Saputo Inc.
TSX : SAP

Saputo Inc.

November 06, 2007 12:39 ET

Saputo Inc.: Financial Results for the Second Quarter of Fiscal 2008, ended September 30, 2007

Net earnings at $62.5 million, up 7.2% for the quarter Net earnings at $131.0 million, up 17.4% since the beginning of the fiscal year

MONTREAL, QUEBEC--(Marketwire - Nov. 6, 2007) - Saputo Inc. (TSX:SAP) released today its financial results for the second quarter of fiscal 2008, which ended September 30, 2007.

- Net earnings for the quarter totalled $62.5 million ($0.61 basic per share), an increase of $4.2 million compared to $58.3 million ($0.56 basic per share) for the same quarter last fiscal year. Included in the results of the current quarter is an income tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years. Excluding this adjustment, net earnings would have reached $65.5 million, an increase of $7.2 million or 12.4% in comparison to the same quarter last fiscal year.

- Consolidated revenues for the quarter ended September 30, 2007, amounted to $1.289 billion, an increase of $294.9 million or 29.7% over the $994.1 million for the corresponding period last fiscal year. This increase is due mainly to our US Dairy Products Sector, whose revenues increased by approximately $247 million. The acquisition of the activities of Land O'Lakes West Coast industrial cheese business in the United States (Land O'Lakes West Coast Acquisition), a higher average block market(1) per pound of cheese, increased selling prices and higher sales volume explain the revenue increase. Revenues from our Canadian and Other Dairy Products Sector increased by approximately $48 million. Higher selling prices in accordance with the increase in the cost of milk as raw material, a more favourable by-products market, increased sales volume from our Canadian fluid milk activities and the inclusion of our United Kingdom (UK) operations, acquired on March 23, 2007, are the main factors explaining the revenue increase. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. During the second quarter of fiscal 2008, the appreciation of the Canadian dollar eroded approximately $29 million in the Company's revenues compared to the same quarter last fiscal year.

- Consolidated EBITDA(2) totalled $124.1 million, an increase of $17.3 million or 16.2% in comparison to $106.8 million for the same quarter last fiscal year. This increase is due to higher EBITDA in the US Dairy Products Sector of approximately $11 million and an increase in EBITDA of approximately $8 million in the Canadian and Other Dairy Products Sector. The EBITDA of our Grocery Products Sector decreased by approximately $2 million in comparison to the same quarter last fiscal year.



(1)"Average block market" is the average daily price of a 40 pound
block of Cheddar traded on the Chicago Mercantile Exchange (CME),
used as the base price for the cheese.

(2) Measurement of results not in accordance with generally accepted
accounting principles

The Company assesses its financial performance based on its
EBITDA, this being earnings before interest, income taxes,
depreciation and amortization. EBITDA is not a measurement of
performance as defined by generally accepted accounting
principles in Canada, and consequently may not be comparable to
similar measurements presented by other companies.


- EBITDA for the Canadian and Other Dairy Products Sector amounted to $84.6 million, an increase of 10.2% in comparison to the same quarter last fiscal year. The Dairy Products Division (Canada) was the major contributor to the EBITDA increase in the sector. This increase was derived from better efficiencies in our manufacturing and logistics activities, from rationalization activities undertaken in our Canadian operations during prior years, from a more positive by-products market and from additional sales volumes from our Canadian fluid milk activities.

- EBITDA for the US Dairy Products Sector totalled $34.1 million, an increase of 48.9% compared to the same period last fiscal year. This increase is due to the contribution of the Land O'Lakes West Coast Acquisition, along with initiatives undertaken in the prior and current fiscal years with regards to improved operational efficiencies, increased selling prices, reduction of costs associated with milk handling and a higher average block market per pound of cheese. These factors offset a less favourable relationship between the average block market per pound of cheese and the cost of milk as raw material.

- EBITDA for the Grocery Products Sector amounted to $5.4 million, a $1.7 million decrease compared to the corresponding quarter last fiscal year. The division experienced higher ingredients, packaging, labor and energy costs and the decline in revenues from its American co-packing activities.

- Cash generated by operating activities amounted to $81.7 million, compared to $97.1 million for the same period last fiscal year.

- In the second quarter, the Company issued shares for a cash consideration of $11.9 million, as part of the Stock Option Plan, purchased share capital totalling $44.9 million, and paid $45.1 million in dividends.

For more information on the results of the second quarter of fiscal 2008, please read the attached interim report for the quarter ended September 30, 2007, which forms an integral part of this press release.

Dividends

The Board of Directors approved today a stock dividend on the Common Shares which has the same effect as a two-for-one stock split of the Company's outstanding Common Shares. The dividend on the Common Shares will be paid on December 21, 2007, to shareholders of record as of the close of business on December 10, 2007, the record date for the dividend. This dividend is subject to obtaining all necessary regulatory approvals. The additional Common Shares will be issued on December 21, 2007, and will double the number of Common Shares outstanding.

Concurrently, the Board of Directors declared a quarterly dividend of $0.12 per share payable on December 21, 2007, to common shareholders of record on December 10, 2007. This dividend represents a dividend of $0.24 per share prior to the stock split, which is the quarterly dividend usually paid by the Company in accordance with its fiscal 2008 dividend policy.

The Company's Common Shares, which currently trade on the Toronto Stock Exchange under the symbol SAP, will begin trading on a split basis as of December 6, 2007.

Normal Course Issuer Bid

The Company has the intention to purchase by way of a normal course issuer bid (Bid), for cancellation purposes, some of its Common Shares through the facilities of the Toronto Stock Exchange, beginning on November 13, 2007.

Under the Bid, the Company may repurchase for cancellation up to 5,136,424 Common Shares. This represents 5% of its 102,728,495 issued and outstanding Common Shares as of October 31, 2007. The average daily trading volume of the Company's Common Shares over the last six (6) completed calendar months was 191,094. Accordingly, the Company is entitled to purchase, on any trading day, up to 47,773 Commons Shares. These purchases will be made in accordance with applicable regulations over a maximum period of 12 months beginning on November 13, 2007, and ending on November 12, 2008. The consideration, which will be in cash, that the Company will pay for any Common Shares acquired by it under the Bid will be the market price of such Common Shares at the time of acquisition. Within the previous twelve months, Saputo purchased, for cancellation purposes, by way of a normal course issuer bid established in November 2006, 2,325,020 of its Common Shares at a weighted average price of $42.6531 per share.

The Company believes that the purchase of its own shares may, in appropriate circumstances, be a responsible investment of funds on hand.

Conference Call

A conference call to discuss the second quarter results of fiscal 2008 will be held on Tuesday, November 6, 2007, at 2:00 PM, Eastern time. To participate in the conference call dial 1 888 241 0326. To ensure your participation, please dial in approximately five minutes before the call.

