Sleeman Breweries Ltd.
TSX : ALE

Sleeman Breweries Ltd.

October 28, 2005 08:00 ET

Sleeman Reports Third Quarter Results

GUELPH, ONTARIO--(CCNMatthews - Oct. 28, 2005) - Sleeman Breweries Ltd. (TSX:ALE) today released its financial results for the third quarter ended October 1, 2005.

Third Quarter Financial Highlights

- Net revenue was $59.0 million compared to $60.7 million for the same period last year.

- Earnings before interest, taxes, depreciation and amortization (EBITDA) were $9.5 million compared to $10.8 million for the same quarter last year.

- Total selling, general and administrative (SG&A) expenses increased $0.8 million to $21.5. Excluding one-time restructuring charges of $2.6 million recorded in the current quarter, SG&A expenses declined by $1.8 million versus the same period last year. The restructuring charge recorded in the quarter was increased by $0.5 million from the amount previously announced to account for a non-cash charge related to capital assets located at the Company's Calgary brewery made redundant by the Company's decision to consolidate production from this facility to its Vernon facility.

- Net earnings were $3.5 million, compared to $4.5 million in the third quarter of 2004.

- Normalized diluted earnings per share were consistent with the prior year's third quarter at $0.30. Reported diluted earnings per share were $0.20.

"We are satisfied that we were able to maintain our normalized earnings per share in the current quarter given the intense competitive pricing environment across the country. Sales of our premium products increased versus the third quarter of 2004 and we continue to see decreases in our per unit cost of goods sold and SG&A expenses (excluding one-time items)," said John Sleeman, Chairman and CEO. "We set aggressive targets, for the last half of the year, in order for Sleeman to achieve its stated growth in normalized earnings per share for the fiscal year. Although we will not achieve this goal, we are confident in the direction we are headed. The Company continues to focus on sales of its premium products and cost management initiatives and this focus was evident in this quarter's results."

First Nine Month Financial Review

- Net revenue was $157 million compared to $157.7 million in the prior year.

- EBITDA was $23.4 million compared to $26.2 million in the first nine months of 2004.

- Net income was $7.6 million, or $0.45 per share on a diluted basis, compared to $10.5 million, or $0.64 per share in the same period in 2004.

- Normalized diluted earnings per share were $0.57 compared to $0.67.
Operational Highlights

- The Company entered into a national sales, marketing and distribution agreement with FEMSA Cerveza of Mexico for the Canadian market. The agreement will be effective January 1st, 2006 and is expected to deliver an incremental $0.5 million to $0.75 million EBITDA in fiscal 2006.

- The Company announced a reorganization across the country aimed at reducing SG&A costs by $2.7 million annually, starting in 2006.

- The Industry received approval of a floor price increase in the Ontario market, effective October 2005, which provides enhanced price/margin stability in the future.

- Sleeman Original Draught expanded into the Quebec market continuing on its successes in both Ontario and Western Canada. Sleeman also introduced two new brands into the Quebec market, Chambly Noire and Ephemere Raspberry.

Mr. Sleeman continued, "The reorganization announced in August and our focus on improving operational productivity and efficiency will help us reduce our costs and improve our operating margins. These are areas that we can impact in this increased competitive pricing environment, which defines the beer industry in Canada today. In addition, we are redoubling our efforts to continue the growth in our core volumes. We are committed to growing long term shareholder value and our management team is implementing the steps necessary to meet this commitment."

Management's Discussion and Analysis of Results of Operations and Financial Position:

The following discussion and analysis should be read in conjunction with the financial statements for the third quarter of fiscal 2005 and 2004; with the MD&A in the fiscal 2004 annual report, including the section on risks and uncertainties; and with the notes to the financial statements for the third quarter of fiscal 2005 and in the fiscal 2004 annual report. (All amounts are in Canadian dollars unless otherwise stated.)

The following comments were prepared as of October 27, 2005. Additional information relating to the Company, including its Annual Information Form, is available on SEDAR at www.sedar.com.

