Uncertainties
The Company’s sales of wine are affected by general economic
conditions such as changes in discretionary consumer spending
and consumer confidence in future economic conditions, tax laws
and the prices of its products. A steep and sustained decline in
economic growth may cause a lower demand for the Company’s
products. Such general economic conditions could impact the
Company’s sales through the Company’s estate wineries and
restaurants, direct sales through licensed establishments and
export sales through duty free shops. The Company believes that
these effects would likely be temporary and would not have a
significant impact on financial performance.
The Canadian wine market continues to be the target of low-
priced imported wines from regions and countries that subsidize
wine production and grape growing as well as providing sizeable
export subsidies. In addition, many of these countries and regions
prohibit or restrict the sale of imported wine in their own domestic
markets. The Company, along with other members of the
Canadian wine industry, is working with the Canadian government
to rectify these unfair trade practices.
The Company operates in a highly competitive industry and
the dollar amount and unit volume of sales could be negatively
impacted by its inability to maintain or increase prices, changes in
geographic or product mix, a general decline in beverage alcohol
consumption or the decision of retailers or consumers to purchase
competitive wines instead of the Company’s products. Retailer
and consumer purchasing decisions are influenced by, among
other things, the perceived absolute or relative overall value of
the Company’s wines, including their quality or pricing, compared
to competitive products. Unit volume and dollar sales could also
be affected by purchasing, financing, operational, advertising or
promotional decisions made by provincial agencies and retailers,
which could affect supply of or consumer demand for the
Company’s products. The Company could also experience higher
than expected selling and administrative expenses if it finds it
necessary to increase the number of its personnel, advertising or
promotional expenditures to maintain its competitive position.
Andrew Peller Limited 2010 Annual Report
23
The wine industry and the domestic and international market,
in which the Company operates, are consolidating. This has
resulted in fewer, but larger, competitors who have increased
their resources and scale. The increased competition from these
larger market participants may affect the Company’s pricing
strategies and create margin pressures, resulting in potentially
lower gross profit. Competition also exerts pressure on
existing customer relationships, which may affect APL’s ability
to retain existing customers and increase the number of new
customers. The Company has worked to improve production
efficiencies, selectively increased pricing to increase gross profit
and implemented a higher level of promotion and advertising
activity to combat these initiatives. APL and other wine industry
participants also generally compete with other alcoholic
beverages like beer and spirits for consumer acceptance, loyalty
and shelf space. No assurance can be given that consumer
demand for wine, and premium wine products, will continue at
current levels in the future.
The Company has experienced increases in energy costs, and
further increases in the cost of energy would result in higher
transportation, freight and other operating costs. The Company’s
future operating expenses and margins are dependent on its
ability to manage the impact of cost increases. The Company
cannot guarantee that it will be able to pass along increased
energy costs to its customers through increased prices.
Federal and provincial governments impose excise and other
taxes on beverage alcohol products in varying amounts which
have been subject to change. Significant increases in excise and
other taxes on beverage alcohol products could materially and
adversely affect the Company’s financial condition or results
of operations. In addition, federal and provincial governmental
agencies extensively regulate the beverage alcohol products
industry concerning such matters as licensing, trade practices,
permitted and required labelling, advertising and relations
with consumers and retailers. Certain federal and provincial
regulations also require warning labels and signage. New or
revised regulations or increased licensing fees, requirements or
taxes could also have a material adverse effect on the Company’s
financial condition or results of operations.
The Company’s future operating results also depend on the
ability of its officers and other key employees to continue to
implement and improve its operating and financial systems and
manage the Company’s significant relationships with its suppliers
and customers. The Company is also dependent upon the
performance of its key senior management personnel. The
Company’s success is linked to its ability to identify, hire, train,
motivate, promote and retain highly qualified management.
Competition for such employees is intense and there can be no
assurances that the Company will be able to retain current key
employees or attract new key employees.
The Company expects to increase its sales of premium wines
in Canada, principally through the sale of VQA wines, and as a
result is dependent on the quality and supply of domestically
grown premium quality grapes. If any of APL’s vineyards
experience certain weather variations, natural disasters,
pestilence, other severe environmental problems or other
occurrences, APL may not be able to secure a sufficient supply of
grapes and there could be a decrease in our production of certain
products from those regions and/or an increase in costs. In the
past, where there has been a significant reduction in domestically
sourced grapes, the Government of Ontario, in conjunction
with the Ontario Grape Growers Marketing Board, has agreed
to temporarily increase the blending of imported wines, which
would enable the Company to continue to supply products to
the market. The inability to secure premium quality grapes could
impair the ability of the Company to supply certain wines to our
customers. The Company has developed programs to ensure it
has access to a consistent supply of premium quality grapes and
wine. The price of grapes is determined through negotiations with
the Ontario Grape Growers Marketing Board in Ontario and with
independent growers in British Columbia.
Foreign exchange risk exists on the purchases by the Company of
bulk wine and concentrate that are made in U.S. dollars and Euros.
The Company’s strategy is to hedge approximately 50% - 80% of
its foreign exchange requirements throughout the fiscal year and
regularly reviews its ongoing requirements. The Company has
entered into a series of foreign exchange contracts as a hedge
against movements in U.S. dollar and Euro exchange rates. The
Company does not enter into foreign exchange contracts for
trading or speculative purposes. These contracts are reviewed
periodically. Each one cent change in the value of the U.S. dollar
has a $0.2 million impact on the Company’s net earnings.
The Company purchases glass, bag-in-the-box, tetra paks, kegs
and other components used in the bottling and packaging
of wine. The largest component in the packaging of wine
is glass, of which there are few domestic or international
suppliers. There is currently only one commercial supplier of
glass in Canada and any interruption in supply could have an
adverse impact on the Company’s ability to supply its markets.
APL has taken steps to reduce its dependence on domestic
suppliers through the development of relationships with several
international producers of glass and through carrying increased
inventories of selected bottles.
The Company operates in a highly regulated industry, with
requirements regarding the production, distribution, marketing,
advertising and labelling of wine. These regulatory requirements
may inhibit or restrict the Company’s ability to maintain or increase
strong consumer support for and recognition of its brands and
may adversely affect APL’s business strategies and results of
operations. The Company is currently reviewing its labelling
on CIC wines. Privatization of liquor distribution and retailing
has been implemented in varying degrees across the country.
The possibility of privatization in Ontario remains a risk to the
Company through its impact on the Company’s retail operations.
The provincial government has stated that, should it consider
privatization, it would engage in a consultation process and
would acknowledge the special role of Ontario’s wine industry.
24
Andrew Peller Limited 2010 Annual Report
The competitive nature of the wine industry internationally
has resulted in the discounting of retail prices of wine in key
markets such as the United States and the United Kingdom,
in part due to an international grape surplus. This international
grape surplus, principally in Australia, Chile and Argentina and
high inventories of French wine, could serve to continue the
discounting of wine in international markets. The Company has
responded by increased promotional and advertising spending
to strengthen the performance of its brands. The Company does
not believe that significant price discounting will occur in Canada
beyond current levels.
The Company considers its trademarks, particularly certain
brand names and product packaging, advertising and promotion
design and artwork to be of significant importance to its business
and ascribes a significant value to these intangible assets. The
Company relies on trademark laws and other arrangements to
protect its proprietary rights. There can be no assurance that the
steps taken by APL to protect its intellectual property rights will
preclude competitors from developing confusingly similar brand
names or promotional materials. The Company believes that its
proprietary rights do not infringe upon the proprietary rights of
third parties, but there can be no assurance in this regard.
As an owner and lessor of property, the Company is subject to
various federal and provincial laws relating to environmental
matters. Such laws provide that the Company could be held liable
for the cost of removal and remediation of hazardous substances
on its properties. The failure to remedy any situation that might
arise could lead to claims against the Company. These risks are
believed to be limited.
The success of the Company’s brands depends upon the positive
image that consumers have of those brands. Contamination of
APL’s products, whether arising accidentally or through deliberate
third-party action, or other events that harm the integrity or
consumer support for those brands, could adversely affect their
sales. Contaminants in raw materials purchased from third parties
and used in the production of the Company’s products or defects
in the fermentation process could lead to low product quality
as well as illness among, or injury to, consumers of the products
and may result in reduced sales of the affected brand or all of the
Company’s brands.
Evaluation of Disclosure Controls and
Procedures and Internal Control over
Financial Reporting
Compliance with National Instrument 52-109 (“NI 52-109”)
provided the Company with a review and documentation of
the processes and internal controls that were in place within
the organization. As a result of the review, the Company found
no material weaknesses and will continue to update the review
and documentation of processes and internal controls on an
on-going basis.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide
reasonable assurance that all relevant information required to be
disclosed by the Company in reports filed with or submitted to
various securities regulators is recorded, processed, summarized
and reported within the time periods specified. This information is
gathered and reported to the Company’s management, including
the President and Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), on a timely basis so that decisions can
be made regarding the Company’s disclosure to the public.
As at June 23, 2010, the Company’s management, under the
supervision of, and with the participation of the CEO and CFO,
have designed and evaluated the Company’s disclosure controls
and procedures as required in Canada by “National Instrument
52-109 – Certification of Disclosure in Issuers’ Annual and Interim
Filings”. Based on this evaluation, the CEO and CFO have
concluded that the Company’s disclosure controls and procedures
are effective.
Internal Controls over Financial Reporting
Internal controls over financial reporting are procedures designed
to provide reasonable assurance that transactions are properly
authorized, assets are safeguarded against unauthorized or
improper use, and transactions are properly recorded and
reported. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
with respect to reliability of financial reporting and financial
statement preparation.
