consolidated financial statements report

CONSOLIDATEDFINANCIALSTATEMENTS REPORT

Years ended December 31, 2006 and 2005

* Trademarks for witch Lassonde Industries Inc. is a licensed user.

Dear Shareholders:

As Chairman of the Board and Chief ExecutiveOfficer of Lassonde Industries Inc., I ampleased to announce that, again this year, ourCompany has extended its tradition of growth.Net sales in the fourth quarter of 2006reached $91.8 million, a 9.0% increase overthe same period last year. This brings netsales for the year 2006 to $353.3 million, a9.5% increase over the previous year’s results.

Net earnings for the fourth quarter were $3.9 million, and $13.7 million for the year2006, down $1.0 million from the same quarterlast year, and $3.4 million from the previousfiscal period. The drop in the fourth quarterwas due to significant increases in the cost ofraw materials, containers, and packaging,and in sales and marketing costs associatedwith the development of new business niches.For the year as a whole, the drop in net earnings was mainly due to an unusual non-recurring income tax charge and to anon-recurring interest charge connected tothe Quebec government’s enactment of Bill 15, and to costs incurred to support thedevelopment of new business niches.

On the whole, 2006 was a good year thatmet our expectations and that accuratelyreflects the effort we invested in developing

new business niches and in gaining additionalmarket shares.

At the end of 2006, the Company’s assetstotalled $224.8 million, an increase of 7.3%over the previous year. There was no significantchange within the assets, the variations inthese items being above all the result ofseasonal factors or attributable to the growthin sales figures.

Current liabilities were $58.2 million at the end of 2006, up from $44.4 million as atDecember 31, 2005. The difference is aboveall due to a $5.7 million bank loan, to a$3.3 million increase in accounts payable andaccrued liabilities, and to a $5.2 millionincrease in income taxes. For its part, long-termdebt decreased $4.5 million. The percentageof long-term debt to the combined total oflong-term debt and shareholders’ equity was18.8% as at December 31, 2006, comparedwith 22.0% at year-end 2005.

During the year just ended, we resumed ourstock redemption program and redeemed forcancellation 92,500 Class A subordinate voting shares for a cash consideration of $3.5 million. The redemptions were made inaccordance with the Toronto Stock

Message to Shareholders

LASSONDE INDUSTRIES INC.

02

Pursuing a Tradition of Growth!

755 Principale Street, Rougemont, Quebec J0L 1M0

Exchange’s rules and policies on normalcourse issuer bids. We plan to redeem additional shares in 2007.

Considering the results as a whole, the Boardof Directors declared a quarterly dividend of$0.155 per share, payable on March 15,2007 to all registered holders of Class A andClass B shares as at March 5, 2007. You willbe pleased to note that this dividend representsa 24,0% increase over the dividend declaredfor the same quarter last year. It should benoted that this is an eligible dividend.

The employees and the management team ofLassonde Industries Inc. continue to build onthe quality of the Company’s products, thereputation of its trademarks, its propensity forinnovation, and a solid balance sheet in thepursuit of the corporate objectives of growth,profitability, and value creation for shareholders.

We implement measures to mitigate the effectof increases in the cost of raw materials, containers, and packaging. For the year tocome, we are optimistic that we will be ableto increase our net sales and our net earnings,

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Message to Shareholders (continued)


and to make gains in all our geographicalmarkets in the retail and food service marketsegments. Special effort will be devoted tomarkets outside Quebec, markets that holdmajor growth potential. Finally, you shouldknow that we remain on the lookout for anyacquisition or partnership likely to create valuefor you, the shareholders.

Finally, it is important to note that theseresults would not be possible without thesupport, contribution, and excellence of ouremployees. We are proud of the whole team’sperformance and are counting on them touphold the tradition for a long time.

Pierre-Paul LassondeChairman of the Board and Chief Executive Officer

The preparation and presentation of the consolidated financial statements of Lassonde Industries Inc. and theother financial information contained in the MD&A for years ended December 31, 2006 and 2005 are theresponsibility of management.

This responsibility is based on a judicious choice of appropriate accounting principles and methods, the applicationof which requires making estimates and informed and careful judgments. It also includes ensuring that the financialinformation in the MD&A is consistent with the consolidated financial statements. The consolidated financialstatements were prepared in accordance with Canadian generally accepted accounting principles and wereexamined and approved by the Board of Directors.