Operating Results

Quarterly Comparison

The following chart sets out the per hectolitre results(1) for the quarter based on the number of hectolitres produced and sold by the Company:



---------------------------------------------------------------------
3 months ended 3 months ended
October 1, 2005 September 25, 2004
---------------------------------------------------------------------
Net revenue $175 $180
---------------------------------------------------------------------
Cost of goods sold 83 87
---------------------------------------------------------------------
Gross margin 92 93
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Selling, general
and administrative 64 61
---------------------------------------------------------------------
EBITDA(2) 28 32
---------------------------------------------------------------------
Depreciation and
amortization 7 6
---------------------------------------------------------------------
Earnings before
interest and taxes 21 26
---------------------------------------------------------------------
Interest 5 6
---------------------------------------------------------------------
Earnings before taxes 16 20
---------------------------------------------------------------------
Income taxes 6 7
---------------------------------------------------------------------
Net earnings $10 $ 13
---------------------------------------------------------------------


(1) Per hectolitre results are non-GAAP earnings measures, therefore, they do not have any standardized meaning prescribed by Canadian generally accepted accounting principles and may not be similar to measures presented by other companies. Management evaluates business trends on a per hectolitre basis as this is a measurement commonly used by breweries to benchmark revenue and costs.

(2) EBITDA is a non-GAAP earnings measure, therefore, it does not have any standardized meaning prescribed by Canadian generally accepted accounting principles and may not be similar to measures presented by other companies. EBITDA represents earnings before interest, income taxes, depreciation and amortization. Management uses this measurement to evaluate the operating results of each of the Company's segments and the Company as a whole. Further, this measure is important to management since it is used by the Company's lenders to evaluate the ongoing cash generating capability of the Company and thus the amounts those lenders are willing to lend to the Company.

NET REVENUE

Net revenue decreased to $59 million in the current quarter compared to $60.7 million in the prior year. Net revenue decreased by $5 per hectolitre as the Company realized lower net prices in the current quarter on its value brands in the Quebec, Ontario and Alberta markets and on its premium brands in Quebec and Ontario. Produced and sold volumes were flat compared to last year at 337,000 hectolitres. Sapporo volumes increased 4% to 48,000 hectolitres.

In Eastern Canada, the 3% increase in core volumes was more than offset by the impact of lower net pricing in the Ontario and Quebec markets causing net revenue to decline by 3%.

In Western Canada, net revenue was down 2%. Core volumes declined by 6% as value brand sales continued to be affected by tax subsidy induced competitor pricing and provincial government bans of high alcohol large container packages in major urban centres. Net revenue per hectolitre increased due to the continuing mix shift in favour of premium brand sales.

COST OF GOODS SOLD

Cost of goods sold decreased by 4% ($1.2 million) on a similar level of hectolitres produced and sold in third quarter of both years. Operating efficiencies were the key contributor to this improvement in costs.

Cost of goods sold in Eastern Canada decreased by $5 per hectolitre to $79 per hectolitre. The decrease was due primarily to the Company's Guelph facility operating more efficiently.

In Western Canada, cost of goods sold was unchanged from 2004 at $92 per hectolitre.

OTHER OPERATING ITEMS

Selling, general and administrative (SG&A) expenses increased in the current quarter by $0.8 million. During the quarter, the Company incurred non-recurring charges of $2.6 million related to the reorganization announced in August 2005. Excluding these one-time charges, SG&A expenses decreased by $1.8 million to $56 per hectolitre compared to the third quarter of 2004.

SG&A expenses in Eastern Canada were consistent with the prior year's third quarter level of $67 per hectolitre. Excluding the $1.8 million of one-time charges recorded for this segment in the current quarter, SG&A per hectolitre was $60 as segment management focused on reducing costs in the face of continuing price competition.

In Western Canada, SG&A expenses per hectolitre increased by $8 per hectolitre to $56. Excluding the $0.8 million of one-time charges recorded for this segment in the current quarter, SG&A per hectolitre was $48. This segment's management also focused on controlling costs in this area in the face of declining margins.

Depreciation and amortization expense increased by $0.2 million due primarily to depreciation charges on the production assets acquired in the preceding 12 months.

Interest expense decreased marginally by $0.1 million, due to lower net borrowings and lower interest rates.

The provision for income taxes decreased by $0.4 million as a result of the decrease in pretax earnings in the third quarter of 2005 compared to the third quarter of 2004. The effective tax rate in the third quarter of 2005 was 37%, compared to an effective tax rate of 35% in the third quarter of 2004.