Designing, establishing and maintaining adequate internal
controls over financial reporting is the responsibility of
management. Internal controls over financial reporting is
a process designed by, or under the supervision of senior
management and effected by the Board of Directors to
provide reasonable assurance regarding the reliability of
financial reporting and preparation of the Company’s financial
statements in accordance with Canadian GAAP.
As at June 23, 2010, the CEO and CFO of the Company have
evaluated the effectiveness of the Company’s internal controls
over financial reporting. Based on these evaluations, the CEO
and CFO have concluded that the controls and procedures were
operating effectively.
For the year ended March 31, 2010, there have been no
material changes in the Company’s internal control over financial
reporting or changes to disclosure, procedures or controls
that materially affected or were likely to affect, the Company’s
internal control systems.
Andrew Peller Limited 2010 Annual Report
25
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements have been prepared by management and approved by the Board of Directors.
Management is responsible for the integrity of the information contained in the financial statements and other sections of this annual
report. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles. To assist
management in discharging its responsibilities, the Company maintains a system of internal controls designed to provide reasonable
assurance that its assets are safeguarded; that only valid and authorized transactions are executed; and that accurate and timely financial
information is prepared. The Board of Directors ensures that management fulfills its responsibilities for financial reporting and internal
controls. The Board exercises these responsibilities primarily through the Audit, Finance and Risk Committee (the “Committee”). The
Committee meets periodically with management and the Company’s auditors to ensure that its responsibilities are properly discharged.
The Committee also reviews the consolidated financial statements and recommends to the Board of Directors that the statements be
approved for issuance to shareholders. PricewaterhouseCoopers LLP, Chartered Accountants, appointed by the shareholders as the
Company’s auditors, have audited and expressed their opinion on the accompanying consolidated financial statements of the Company.
John E. Peller, President & CEO
Peter B. Patchet , CFO & Executive Vice President,
Human Resources
AUDITORS’ REPORT
To the Shareholders of Andrew Peller Limited
We have audited the consolidated balance sheets of Andrew Peller Limited as at March 31, 2010 and 2009 and the consolidated
statements of earnings (loss) and comprehensive earnings (loss), retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as
at March 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with Canadian
generally accepted accounting principles.
Chartered Accountants, Licensed Public Accountants,
Toronto, Ontario
June 23, 2010
26
Andrew Peller Limited 2010 Annual Report
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 2010 AND 2009 (IN THOUSANDS OF DOLLARS)
ASSETS
Current assets
Accounts receivable
Inventories (note 3)
Prepaid expenses and other assets
Income taxes recoverable
Discontinued operation (note 16)
Property, plant and equipment (notes 2 and 4)
Intangibles and other assets (notes 2 and 5)
Goodwill (notes 2 and 7)
Discontinued operation – long-term assets (note 16)
LIABILITIES
Current liabilities
Bank indebtedness (note 6)
Accounts payable and accrued liabilities
Dividends payable
Current portion of derivative financial instruments (note 14)
Current portion of long-term debt (note 6)
Discontinued operation (note 16)
Long-term debt (notes 6 and 14)
Long-term derivative financial instruments (note 14)
Employee future benefits (note 7)
Future income taxes (note 8)
Discontinued operation – long-term liabilities (note 16)
SHAREHOLDERS’ EQUITY
Capital stock (note 9)
Retained earnings
Commitments and contingencies (note 11)
Approved by the Board of Directors
John E. Peller, Director
Brian J. Short, Director
The accompanying notes are an integral part of these consolidated financial statements
2010
2009
$
22,902
89,693
2,429
1,327
-
116,351
95,728
14,164
37,473
-
$
21,044
100,883
2,309
6,318
4,264
134,818
98,234
14,838
35,684
9,933
$ 263,716
$
293,507
$
48,877
28,229
1,197
1,922
6,158
-
86,383
47,633
1,667
4,530
9,838
-
$
52,192
38,512
1,197
2,719
6,158
4,837
105,615
71,549
5,963
2,824
10,428
337
150,051
196,716
7,375
106,290
113,665
7,375
89,416
96,791
$ 263,716
$
293,507
Andrew Peller Limited 2010 Annual Report
27
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND
COMPREHENSIVE EARNINGS (LOSS) AND RETAINED EARNINGS
FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Sales
Cost of goods sold, excluding amortization
Gross profit
Selling and administration
Earnings before interest and amortization
Interest
Amortization of plant, equipment and intangible assets
Earnings before other items
Net unrealized (gains) losses on derivative financial instruments (note 14)
Other expenses (note 12)
Earnings (loss) before income taxes
Provision for (recovery of) income taxes (note 8)
Current
Future
Net and comprehensive earnings (loss) for the year from continuing operations
Net and comprehensive earnings for the year from a discontinued operation (note 16)
Net and comprehensive earnings (loss) for the year
Retained earnings - Beginning of year
Impact of adoption of accounting pronouncement on April 1, 2008 (note 1)
Impact of adoption of accounting pronouncement on January 1, 2009 (note 1)
Dividends
Class A and Class B shares
Retained earnings - End of year
Net earnings (loss) per share from continuing operations
Basic and diluted
Class A shares
Class B shares
Net earnings per share from a discontinued operation
Basic and diluted
Class A shares
Class B shares
Net earnings (loss) per share (notes 1 and 10)
Basic and diluted
Class A shares
Class B shares
The accompanying notes are an integral part of these consolidated financial statements
2010
2009
$ 263,151
166,827
$
251,136
157,445
96,324
68,970
27,354
7,873
7,991
11,490
(3,224)
1,627
13,087
3,503
58
3,561
9,526
12,135
21,661
89,416
-
-
93,691
70,332
23,359
6,855
7,847
8,657
9,496
1,275
(2,114)
1,935
(2,605)
(670)
(1,444)
1,319
(125)
95,305
(1,875)
898
(4,787)
(4,787)
$ 106,290
$
89,416
$
$
$
$
$
$
0.66
0.57
0.83
0.73
1.49
1.30
$
$
$
$
$
$
(0.10)
(0.09)
0.09
0.08
(0.01)
(0.01)
28
Andrew Peller Limited 2010 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 (IN THOUSANDS OF DOLLARS)
Cash provided by (used in)
OPERATING ACTIVITIES
Net earnings (loss) for the year
Items not affecting cash
Loss on disposal of property, plant and equipment
Amortization of plant, equipment and intangible assets
Employee future benefits
Net unrealized loss (gain) on derivative financial instruments
Future income taxes
Amortization of deferred financing costs
Write-off of deferred financing costs
Impairment charges
Change in non-cash working capital items related to operations (note 13)
INVESTING ACTIVITIES
Proceeds from disposal of property, plant and equipment
Purchase of property and equipment
Acquisition of businesses (note 2)
Investment in product development
FINANCING ACTIVITIES
Increase in deferred financing costs
Decrease in bank indebtedness
Increase in long-term debt
Payment to partially unwind a derivative financial instrument
Repayment of long-term debt
Dividends paid
Decrease in cash during the year from continuing operations
Increase in cash during the year from discontinued operation (note 16)
Change in cash during the year
Cash - Beginning of year
Cash - End of year
Supplemental disclosure of cash flow information
Cash paid during the year from continuing operations for
Interest
Income taxes
Cash paid during the year from discontinued operation for
Income taxes
Cash paid during the year for
Interest
Income taxes
The accompanying notes are an integral part of these consolidated financial statements
2010
2009
$
9,526
$
(1,444)
175
7,991
(866)
(3,224)
58
371
267
1,247
15,545
1,905
17,450
34
(5,047)
(825)
-
(5,838)
(979)
(3,315)
-
(1,600)
(22,750)
(4,787)
(33,431)
(21,819)
21,819
-
-
-
7,819
38
602
7,819
640
$
$
11
7,847
(343)
9,496
(2,605)
75
442
148
13,627
(5,420)
8,207
3
(10,002)
(13,665)
(116)
(23,780)
(340)
(7,217)
27,386
-
(4,748)
(4,678)
10,403
(5,170)
5,170
-
-
-
6,990
4,808
656
6,990
5,464
$
$
Andrew Peller Limited 2010 Annual Report
29
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
1.
Significant accounting policieS
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada.
Significant accounting policies adopted by the Company are as follows:
a) Basis of consolidation
These consolidated financial statements include the accounts of the Company and all subsidiary companies. The purchase method has
been used to account for all acquisitions. The assets and liabilities of subsidiary companies acquired are included at their fair value on
acquisition and the results of operation are included from the date of acquisition.
During fiscal 2010, the Company disposed of its ownership interest in Granville Island Brewing Company Ltd. and Mainland Beverage
Distribution Ltd. (collectively referred to as “GIBCO”), and presented this operation as a discontinued operation (note 16).
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for
sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is re-presented as if the
operation had been discontinued from the start of the comparative period.
b) revenue
The Company records a sale when persuasive evidence of an arrangement exists with a customer; delivery of goods and the transfer
of title to the customer has occurred under the terms of the arrangement; the selling price is fixed or determinable; and collectibility is
reasonably assured. For transactions with provincial liquor boards, licensee retail stores, licensees and wine kit retailers, the Company’s
terms are “FOB shipping point”. Accordingly, sales are recorded when the product is shipped from the Company’s production facility.
Sales to consumers through retail stores, winery restaurants and estate wineries are recorded when the product is purchased.
Excise taxes collected on behalf of the federal government, licensing fees paid on wine sold through the Company’s independent retail
stores in Ontario, product returns, breakage and discounts provided to customers are deducted from gross revenues to arrive at sales.
c)
inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined on an average cost basis.
The Company utilizes a weighted average cost calculation to determine the value of ending inventory (bulk wine and finished goods).