To listen to this call on the web, please enter http://events.onlinebroadcasting.com/saputo/110607/index.php in your web browser.

For those unable to participate, an instant replay will be available until midnight, Tuesday, November 13, 2007. To access the replay dial 1 888 214 7699, ID number 20688665. A replay of the conference call will also be available on the Company's web site at www.saputo.com.

About Saputo

Saputo, a whole world to discover. With its distinctive array of products and its commitment to growth, Saputo continues to explore and seize new opportunities while maintaining the best of tradition. Through product innovations, global expansion and unwavering employee dedication, Saputo produces, markets and distributes products of the highest quality. Saputo is one of the top twenty dairy processors in the world, the largest dairy processor in Canada, among the top five cheese producers in the United States, the third largest dairy processor in Argentina and the largest snack-cake manufacturer in Canada. Success stems from the passion and expertise of the 8,900 men and women who work in its numerous locations worldwide. Well-known brands such as Saputo, Alexis de Portneuf, Armstrong, Baxter, Dairyland, Danscorella, De Lucia, Dragone, DuVillage de Warwick, Frigo, Kingsey, La Paulina, Nutrilait, Princesse, Ricrem, Sir Laurier d'Arthabaska, Stella, Treasure Cave, HOP&GO!, Rondeau and Vachon have earned the trust of consumers in over thirty countries. Saputo Inc. is a public company whose shares are traded on the Toronto Stock Exchange under the symbol SAP.

Message to Shareholders

We are pleased to present the results for the second quarter of fiscal 2008, which ended on September 30, 2007.

Net earnings for the quarter totalled $62.5 million, an increase of $4.2 million or 7.2% compared to $58.3 million for the same quarter last fiscal year. Included in the results of the current quarter is an income tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years. Excluding this adjustment, net earnings would have reached $65.5 million, an increase of $7.2 million or 12.4% in comparison to the same quarter last fiscal year.

Earnings before interest, income taxes, depreciation and amortization (EBITDA(3)) amounted to $124.1 million, an increase of $17.3 million or 16.2% in comparison to $106.8 million for the same quarter last fiscal year. The EBITDA of our US Dairy Products Sector increased by approximately $11 million over the same quarter last fiscal year. The contribution of the Land O'Lakes West Coast industrial cheese business in the United States (Land O'Lakes West Coast Acquisition), a higher average block market(4) per pound of cheese, and initiatives undertaken in the prior and current fiscal years with regards to increased selling prices are the main factors explaining the EBITDA increase. These factors offset a less favourable relationship between the average block market per pound of cheese and the cost of milk as raw material. The EBITDA of our Canadian and Other Dairy Products Sector increased by approximately $8 million in comparison to the same quarter last fiscal year. This increase is due mainly to a more favourable by-products market, benefits derived from rationalization activities undertaken in our Canadian operations, as well as a sales volume increase in our Canadian fluid milk operations. The EBITDA of our Grocery Products Sector decreased by approximately $2 million in comparison to the same quarter last fiscal year. The decrease is attributed to higher raw material and other costs, additional expenses relating to the pension fund, and lower sales volume generated by our co-packing agreements for the manufacturing of products for the United States (US) market. During the quarter, the appreciation of the Canadian dollar eroded approximately $2 million of the Company's EBITDA in comparison to the same quarter last fiscal year.



(3) Measurement of results not in accordance with generally accepted
accounting principles

The Company assesses its financial performance based on its
EBITDA, this being earnings before interest, income taxes,
depreciation and amortization. EBITDA is not a measurement of
performance as defined by generally accepted accounting
principles in Canada, and consequently may not be comparable to
similar measurements presented by other companies.

(4)"Average block market" is the average daily price of a 40 pound
block of Cheddar traded on the Chicago Mercantile Exchange (CME),
used as the base price for the cheese.


Revenues for the quarter ended September 30, 2007, amounted to $1.289 billion, an increase of $294.9 million or 29.7% in comparison to the $994.1 million for the corresponding quarter last fiscal year. The increase is due mainly to our US Dairy Products Sector, whose revenues increased by approximately $247 million. The Land O'Lakes West Coast Acquisition, a higher average block market per pound of cheese, increased selling prices and higher sales volume explain the revenue increase. Revenues from our Canadian and Other Dairy Products increased by approximately $48 million. Higher selling prices in accordance with the increase in the cost of milk as raw material, a more favourable by-products market, increased sales volume from our Canadian fluid milk activities and the inclusion of our United Kingdom (UK) operations, acquired on March 23, 2007, are the main factors explaining the revenue increase. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. During the second quarter of fiscal 2008, the appreciation of the Canadian dollar eroded approximately $29 million in the Company's revenues compared to the same quarter last fiscal year.

Outlook(5)

In the Dairy Products Division (Canada), we will rely on our operational strength to optimize our production facilities. We are currently investing in automation at one of our facilities. We plan to complete this project before the end of this fiscal year. Considering that the Canadian market is relatively stable in terms of growth in consumption, innovation will remain essential for the development of this division.

In Argentina, our operations continue to improve on both the domestic and international markets due mainly to the completion of our capital expenditure program. Milk production volumes have started to increase, following the shortfall of milk that occurred in the previous quarter due to the floods. In addition, government regulations imposed in the previous quarter that limit selling prices on the export market, continued to be in effect in the current quarter. Industry participants are currently addressing this issue through different levels of government. We will maintain our focus on increased efficiencies in order to mitigate these negative factors.

Our Dairy Products Division (Germany) is experiencing higher milk prices resulting from lower raw milk production combined with higher demand of dairy products worldwide. This has forced the division to increase its selling prices to its customers. Further increases should be anticipated. In addition, two employees from our Canadian operations have been transferred to Germany in key manufacturing functions for a period of two years. Their presence will ease the transmission of the Saputo values, working methodologies and processes. One of these employees will also oversee our UK operation.

In the UK, the integration is progressing well. As is the case in all of Europe, the UK has also been affected by higher milk prices. This has resulted in increased selling prices to our customers.

In the US, we continue to focus our efforts on the integration of the Land O'Lakes West Coast Acquisition. Our extensive financial analysis of the cost structure for its activities has been completed. Several capital projects are underway to further strengthen the financial performance of this acquisition and optimize synergies within this division. The US dairy market continues to be volatile, therefore we remain committed to mitigate these adverse market conditions through operational efficiencies, innovation and further price increases, if needed. Moreover, we participated in the Consolidated Stabilization and Marketing Plan Hearings, in California, on October 10 and 11, 2007, to support the petitioner's request to eliminate the dry whey factor from the Class 4b milk formula, as well as to request updates to the manufacturing and transportation allowances to the most recent available cost data. A decision following this hearing is expected to be rendered by the end of this November. We have plans to promote our Stella, Dragone, Frigo and Treasure Cave brands through the upcoming holiday season. The US market constitutes a key aspect of our growth strategy.