Operating Results

Year to Date Comparison

The following chart sets out the per hectolitre results for the period based on the number of hectolitres produced and sold by the Company:



---------------------------------------------------------------------
9 months ended 9 months ended
October 1, 2005 September 25, 2004
---------------------------------------------------------------------
Net revenue $171 $173
---------------------------------------------------------------------
Cost of goods sold 84 88
---------------------------------------------------------------------
Gross margin 87 85
---------------------------------------------------------------------
Selling, general and
administrative 62 56
---------------------------------------------------------------------
EBITDA 26 29
---------------------------------------------------------------------
Depreciation and
amortization 7 6
---------------------------------------------------------------------
Earnings before
interest and taxes 19 23
---------------------------------------------------------------------
Interest 6 5
---------------------------------------------------------------------
Earnings before taxes 13 18
---------------------------------------------------------------------
Income taxes 5 6
---------------------------------------------------------------------
Net earnings $8 $ 12
---------------------------------------------------------------------


The current period includes the nine month results for the Unibroue business while the comparable period in 2004 includes the results for that business for the three month period from the date of acquisition of July 1, 2004 to September 25, 2004.

Net revenue of $157.0 million for the year to date was slightly lower than the $157.7 million earned in the first nine months of fiscal 2004. Produced and sold volumes were consistent with the level in the prior years' nine month period. There was a mix shift to higher priced premium product sales. In the current period premium brand sales volumes increased to 53% of the Company's core sales volumes from 50% in the prior year. However, the favourable impact of this shift in the Company's net revenue per hectolitre was offset by the lower net pricing realized by the Company on its premium and value brand sales in the Ontario, Quebec and Alberta markets.

Cost of goods sold were $77.0 million for the period, down from $80.2 million in 2004. The decrease in cost of goods sold was due to operational efficiencies generated by the Guelph facility.

Selling, general and administrative (SG&A) expenses increased in 2005 by $5.4 million to $56.7 million (or $62 per hectolitre). Included in this year's total are $3 million of one-time costs. When these one-times costs are removed, per hectolitre SG&A costs are $59.

The Company's depreciation and amortization expense increased by 21% in the current period due to the effects of the Unibroue acquisition in 2004 and capital expenditures incurred over the past 12 months.

Interest costs increased in the current year to date period as a result of the higher debt levels related to the Unibroue acquisition in the third quarter of 2004.

The Company's effective tax rate remained at 36%, consistent with the prior year.

Financial Position

The Company had a cash balance of $0.9 million compared to a bank indebtedness balance of $9.6 million as at January 1, 2005 as the Company borrowed $10 million under its long term loan facility to repay its bank indebtedness in the current quarter.

Accounts receivable decreased by $2.4 million from the level reported at the end of fiscal 2004 due to seasonal variations.

The Company's inventories increased by $10.8 million from January 1, 2005 levels as the Company carried higher Sapporo inventories and increased Sleeman inventories in Ontario related to a Thanksgiving Limited Time Offer (LTO) of Sleeman Original Draught and the re-launch of the "John Sleeman Presents" line which will include a Fine Porter and an India Pale Ale in the fall of 2005.

Property, plant and equipment increased by $0.8 million from the level reported at January 1, 2005 as new capital expenditures incurred on a year-to-date basis marginally exceeded depreciation charges.

Accounts payable increased $4.8 million from the level at year end fiscal 2004 as production levels were higher in the third quarter of 2005 compared to the fourth quarter of 2004.

Total long term debt increased by $1.8 million from the level at the end of the 2004 fiscal year as new borrowings of $10 million under these facilities exceeded the $8.2 million of repayments in the current year to date period.

The increase of $1.9 million in share capital related to the exercise of employee stock options of the Company during the current period.

Cash Flow

Quarterly Comparison

Operating cash flow in the current quarter grew by $5 million over the same period in the prior year as a result of lower investments in working capital in the current period.

Net investing activity outflows for the current quarter were $40 million less as the prior year's third quarter included the impact of the Unibroue acquisition.

Net proceeds from long term loans were $33 million less in the current period as the Unibroue acquisition was principally funded with long term debt in last year's third quarter.

As a result of these activities, there was a net cash inflow for the period of $12.4 million compared to a net inflow of $1.0 million last year. The net cash increase, in both periods, was used to reduce the Company's operating bank loan balance.

Year to Date Comparison

Operating cash flow increased by $5.9 million in the current nine month period compared to the prior year. The $7.4 million increase in operating cash flow resulting from reduced working capital investments was partially offset by the lower earnings in the current nine month period.