The Company maintains disclosure controls and procedures which, in the opinion of management, providereasonable assurance regarding the disclosure of important information relating to the Company, as well as to itssubsidiaries, and the safeguarding of assets, and the well-ordered, efficient management of the Company’saffairs. Management recognizes its responsibility for conducting the Company’s affairs to comply with therequirements of applicable laws and established financial standards and principles.

The Board of Directors fulfills its duty, to oversee management in the performance of its financial reportingresponsibilities and to review the consolidated financial statements and MD&A, principally through itsAudit Committee. The Committee is comprised solely of directors who are independent of the Company and isalso responsible for making recommendations for the nomination of external auditors. Also, it holds periodicmeetings with members of management as well as external auditors, to discuss internal controls, auditingmatters and financial reporting issues. The external auditors have access to the Committee without management.The Audit Committee has reviewed the consolidated financial statements of Lassonde Industries Inc. and theannual management’s discussion and analysis and recommended their approval to the Board of Directors.

The enclosed consolidated financial statements were audited by Samson Bélair/Deloitte & Touche s.e.n.c.r.l.,Chartered Accountants, and their report indicates the extent of their audit and their opinion on the consolidatedfinancial statements.

Rougemont, Canada Pierre-Paul Lassonde Robert DeslandesFebruary 20, 2007 Chairman of the Board Vice-President, Finance

and Chief Executive Officer

Management’s Responsibilityfor Financial Reporting


04

Auditors’ Report


To the Shareholders ofLassonde Industries Inc.

We have audited the consolidated balance sheets of Lassonde Industries Inc. as at December 31, 2006and 2005 and the consolidated statements of earnings, retained earnings and cash flows for the yearsthen ended. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Thosestandards require that we plan and perform an audit to obtain reasonable assurance whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financialposition of the Company as at December 31, 2006 and 2005 and the results of its operations and its cashflows for the years then ended in accordance with Canadian generally accepted accounting principles.

Montreal, Canada Samson Bélair /Deloitte & Touche s.e.n.c.r.l.

February 20, 2007 Chartered Accountants

05

Member of Deloitte Touche Tohmatsu

Consolidated Statements of Earnings

06

Net sales $ 353,318 $ 322,763

Cost of goods sold and operating expenses 316,808 285,092Amortization (Note 12) 9,719 9,379

326,527 294,471

Operating income 26,791 28,292

Other itemsFinancial expenses (Note 13) 2,180 1,914Gain on disposal of fixed assets (3) (226)Share of equity earnings of a company subject

to significant influence 74Reduction in value of investments 23 482Reduction in value of fixed assets 87 401

Earnings before income taxes 24,504 25,647

Income taxes (Note 14) 10,756 8,547

Net earnings $ 13,748 $ 17,100

Basic and diluted earnings per share $ 2.02 $ 2.51

Weighted average number of shares outstanding 6,792 6,814

2006 2005

Balance, beginning of year $ 97,099 $ 83,406

Net earnings 13,748 17,100110,847 100,506

Excess of redemption cost of Class Ashares over stated capital (Note 9) (3,033)

Dividends (4,007) (3,407)

Balance, end of year $ 103,807 $ 97,099

2006 2005

Years ended December 31, 2006 and 2005(in thousands of dollars, except earnings per share)


(in thousands of dollars)

Consolidated Statements of Retained Earnings

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As at December 31, 2006 and 2005


Consolidated Balance Sheets

AssetsCurrent assets

Short-term investments $ 1,979 $ 994Accounts receivable 36,587 32,385Inventories (Note 3) 77,107 72,382Prepaid expenses 1,108 1,351Future income taxes (Note 14) 172 275Deferred loss on derivative instruments 2

116,953 107,389

Investments (Note 4) 23Fixed assets (Note 5) 91,972 87,134Goodwill 2,531 2,531Other long-term assets (Note 6) 8,190 7,992Net accrued benefit asset (Note 11) 5,118 4,450

$ 224,764 $ 209,519

LiabilitiesCurrent liabilities

Bank overdraft $ 1,524 $ 1,989Bank indebtedness (Note 7) 5,740Accounts payable and accrued liabilities 39,091 35,837Income taxes 6,735 1,505Future income taxes (Note 14) 79 76Derivative instruments 465Current portion of long-term debt (Note 8) 5,061 4,514

58,230 44,386

Long-term debt (Note 8) 28,878 33,392Future income taxes (Note 14) 13,082 13,445

100,190 91,223

Shareholders’ equityCapital stock (Note 9) 19,362 19,778Contributed surplus 1,405 1,419Retained earnings 103,807 97,099