Average cost is determined separately for import wine and domestic wine and is calculated by varietal and vintage year.
The Company includes interest costs in the cost of certain wine inventories that require a substantial period of time to become ready
for sale.
d) property, plant and equipment
Property, plant and equipment are carried at cost less accumulated amortization. Amortization of buildings, vineyards and equipment
is calculated on the straight-line basis in amounts sufficient to amortize the cost of buildings, vineyards and equipment over their
estimated useful lives as follows:
Buildings
Vineyards
Machinery and equipment
2.5% per year
5% per year
7.5% to 20% per year
Vineyard amortization commences in the year the vineyard yields a crop that approximates 50% of expected annual production.
e) goodwill
Goodwill represents the cost of investments in subsidiaries in excess of the fair values of the net tangible and identifiable intangible
assets acquired. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if circumstances indicate
that goodwill may be impaired. The Company determines an impairment of goodwill based on the ability to recover the balance from
expected future discounted operating cash flows.
30
Andrew Peller Limited 2010 Annual Report
f)
intangible assets
Intangible assets include brands, customer contracts, contract co-packaging arrangements and customer-based relationships.
These intangible assets are recorded at estimated fair value on the date of acquisition. Customer contracts, contract co-packaging
arrangements and customer-based intangible assets are amortized on a straight-line basis over 10 - 20 years. Brands that have been
assessed as having an indefinite life are not amortized but are tested for impairment at least annually, or more frequently if events or
circumstances indicate that the asset might be impaired.
g) impairment of long-lived assets and definite life intangible assets
The Company reviews long-lived assets and definite life intangible assets for impairment when events or circumstances indicate that the
asset’s carrying amount may not be recoverable. When management determines that an impairment exists, the impairment loss will be
determined by comparing the asset’s carrying amount to its fair value, which is determined using a discounted cash flow model (note 12).
h) net earnings per share
Basic net earnings per share has been calculated using the weighted average number of Class A and Class B shares outstanding during
the year; diluted net earnings (loss) per share has been calculated using the treasury stock method (note 10).
i) Segmented information
The Company produces and markets wine products and other beverages in Canada. A significant portion of the Company’s sales are
made to the liquor control boards in each province in which the Company transacts business. Management has concluded that based
on the type of products sold and the fact that its customers are similar in nature, the Company operates in a single operating segment.
In addition, a substantial portion of the Company’s sales are made in Canada. As a result, management has concluded that the
Company operates in one geographic segment. During the year, the Company did have export sales of $10,181 (2009 - $9,279), which
primarily relate to sales in the United States.
j) measurement uncertainty
The preparation of consolidated financial statements in accordance with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may vary from current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, are reported in earnings in the year in which they become known.
k) income taxes
The Company follows the liability method of accounting for income taxes based on temporary differences. Future income taxes are
provided for all temporary differences between the financial reporting and tax bases of assets and liabilities. Future income tax assets
and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The future income tax expense represents the change during the year
in future income tax assets and future income tax liabilities.
l) asset retirement obligations
The fair value of a liability for an asset retirement obligation is recorded in the year in which it is incurred. When the liability is initially
recorded, the cost is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is increased to
reflect an interest element considered in the initial measurement of fair value. The capitalized cost is amortized over the asset’s useful
life.
m) employee future benefits
The Company sponsors defined benefit pension plans providing pension and other post retirement medical benefits to certain
employees. The costs of the defined benefit pension plans and other post retirement benefits are actuarially determined and include
management’s best estimate of expected plan investment performance (where applicable), salary escalation and expected retirement
ages. For plans with active employees, adjustments arising from plan amendments or from actuarially determined gains or losses are
amortized on a straight-line basis over the average remaining service period of active employees. For plans where the majority of the
plan members have retired, adjustments arising from plan amendments or from actuarially determined gains and losses are amortized
on a straight-line basis over the average life expectancy of the remaining plan members.
n) comprehensive income (loss)
Comprehensive income (loss) is comprised of net earnings or loss and other comprehensive income (loss) (OCI). OCI represents the
change in equity for a period that arises from unrealized gains and losses on available-for-sale securities and changes in the fair market
value of derivative instruments designated as hedges.
Andrew Peller Limited 2010 Annual Report
31
o) equity
This section requires separate presentation of changes in equity for the period arising from net income, OCI, contributed surplus,
retained earnings, share capital and reserves. Accumulated OCI is included in the consolidated balance sheet as a separate component
of shareholders’ equity. The Company does not currently have any accumulated OCI.
p) transaction costs
Transaction costs related to financial liabilities are netted against the carrying value of the liability and are then amortized over the
expected life of the instrument using the effective interest rate method.
q) recently adopted accounting pronouncements
On April 1, 2009, the Company adopted the amendments to CICA Handbook Section 3862, Financial Instruments – Disclosures.
In accordance with this section, the Company categorizes its fair value measurements according to a three-level hierarchy. The
hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement
based on the lowest level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are
defined as follows:
Level 1 – fair value measurements that reflect unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – fair value measurements include inputs other than quoted prices included in Level 1 that are observable for identical or
similar assets and liabilities, either directly or indirectly.
Level 3 – fair value measurements include inputs for the asset or liability that are not based on observable market data.
The amended standard requires enhanced disclosures about the relative reliability of the data, or inputs, that the Company uses to
measure the fair values of its financial instruments (note 14).
Effective April 1, 2008, the Company adopted the following new accounting standards that were issued by the Canadian Institute of
Chartered Accountants (“CICA”):
a)
b)
CICA Handbook Section 3031, “Inventories” replaces CICA Handbook Section 3030, “Inventories” and provides more guidance
on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It
also provides guidance on the cost formulas that are used to assign costs to inventories and is effective for the Company’s fiscal
years beginning on April 1, 2008. As required, this standard has been adopted prospectively and comparative amounts have not
been restated. The change predominately relates to changes in the application of overhead cost allocations to bulk and finished
goods inventory. As a result, on adoption of this standard, the Company recorded an adjustment on April 1, 2008 to reduce
inventories by $2,725, reduce future income taxes by $850, and reduce opening retained earnings by $1,875.
The Company adopted CICA Emerging Issues Committee 173, “Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities” (“EIC 173”) that requires an entity’s own credit risk and the risk of the counterparty to be taken into account when
determining the fair value of financial assets and financial liabilities, including derivative amounts. As a result, on adoption, the
Company recorded an adjustment on January 1, 2009 to increase the fair value of derivative financial instruments by $1,307,
increase future income taxes by $409 and increase opening retained earnings by $898.
r) recently issued accounting pronouncements
a)
Business Combinations, Consolidated Financial Statements and Non-Controlling Interests: CICA Handbook Section 1582,
“Business Combinations”, CICA Handbook Section 1601, “Consolidated financial statements”, and CICA Handbook Section
1602, “Non-controlling interests” replace the former CICA Handbook Section 1581, “Business Combinations” and CICA
Handbook Section 1600, “Consolidated Financial Statements” and establishes a new section for accounting for a non-controlling
interest in a subsidiary. These sections provide the Canadian equivalent to International Financial Reporting Standards (“IFRS”) 3,
“Business Combinations” and International Accounting Standard 27, “Consolidated and Separate Financial Statements”. CICA
Handbook Section 1582 is effective for business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after January 1, 2011. Section 1601 and Section 1602 apply to interim and annual
consolidated financial statements relating to years beginning on or after January 1, 2011. The Company is currently evaluating
the impact of adoption of these standards.
b)
CICA Emerging Issues Committee 175, “Multiple Deliverable Revenue Arrangements” was released and requires a vendor to
allocate arrangement consideration at the inception of an arrangement to all deliverables using the relative selling price method.
The new requirements are effective for fiscal years beginning on or after January 1, 2011 with early adoption permitted. The
Company is currently evaluating the impact of the adoption of this standard.
32
Andrew Peller Limited 2010 Annual Report
2.
acquiSitionS
During fiscal 2009, the Company made the following acquisitions:
On June 13, 2008, the Company acquired 50% of the outstanding shares of Rocky Ridge Vineyards Inc. (“Rocky Ridge”) for consideration
of $3,927, including acquisition costs. The Company previously owned 50% of the shares of Rocky Ridge and as a result of this transaction
Rocky Ridge is now a wholly-owned subsidiary. This transaction was accounted for using the purchase method. The results of operations
have been fully consolidated effective June 14, 2008.
On June 30, 2008, the Company acquired 100% of the common shares of World Vintners Inc. for consideration of $9,629, including
acquisition costs. This transaction was accounted for using the purchase method. The results of operations have been included in the
consolidated financial statements effective July 1, 2008.
On July 31, 2008, the Company acquired 100% of the outstanding shares of Camelot Cellars Ltd. for consideration of $154, including
acquisition costs. This transaction was accounted for using the purchase method. The results of operations have been included in the
consolidated financial statements effective August 1, 2009.
On October 8, 2008, the Company acquired 100% of the outstanding shares of The Small Winemakers Collection Inc. for consideration of
$1,605, including acquisition costs. Pursuant to the purchase agreement, contingent consideration to a maximum of $333, measured on
an annual basis, may be payable based on the pre-determined sales levels up to three years beginning March 31, 2009. Future payments
under this agreement will be recorded as goodwill when the amount and outcome of the contingent consideration becomes determinable.
There was no contingent consideration paid or payable at March 31, 2010. This transaction was accounted for using the purchase method.
The results of operations have been included in the consolidated financial statements effective October 9, 2008.
The value assigned to goodwill in all of the acquisitions is not deductible for tax purposes.
Acquired intangible assets include brands in the amount of $1,700 that are not subject to amortization and customer-based relationships
and contract packaging agreements in the aggregate amount of $7,790 which are subject to amortization. All acquired intangible assets are
not deductible for income tax purposes.