Investing activities used $43 million less in this year's nine month period as the prior year's results included the effects of the Unibroue acquisition and higher capital expenditures.

Financing activities provided $33.1 million less during the current period compared to the prior year. Net proceeds from long term loans were $31.9 million less while the Company also received $1.2 million less proceeds from the exercise of stock options in the current period.

As a result of the above noted changes in operating, investing and financing activities, there was a net cash inflow in the current nine month period of $10.5 million compared to a net outflow of $5.4 million in last year's nine month period. The current period's net cash inflow was used to repay the Company's operating facility in full.

Outlook

Sleeman's core volume growth and net revenue per hectolitre will both be below its targets for this fiscal year due to the effects of the significant changes in the pricing environment across Canada recently. As a result, the Company has lowered its outlook for expected full year normalized diluted earnings per share estimated to between $0.81 and $0.85 for its 2005 fiscal. This was outlined in the Company's press release dated October 24, 2005. This is below its normalized diluted earnings per share(3) in 2004 of $0.90 as calculated in the Management Discussion & Analysis section of the Company's 2004 Annual Report. Management expects that the pricing environment will continue to be intensely competitive for the foreseeable future. Management is implementing plans to improve the Company's operations and lower costs to ensure that it can compete profitably in this environment. The Company is also focused on continuing premium volume growth as it will introduce new and innovative products and related sales and marketing programs over the next few months into its key markets in Ontario, Quebec and Western Canada.

The Company expects its depreciation and amortization and interest expenses for the fourth quarter of 2005 to be similar to the amounts reported in the third quarter of 2005.

The Company anticipates its effective income tax rate for 2005 will be between 35% and 36%.

In Eastern Canada, the Company expects a continuation of the highly competitive market conditions its premium and value brands have faced in the past 18 months. Continued price discounting implies there will be limited opportunities for revenue growth from price increases. As such, revenue growth will likely come from market share growth on the sale of new products like Sleeman Original Draught and "John Sleeman Presents" in Ontario. In Quebec, the scale we now have with the combined Sleeman Unibroue premium portfolio will allow us to have an increased presence and higher sales activity with several retailers in 2005 and beyond. The Company continues to believe innovation, speed to market and the quality of its products are key advantages and the resources of the Company will continue to be directed to realizing the benefits in these areas.

In Western Canada, the Company's goal is to ensure its sales and marketing teams continue to focus on the sale of premium products. Management believes that the return of NHL hockey, the introduction of Sleeman Original Draught and innovative sales promotion programs will provide a lift to Sleeman brand sales for the remainder of 2005. Meanwhile, the Company expects ongoing challenges for its Western Canadian value beer portfolio as a result of the continued deep discounting in this category by small brewery competitors who continue to be supported with favourable tax treatment.

The Company has capacity availability for the next 24-36 months, given the expansions of its Guelph, Vernon and Chambly breweries in 2005. The Company anticipates reducing its capital expenditures in 2005 to approximately $10.7 million, which includes the installation of the can line at the Vernon facility and the waste water control system and carbon dioxide collection systems in Guelph.

(3) Normalized diluted earnings per share is calculated using normalized earnings. Normalized earnings is a non-GAAP earnings measure, therefore, it does not have any standardized meaning prescribed by Canadian generally accepted accounting principles and may not be similar to measures presented by other companies. Management uses this measurement for comparative purposes as it excludes the impact of non-recurring and unusual items. Management does not consider non-recurring and unusual items to be indicative of sustainable earnings. Normalized earnings is an additional measurement used by management and should not replace net earnings determined in accordance with GAAP as an indicator of the Company's performance.

Summary of Quarterly Information for the Last Eight Quarters

The following chart summarizes the quarterly results for the Company for the last eight fiscal quarters:



---------------------------------------------------------------------
Q3 Q2 Q1 Q4
2005 2005 2005 2004
---------------------------------------------------------------------
Net Revenue $59,038 $57,862 $40,151 $55,635
---------------------------------------------------------------------
S,G&A Expenses $21,535 $21,763 $13,368 $19,873
---------------------------------------------------------------------
EBITDA $9,480 $7,689 $6,249 $9,708
---------------------------------------------------------------------
Net Earnings $3,458 $2,490 $1,610 $3,904
---------------------------------------------------------------------
EPS (Basic) $0.21 $0.15 $0.10 $0.24
---------------------------------------------------------------------
EPS (Diluted) $0.20 $0.15 $0.10 $0.23
---------------------------------------------------------------------