(5) We refer you to the cautionary statement regarding forward-
looking information set forth below under "Management Analysis".


In the Bakery Division, we are pursuing the integration of Biscuits Rondeau Inc. and Boulangerie Rondeau Inc. (Rondeau) acquired on July 28, 2006. The integration of these activities in our Ste-Marie, Quebec plant is well underway. Also, in order to benefit from a broader distribution, Rondeau products are using the snack-cakes' distribution network in the province of Quebec, as of October 1, 2007. We continue to put all of our marketing efforts behind our core brand, Vachon. In order to mitigate increasing ingredients and packaging costs, we have announced a 6% price increase on all products under the Vachon and Hostess brands, effective November 19, 2007.

Dividends

The Board of Directors approved a stock dividend on the Common Shares which has the same effect as a two-for-one stock split of the Company's outstanding Common Shares. The dividend on the Common Shares will be paid on December 21, 2007 to shareholders of record as of the close of business on December 10, 2007, the record date for the dividend. This dividend is subject to obtaining all necessary regulatory approvals. The additional Common Shares will be issued on December 21, 2007, and will double the number of Common Shares outstanding.

Concurrently, the Board of Directors declared a quarterly dividend of $0.12 per share payable on December 21, 2007, to common shareholders of record on December 10, 2007. This dividend represents a dividend of $0.24 per share prior to the stock split, which is the quarterly dividend usually paid by the Company in accordance with its fiscal 2008 dividend policy.

The Company's Common Shares, which currently trade on the Toronto Stock Exchange under the symbol SAP, will begin trading on a split basis as of December 6, 2007.

Normal Course Issuer Bid

The Company has the intention to purchase by way of a normal course issuer bid (Bid), for cancellation purposes, up to a maximum of 5,136,424 Common Shares, representing 5% of its 102,728,495 issued and outstanding Common Shares as of October 31, 2007. These purchases will be made in accordance with applicable regulations over a maximum period of 12 months beginning on November 13, 2007, and ending on November 12, 2008. The consideration, which will be in cash, that the Company will pay for any Common Shares acquired by it under the Bid will be the market price of such Common Shares at the time of acquisition. The Company believes that the purchase of its own shares may, in appropriate circumstances, be a responsible investment of funds on hand.

Within the previous twelve months, Saputo purchased 2,325,020 of its Common Shares, for cancellation purposes, by way of a normal course issuer bid established in November 2006.

Management's Analysis

The goal of the management report is to analyse the results of and the financial position for the quarter ended September 30, 2007. It should be read while referring to our consolidated financial statements and accompanying notes for the three- and six-month periods ended September 30, 2007, and 2006. The Company's accounting policies are in accordance with Canadian generally accepted accounting principles of the Canadian Institute of Chartered Accountants. All dollar amounts are in Canadian dollars unless otherwise indicated. This report takes into account material elements between September 30, 2007, and November 6, 2007, the date of this report, on which it was approved by the Board of Directors of Saputo Inc. (Company or Saputo). Additional information about the Company, including the annual report and the annual information form for the year ended March 31, 2007, can be obtained on Sedar at www.sedar.com.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report, including the "Outlook" section, contains forward-looking information within the meaning of securities laws. These statements are based on our current assumptions, expectations and estimates, regarding projected revenues and expenses, the Canadian, US, Argentinean, German and UK economic environment, our ability to attract and retain clients and consumers, our operating costs and raw materials and energy supplies which are subject to a number of risks and uncertainties. Actual results could differ materially from the conclusion, forecast or projection stated in such forward-looking information. As a result, we cannot guarantee that any forward-looking statements will materialize. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause our actual results to differ materially from our current expectations are discussed throughout this MD&A and in our most recently filed annual report which is available on SEDAR at www.sedar.com. Forward-looking information contained in this report, including the "Outlook" section, is based on management's current estimates, expectations and assumptions, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time.

Operating Results

Consolidated revenues for the quarter ended September 30, 2007, amounted to $1.289 billion, an increase of $294.9 million or 29.7% in comparison to the $994.1 million for the corresponding quarter last fiscal year. Revenues from our US Dairy Products Sector increased by approximately $247 million. The increase is due mainly to the Land O'Lakes West Coast Acquisition, completed at the beginning of fiscal 2008. An average block market per pound of cheese of US$1.98 compared to US$1.22 for the same period last fiscal year, along with increased selling prices and higher sales volume also contributed to increase our US division's revenues. The revenues from our Canadian and Other Dairy Products Sector increased by approximately $48 million in comparison to the same quarter last fiscal year. Higher selling prices in our Canadian and Argentinean operations in accordance with the increase in the cost of milk as raw material, a more favourable by-products market, increased sales volume from our Canadian fluid milk activities, and the inclusion of our UK operation, acquired on March 23, 2007, are the main factors explaining the revenue increase. These positive factors offset lower revenues due to reduced sales volume from both our Canadian cheese and Argentinean operations. Revenues from our Grocery Products Sector decreased by approximately $1 million in comparison to the same quarter last fiscal year. This decrease is due to lower revenues generated by our co-packing agreements for the manufacturing of products for the US market. During the second quarter of fiscal 2008, the appreciation of the Canadian dollar eroded approximately $29 million in the Company's revenues in comparison to the same quarter last fiscal year.

For the six-month period ended September 30, 2007, revenues totalled $2.516 billion, an increase of $540.4 million or 27.4% in comparison to the $1.975 billion for the corresponding period last fiscal year. Revenues from our US Dairy Products Sector increased by approximately $468 million, due mainly to the Land O'Lakes West Coast Acquisition and a higher average block market per pound of cheese. Revenues from our Canadian and Other Dairy Products Sector increased by approximately $72 million, due mainly to higher selling prices in accordance with the increase in the cost of milk as raw material, higher sales volume in our Canadian fluid milk operations, and the inclusion of our UK operations, acquired on March 23, 2007. Revenues from our Grocery Products Sector remained relatively stable in comparison to the same period last fiscal year. For the six-month period ended September 30, 2007, the appreciation of the Canadian dollar eroded approximately $38 million in the Company's revenues in comparison to the same period last fiscal year.