The following table summarizes the amounts paid or payable at the dates of the acquisitions and the allocation of purchase prices based on
management’s estimates of the fair values of assets and liabilities acquired:
Purchase consideration
Cash - net of cash acquired
Note payable
Rocky Ridge
World
Vintners Inc.
Camelot
Cellars, Ltd.
The Small
Winemakers
Collection Inc.
Total
$
2,277
1,650
$
9,629
-
$
154
-
$ 1,605
-
$
13,665
1,650
$
3,927
$
9,629
$
154
$ 1,605
$
15,315
Allocation
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes recoverable
$
Property, plant and equipment
Intangible assets and other assets
Goodwill
Bank indebtedness
Accounts payable and accrued liabilities
Income taxes payable
Future income taxes
27
-
-
-
27
4,503
-
471
5,001
603
-
-
471
1,074
$
1,144
1,404
72
2,224
4,844
448
8,681
2,064
16,037
1,084
3,797
-
1,527
6,408
$
-
38
3
-
41
34
-
134
209
-
55
-
-
55
$
632
-
36
-
668
34
890
544
$
1,803
1,442
111
2,224
5,580
5,019
9,571
3,213
2,136
23,383
-
256
5
270
531
1,687
4,108
5
2,268
8,068
Net assets acquired
$
3,927
$
9,629
$
154
$
1,605
$
15,315
Andrew Peller Limited 2010 Annual Report
33
$
2010
8,957
50,787
29,949
$
2009
9,261
56,501
35,121
$
89,693
$
100,883
3.
inventorieS
Packaging materials and supplies
Bulk wine
Finished goods
The amount of interest included in the cost of inventories is $941 (2009 - $611).
Inventory write-downs recognized as an expense amounted to $1,743 (2009 - $1,459).
4.
property, plant and equipment
Land
Vineyards
Buildings
Machinery and equipment
Land
Vineyards
Buildings
Machinery and equipment
$
Cost
4,807
38,627
39,193
86,654
Accumulated
amortization
$
-
5,547
11,326
56,680
2010
Net
4,807
33,080
27,867
29,974
$
$ 169,281
$
73,553
$
95,728
$
Cost
4,807
37,379
38,878
83,963
Accumulated
amortization
$
-
4,850
10,272
51,671
2009
Net
4,807
32,529
28,606
32,292
$
$ 165,027
$
66,793
$
98,234
Included in vineyards are assets amounting to $11,731 (2009 - $10,498) that are under development and are not being amortized.
On May 25, 2010, the Company sold a portion of a vineyard with a net book value of $419 for proceeds of $833.
5.
intangiBleS and other aSSetS
Brands - indefinite lives
Customer-based intangible assets, net of accumulated amortization
of $1,884 (2009 - $1,293)
Contract packaging, net of accumulated amortization of $192 (2009 - $82)
Other assets
2010
2009
$
3,800
$
3,800
8,375
908
1,081
8,966
1,018
1,054
$
14,164
$
14,838
34
Andrew Peller Limited 2010 Annual Report
6.
Bank indeBtedneSS and long-term deBt
Term loan
Note payable
Less: Financing costs
Less: Current portion
$
2010
53,611
825
54,436
645
53,791
6,158
$
2009
76,361
1,650
78,011
304
77,707
6,158
$
47,633
$
71,549
The Company has established the following credit facilities:
On November 10, 2009, the Company modified the terms of its short-term loan facility to increase the borrowing limit to $75,000 (2009 -
$65,000). The loan is a one-year committed facility incurring interest at the Royal Bank of Canada prime rate plus 2.75%. As at March 31,
2010, the unused portion of this loan facility was $19,409 (2009 - $12,808).
On January 26, 2010, the Company modified its existing term loan. The term loan will continue to be repayable in monthly principal
payments of $444 plus interest and matures on April 30, 2015. The Company maintains an interest rate swap which effectively fixes the
interest rate on the term loan at 5.64%. Under terms of the modified loan, the Company currently pays additional interest of 0.95% based
on certain leverage ratios and a funding premium, to be negotiated annually, of 1.05%.
For the year ended March 31, 2010, the change in fair value of the interest rate swap, which was calculated using year-end market rates,
amounted to an unrealized gain of $3,937 (2009 - unrealized loss $9,022).
The Company and its subsidiaries have provided its assets as general security for these loan facilities.
On October 1, 2009, a payment in the amount of $17,500 was made to reduce the outstanding principal of the term loan and a payment
of $6,000 was made to reduce the short-term loan facility as a result of the sale of Granville Island Brewing Company Ltd. and Mainland
Beverage Distribution Ltd. (note 16).
As part of the acquisition of Rocky Ridge in fiscal 2009, the Company issued a promissory note to the vendor in the amount of $1,650. The
note incurs interest at 6% compounded annually and the fixed annual instalment of principal and interest is due on June 13, 2010 (see also
note 2). The outstanding balance of the note was $825 at March 31, 2010.
In 2009, a seven year variable rate term facility existed in the amount of $80,000 repayable in monthly principal payments of $444 plus
interest and maturing on April 30, 2015.
Interest expense on long-term debt during the year was $5,272 (2009 - $4,270).
Annual principal repayments for the years ending March 31 are as follows:
2011
2012
2013
2014
2015
Thereafter
$
6,158
5,333
5,333
5,333
5,333
26,946
$ 54,436
Andrew Peller Limited 2010 Annual Report
35
7.
employee future BenefitS
The Company has defined benefit pension plans, providing pension and other post employment benefits, and defined contribution
savings plans for its employees. The total expense for the defined contribution savings plans was $1,311 (2009 - $1,273). Information
about the defined benefit pension plans and other post employment medical benefits are as follows:
Plan assets
Fair value - Beginning of year
Actual return on plan assets
Company’s contributions
Employees’ contributions
Benefits paid
Fair value - End of year
Plan obligations
Accrued benefit obligations - Beginning of year
Post employment medical benefits
Past service cost due to amendment
Total current service cost
Interest cost
Benefits paid
Actuarial losses (gains)
Accrued benefit obligations - End of year
Funded status
Plan deficits
Unamortized actuarial losses (gains)
Unamortized actuarial gain for post employment medical benefits
Unamortized plan amendment asset for post employment medical benefits
Accrued benefit liabilities
Benefit plan expense
Current service cost
Interest cost
Expected return on plan assets
Employee contributions
Amortization of net actuarial (gain) loss, net of transition asset
2010
2009
$
11,910
2,729
1,436
3
(1,095)
$
14,149
(2,383)
1,040
3
(899)
$
14,983
$
11,910
$
14,361
1,031
130
336
1,000
(1,095)
3,269
$
18,696
-
54
563
1,010
(899)
(5,063)
$
19,032
$
14,361
$
$
$
(4,049)
1,060
(893)
(648)
(4,530)
336
1,000
(846)
(3)
(47)
$
$
$
(2,451)
(373)
-
-
(2,824)
563
1,010
(1,058)
(3)
130
Net benefit plan expense
$
440
$
642
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations and benefit costs are as follows:
Discount rate for expenses
Discount rate for obligation
Expected long-term rate of return on plan assets
Rate of compensation increase
Retirement age
Expected average remaining service life
Expected health care cost inflation rate for post employment
medical benefits
2010
2009
5.0%
7.0%
7.0%
4 - 5%
60 - 65 years
7 - 14 years
7.0%
5.5%
7.0%
4 - 5%
60 - 65 years
7 - 14 years
10% next year
decreasing to
5% after five
years -
On March 31, 2010, the Company recognized an obligation to provide post employment medical benefits to certain employees which
arose as a result of the Company’s acquisition of Cascadia Brands Inc. (“Cascadia”). The obligation to provide post employment medical
benefits was not identified at the time of the Cascadia acquisition and the recognition of the post employment medical benefit obligation
has resulted in an increase to the employee future benefit liability of $2,572, an increase to goodwill in the amount of $1,924 and a
reduction to future income tax liability in the amount of $648.
36
Andrew Peller Limited 2010 Annual Report
amortization of actuarial gains and losses
All actuarial gains and losses are amortized over the expected average remaining service life which is estimated to be between 7 - 14 years
(2009 – 7 - 14 years). Amortization begins in the fiscal year immediately following the year in which the gains or losses are calculated.
plan assets
The plan’s assets consist of the following:
McLean Budden Balanced Fund
Trimark Income Growth Fund
JF Balanced Fund
actuarial valuation
2010
% %
33
33
34
100
2009
33
33
34
100
The most recent actuarial valuations for funding purposes were performed as at December 31, 2007 and December 31, 2008. The next
actuarial valuations for funding purposes are scheduled for December 31, 2010 and December 31, 2011. The date at which the Company
measures its fair value of plan assets and accrued benefit obligation is as at March 31 of each year.
8.
income taxeS
The significant temporary differences giving rise to the future income tax liability are comprised of the following:
Property, plant and equipment
Intangible assets
Goodwill
Loss carry forward balances
Derivative financial instruments
Employee future benefits
Other
The Company’s income tax expense (recovery) consists of the following:
Provision for (recovery of) income taxes at blended statutory rate
of 31.4% (2009 – 31.8%)
Permanent differences and non-deductible items
Future income tax rate changes
Other
$
2010
8,761
2,975
2,443
(2,308)
(949)
(1,155)
71
$
2009
9,819
3,537
2,638
(2,082)
(2,632)
(794)
(58)
$
9,838
$
10,428
2010
2009
$
$
4,107
290
(589)
(247)
$
3,561
$
(672)
439
(5)
(432)
(670)
As at March 31, 2010, the Company and its subsidiaries have available Canadian net operating losses of $8,566 (2009 - $6,873) for income
tax purposes, which expire as follows:
2025
2028
2029
2030
$
52
93
4,958
3,463
In aggregate, the Company has recognized $2,308 (2009 - $2,082) of the benefit of the net operating losses. The amount of the benefit of
these losses ultimately realized is subject to change.