---------------------------------------------------------------------
Q3 Q2 Q1 Q4
2004 2004 2004 2003
---------------------------------------------------------------------
Net Revenue $60,727 $58,712 $38,280 $48,740
---------------------------------------------------------------------
S,G&A Expenses $20,705 $19,134 $11,492 $13,364
---------------------------------------------------------------------
EBITDA $10,777 $9,033 $6,425 $11,952
---------------------------------------------------------------------
Net Earnings $4,463 $3,842 $2,217 $3,940
---------------------------------------------------------------------
EPS (Basic) $0.27 $0.24 $0.14 $0.25
---------------------------------------------------------------------
EPS (Diluted) $0.27 $0.23 $0.14 $0.24
---------------------------------------------------------------------


Quarterly Conference Call Notification

Please note the Company's conference call with analysts and media will be webcast live at 11:00 am ET, October 28,, 2005 at www.cdn-news.com and on the Sleeman investor website at www.sleeman.ca. Participants will require Windows Media Player™, which can be downloaded prior to accessing the call. The number to call to participate in the teleconference is 416-340-2216 or 866-898-9626. To ensure your participation, please call in about five minutes before the start of the call. For those unable to participate, a taped rebroadcast will be available until November 4, 2005. To access the rebroadcast, please dial 416-695-5800 or 800-408-3053. The reservation number is 3166146. All shareholders and other interested parties are invited to monitor this webcast, which is being offered on a listen-only basis.

Sleeman Breweries Ltd. is the leading brewer and distributor of premium beer in Canada and the third largest brewing company nation-wide. The Company has supplemented its core Sleeman brands, which are available in every province, with a family of exceptional regional brands. These include Okanagan Spring and Shaftebury in British Columbia and Alberta, Upper Canada in Ontario, Unibroue and Seigneuriale in Quebec and Maritime Beer in Atlantic Canada. Sleeman entered the rapidly growing value price category in 1999 by acquiring the Stroh portfolio of brands in Canada. The company markets and/or distributes world-class imported products such as Guinness, Grolsch, Samuel Adams, Scottish & Newcastle (including Bulmers Strongbow English Cider), Sapporo and Pilsner Urquell, and provides contract production for Japan's Sapporo Breweries' products. The Company's products are also available in selected international markets. Please visit our website at www.sleeman.ca.

Forward Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute forward-looking statements. These statements represent Sleeman Breweries Ltd.'s intentions, plans, expectations, and beliefs as of the date of this press release, and are subject to risks, uncertainties, and other factors, of which many are beyond the control of the Company. These factors could cause actual results to differ materially from such forward-looking statements. Sleeman Breweries Ltd. disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise.



Consolidated Statements of Earnings-unaudited
for the three months ended October 1, 2005
(all amounts in '000s except per share amounts)

---------------------------------------------------------------------
---------------------------------------------------------------------
3 months ended 3 months ended %
October 1, 2005 September 25, 2004 Change
---------------------------------------------------------------------
---------------------------------------------------------------------
Net revenue $59,038 $60,727 -3%
---------------------------------------------------------------------
Cost of goods sold 28,023 29,245 -4%
---------------------------------------------------------------------
Gross margin 31,015 31,482 -1%
---------------------------------------------------------------------
Selling, general
and administrative 21,535 20,705 4%
---------------------------------------------------------------------
Earnings before
the undernoted 9,480 10,777 -12%
---------------------------------------------------------------------
Depreciation and
amortization 2,247 1,998 12%
---------------------------------------------------------------------
Earnings before
interest and taxes 7,233 8,779 -18%
---------------------------------------------------------------------
Interest expense - net 1,764 1,913 -8%
---------------------------------------------------------------------
Earnings before
income taxes 5,469 6,866 -20%
---------------------------------------------------------------------
Income taxes 2,011 2,403 -16%
---------------------------------------------------------------------
Net earnings $3,458 $4,463 -23%
---------------------------------------------------------------------
---------------------------------------------------------------------

Total Proforma HLs Reported 379,000 370,000 3%

EPS - Basic $0.21 $0.27 -24%
EPS - Diluted $0.20 $0.27 -23%
Weighted average common
shares during the period
-basic 16,626,531 16,368,590
-diluted 16,875,997 16,762,324

See accompanying notes to the consolidated financial statements.
These financial statements should be read in conjunction with the
audited annual financial statements.
Certain prior year amounts have been reclassified to conform to the
current year's presentation format.