Consolidated earnings before interest, income taxes, depreciation and amortization (EBITDA), for the second quarter of fiscal 2008, amounted to $124.1 million, an increase of $17.3 million or 16.2% in comparison to $106.8 million for the same quarter last fiscal year. The EBITDA of our US Dairy Products Sector increased by approximately $11 million in comparison to the same quarter last fiscal year. The contribution of the Land O'Lakes West Coast Acquisition, a higher average block market per pound of cheese, and initiatives undertaken in the prior and current fiscal years with regards to increased selling prices are the main factors explaining the EBITDA increase. These benefits offset a less favourable relationship between the average block market per pound of cheese and the cost of milk as raw materials. The EBITDA of our Canadian and Other Dairy Products Sector increased by approximately $8 million in comparison to the same quarter last fiscal year. A more favourable by-products market, benefits derived from rationalization activities undertaken in our Canadian operations, and higher sales volume from our Canadian fluid milk operations explain the EBITDA increase. The EBITDA of our Argentinean operations remained relatively stable in comparison to the same quarter last fiscal year. Our German and UK operations had a negative effect on EBITDA in the second quarter of fiscal 2008 due mainly to our German operation, as a result of the increase in milk prices and a delay in implementing higher selling prices to our customers. We expect that the milk price increase will be fully passed on to our customers in the following quarters. The EBITDA of our Grocery Products Sector decreased by approximately $2 million in comparison to the same period last fiscal year. Higher raw materials and other costs, additional expenses relating to the pension fund, and lower sales volume generated by our co-packing agreements for the manufacturing of products for the US market are the main factors explaining the EBITDA decrease. During the quarter ended September 30, 2007, the appreciation of the Canadian dollar eroded approximately $2 million of the Company's EBITDA in comparison to the same quarter last fiscal year.

For the six-month period ended September 30, 2007, EBITDA totalled $251.6 million, an increase of $51.8 million or 25.9% in comparison to the same period last fiscal year. Increased EBITDA from our US Dairy Products Sector of approximately $31 million and from our Canadian and Other Dairy Products Sector of approximately $25 million, offset a reduction of approximately $4 million from our Grocery Products Sector. Since the beginning of the fiscal year, the appreciation of the Canadian dollar eroded approximately $3 million of the Company's EBITDA in comparison to the same period last fiscal year.

Other Consolidated Results Items

Depreciation expense for the second quarter of fiscal 2008 totalled $19.7 million, an increase of $2 million in comparison to the $17.7 million for the same quarter last fiscal year. For the six-month period ended September 30, 2007, depreciation expense amounted to $39.9 million, an increase of $4.1 million in comparison to the $35.8 million for the same period last fiscal year. In both cases, the increase is due mainly to the Land O'Lakes West Coast Acquisition completed on April 2, 2007. Capital investments undertaken by all divisions in the prior year also contributed to increase depreciation expense throughout the current fiscal year. These factors offset reduced depreciation from our foreign subsidiaries due to the appreciation of the Canadian dollar.

Net interest expense increased by $2.2 million to $7.2 million for the quarter ended September 30, 2007, and increased by $3.7 million to $13.8 million for the six-month period ended September 30, 2007. Other interest increased during the current fiscal year due mainly to the reduction of excess cash on hand, which generated interest revenue in fiscal 2007, and higher levels of bank loans drawn throughout fiscal 2008. The Land O'Lakes West Coast Acquisition along with other financing activities undertaken in fiscal 2008 explain this usage of cash. Interest on long-term debt decreased due to the repayment of US$30 million of long-term debt during the third quarter of fiscal 2007, as well as the appreciation of the Canadian dollar, which reduced the interest expense on our US dollar debt.

Income taxes for the second quarter of fiscal 2008 totalled $34.7 million, reflecting an effective tax rate of 35.7%, compared to an effective tax rate of 30.7% for the same quarter last year. During the second quarter of fiscal 2008, the Company recorded a tax charge of approximately $3 million due to a reduction of future income tax assets recorded in previous fiscal years for our Argentinean division. The division will not benefit from certain tax losses recorded in previous fiscal years which will expire in the current calendar year. Income taxes for the six-month period ended September 30, 2007, totalled $66.9 million, reflecting an effective tax rate of 33.8%, compared to an effective tax rate of 27.6% for the same period last fiscal year. During the first quarter of fiscal 2007, the Company benefited from a one-time tax reduction of approximately $4 million to adjust future tax balances, due to a reduction in Canadian federal tax rates. Excluding these adjustments, the effective tax rate for the six-month period ended September 30, 2007, would be 32.3%, compared to an effective tax rate of 30.2% for the six-month period ended September 30, 2006. Our income tax rates varies and could increase or decrease based on the amount of taxable income derived and from which source, any amendments to tax laws and income tax rates and changes in assumptions and estimates used for tax assets and liabilities by the Company and its affiliates.

Net earnings reached $62.5 million for the quarter ended September 30, 2007, compared to $58.3 million for the same quarter last fiscal year. For the six-month period ended September 30, 2007, net earnings totalled $131.0 million compared to $111.6 million for the corresponding period last year. These reflect the various factors analyzed above.

Cash and Financial Resources

For the three months ended September 30, 2007, cash generated by operating activities before changes in non-cash working capital items amounted to $90.9 million, an increase of $13.0 million in comparison to the $77.9 million for the corresponding quarter last fiscal year. Since the beginning of the fiscal year, this figure amounted to $183.9 million, an increase of $38.0 million in comparison to the $145.9 million for the same period last year. Non-cash working capital items used $9.2 million for the second quarter of fiscal 2008, compared to generating $19.2 million for the second quarter of fiscal 2007. For the six-month period ended September 30, 2007, non--cash working capital items used $89.2 million, compared to generating $20.2 million for the same period last year. The difference is mainly attributed to higher working capital items in our US division due to the increase in the average block market per pound of cheese during the current fiscal year in comparison to our fiscal year ended March 31, 2007.

Investing activities comprised of additions to fixed assets of $23.9 million and $41.6 million for the three- and six-month periods ended September 30, 2007, respectively. For the six-month period ended September 30, 2007, the Company also used $253.2 million, mainly for the Land O'Lakes West Coast Acquisition completed on April 2, 2007.

Financing activities for the second quarter of fiscal 2008 consisted of an increase in bank loans of $41.7 million, the issuance of shares for a cash consideration of $11.9 million, as part of the Stock Option Plan, the purchase of share capital totalling $44.9 million, and the payment of $45.1 million in dividends.

As at September 30, 2007, working capital stood at $308.7 million, a decrease from the $521.1 million as at March 31, 2007. The decrease is mainly attributed to the previously available funds disbursed for the Land O'Lakes West Coast Acquisition.

As at September 30, 2007, our interest bearing debt-to-equity ratio stood at 0.25, in comparison to 0.08 as at March 31, 2007.

The Company currently has available bank credit facilities of approximately $620 million, $161.6 million of which are drawn, essentially for our US and Argentinean operations. Following the second quarter of fiscal 2008, an additional $300 million was added to our existing available bank credit facilities. Should the need arise, the Company can make additional financing arrangements to pursue growth through acquisitions.

Balance Sheet

With regards to balance sheet items as at September 30, 2007, that varied compared to those as at March 31, 2007, we should note that the variation in most items is due mainly to the Land O'Lakes West Coast Acquisition. The continued appreciation of the Canadian dollar reduced the balance sheet items reported for our foreign subsidiaries. From an operational perspective, the higher average block market per pound of cheese for this fiscal year has caused an increase in our Cheese Division (USA) working capital items as at September 30, 2007, in comparison to March 31, 2007. The Company's total assets stood at $2.458 billion as at September 30, 2007, compared to $2.488 billion at March 31, 2007.