Andrew Peller Limited 2010 Annual Report
37
9.
capital Stock
Authorized
2010
Issued
2009
Issued
Shares
Amount
Shares
Amount
Class A shares, non-voting
Class B shares, voting
Unlimited
Unlimited
11,888,241
3,004,041
$
6,975
400
11,888,241
3,004,041
$
6,975
400
14,892,282
$
7,375
14,892,282
$
7,375
Class A shares are non-voting and are entitled to a dividend in an amount equal to 115% of any dividend paid or declared on Class B
shares. Class B shares are voting and convertible into Class A shares on a one-for-one basis.
The authorized share capital of the Company also consists of an unlimited number of preference shares, issuable in one or more series,
of which 33,315 are designated as preference shares, Series A. As at March 31, 2010 and 2009, there were no preference shares issued
or outstanding.
Stock purchase plan
The Company’s full-time salaried, certain hourly employees and directors participate in a Company-sponsored stock purchase plan. Under
the terms of the plan, employees can purchase up to 200 Class A shares and directors can purchase up to 250 Class A shares on an annual
basis. Employees are required to pay 67% of an established market price per Class A share, whereas directors are required to pay 50%. The
Company is responsible for the remainder of the cost and, during 2010, expensed $215 (2009 - $210) related to this program. Officers of
the Company also participate in a long-term incentive program, which is used to purchase Class A shares of the Company from the open
market.
10. net earningS (loSS) per Share
The following is a reconciliation of the weighted average number of shares outstanding for basic and diluted net earnings (loss) per share
computations:
Net earnings (loss) for the year from continuing operations
Net earnings for the year from a discontinued operation
Net earnings (loss) for the year
2010
$
9,526
$ 12,135
$ 21,661
2009
(1,444)
1,319
(125)
$
$
$
Class A
Class B
Class A
Class B
Weighted average number of shares outstanding –
Basic and diluted
11,888,241
3,004,041
11,888,241
3,004,041
Net earnings (loss) per share from continuing operations
Basic and diluted
$
0.66
$
0.57
Net earnings per share from a discontinued operation
Basis and diluted
Net earnings (loss) per share
Basic and diluted
$
0.83
$
0.73
$
1.49
$
1.30
$
$
$
(0.10)
$
(0.09)
0.09
$
0.08
(0.01)
$
(0.01)
The dilutive effect of outstanding stock options on net earnings per share is based on the application of the treasury stock method. As at
March 31, 2010 and 2009, there were no items outstanding that impact the calculation of diluted earnings per share.
38
Andrew Peller Limited 2010 Annual Report
11. commitmentS and contingencieS
a) Future minimum lease payments as at March 31, 2010 under long-term non-cancellable leases are as follows:
2011
2012
2013
2014
2015
Thereafter
$
3,878
3,076
2,379
1,966
854
8,502
$
20,655
b) As at March 31, 2010, the Company held $16,450 in U.S. dollar-denominated foreign exchange forward contracts at rates ranging
between $1.01 and $1.06 expiring at various dates to December 2010. The Company also held EUR 2,550 in Euro-denominated
foreign exchange forward contracts at rates ranging between $1.41 and $1.47. Management has not elected to designate these
contracts as hedges and as a result have recorded the change in fair value of $713 in the statement of earnings (loss) (see note 14).
c) In the ordinary course of business activities, the Company may be contingently liable for litigation and claims. Management believes
that adequate provisions have been recorded in the accounts where required. Although it is not possible to accurately estimate the
extent of potential claims, if any, management believes that the ultimate resolution of such contingencies would not have a material
adverse effect on the financial position of the Company.
12. other expenSeS
Other expenses are as follows:
Impairment charges (i)
Write-off of deferred financing costs (ii)
Closure and integration costs related to Port Moody
winery facility (iii)
Other (iv)
$
2010
1,247
267
113
-
$
2009
-
442
208
625
$
1,627
$
1,275
i) During fiscal 2010, management performed an impairment analysis on the deferred costs and equipment related to Artful Winemaker
and the long-lived assets and goodwill related to Camelot Cellars and determined that the respective assets were no longer
recoverable based on revised forecasts. Accordingly, the Company has recorded a pre-tax impairment charge in the amount of $1,247
(intangibles and other assets - $808, property, plant and equipment - $304 and goodwill - $135).
ii) On January 26, 2010, the Company renegotiated the terms on the operating and long-term credit facilities. As a result, the carrying
value of previously deferred financing costs related to the old credit facilities in the amount of $267 was written off. In 2009, the
Company wrote off $442 in deferred financing costs related to four previous term loans.
iii) During fiscal 2006, the Company closed its Port Moody winery facility and transferred production to its winery operations in Kelowna,
British Columbia. The cost of maintaining this idle facility amounted to $113 in 2010 (2009 - $208).
iv) Other expenses include the costs to close the Quebec wine kit warehouse in the amount of $423, the write-off of an investment in an
Ontario wine distributor in the amount of $148 and other costs of $54.
13. non-caSh Working capital itemS
The change in non-cash working capital items related to operations is comprised of the change in the following items:
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes recoverable
Accounts payable and accrued liabilities
$
2010
(1,858)
11,190
(139)
3,465
(10,753)
$
2009
665
(11,559)
263
(2,878)
8,089
$
1,905
$
(5,420)
Andrew Peller Limited 2010 Annual Report
39
14.
financial inStrumentS
classification of financial instruments
Under Canadian generally accepted accounting principles, financial instruments are classified into one of the following categories: held for
trading, held to maturity, available for sale, loans and receivables, other financial liabilities and derivatives.
The classification and measurement of the financial assets and liabilities, as well as their carrying amounts and fair values are as follows:
Assets/liability
Category
Measurement
Accounts receivable
Bank indebtedness
Accounts payable and accrued
liabilities
Dividends payable
Long-term debt – term loans
Interest rate swap liability
Foreign exchange forward
contracts liability
Loans and receivables
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Derivatives
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Derivatives
Fair value
Assets/liability
Category
Measurement
Accounts receivable
Bank indebtedness
Accounts payable and accrued
liabilities
Dividends payable
Long-term debt – term loans
Interest rate swap liability
Foreign exchange forward
contracts asset
Discontinued operation –
Loans and receivables
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Derivatives
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Derivatives
Fair value
accounts receivable
Loans and receivables
Amortized cost
Carrying
amount
$
22,902
48,877
28,229
1,197
53,791
3,145
444
Carrying
amount
$
21,044
52,192
38,512
1,197
77,707
8,682
269
1,386
2010
Fair
value
$
22,902
48,877
28,229
1,197
53,791
3,145
444
2009
Fair
value
$
21,044
52,192
38,512
1,197
77,707
8,682
269
1,386
Discontinued operation –
accounts payable and
accrued liabilities
Other liabilities
Amortized cost
4,837
4,837
The Company’s interest rate swap and foreign exchange contracts are derivatives and are recorded at fair value. As a result, unrealized
gains and losses are included each period through earnings which reflect changes in fair value.
Embedded derivatives (elements of contracts whose cash flows move independently from the host contract) are required to be separated
and measured at fair values if certain criteria are met. Under an election permitted by CICA Handbook Section 3862 “Financial Instruments
– Disclosures”, management reviewed its contracts and determined that the Company does not currently have any embedded derivatives
in these contracts that require separate accounting and disclosure.
Hedge accounting is optional. When hedge accounting is not applied, the change in the fair value of the hedging instrument is recorded
directly into earnings. The Company has chosen not to designate any of its current hedging instruments as hedges for the purpose
of this section and has recorded the fair value adjustments of these instruments through net unrealized gains or losses on derivative
financial instruments.
Transaction costs related to long-term debt are netted against the carrying value of the liability and are then amortized over the expected
life of the instrument using the effective interest method. The Company has elected to use “trade date” accounting for regular way
purchases and sales of financial assets.
40
Andrew Peller Limited 2010 Annual Report
fair value
The fair value of accounts receivable, accounts payable and accrued liabilities and dividends payable approximates their carrying values
because of the short-term maturity of these instruments.
The fair value of long-term debt is equivalent to its carrying value since the interest rates are comparable to market rates.
The fair value of the derivative financial instruments generally reflects the estimates of the amounts the Company would receive by way of
settlement of favourable contracts or that the Company would pay to terminate unfavourable contracts at the consolidated balance sheet
date. The fair value of the interest rate swap and foreign exchange contracts are calculated using the quotes obtained from major financial
institutions. Unrealized gains or losses on derivative financial instruments are recorded in the net unrealized loss on derivative financial
instruments in the consolidated statement of earnings (loss).
Fair value estimates are made at a specific point in time, using available information about the instrument. These estimates are subjective in
nature and often cannot be determined with precision.
The fair value measurements of the Company’s financial instruments are classified in the hierarchy below according to the significance of the
inputs used in making the fair value measurements.