124,574 118,296$ 224,764 $ 209,519

Commitments and contingencies (Note 17)

Approved by the Board

Director Director

2006 2005

08

Operating activities

Net earnings $ 13,748 $ 17,100Adjustments:

Amortization (Note 12) 9,719 9,379Amortization of deferred charges 2,862 2,896Future income taxes (257) 3,049Excess (of disbursements) of the

pension cost for retirement plans (668) (3,890)Gain on disposal of fixed assets (3) (226)Change in derivative instruments (463) (1,122)Share of equity earnings of a company

subject to significant influence 74Reduction in value of investments 23 482Reduction in value of fixed assets 87 401

25,048 28,143Changes in non-cash operating working capital items (Note 15) (804) (9,112)

24,244 19,031

Financing activities

Change in bank indebtedness 5,740Increase in long-term debt 267Repayment of long-term debt (3,967) (1,742)Dividends paid (4,007) (3,407)Redemption of Class A shares (Note 9) (3,463)

(5,697) (4,882)

Investing activities

Acquisition of fixed assets (13,187) (11,079)Acquisition of other long-term assets (3,979) (1,925)Disposal of fixed assets 69 765

(17,097) (12,239)

Increase in cash and cash equivalents 1,450 1,910Cash and cash equivalents, beginning of year (995) (2,905)

Cash and cash equivalents, end of year $ 455 $ (995)

Cash and cash equivalents are comprised of cash, short-term investments and bank overdraft.

Additional cash flow information (Note 15)

2006 2005



Consolidated Statements of Cash Flows

09


(tabular amounts are in thousands of dollars)

Notes to the Consolidated Financial Statements

1. Description of businessThe Company is active in the processing, conditioning, packaging and marketing of food products such as pure fruit juices and drinks, wine, meat marinades, grilling sauces, fondue sauces, baked beans and canning of corn-on-the-cob as well as fondue broths.

2. Accounting policiesThe consolidated financial statements have been prepared in accordance with Canadian generally accepted accountingprinciples and include the following significant accounting policies:

FINANCIAL STATEMENTS

The consolidated financial statements include the accounts of the subsidiaries.

REVENUE RECOGNITION

Sales are recorded when products are delivered, which is when ownership title is passed to the buyer and the recoveryof the consideration is reasonably assured.

The Company presents the trade marketing costs under the form of rebates or allowances related to the promotion of its products as a reduction of sales.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash, bank overdraft and short-term investments that expire in three months or less.

SHORT-TERM INVESTMENTS

Short-term investments are recorded at cost and bear interest at rates varying from 4.29% to 4.31% in 2006 (3.10% to3.21% in 2005).

INVENTORIES

Raw materials and supplies are valued at the lower of cost and replacement cost. Finished goods are valued at the lower of cost and net realizable value. Cost is determined using the first in, first out method.

INVESTMENTS

The investment in the company subject to significant influence is accounted for at equity. The portfolio investment is accountedfor at cost or at devalued cost.

FIXED ASSETS

Fixed assets are recorded at acquisition cost, net of government grants. Amortization is calculated over the useful lives of theassets using the following methods and annual rates:

Parking declining balance 10%Buildings declining balance 3%Machinery and equipment declining balance 10%

and straight-line from 2 1/2% to 33 1/3%Furniture and fixtures declining balance 20%

and straight-line from 10% to 33 1/3%Laboratory equipment declining balance 10%

and straight-line 20%Automotive equipment declining balance 15% and 20%

and straight-line 14 1/4%Computer system declining balance 30%

and straight-line 33 1/3%

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2. Accounting policies (continued)

GOODWILL

Goodwill represents the excess of the acquisition price over the fair value of the net assets of entities acquired at the date ofacquisition. Goodwill is not amortized but rather is subject to an annual impairment test or more frequently if impairment indicators arise. Any excess of the carrying amount over the fair value of goodwill is charged to earnings for the year.

OTHER LONG-TERM ASSETS

a) Deferred chargesDeferred charges are comprised of incentives granted to customers related to the development and marketing of new products. These charges are recorded at cost and are amortized using a maximum of twenty-four months starting with the marketing of new products. Amortization of deferred charges is presented as a reduction of sales.

b) SoftwareSoftware is comprised of software licenses for in-house use and is recorded at acquisition cost. It is amortized using the straight-line method over its estimated useful life of three years.

c) TrademarksTrademarks are recorded at acquisition cost and are amortized using the straight-line method over a period of twenty years.

d) Client relationshipsClient relationships are recorded at acquisition cost and are amortized using the straight-line method over a period varying from five to seven years.