Share Capital Information

Share capital authorized by the Company is comprised of an unlimited number of common and preferred shares. The common shares are voting and participating. The preferred shares can be issued in one or more series, and the terms and privileges of each series must be determined at the time of their creation.



Authorized Issued as at Issued as at
September 30, 2007 October 31, 2007
--------------------------------------------------------------------------

Common shares Unlimited 102,694,004 102,728,495

Preferred shares Unlimited None None

Stock options 4,765,233 4,730,742


In the first two quarters of fiscal 2008, we purchased 1,825,620 common shares at prices ranging from $43.46 to $44.00 per share as part of the normal course issuer bid initiated on November 13, 2006.

Follow-up on Certain Specific Items of the Analysis

For an analysis of off-balance sheet arrangements, guarantees, contractual obligations, related party transactions, accounting standards, critical accounting policies and use of accounting estimates as well as risks and uncertainties, we encourage you to consult the comments provided in the 2007 annual report on pages 28 to 33 of the management's analysis, since there were no notable changes during the first two quarters of fiscal 2008.

Internal Controls over Financial Reporting

The Chief Executive Officer and the Chief Financial Officer, together with management, have concluded after having conducted an evaluation and to the best of their knowledge that, as of September 30, 2007, no change in the Company's internal control over financial reporting occurred that could have materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

Information by Sector

Canadian and Other Dairy Products Sector

For the quarter ended September 30, 2007, revenues from the Canadian and Other Dairy Products Sector amounted to $743.2 million, an increase of $48.0 million in comparison to the $695.2 million for the same quarter last fiscal year. Higher selling prices in our Canadian and Argentinean operations, in accordance with the increase in the cost of milk as raw material, higher by-products sales due to a more favourable by-products market condition and the inclusion of our newly acquired operations in the UK are the main factors explaining the revenue increase. The increase is also due to higher sales volume from our Canadian fluid milk activities. These increases offset lower revenues due to reduced sales volume from our Canadian cheese and Argentinean activities. Revenues from our Dairy Products Division (Germany) remained relatively stable in comparison to the same quarter last fiscal year. During the quarter, the appreciation of the Canadian dollar eroded approximately $5 million of revenues from the Sector.

Since the beginning of the fiscal year, revenues from the Canadian and Other Dairy Products Sector amounted to $1.465 billion, an increase of $72.0 million in comparison to the $1.393 billion for the same period last year. The increase is mainly due to higher selling prices, in accordance with the increase in the cost of milk as raw material, a more favourable by-products market condition, the inclusion of our newly acquired operations in the UK, and increased sales volumes from our Canadian fluid milk activities. Since the beginning of the fiscal year, the appreciation of the Canadian dollar eroded approximately $6 million of the sector's revenues.

For the quarter ended September 30, 2007, earnings before interest, income taxes, depreciation and amortization (EBITDA) for the Canadian and Other Dairy Products Sector totalled $84.6 million, an increase of $7.8 million or 10.2% compared to the $76.8 million for the corresponding quarter last fiscal year. The EBITDA margin for the current quarter increased to 11.4% in comparison to 11.0% for the same quarter last fiscal year.

The Dairy Products Division (Canada) was the major contributor to the EBITDA increase in the sector. The EBITDA increase was derived from better efficiencies in our manufacturing and logistics activities. We are also benefiting from rationalization activities completed in prior years. These improvements increased EBITDA by approximately $4 million. Additional EBITDA came from a more positive by-products market, contributing approximately $4 million. Lastly, the EBITDA increased this quarter compared to the same quarter last fiscal year due to additional sales volume from our fluid milk activities.

The EBITDA of our Dairy Products Division (Argentina) remains relatively stable in comparison to the same period last fiscal year. The difficult conditions with regards to milk supply as a result of floods, as well as the government regulations limiting selling prices on the export market, continue to negatively affect our EBITDA. These negative factors have offset benefits derived from capital investment made in the previous fiscal years.

For the quarter ended September 30, 2007, our Dairy Products Division (Germany) and our Dairy Products Division (United Kingdom) combined had a negative effect on our EBITDA due mainly to our German operation, as a result of the increase in milk prices and a delay in implementing higher selling prices to our customers. We expect that the milk price increase will be fully passed on to our customers in the following quarters.

Since the beginning of the fiscal year, EBITDA totalled $173.6 million, an increase of $25.3 million or 17.1% in comparison to the $148.3 million for the same period last fiscal year. The EBITDA margin increased from 10.6% last fiscal year to 11.8% for the current fiscal year.

US Dairy Products Sector

Revenues for the US Dairy Products Sector totalled $502.8 million for the quarter ended September 30, 2007, representing a $247.4 million or a 96.9% increase from the $255.4 million posted for the same period one year earlier. The Land O'Lakes West Coast Acquisition completed on April 2, 2007, selling price increases, as well as higher sales volumes contributed approximately $184 million to this increase. The average block market per pound of cheese in the second quarter was US$1.98, US$0.76 higher than the same period last year, boosting revenues by approximately $87 million. The appreciation of the Canadian dollar eroded approximately $24 million in revenues. The retail segment now accounts for 29% of our total sales volume, the foodservice segment 47% and the industrial segment 24%. Promotional efforts continued in this quarter supporting our retail brands.

Since the beginning of the fiscal year, revenues totalled $966.0 million, an increase of $468.0 million or 94% in comparison to $498.0 million for the same period last year. The Land O'Lakes West Coast Acquisition, selling price increases, as well as higher sales volumes increased revenues by approximately $360 million. The higher average block market per pound of cheese increased revenues by approximately $140 million, while the appreciation of the Canadian dollar eroded approximately $32 million in revenues.

For the quarter ended September 30, 2007, EBITDA totalled $34.1 million, resulting in a $11.2 million or 48.9% increase compared to $22.9 million for the same period last fiscal year. During the second quarter of fiscal 2008, the average block market per pound of cheese was US$0.76 higher compared to the same period last fiscal year, creating a positive effect on the absorption of fixed costs. The rising cheese market created a favourable impact on the realization of inventories. The higher average whey price in the second quarter of fiscal 2008 compared to the same period last fiscal year led to a less favourable relationship between the average block market per pound of cheese and the cost of milk as raw material. All these combined factors had a negative impact of approximately $8 million on EBITDA. The division benefited by approximately $2.5 million from reduced manufacturing milk prices as a result of governmental decisions announced last fiscal year. EBITDA improved by approximately $19 million due to the contribution of the Land O'Lakes West Coast Acquisition, along with initiatives undertaken in the prior and current fiscal years with regards to improved operational efficiencies, increased selling prices, and reduction of costs associated with milk handling. The appreciation of the Canadian dollar eroded approximately $2 million in EBITDA.