Quoted prices
in active
markets for
identical assets
(Level 1)
$
-
-
Quoted prices
in active
markets for
identical assets
(Level 1)
$
-
-
Significant
observable
inputs other
than quoted prices
(Level 2)
$
-
-
Significant
observable
inputs other
than quoted prices
(Level 2)
$
2010
Significant
unobservable
inputs
(Level 3)
$
3,145
444
2009
Significant
unobservable
inputs
(Level 3)
$
-
-
8,682
269
Asset/liability
Interest rate swap liability
Foreign exchange forward contracts liability
Asset/liability
Interest rate swap liability
Foreign exchange forward contracts asset
A reconciliation from the beginning balances to the ending balances of financial instruments with Level 3 fair value measurements is
included below:
Beginning of year
Net unrealized gain (loss) on derivative financial instruments
Net realized loss included in interest
Net realized loss included in selling and administration
Net settlements of contracts
Net settlement on reduction of term loan (note 6)
$
Interest rate
swap asset
(liability)
(8,682)
3,937
(2,717)
-
2,717
1,600
End of year
$
(3,145)
$
2010
Foreign
exchange
forward
contracts asset
(liability)
$
269
(713)
-
(3,539)
3,539
-
(444)
Andrew Peller Limited 2010 Annual Report
41
objectives and policy relating to financial risk management
interest rate risk
The Company’s principal exposure to interest rate fluctuations is limited to long-term debt (as described in note 6) which bears interest at
both fixed and floating interest rates. To mitigate the exposure to interest rate fluctuations, the Company uses interest rate swaps to fix
the interest rate on a portion of the Company’s variable rate debt. The Company has elected not to use hedge accounting and as a result
the interest rate swaps are measured at fair value. The resulting gains or losses are recorded in the statement of earnings (loss) and the fair
value of the interest rate swap is recorded on the balance sheet. As a result, the Company recognized an unrealized gain of $3,937 (2009 –
loss of $9,022) on the interest rate swap classified as net unrealized losses on derivative financial instruments on the statement of earnings
(loss). At March 31, 2010, there is one interest rate swap outstanding for a notional amount of $53,611 with a fixed interest rate of 5.64%.
The fair value of the interest rate swap at March 31, 2010 was $3,145.
The Company’s interest rate risk arises mainly from the interest rate impact on cash, floating rate debt and interest rate swap. The
Company’s interest rate management policy is to borrow at fixed rates to match the duration of long lived assets. Floating rate funding is
used for short-term borrowing.
The Company has fixed interest on long-term debt at 5.64% until April 2015 by entering into an interest rate swap. The Company
currently pays additional interest of 0.95% based on certain leverage ratios and a funding premium, to be negotiated annually of 1.05%.
The Company’s short-term borrowings are funded using a floating interest rate and as such are sensitive to interest rate movements. As
at March 31, 2010, with other variables unchanged, a 1% change in interest rates would impact the Company’s net earnings (loss) by
approximately $343 (2009 - $335), exclusive of the mark-to-market adjustments on the interest rate swap.
credit risk
The Company’s exposure to concentrations of credit risk is limited. The Company places its cash and cash equivalents with major Canadian
financial institutions of high creditworthiness, and the Company’s accounts receivable are not subject to high concentrations of credit risk.
Maximum credit risk exposure represents the loss that would be incurred if all of the Company’s counterparties were to default at the same
time.
The Company’s exposure to credit risk is very limited. Credit risk for trade receivables is monitored through established credit monitoring
activities. Over 55% of the Company’s accounts receivable balance relates to amounts owing from Canadian provincial liquor boards.
Excluding accounts receivable from Canadian provincial liquor board amounts, the Company does not have a significant concentration of
credit risk with any single counterparty or group of counterparties. The maximum exposure to credit risk is equal to the carrying value of the
financial assets.
Amounts owing from Canadian provincial liquor boards represents $12,629 of the $22,902 in total accounts receivables for which no
allowance has been provided. Of the remaining non-provincial liquor board balances, $947 (2009 - $1,046) had aged over sixty days as of
March 31, 2010. An allowance for doubtful accounts of $288 (2009 - $234) has been provided against these accounts receivable amounts
which the Company has determined to represent a reasonable estimate of amounts that may be uncollectible.
liquidity risk
The Company manages liquidity risk by maintaining adequate cash and cash equivalent balances and by appropriately utilizing its line of
credit. Company management continuously monitors and reviews both actual and forecasted cash flows and matches the maturity profile
of financial assets and financial liabilities. Accounts payable are generally due within 30 days and long-term debt payment requirements are
disclosed in note 6.
The following table outlines the Company’s contractual obligations, including long-term debt repayments, operating leases and
commitments on short-term forward foreign exchange contracts used to mitigate the currency risk on U.S. dollar purchases as at
March 31, 2010:
Long-term debt
Swap agreement
Operating leases
Foreign exchange contracts
Pension obligations
Long-term grape purchase contracts
$
Total
54,436
15,665
20,655
20,655
3,841
269,919
$
< 1
year
6,158
3,911
3,878
20,655
575
20,190
2 – 3
years
$ 10,666
6,609
5,455
-
886
42,141
4 – 5
years
$ 10,666
5,145
2,820
-
658
41,342
$
> 5
years
26,946
-
8,502
-
1,722
166,246
Total contractual obligations
$
385,171
$ 55,367
$ 65,757
$ 60,631
$ 203,416
42
Andrew Peller Limited 2010 Annual Report
foreign exchange risk
Certain of the Company’s purchases are denominated in U.S. dollars or Euros. Any increases or decreases to the foreign exchange rates
could increase or decrease the Company’s earnings. To mitigate the exposure to foreign exchange risk, the Company has entered into
forward foreign currency contracts.
As at March 31, 2010, the Company has forward foreign currency contracts to buy U.S. $16,450 at rates ranging between $1.01 and $1.06
and to buy EUR 2,550 at rates ranging between $1.41 and $1.47. The U.S. dollar forward contracts mature at various dates to December
2010 and the Euro forward contracts mature at various dates to September 2010. The Company has elected not to use hedge accounting
and as a result, has recognized $713 of unrealized foreign exchange losses (2009 – unrealized losses $474) in the consolidated statement
of earnings (loss) as a component of net unrealized losses on derivative financial instruments and has recorded the fair value of $(444) in
current portion of derivative financial instruments in the consolidated balance sheet (2009 - $269 in prepaid expenses and other assets).
The Company’s foreign exchange risk arises on the purchase of bulk wine and concentrate which are made in U.S. dollars and Euros. The
Company’s strategy is to hedge approximately 50% - 80% of its foreign exchange requirements prior to or during the beginning of each
fiscal year. The Company has entered into a series of foreign exchange contracts as a hedge against movements in U.S dollar and Euro
exchange rates. These contracts are reviewed regularly. The balance of the Company’s foreign exchange requirements are not hedged,
accordingly a one percent change in the value of the U.S. dollar and Euro would impact the Company’s net earnings (loss) by approximately
$96 (2009 - $154) and $43 (2009 - $61), respectively.
15. capital diScloSureS
The Company’s objective when managing capital is to safeguard the Company’s ability as a going concern, to provide an adequate return
to shareholders and to meet external capital requirements on debt and credit facilities. Unfunded capital expenditures are limited to $5,000
in fiscal 2010 and $10,000 thereafter. Capital expenditures are reviewed quarterly.
The Company’s capital consists of cash, bank indebtedness, long-term debt and shareholders’ equity. The Company’s primary use of capital
is to make increases to non-cash working capital, fund maintenance and growth related capital expenditures, pay dividends and finance
acquisitions.
As part of the existing debt agreement, the Company is subject to externally imposed financial covenants which consist of the following:
• Funded debt to a rolling twelve month EBITDA
• Working capital ratio
• Fixed charge coverage ratio
Compliance with these covenants is monitored by management on a quarterly basis.
In order to facilitate management of its capital requirements, the Company prepares annual budgets that are updated as necessary
depending on various factors including general industry conditions. The annual budget is approved by the Board of Directors. As at March
31, 2010, the Company has remained in compliance with all external lending agreement covenants.
16. diScontinued operationS
During 2010, the Company entered into an agreement to dispose of Granville Island Brewing Company Ltd. and Mainland Beverage
Distribution Ltd. (collectively referred to as “GIBCO”) effective October 1, 2009. As a result, the Company has recognized a disposal gain of
$11,859 (net of tax) classified with the results from discontinued operations.
In connection with the sale of GIBCO, the Company entered into certain agreements whereby the Company will operate the manufacturing
facilities of GIBCO and provide certain administrative support services for a period of time to assist the purchaser in the transition of these
businesses. Under these agreements, the Company will be reimbursed for costs incurred in providing the manufacturing and administrative
support services.
Andrew Peller Limited 2010 Annual Report
43
Details of the gain recorded are as follows:
Cash consideration
Deferred consideration
Proceeds of disposal
Less
Net book value of assets sold
Costs of disposal
Gain on sale of discontinued operation
Provision for income taxes
Gain on sale of discontinued operation (net of tax)
Financial information relating to the discontinued operation is as follows:
$ 24,992
1,250
26,242
12,178
679
13,385
1,526
$ 11,859
Condensed balance sheet of discontinued operation
2010
2009
Current assets
Accounts receivable
Inventory
Prepaid expenses and other assets
Income taxes recoverable (payable)
Long-term assets
Property, plant and equipment
Goodwill
Intangible assets
Current liabilities
Accounts payable and accrued liabilities
Long-term liabilities
Future income taxes
Condensed statement of net earnings from discontinued operation
Sales
Cost of goods sold
Gross profit
Selling and administration
Amortization
Gain on sale of discontinued operation
Earnings before income taxes
Provision for income taxes
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
$ 1,386
3,273
30
(425)
$
4,264
$
4,133
3,700
2,100
$
9,933
$
4,837
$
337
2010
2009
$ 10,354
5,438
$ 17,076
9,056
4,916
4,292
239
(13,385)
(8,854)
13,770
1,635
8,020
5,544
536
-
6,080
1,940
621
Net earnings from discontinued operation
$ 12,135
$
1,319
Included in cost of goods sold is $2,055 (2009 - $3,513) for the year for costs relating to manufacturing services provided by a related
company. The costs incurred by the Company for these activities are not expected to continue upon completion of the eventual disposition.