EMPLOYEE FUTURE BENEFITS

The Company accounts for its obligations under the employee benefit plans and related costs, net of the plans’ assets. The cost of pension and other retirement benefits earned by employees is determined from actuarial calculations according to the projected benefit method prorated on service based on management’s best estimate assumptions of expected returns on theplans’ assets, salary projections and the retirement ages of employees. Pension costs are charged to earnings and include:

. the cost of pension benefits provided in exchange for employees’ services rendered during the year;

. the amortization of the initial transitional obligation, past service costs and amendments on a straight-line basis over the expected average remaining service life of the employee group covered by the plans over six to eighteen years; and

. the interest cost of pension obligations, the return on pension funds assets and the amortization of cumulativeunrecognized net actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation or market value of plan assets over the expected average remaining service life of the employee group covered by the plans.

INCOME TAXES

The asset and liability method is used in accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.

RESEARCH AND DEVELOPMENT

The research and development expense is included in cost of goods sold and operating expenses, net of the income tax credit.As at December 31, 2006, the expense amounted to $992,000 ($1,152,000 in 2005) and the research and development incometax credit amounted to $372,000 ($432,000 in 2005).




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GOVERNMENT ASSISTANCE

Government assistance is recorded as a reduction of related expenses. During the year, an amount of Nil ($222,000 in 2005)was recorded as a reduction of general expenses included in cost of goods sold and operating expenses.

CURRENCY TRANSLATION

Monetary assets and liabilities are translated into Canadian dollars using the exchange rate in effect on the balance sheet date, whereas non-monetary assets and liabilities are translated using the historical exchange rates. Revenues and expenses are translated at the exchange rates in effect at the date of the transaction except for amortization, which is translated at historical rates.

The exchange loss included in cost of goods sold and operating expenses amounts to $72,000, net of the amount presented inNote 13, compared with an exchange gain of $54,000 in 2005.

DERIVATIVE INSTRUMENTS

The Company uses certain derivative instruments in order to eliminate or reduce its risks related to currency fluctuations having an influence on its purchases. Management is responsible for establishing standards of acceptable risks and does notuse derivative instruments for speculative purposes. The Company uses these financial instruments solely for purposes of hedging probable future transactions and existing commitments or obligations.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. This process includes linking all derivativesto specific assets and liabilities in the balance sheet, or specific future transactions. The Company also systematically determines, at inception of the hedge and over the term of the hedging relationship, whether changes in the cash flows of the hedged items can be effectively offset by the derivatives used in the hedging transactions.

Exchange gains and losses on derivative instruments denominated in foreign currency that qualify for hedge accounting used to cover expected future purchases denominated in U.S. dollars are recognized as an adjustment to expenses at the time thepurchase is recorded.

Gains and losses on derivative instruments eligible for hedge accounting that have been realized or that have ceased to beeffective before they expire are presented in short or long-term assets or liabilities and recognized in the statement of earningsin the period during which the underlying hedged activity is recognized. If a designated hedged item is sold, terminated orexpires before the related derivative instrument is terminated, a gain or loss on this derivative instrument is recognized in thestatement of earnings.

Derivative instruments that are economic hedges, but do not qualify for hedge accounting, are recorded at their fair value and changes are charged to earnings. When, subsequently, the Company meets the criteria for applying hedge accounting,subsequent changes to the fair value are held off-balance sheet.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that thecarrying value of the assets may not be recoverable. Impairment is recognized when the carrying amount of a long-lived assetexceeds the undiscounted cash flows expected to result from its use and disposal. The recognized impairment is measured asthe excess of the carrying amount of the asset over its fair value.

STOCK-BASED COMPENSATION

The Company has a stock option plan under which options to purchase Class A shares can be issued to its employees and tothose of its subsidiaries. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options,and expenses all granting of stock options over their vesting period. Compensation expenses are included in the cost of goodssold and operating expenses and their counterpart is accounted for in the contributed surplus of the Company.




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USE OF ESTIMATES

The preparation of consolidated financial statements in accordance with Canadian generally accepted accounting principlesrequires management to make estimates, notably with respect to the allowance for doubtful accounts, inventories, the useful life and amortization of fixed assets, the valuation of goodwill, trademarks, client relationships, accounts payable and accruedliabilities, notably the provision for trade marketing costs, future income tax assets and liabilities, as well as actuarial assumptions. These estimates affect the recorded amounts of assets and liabilities, the disclosure of contingent assets and liabilities as at the date of the consolidated financial statements and the reported amounts of sales and expenses during thereporting period. Since the process for presenting financial information presupposes the use of estimates, actual results coulddiffer from those estimates.