Since the beginning of the fiscal year, EBITDA totalled $68.1 million an increase of $30.5 million or 81.1%, in comparison to $37.6 million for the same period last year. EBITDA increased by approximately $36 million due to the contribution of the Land O'Lakes West Coast Acquisition and to initiatives undertaken in the previous fiscal year. The reduction of the manufacturing milk price from the state of California and the USDA benefited the division by approximately $5.4 million. The negative market factors created a shortfall of approximately $11 million. The appreciation of the Canadian dollar eroded approximately $3 million in EBITDA.

Grocery Products Sector

Revenues for the Grocery Products Sector totalled $42.9 million for the quarter ended September 30, 2007, a $0.7 million decrease as compared to the same quarter last fiscal year. The decrease is due mainly to lower sales volume from our co-packing agreements for the manufacturing of products for the US market. This decrease was partly offset by increased Canadian sales volume as compared to the same period last fiscal year. During the quarter, the division slightly increased its market share in Canada despite increased competition.

Since the beginning of fiscal 2008, revenues for the Grocery Products Sector totalled $84.5 million, relatively stable compared to the corresponding period last fiscal year. This increase is mainly due to the inclusion of the revenues of Rondeau, acquired on July 28, 2006.

EBITDA for the Grocery Products Sector amounted to $5.4 million, a $1.7 million decrease as compared to the same quarter last year. EBITDA margin went from 16.3% last year to 12.6% this year. The division experienced higher ingredients, packaging, labor and energy costs and the decline in revenues from its American co-packing activities, resulting in $1.2 million decrease in EBITDA. During fiscal 2008, the division will spend an extra $0.9 million towards the development of its brands, $0.2 million of which was spent this quarter. Finally, during this fiscal year, we anticipate to expense approximately $1.1 million in addition to last fiscal year related to the pension plan, of which $0.3 million was expensed in this quarter.

Since the beginning of the fiscal year, EBITDA totalled $9.9 million, a $4.1 million decrease as compared to the same period last fiscal year. This fiscal year, the division incurred higher ingredients, packaging, labor and energy costs, combined with lower revenues from our American co-packing activities totalling $3.0 million. Furthermore, during the same period the division incurred $0.6 million in additional pension cost and $0.5 million in additional marketing expenditures.




(signed) (signed)
Lino Saputo, Lino Saputo, Jr.,
Chairman of the Board President and Chief Executive Officer

November 6, 2007

NOTICE

The consolidated financial statements of Saputo Inc. for the three-month
and the six-month periods ended September 30, 2007 and 2006 have not been
reviewed by an external auditor.



CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars, except per share amounts)
(unaudited)

For the three-month For the six-month
periods ended periods ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenues $1,288,982 $994,145 $2,515,717 $1,975,287
Cost of sales, selling and
administrative expenses 1,164,910 887,378 2,264,130 1,775,443
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings before interest,
depreciation and
income taxes 124,072 106,767 251,587 199,844
Depreciation of fixed assets 19,670 17,652 39,938 35,781
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income 104,402 89,115 211,649 164,063
Interest on long-term debt 4,684 5,739 9,724 11,325
Other interest, net 2,482 (760) 4,031 (1,305)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings before income taxes 97,236 84,136 197,894 154,043
Income taxes 34,712 25,850 66,923 42,493
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings $62,524 $58,286 $130,971 $111,550
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per share (Note 7)
Net earnings
Basic $0.61 $0.56 $1.27 $1.07
Diluted $0.60 $0.56 $1.26 $1.07
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of dollars)
(unaudited)

For the six-month periods
ended September 30
--------------------------------------------------------------------------
2007 2006
--------------------------------------------------------------------------
Retained earnings, beginning of period $1,085,081 $971,131
Net earnings 130,971 111,550
Dividends (45,084) (39,369)
Excess of purchase price of share capital
over carrying value (72,258) (28,404)
--------------------------------------------------------------------------
Retained earnings, end of period $1,098,710 $1,014,908
--------------------------------------------------------------------------
--------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of dollars)
(unaudited)

For the six-month periods
ended September 30
--------------------------------------------------------------------------
2007 2006
--------------------------------------------------------------------------
Net earnings $130,971 $111,550

Net change in unrealized losses on
translation of financial statements
of self-sustaining operations (84,961) (19,014)
--------------------------------------------------------------------------

Comprehensive income $46,010 $92,536
--------------------------------------------------------------------------
--------------------------------------------------------------------------



SEGMENTED INFORMATION
(in thousands of dollars)
(unaudited)

For the three-month For the six-month
periods ended periods ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------

Revenues
Dairy Products
Canada and Other $743,234 $695,162 $1,465,257 $1,393,246
United States 502,836 255,421 966,001 497,955
-------------------------------------------------------------------------
1,246,070 950,583 2,431,258 1,891,201
Grocery Products 42,912 43,562 84,459 84,086
-------------------------------------------------------------------------
$1,288,982 $994,145 $2,515,717 $1,975,287
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings before interest,
depreciation and
income taxes
Dairy Products
Canada and Other $84,623 $76,790 $173,622 $148,253
United States 34,068 22,853 68,088 37,607
-------------------------------------------------------------------------
118,691 99,643 241,710 185,860
Grocery Products 5,381 7,124 9,877 13,984
-------------------------------------------------------------------------
$124,072 $106,767 $251,587 $199,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Depreciation of fixed assets
Dairy Products
Canada and Other $8,968 $8,969 $18,297 $18,066
United States 8,926 7,054 18,056 14,512
-------------------------------------------------------------------------
17,894 16,023 36,353 32,578
Grocery Products 1,776 1,629 3,585 3,203
-------------------------------------------------------------------------
$19,670 $17,652 $39,938 $35,781
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Operating income
Dairy Products
Canada and Other $75,655 $67,821 $155,325 $130,187
United States 25,142 15,799 50,032 23,095
-------------------------------------------------------------------------
100,797 83,620 205,357 153,282
Grocery Products 3,605 5,495 6,292 10,781
-------------------------------------------------------------------------
$104,402 $89,115 $211,649 $164,063
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Interest 7,166 4,979 13,755 10,020
-------------------------------------------------------------------------

Earnings before income taxes 97,236 84,136 197,894 154,043

Income taxes 34,712 25,850 66,923 42,493
-------------------------------------------------------------------------
Net earnings $62,524 $58,286 $130,971 $111,550
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)

For the three-month For the six-month
periods ended periods ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------