Condensed statement of cash flows from discontinued operation
Cash provided by (used in) operating activities
Cash provided by investing activities
Cash used in financing activities
Increase in cash during the year from discontinued operation
2010
(2,880)
$
24,699
-
$
2009
5,49
-
(325)
$ 21,819
$
5,170
44
Andrew Peller Limited 2010 Annual Report
TEN-YEAR SUMMARY
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Restated (7)
Restated (7)
Restated (3)
Restated (3)
SALES AND EARNINGS
Net sales
Earnings before interest,
income taxes and unusual items
Net earnings (loss)
FINANCIAL POSITION
Working capital
Total assets
Shareholders’ equity
PER SHARE
Net earnings (loss) (5)
Basic & Diluted Class A
Basic & Diluted Class B
Dividends (5)
Class A shares, non-voting
Class B shares, voting
NUMBER OF SHARES OUTSTANDING
(IN THOUSANDS OF SHARES) (5)
Class A shares, non-voting
Class B shares, voting
OTHER INFORMATION
Return on average shareholders’ equity
Return on average capital employed
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
263,151 (7)
19,363 (6) (7)
21,661 (8)
29,968
263,716
113,665
1.49 (8)
1.30 (8)
0.330
0.288
11,888
3,004
14,892
7.2% (6)
9.1% (6)
251,136 (7)
15,512 (6) (7)
($125)
29,203
293,507
96,791
($0.01)
($0.01)
0.330
0.288
11,888
3,004
14,892
6.0% (6)
7.8% (6)
228,056 (7)
$
228,192
$
211,775
167,634
155,910
$
147,856
$
139,008
134,358
20,703 (6) (7)
11,381
25,413
259,744
102,680
0.78
0.68
0.300
0.261
11,888
3,004
14,892
12.1% (6)
10.6% (6)
$
$
$
$
$
$
$
$
$
19,680
9,472
25,316
238,956
95,522
0.65
0.57
0.0253
0.0220
11,888
3,004
14,892
10.2%
10.3%
$
$
$
$
$
$
$
$
$
15,587 (4)
6,054 (4)
26,756
222,087
89,580
0.42 (4)
0.36 (4)
0.215
0.187
11,888
3,004
14,892
6.9%
9.7%
$
$
$
$
$
$
$
$
$
$
16,418 (3)
8,467 (3)
29,410 (3)
162,155 (3)
86,504 (3)
0.59 (3)
0.51 (3)
0.215
0.187
11,863
3,005
14,868
10.1%
12.4%
$
$
$
$
$
$
$
$
$
$
14,759 (3)
8,977 (2) (3)
29,288 (3)
146,163 (3)
80,715 (3)
0.63 (2) (3)
0.55 (2) (3)
0.215
0.187
11,763
3,006
14,769
10.2%
12.3%
$
$
$
$
$
$
$
$
$
14,183
6,929
27,369
132,006
72,521
0.50 (3)
0.43 (3)
0.215
0.187
11,223
3,009
14,232
9.8%
12.5%
$
$
$
$
$
$
$
$
$
11,673
5,325
24,622
133,300
68,560
0.39
0.34
0.215
0.187
11,222
3,009
14,231
7.9%
10.3%
$
$
$
$
$
$
$
$
$
$
10,168
4,053 (1)
14,750
132,967
66,114
0.29(1)
0.26(1)
0.215
0.187
11,196
3,015
14,211
7.0%
9.2%
(1) Includes a pre-tax loss of $1.0 million on the settlement of a lawsuit for the co-packing of flavoured water in 1993.
(2) Includes an after-tax gain of $1.699 million from the sale of the Alberta winery.
(3) Includes a pre-tax loss of $1.2 million due to a misappropriation of funds by a former employee.
(4) Includes costs related to the integration of Cascadia Brands Inc. and other items of $2.0 million.
(5) After giving effect to a 3:1 split of Class A and Class B shares that occurred on October 31, 2006.
(6) Excludes the after-tax impact of mark-to-market adjustments on an interest rate SWAP.
(7) Excludes the net impact of discontinued operations. Including discontinued operations, net earnings before interest,
income taxes and unusual items would be $19,748, $17,452, $21,906 for fiscal 2010, 2009, 2008 respectively.
(8) Includes an after-tax gain of $11.9 million for the sale of Granville Island Brewing Company Ltd. and Mainland Beverage Distribution Ltd.
Andrew Peller Limited 2010 Annual Report
45
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Restated (7)
Restated (7)
Restated (3)
Restated (3)
263,151 (7)
251,136 (7)
228,056 (7)
$
228,192
$
211,775
$
$
$
$
$
$
$
$
$
15,587 (4)
6,054 (4)
26,756
222,087
89,580
0.42 (4)
0.36 (4)
0.215
0.187
11,888
3,004
14,892
6.9%
9.7%
$
$
$
$
$
$
$
$
$
$
167,634
16,418 (3)
8,467 (3)
29,410 (3)
162,155 (3)
86,504 (3)
0.59 (3)
0.51 (3)
0.215
0.187
11,863
3,005
14,868
10.1%
12.4%
$
$
$
$
$
$
$
$
$
$
155,910
$
147,856
$
139,008
14,759 (3)
8,977 (2) (3)
29,288 (3)
146,163 (3)
80,715 (3)
0.63 (2) (3)
0.55 (2) (3)
0.215
0.187
11,763
3,006
14,769
10.2%
12.3%
$
$
$
$
$
$
$
$
$
14,183
6,929
27,369
132,006
72,521
0.50 (3)
0.43 (3)
0.215
0.187
11,223
3,009
14,232
9.8%
12.5%
$
$
$
$
$
$
$
$
$
11,673
5,325
24,622
133,300
68,560
0.39
0.34
0.215
0.187
11,222
3,009
14,231
7.9%
10.3%
$
$
$
$
$
$
$
$
$
$
134,358
10,168
4,053 (1)
14,750
132,967
66,114
0.29(1)
0.26(1)
0.215
0.187
11,196
3,015
14,211
7.0%
9.2%
TEN-YEAR SUMMARY
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
income taxes and unusual items
SALES AND EARNINGS
Net sales
Earnings before interest,
Net earnings (loss)
FINANCIAL POSITION
Working capital
Total assets
Shareholders’ equity
PER SHARE
Net earnings (loss) (5)
Basic & Diluted Class A
Basic & Diluted Class B
Dividends (5)
Class A shares, non-voting
Class B shares, voting
NUMBER OF SHARES OUTSTANDING
(IN THOUSANDS OF SHARES) (5)
Class A shares, non-voting
Class B shares, voting
OTHER INFORMATION
Return on average shareholders’ equity
Return on average capital employed
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19,363 (6) (7)
21,661 (8)
15,512 (6) (7)
($125)
20,703 (6) (7)
11,381
29,968
263,716
113,665
29,203
293,507
96,791
25,413
259,744
102,680
1.49 (8)
1.30 (8)
0.330
0.288
11,888
3,004
14,892
7.2% (6)
9.1% (6)
($0.01)
($0.01)
0.330
0.288
11,888
3,004
14,892
6.0% (6)
7.8% (6)
0.78
0.68
0.300
0.261
11,888
3,004
14,892
12.1% (6)
10.6% (6)
$
$
$
$
$
$
$
$
$
19,680
9,472
25,316
238,956
95,522
0.65
0.57
0.0253
0.0220
11,888
3,004
14,892
10.2%
10.3%
(1) Includes a pre-tax loss of $1.0 million on the settlement of a lawsuit for the co-packing of flavoured water in 1993.
(2) Includes an after-tax gain of $1.699 million from the sale of the Alberta winery.
(3) Includes a pre-tax loss of $1.2 million due to a misappropriation of funds by a former employee.
(4) Includes costs related to the integration of Cascadia Brands Inc. and other items of $2.0 million.
(5) After giving effect to a 3:1 split of Class A and Class B shares that occurred on October 31, 2006.
(6) Excludes the after-tax impact of mark-to-market adjustments on an interest rate SWAP.
(7) Excludes the net impact of discontinued operations. Including discontinued operations, net earnings before interest,
income taxes and unusual items would be $19,748, $17,452, $21,906 for fiscal 2010, 2009, 2008 respectively.
(8) Includes an after-tax gain of $11.9 million for the sale of Granville Island Brewing Company Ltd. and Mainland Beverage Distribution Ltd.
46
Andrew Peller Limited 2010 Annual Report
DIRECTORS & OFFICERS
directorS
MARK W. COSENS
Burlington, Ontario
Managing Director
Kilbride Capital Partners
LORI C. COVERT
Rockwood, Ontario
Marketing Consultant
C. WILLIAM DANIEL, O.C.
Toronto, Ontario
Corporate Director
RICHARD D. HOSSACK, PhD
Toronto, Ontario
Corporate Director
A. ANGUS PELLER, M.D.
Toronto, Ontario
Director of Medcan Health
Management Inc.
JOHN E. PELLER
Burlington, Ontario
President and
Chief Executive Officer
Andrew Peller Limited
JOSEPH A. PELLER, M.D.
Rockwood, Ontario
Chairman
Andrew Peller Limited
JOHN F. PETCH, Q.C.
Toronto, Ontario
Barrister & Solicitor
Vice Chairman
Andrew Peller Limited
BRIAN J. SHORT
Ancaster, Ontario
Corporate Director
honorary directorS
RALPH M. LOGAN
Halifax, Nova Scotia
WILLIAM J. WALSH, M.D.