Consolidated Statements of Earnings-unaudited
for the nine months ended October 1, 2005
(all amounts in '000s except per share amounts)

---------------------------------------------------------------------
---------------------------------------------------------------------
9 months ended 9 months ended %
October 1, 2005 September 25, 2004 Change
---------------------------------------------------------------------
---------------------------------------------------------------------
Net revenue $157,051 $157,719 0%
---------------------------------------------------------------------
Cost of goods sold 76,967 80,153 -4%
---------------------------------------------------------------------
Gross margin 80,084 77,566 3%
---------------------------------------------------------------------
Selling, general
and administrative 56,666 51,331 10%
---------------------------------------------------------------------
Earnings before
the undernoted 23,418 26,235 -11%
---------------------------------------------------------------------
Depreciation
and amortization 6,260 5,153 21%
---------------------------------------------------------------------
Earnings before
interest and taxes 17,158 21,082 -19%
---------------------------------------------------------------------
Interest expense - net 5,377 4,675 15%
---------------------------------------------------------------------
Earnings before
income taxes 11,781 16,407 -28%
---------------------------------------------------------------------
Income taxes 4,223 5,885 -28%
---------------------------------------------------------------------
Net earnings $7,558 $10,522 -28%
---------------------------------------------------------------------
---------------------------------------------------------------------

Total Proforma HLs Reported 1,040,000 1,010,000 3%

EPS - Basic $0.46 $0.65 -29%
EPS - Diluted $0.45 $0.64 -29%
Weighted average common
shares during the period
-basic 16,497,120 16,195,801
-diluted 16,786,841 16,556,583

See accompanying notes to the consolidated financial statements.
These financial statements should be read in conjunction with the
audited annual financial statements.
Certain prior year amounts have been reclassified to conform to the
current year's presentation format.



Consolidated Balance Sheets-unaudited
as at October 1, 2005
(all amounts in 000s)

October 1, January 1, September 25,
2005 2005 2004
-------------------------------------------
Assets (audited)

Current
Cash $ 905 $ - $ -
Accounts receivable 41,981 44,422 39,794
Inventories 49,986 39,147 40,581
Prepaid expenses 6,770 6,589 5,428
-------------------------------------------
99,642 90,158 85,803

Property, plant
and equipment 101,523 100,748 96,612
Long-term note
receivable - 1,083 1,016
Long-term investments 3,313 3,311 5,840
Intangible assets 103,488 104,852 105,204
-------------------------------------------
$307,966 $300,152 $294,475
-------------------------------------------
-------------------------------------------
Liabilities
Current
Bank indebtedness $ - $ 9,634 $ 6,613
Accounts payable
and accrued liabilities 43,951 39,146 36,665
Current portion of
long-term debt 15,897 12,043 16,395
-------------------------------------------
59,848 60,823 59,673

Long-term debt 101,539 103,616 104,232
Future income taxes 14,973 13,929 12,963
-------------------------------------------
176,360 178,368 176,868
-------------------------------------------
-------------------------------------------

Shareholder's equity
Share capital 50,282 48,353 48,150
Contributed surplus 643 308 238
Retained earnings 80,681 73,123 69,219
-------------------------------------------
131,606 121,784 117,607
-------------------------------------------
$307,966 $300,152 $294,475
-------------------------------------------
-------------------------------------------


Consolidated Statements of Retained Earnings-unaudited
for the nine months ended October 1, 2005
(all amounts in 000s)

9 months ended 9 months ended
October 1, 2005 September 25, 2004
--------------------------------------

Retained earnings,
beginning of period $73,123 $58,697

Net earnings for
the period 7,558 10,522
--------------------------------------

Retained earnings,
end of period $80,681 $69,219
--------------------------------------
--------------------------------------

See accompanying notes to the consolidated financial statements.
These financial statements should be read in conjunction with the
audited annual financial statements.