Cash flows related to the
following activities:
Operating
Net earnings $62,524 $58,286 $130,971 $111,550
Items not affecting cash
Stock based compensation 2,075 1,967 4,157 4,002
Depreciation of fixed
assets 19,670 17,652 39,938 35,781
(Gain) loss on disposal of
fixed assets (429) 11 (425) (5)
Future income taxes 7,229 385 9,567 (4,601)
Funding of employee plans in
excess of costs (172) (409) (344) (818)
-------------------------------------------------------------------------
90,897 77,892 183,864 145,909
Changes in non-cash
operating working
capital items (9,193) 19,200 (89,182) 20,151
-------------------------------------------------------------------------
81,704 97,092 94,682 166,060
-------------------------------------------------------------------------

Investing
Business acquisitions (Note 10) - (11,472) (253,188) (19,085)
Additions to fixed assets (23,894) (24,051) (41,585) (41,693)
Proceeds on disposals of
fixed assets 1,783 291 1,982 322
Other assets (105) (2,358) 2,183 (4,070)
-------------------------------------------------------------------------
(22,216) (37,590) (290,608) (64,526)
-------------------------------------------------------------------------

Financing
Bank loans 41,713 2,860 36,590 (140)
Issuance of share capital 11,851 3,277 21,599 8,204
Repurchase of share capital (44,866) (8,456) (81,472) (32,947)
Dividends (45,084) (39,369) (45,084) (39,369)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(36,386) (41,688) (68,367) (64,252)
-------------------------------------------------------------------------

Increase (decrease) in cash
and cash equivalents 23,102 17,814 (264,293) 37,282
Effect of exchange rate
changes on cash and
cash equivalents 1,608 435 4,930 (683)
Cash and cash equivalents,
beginning of period (7,179) 109,883 276,894 91,533
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $17,531 $128,132 $17,531 $128,132
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental information

Interest paid $2,411 $724 $13,490 $10,217
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income taxes paid $21,672 $19,442 $60,961 $40,189
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

-------------------------------------------------------------------------
September 30 March 31
2007 2007
(unaudited) (audited)
-------------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents $17,531 $276,894
Receivables 407,318 324,702
Inventories 483,619 445,992
Income taxes 6,612 6,413
Future income taxes 4,699 13,045
Prepaid expenses and other assets 24,999 23,939
-------------------------------------------------------------------------
944,778 1,090,985
Portfolio investment 42,991 42,991
Fixed assets (Note 4) 839,817 691,226
Goodwill 516,750 547,379
Trademarks and other intangibles 37,437 32,340
Other assets (Note 5) 67,764 73,726
Future income taxes 8,122 9,720
-------------------------------------------------------------------------
$2,457,659 $2,488,367
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES
Current liabilities
Bank loans $161,580 $139,001
Accounts payable and accrued liabilities 392,579 343,911
Income taxes 80,743 85,644
Future income taxes 1,186 1,294
Current portion of long-term debt - 21
-------------------------------------------------------------------------
636,088 569,871
Long-term debt 218,856 254,012
Other liabilities 14,045 16,413
Future income taxes 110,442 115,053
-------------------------------------------------------------------------
979,431 955,349
-------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (Note 8) 529,002 511,737
Contributed surplus (Note 9) 18,141 18,864
Retained earnings 1,098,710 1,085,081
Accumulated other comprehensive loss (Note 3) (167,625) (82,664)
-------------------------------------------------------------------------
1,478,228 1,533,018
-------------------------------------------------------------------------
$2,457,659 $2,488,367
-------------------------------------------------------------------------
-------------------------------------------------------------------------



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts are in thousands of dollars except information on options and shares)

(unaudited)

1 - Accounting Policies
The unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and applied in the same manner as the most recently audited financial statements. During the fiscal year, the Company adopted the following accounting policies: section 1530, Comprehensive Income, section 3855, Financial Instruments - Recognition and Measurement, and section 3865, Hedges. The unaudited consolidated financial statements do not include all the information and notes required according to generally accepted accounting principles for annual financial statements, and should therefore be read in conjunction with the audited consolidated financial statements and the notes included in the Company's annual report for the year ended March 31, 2007.

2 - Foreign Currency Translation

The balance sheet accounts of the self-sustaining companies operating in the US, Argentina, Germany and the United Kingdom are translated into Canadian dollars using the exchange rates at the balance sheet dates. Statement of earnings accounts are translated into Canadian dollars using the average monthly exchange rates in effect during the periods. The unrealized losses on translation of the financial statements of self-sustaining operations account presented in accumulated other comprehensive loss represents accumulated foreign currency losses on the Company's net investments in companies operating in the United States, Argentina, Germany and the United Kingdom. The change in the unrealized losses on translation of the financial statements of self-sustaining operations account for the period resulted mainly from the increase in value of the Canadian dollar as compared to the US dollar.

Foreign currency accounts of the Company and its subsidiaries are translated using the exchange rates at the balance sheet date for monetary assets and liabilities and the prevailing exchange rates at the time of transactions for income and expenses. Gains or losses resulting from this translation are included in the statement of earnings.



For the three-month For the six-month
periods ended periods ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Foreign exchange gain $213 $293 $615 $494
-------------------------------------------------------------------------


3 - Accumulated Other Comprehensive Loss

September 30, 2007
-------------------------------------------------------------------------
Accumulated other comprehensive loss,
beginning of period $(82,664)

Other comprehensive loss (84,961)
-------------------------------------------------------------------------
Accumulated other comprehensive
loss, end of period $(167,625)
-------------------------------------------------------------------------
-------------------------------------------------------------------------



4 - Fixed Assets

September 30, 2007 March 31, 2007
---------------------------------------------------------------------------
Accumulated Net book Accumulated Net book
Cost depreciation value Cost depreciation value
---------------------------------------------------------------------------
Land $33,769 $- $33,769 $27,666 $- $27,666
Buildings 313,209 68,106 245,103 278,463 68,750 209,713
Furniture,
machinery
and
equipment 941,066 393,287 547,779 824,427 383,350 441,077
Rolling
stock 12,909 7,631 5,278 12,928 7,156 5,772
Held for
sale 7,888 - 7,888 6,998 - 6,998
---------------------------------------------------------------------------
$1,308,841 $469,024 $839,817 $1,150,482 $459,256 $691,226
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Fixed assets held for sale represent mainly machinery, equipment and buildings of the Canadian and US Dairy Products Sectors that will be disposed of as a result of certain plant closures.

The net book value of fixed assets under construction, that are not being amortized, amounts to $42,246,000 as at September 30, 2007 ($22,518,000 as at March 31, 2007), and consists mainly of machinery and equipment.



5 - Other Assets

-------------------------------------------------------------------------
September 30 2007 March 31, 2007
-------------------------------------------------------------------------
Net accrued pension plan asset $55,752 $54,326
Taxes receivable 4,601 12,626
Other 7,411 6,774
-------------------------------------------------------------------------
$67,764 $73,726
-------------------------------------------------------------------------
-------------------------------------------------------------------------


6 - Employee Pension and Other Benefit Plans

The Company provides defined benefit and defined contribution pension plans as well as other benefit plans such as health insurance, life insurance and dental plans to eligible employees and retired employees. Pension and other benefit plan obligations are affected by factors such as interest rates, adjustments arising from plan amendments, changes in assumptions and experience gains or losses. The costs are based on a measurement of the pension and other benefit plan obligations and the pension fund assets.