Hamilton, Ontario
officerS
JOHN E. PELLER
President and Chief Executive Officer
GREGORY J. BERTI
Vice-President, Estate Wines
(Eastern Canada) and Export
ANTHONY M. BRISTOW
Chief Operating Officer
JAMES H. COLE
Vice-President, Retail Division
SCOTT D. FRASER
Vice-President, Estate Wines
(Western Canada)
SHARI A. NILES
Executive Vice-President, Marketing
PETER B. PATCHET
Chief Financial Officer and
Executive Vice-President,
Human Resources
ROBERT P. VAN WELY
President, Global Vintners Inc.
BRENDAN P. WALL
Executive Vice-President, Operations
J. CHRISTOPHER ZARAFONITIS
Executive Vice-President, Sales
Andrew Peller Limited 2010 Annual Report
47
inveStor relationS
For additional information regarding the Company’s activities,
please contact:
PETER B. PATCHET
Chief Financial Officer and Executive Vice-President, Human
Resources at the Head Office address or by email at:
peter.patchet@andrewpeller.com
2010 annual ShareholderS’ meeting
The 2010 Annual Meeting of Shareholders will be held at:
Hillebrand Winery
1249 Stone Road, RR#2
Niagara-on-the-Lake, Ontario
on Wednesday, September 15, 2010 at 3:00 p.m.
SHAREHOLDER INFORMATION
head office
ANDREW PELLER LIMITED
697 South Service Road
Grimsby, Ontario L3M 4E8
Tel: (905) 643-4131
Fax: (905) 643-4944
Stock exchange
TORONTO
Symbols: ADW.A/ADW.B
regiStrar and tranSfer agent
COMPUTERSHARE INVESTOR SERVICES INC.
auditorS
PRICEWATERHOUSECOOPERS LLP
BankerS
ROYAL BANK OF CANADA
BANK OF MONTREAL
TORONTO DOMINION BANK
RABOBANK
Shareholder inquirieS
Computershare Investor Services Inc. operates services for
inquiries regarding changes of address, stock transfers,
registered shareholdings, dividends and lost certificates,
which can be reached:
Phone: 1-800-564-6253 toll free North America
(International 514-982-7555)
Fax:
1-866-249-7775 toll free North America
(International 416-263-9524)
Email:
service@computershare.com
Internet: www.computershare.com – the Investors section
offers enrolment for self-service account
management for registered shareholders through
Investor Centre.
Mail:
Computershare Investor Services
100 University Avenue, 9th Floor
Toronto, Ontario
M5J 2Y1
48
Andrew Peller Limited 2010 Annual Report
VINEYARDS ESTATE WINES STORE LOCATIONS
AJAx
CAMBRIDGE
HAMILTON
180 Holiday Inn Drive
(519) 651-1145
400 Conestoga Blvd.
(519) 624-1103
980 Franklin Blvd.
(519) 622-1187
50 Dundurn Street South
(905) 528-4003
NEWMARKET
1111 Davis Drive
(905) 853-0401
75 Centennial Parkway North
(905) 561-4504
18200 Yonge Street North
(905) 895-2412
1579 Main Street West
(905) 522-8882
17725 Yonge Street North
(905) 953-1269
COLLINGWOOD
KESWICK
12 Hurontario Street
(705) 446-2237
24018 Woodbine Avenue
(905) 476-8544
640 First Street Extension
(705) 444-1730
EAST YORK
1015 Broadview Avenue
(416) 467-7760
11 Redway Road
(416) 696-9584
ETOBICOKE
380 The East Mall
(416) 695-9567
FERGUS
KINGSTON
1048 Midland Avenue
(613) 389-6139
KITCHENER
750 Ottawa Street South
(519) 745-2183
39 – 875 Highland Road West
(519) 742-5844
LONDON
1244 Commissioners Road
(519) 657-7517
16640 Yonge Street
(905) 830-3448
NORTH YORK
3501 Yonge Street
(416) 481-7699
OAKVILLE
511 Maple Grove Drive
(905) 338-3042
1500 Upper Middle Road West
(905) 847-2944
ORANGEVILLE
50 – 4th Avenue
(519) 942-8752
OSHAWA
800 Tower Street South
(519) 787-7721
1030 Adelaide Street North
(519) 679-3717
285 Taunton Road East
(905) 571-6167
955 Westney Road South
(905) 683-1705
260 Kingston Road East
(905) 428-6500
ANCASTER
977 Golf Links Road
(905) 648-1465
AURORA
15500 Bayview Avenue
(905) 726-2454
BARRIE
201 Cundles Road East
(705) 739-1553
11 Bryne Drive
(705) 725-8121
BOLTON
487 Queen Street South
(905) 857-4166
BRAMALEA
25 Peel Centre Drive
(905) 793-4246
BRAMPTON
227 Vodden Street
(905) 459-2386
930 North Park Drive
(905) 793-9071
GEORGETOWN
171 Guelph Street
(905) 877-1815
GRIMSBY
BROCKVILLE
1972 Parkedale Avenue
(613) 342-8477
361 South Service Road
(905) 945-9982
GLOUCESTER (OTTAWA)
BURLINGTON
2025 Guelph Line
(905) 336-3849
4025 New Street
(905) 632-8580
1250 Brant Street
(905) 319-8670
671 River Road
(613) 822-3080
GUELPH
167 Silver Creek Parkway
(519) 837-0540
297 Eramosa Road
(519) 824-7922
3505 Upper Middle Road
(905) 336-9101
160 Kortright Road West
(519) 837-9293
5353 Lakeshore Road
(905) 681-8282
395 Wellington South
(519) 649-7180
1385 Harmony Road North
(905) 438-1800
MISSISSAUGA
1151 Dundas Street West
(905) 276-7103
1240 Eglinton West
(905) 819-0202
4099 Erin Mills Parkway
(905) 607-6246
5602 – 10th Line West
(905) 858-0123
1865 Lakeshore Road West
(905) 823-5746
2150 Burnhamthorpe Road W
(905) 820-9958
1300 King Street East
Unit # 32
(905) 438-0478
OTTAWA
2515 Bank Street
(613) 523-5837
OTTAWA (NEPEAN)
59 Robertson Road
(613) 820-7219
1460 Merivale Road
(613) 723-5507
OTTAWA (STITTSVILLE)
1251 Main Street
(613) 831-3837
OTTAWA (VANIER)
100 McArthur Road
(613) 749-9618
Andrew Peller Limited 2010 Annual Report
49
411 Louth Street
St. Catharines, Ontario
(905) 685-9779
50 Musgrave Street
Toronto, Ontario
(416) 693-6336
15 York St.
Toronto, Ontario
(416) 304-0358
(opening in September 2010)
22 Fort York Blvd.
Toronto, Ontario
(416) 623-0793
ST. LAWRenCe WIne MARkeT
93 Front Street East
Toronto Ontario
(416) 364-1811
WIne COunTRY VInTneRS
27 Queen Street
Niagara-on-the-Lake, Ontario
(905) 468-1881
OWen SOund
1150 Sixteenth Street East
(519) 371-8664
RICHMOnd HILL
11700 Yonge Street
(905) 770-2314
SCARBOROugH
3221 Eglinton Avenue East
(416) 267-2795
SIMCOe
470 Norfolk Street South
(519) 426-1033
ST. CATHARIneS
318 Ontario Street
(905) 685-8898
285 Geneva Street
(905) 646-7363
600 Ontario Street
(905) 934-7430
ST. THOMAS
1063 Talbot Street
(519) 633-6343
STOneY CReek
102 Highway #8
(905) 664-3188
TOROnTO
228 Queens Quay
(416) 598-8880
125 The Queensway
(416) 201-8221
87 Avenue Road
(416) 923-6336
2273 Bloor Street West
(416) 766-8654
uxBRIdge
323 Toronto Street South
(905) 852-5008
VAugHAn
9200 Bathurst Street
(905) 707-6118
WATeRLOO
450 Erb Street West
(519) 747-5897
315 Lincoln Road
(519) 746-7226
WeLLAnd
821 Niagara Street
(905) 714-9521
WHITBY
1615 Dundas Street East
(905) 728-4118
200 Taunton Road
(905) 668-7568
656 Eglinton Avenue East
(416) 485-0093
617 Victoria Street West
(905) 430-5314
3671 Dundas Street West
(416) 762-8635
AISLe 43
30 Kingston Road West
Ajax, Ontario
(905) 428-7829
10970 Airport Road
Brampton, Ontario
(905) 793-9531
1605 Bayview Avenue
East York, Ontario
(416) 481-2333
3040 Wonderland South
London, Ontario
(519) 668-2224
500 Copper Creek Blvd.
Markham, Ontario
(905) 471-3602
(opening in September 2010)
250 Lakeshore Road West
Mississauga, Ontario
(905) 274-2280
5970 McLaughlin Road
Mississauga, Ontairo
(905) 507-1520
3090 Bathurst Street
North York, Ontario
(416) 256-0462
1300 King Street East
Oshawa, Ontario
(905) 728-3767
769 Borden Avenue
Peterborough, Ontario
(705) 740-2513
221 Glendale Avenue
St. Catharines, Ontario
(905) 688-4767
WInerY oF tHe Year
SanDH Ill
CanaDIan WIne
aCCeSS aWarDS
Double Gold -
all canadian wine championship
pell e r estat es
Signature Series Ice Cuvée rosé
Double Gold - International
eastern wine competition
Hil lebr and
trius red 2007
Gold Medal -
International Wine Challenge
thirt y Bench
riesling 2007
Gold Medal -
Grand Harvest awards
red rooster winery
pinot Gris 2008
PEL2002-08-10