Consolidated Statements of Cash Flows-unaudited
for the period ended October 1, 2005
(all amounts in '000s)

3 Months Ended 9 Months Ended
October September October September
1, 2005 25, 2004 1, 2005 25, 2004
Net inflow (outflow)
of cash related to
the following
activities:

OPERATING
Net earnings $3,458 $4,463 $7,558 $10,522
Items not
affecting cash
Depreciation
and amortization 2,247 1,998 6,260 5,153
Future income taxes 507 470 1,044 1,218
Non-cash charges
in income 450 (22) 248 (133)
Stock-based
compensation expense 111 70 335 210
Loss (gain) on
disposal of equipment - - (17) -
-------------------------------------------
6,773 6,979 15,428 16,970

Changes in non-cash
operating working
capital items 1,354 (3,794) (3,774) (11,205)
-------------------------------------------
8,127 3,185 11,654 5,765
-------------------------------------------

INVESTING
Business Acquisitions - (40,266) - (40,266)
Additions to property,
plant & equipment (1,503) (3,592) (5,418) (9,631)
Additions to
intangible assets (176) (443) (706) (636)
Proceeds from/
(additions to)
long term investments - 2,675 1,285 2,675
Proceeds from
sale of property,
plant & equipment - - 18 -
-------------------------------------------
(1,679) (41,626) (4,821) (47,858)
-------------------------------------------

FINANCING
Net increase in bank
operating loans (12,423) (1,037) (9,634) 5,365
Stock options
exercised 984 815 1,929 3,075
Long-term debts
- proceeds 10,000 41,150 10,000 41,150
Long-term debts
- principal
repayments (4,104) (2,487) (8,223) (7,497)
-------------------------------------------
(5,543) 38,441 (5,928) 42,093
-------------------------------------------

NET CASH FLOW
AND CASH BALANCE,
END OF PERIOD $ 905 $ - $ 905 $ -
-------------------------------------------
-------------------------------------------

Supplemental disclosures
of cash flows:
Interest paid $1,792 $1,863 $5,602 $4,805
Net income
taxes paid $13 $4,273 ($43) $6,797

See accompanying notes to the consolidated financial statements.
These financial statements should be read in conjunction with the
audited annual financial statements.

Notes to the Consolidated Financial Statements - unaudited
(in thousands of dollars, except per share amounts)


1. DESCRIPTION OF BUSINESS

The Company develops, produces, imports, markets and distributes beer for sale to provincial liquor distribution organizations and entities engaged in the food and beverage industries within Canada.

The Company prepares its financial statements in accordance with accounting principles generally accepted in Canada.

The Company experiences seasonal variations in sales with revenue typically being highest in the second and third quarters and lowest in the first quarter of the fiscal year.

2. SIGNIFICANT ACCOUNTING POLICIES

The disclosures contained in these unaudited consolidated financial statements do not include all requirements of Canadian generally accepted accounting principles for annual financial statements. These unaudited consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended January 1, 2005.

These unaudited consolidated financial statements are based upon accounting principles consistent with those used and described in the annual consolidated financial statements.

Stock-Based Compensation

During the year 45,000 options were granted by the Company at an exercise price of $13.85. In 2004 the Company granted 195,000 options at an exercise price of $11.56.

During the current quarter, the compensation cost that has been charged against earnings for the stock options was $111 (2004 - $70). The fair value of each 2005 option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during the period: dividend yield of 0%; expected volatility of 23%; risk-free interest rate of 3.5%; and an expected life of 4 years (2004 - dividend yield of 0%; expected volatility of 24%; risk-free interest rate of 3.5%; and an expected life of 4 years).

The Company did not recognize any compensation cost for the stock options issued prior to December 28, 2002. If the Company had determined compensation expense related to its stock option plan based on the fair value at the grant dates for awards granted in fiscal 2002, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:



---------------------------------------------------------------------
3 months ended 9 months ended
(Dollars in '000s, -----------------------------------------------
except per October 1, Sept. 25, October 1, Sept. 25,
share amounts) 2005 2004 2005 2004
---------------------------------------------------------------------
Net earnings as
reported $3,458 $4,463 $7,558 $10,522
---------------------------------------------------------------------
Net earnings
- pro forma 3,458 4,459 7,557 10,512
---------------------------------------------------------------------

---------------------------------------------------------------------
Net earnings per
share as reported $0.21 $0.27 $0.46 $0.65
---------------------------------------------------------------------
Basic earnings per
share - pro forma $0.21 $0.27 $0.46 $0.65
---------------------------------------------------------------------

---------------------------------------------------------------------
Diluted earnings per
share as reported $0.20 $0.27 $0.45 $0.64
---------------------------------------------------------------------
Diluted earnings per
share - pro forma $0.20 $0.27 $0.45 $0.64
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The fair value of each 2002 option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during the period: dividend yield of 0%; expected volatility of 27%; risk-free interest rate of 5%; and an expected life of 4 years.