Total benefit costs for the three and six-month periods ended September 30 are as follows:



For the three-month For the six-month
periods ended periods ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Pension plans $5,348 $4,832 $10,217 $9,680
Other benefits plans 241 364 600 722
-------------------------------------------------------------------------
$5,589 $5,196 $10,817 $10,402
-------------------------------------------------------------------------
-------------------------------------------------------------------------



7 - Earnings per Share

For the three-month For the six-month
periods ended periods ended
September 30 September 30
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings $62,524 $58,286 $130,971 $111,550
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average
number of common
shares outstanding 102,464,894 103,808,467 102,984,111 104,001,472

Dilutive options 804,329 403,606 804,329 403,606
-------------------------------------------------------------------------
Dilutive number of
common shares
outstanding 103,269,223 104,212,073 103,788,440 104,405,078
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic earnings per
share $0,61 $0,56 $1,27 $1,07

Diluted earnings
per share $0,60 $0,56 $1,26 $1,07


When calculating dilutive earnings per share, 869,351 options were excluded from the calculation in 2006 because their exercise price was higher than the average market value. In the current period no options were excluded.

Shares purchased during the period, under the normal course issuer bid, were excluded from the calculation of earnings per share as of the date of purchase.

8 - Share Capital

Authorized

The authorized share capital of the Company consists of an unlimited number of common and preferred shares. The common shares are voting and participating. The preferred shares may be issued in one or more series, the terms and privileges of each series to be determined at the time of their creation.



September 30 2007 March 31, 2007
-------------------------------------------------------------------------

Issued

102,694,004 common shares
(103 676 917 at March 31, 2007) $529,002 $511,737
-------------------------------------------------------------------------
-------------------------------------------------------------------------


869,707 common shares (389,483 in 2006) for an amount of $21,599,000 ($8,204,000 in 2006) were issued during the six-month period ended September 30, 2007, pursuant to the share option plan. For share options granted since April 1, 2002, the amount previously accounted for as an increase to contributed surplus was also transferred to share capital upon the exercise of options. For the six-month period ended September 30, 2007, the amount transferred from contributed surplus was $4,880,000 ($1,452,000 in 2006).

Pursuant to the normal course issuer bid, which began on November 13, 2006, the Company may purchase for cancellation up to 5,179,304 common shares until November 12, 2007. During the six-month period ended September 30, 2007, the Company purchased 1,852,620 common shares at prices ranging from $43.46 to $44.00 per share. The excess of the purchase price over the carrying value of the shares in the amount of $72,258,000 was charged to retained earnings.

Share option plan

The Company established a share option plan to allow for the purchase of common shares by key employees, officers and directors of the Company. The total number of common shares which may be issued pursuant to this plan cannot exceed 14,000,000 common shares. Options may be exercised at a price equal to the closing quoted value of the shares on the day preceding the grant date. The options vest at 20% per year and expire ten years from the grant date.



Options issued and outstanding as at the end of the respective periods are
as follows:
September 30, 2007 March 31, 2007
--------------------------------------------------------------------------
Weighted Weighted
average average
Granting Exercise Number of exercise Number of exercise
period price options price options price
--------------------------------------------------------------------------
1998 $ 8.50 2,500 $8.50 19,000 $8.50
1999 from $16.13 to $18.75 35,135 $18.43 53,140 $18.43
2000 $19.70 65,446 $19.70 106,949 $19.70
2001 $13.50 113,386 $13.50 263,402 $13.50
2002 from $19.00 to $23.00 319,313 $19.05 419,205 $19.04
2003 $30.35 408,343 $30.35 542,594 $30.35
2004 $22.50 647,168 $22.50 798,755 $22.50
2005 $33.05 593,173 $33.05 727,313 $33.05
2006 $36.15 713,856 $36.15 827,932 $36.15
2007 $32.70 988,154 $32.70 1,097,318 $32.70
Current $46.18 878,759 $46.18
----------------------------------------- ---------
4,765,233 $32.49 4,855,608 $28.64
----------------------------------------- ---------
----------------------------------------- ---------
Options exercisable at
the end of the period 2,055,387 $26.61 2,011,821 $24.03



Changes in the number of options are as follows:

September 30, 2007
-------------------------------------------------------------------------
Weighted
Number of average
options exercise price
-------------------------------------------------------------------------

Balance at beginning of period 4,855,608 $28.64
Options granted 889,586 $46.18
Options exercised (869,707) $24.83
Options cancelled (110,254) $33.85
----------------------------------------------------
Balance at end of period 4,765,233 $32.49
----------------------------------------------------
----------------------------------------------------


The fair value of share purchase options granted was estimated at $14.48 per option, using the Black-Scholes option pricing model with the following assumptions:



September 30, 2007 March 31, 2007
-------------------------------------------------------------------------

Risk-free interest rate: 4.4% 4.2%
Expected life of options: 5 years 5 years
Volatility: 35% 35%
Dividend rate: 2.0% 2.5%


The exercise price of these options is $46.18, which corresponds to the closing quoted value of the shares on the day preceding the grant date.

A compensation expense of $2,075,000 ($1,848,000 after income taxes) and $4,157,000 ($3,696,000 after income taxes) relating to stock options was recorded in the statement of earnings for the three-month and six-month periods ended September 30, 2007, respectively. A compensation expense of $1,967,000 ($1,732,000 after income taxes) and $4,002,000 ($3,534,000 after income taxes) was recorded for the three-month and six-month periods ended September 30, 2006, respectively.



9 - Contributed Surplus
Year ended
September 30, 2007 March 31, 2007
-------------------------------------------------------------------------
Contributed surplus, beginning
of period $18,864 $14,428
Stock based compensation 4,157 7,917
Amount transferred to share capital (4,880) (3,481)
-------------------------------------------------------------------------
Contributed surplus, end of period $18,141 $18,864
-------------------------------------------------------------------------


10 - Business Acquisition

On April 2, 2007, the Company acquired the activities of Land O'Lakes West Coast industrial cheese business in the US for a cash consideration of $249,224,000. The fair values attributed to the assets acquired were $20,795,000 to working capital, $222,649,000 to fixed assets, and $5,780,000 to intangible assets. The final allocation of the purchase price will be completed in the current fiscal year.

During the six-month period, the Company also acquired cheese import quotas for its Dairy Products Division (Canada) for $3,300,000. This purchase is allocated to intangible assets.

Contact Information

  • Saputo Inc.
    Karine Vachon
    Advisor, Communications
    514-328-3377