Other Pronouncements

Effective January 2, 2005 the Company prospectively adopted the new provisions of the CICA Handbook Accounting Guideline AcG-15 "Variable Interest Entities". The Company does not expect this new standard to have a material impact on the reported results in the current year or in the future.

3. OUTSTANDING SHARES

As at October 1, 2005, the Company had outstanding 16,704,321 common shares and 770,654 options to acquire common shares under the Company's employee stock option plans.

4. SEGMENTED INFORMATION

Sleeman Breweries Ltd. is the largest premium brewery in Canada, producing and marketing several unique brands of beer. The Company operates breweries in Guelph, Ontario; Chambly, Quebec; Calgary, Alberta; Dartmouth, Nova Scotia; Vernon, British Columbia and LaCrosse, Wisconsin. The Company's reportable segments represent the aggregation of strategic business units that produce and sell beer in distinct geographic markets. They are managed separately because each business operates in different market environments in terms of regulatory regimes, customer preferences and sales and distribution channels.

The Company has two reportable segments: Eastern Canadian operations and Western Canadian operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company accounts for inter-segment sales and transfers, at the transferring segment's cost plus a production margin. Segment performance is evaluated based on earnings before interest, income taxes, depreciation and amortization ("EBITDA").



The following table sets forth information about segment profit or
loss and segment assets:

Quarter Ended 9 Months Ended
October 1, 2005 October 1, 2005
Eastern Western Eastern Western
Canada Canada Totals Canada Canada Totals
-----------------------------------------------------
Quarter Ended 9 Months Ended
October 1, 2005 October 1, 2005

Revenues from
external
customers $40,014 $19,024 $59,038 $106,745 $50,306 $157,051
Inter-segment
revenues 4,699 2,653 7,352 10,977 5,682 16,659
EBITDA 5,224 4,256 9,480 13,075 10,343 23,418
Depreciation
and amortization 1,694 553 2,247 4,637 1,623 6,260
Segment assets 225,419 82,547 307,966 225,419 82,547 307,966
Expenditures
for capital
assets 1,391 112 1,503 4,293 1,125 5,418
---------------------------------------------------------------------
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Quarter Ended 9 Months Ended
September 25, 2005 September 25, 2005

Revenues from
external
customers $41,336 $19,391 $60,727 $103,236 $54,483 $157,719
Inter-segment
revenues 1,565 - 1,565 7,558 - 7,558
EBITDA 6,431 4,346 10,777 14,946 11,289 26,235
Depreciation
and amortization 1,455 543 1,998 3,712 1,441 5,153
Segment assets 215,424 79,051 294,475 215,424 79,051 294,475
Expenditures for
capital assets 19,014 241 19,255 23,313 1,981 25,294
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5. RESTRUCTURING COSTS

On August 10, 2005, we announced a reorganization that would eliminate approximately 40 full time positions. The reorganization consisted of a workforce reduction across both business segments and the consolidation of production facilities in Western Canada. The following table shows the changes in the restructuring provision for this initiative:



---------------------------------------------------------------------
Workforce Redundant Capital Total
Reduction Assets
---------------------------------------------------------------------
Provision at August 10, 2005 2,125 0 2,125
---------------------------------------------------------------------
Revisions to Accruals 0 450 450
- --- ---
---------------------------------------------------------------------
Restructuring Costs 2,125 450 2,575
---------------------------------------------------------------------
Cash Drawdowns (700) 0 (700)
---------------------------------------------------------------------
Non-cash Drawdowns 0 (450) (450)
- ----- -----
---------------------------------------------------------------------
Provision at October 1, 2005 1,425 0 1,425
----- - -----
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6. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current period.

Contact Information

  • Investor/Media Relations:
    Sleeman Breweries Ltd.
    John Sleeman
    Chairman & CEO
    (519) 822-1834
    (519) 822-0221
    or
    Sleeman Breweries Ltd.
    Murray Mateyk
    CFO
    (519) 826-5437
    (519) 822-3164 (FAX)
    sleemanir@sleeman.ca
    www.sleeman.ca