Future accounting changes

COMPREHENSIVE INCOME

In April 2005, the CICA issued Section 1530 of the CICA Handbook, regarding “Comprehensive Income.” This Section applies to fiscal years beginning on or after October 1, 2006. It exposes reporting and disclosure recommendations with respect to comprehensive income and its components. Comprehensive income is the change in shareholders’ equity, which results fromtransactions and events from sources other than the Corporation’s shareholders. These transactions and events include gains and losses resulting from changes in fair value of certain financial instruments.

The adoption of this Section on January 1, 2007 implies that the Company will present comprehensive income and its componentsin a separate financial statement.

FINANCIAL INSTRUMENTS – RECOGNITION AND MEASUREMENT

In April 2005, the CICA issued Section 3855 of the CICA Handbook on “Financial Instruments – Recognition andMeasurement Income.” This Section applies to fiscal years beginning on or after October 1, 2006. It exposes the standards for recognizing and measuring financial instruments in the balance sheet and the standards for reporting gains and losses in the financial statements. Financial assets available for sale, assets and liabilities held for trading and derivative financial instruments, part of a hedging relationship or not, have to be measured at fair value.

The impact of the revaluation of financial assets and liabilities at their fair value as at January 1, 2007 will be recorded in theopening balance of retained earnings and the opening balance of other comprehensive income, according to the appropriateaccounting treatment.

HEDGES

In April 2005, the CICA issued Section 3865 of the CICA Handbook regarding “Hedges.” This Section applies to fiscal yearsbeginning on or after October 1, 2006. This Section describes when and how hedge accounting can be applied as well as thedisclosure requirements. Hedge accounting enables the recording of gains, losses, revenues and expenses from the derivativefinancial instruments in the same period as for those related to the hedged item.

ACCOUNTING CHANGES

In July 2006, the CICA issued Section 1506 entitled “Accounting Changes” that include changes to the previous standard.Entities will be permitted to change an accounting policy only when it is required by a primary source of GAAP, or when thechange results in a more reliable and relevant presentation in the financial statements. Also, changes in accounting policyshould be applied retroactively and additional information should be disclosed. This Section applies to interim and annual periods beginning on or after January 1, 2007.

As at December 31, 2006, the Company has not fully evaluated the effect of all future accounting changes to its consolidatedfinancial statements.




3. Inventories2006 2005

Raw materials and supplies $ 37,289 $ 31,456Finished goods 39,818 40,926

$ 77,107 $ 72,382

4. Investments2006 2005

Company subject to significant influencePhytoflora Lassonde S.A.

27,300 units, ownership of 35% $ $ 427

Reduction in value (427)

PortfolioInvestment in a public company

(fair market value of Nil; $23,370 in 2005) 78 78

Reduction in value (78) (55)

23

$ $ 23

The Company reduced the value of its portfolio investment for an amount of $23,000 in 2006 ($55,000 in 2005).

On February 9, 2006, the Company sold its investment in a company subject to significant influence for a cash consideration of $1. The value of the investment has been reduced by $427,000 in 2005.

5. Fixed assets

2006 2005

Accumulated AccumulatedCost Amortization Cost Amortization

Land and parking $ 4,555 $ 322 $ 4,442 $ 264Buildings 32,664 8,060 30,078 7,099Machinery and equipment 140,142 80,602 130,701 74,211Furniture and fixtures 3,617 2,406 3,113 2,049Laboratory equipment 570 464 548 444Automotive equipment 3,032 1,739 2,604 1,529Computer system 8,530 7,545 8,028 6,784

$ 193,110 $ 101,138 $ 179,514 $ 92,380

Net book value $ 91,972 $ 87,134

The Company reduced the value of certain equipment (machinery and equipment) by an amount of $87,000 in 2006($245,000 in 2005) and furniture and fixtures by Nil in 2006 ($156,000 in 2005). These reductions were necessary because ofthe disposal of these fixed assets.

In 2006, the Company recorded a government assistance of an amount of $281,000 as a reduction of its fixed assets.

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6. Other long-term assets

2006 2005

Accumulated AccumulatedCost Amortization Cost Amortization

Deferred charges $ 5,718 $ 4,286 $ 5,817 $ 5,251Software 1,934 1,592 1,683 1,327Trademarks 5,422 684 5,422 413Client relationships 2,417 739 2,417 356

$ 15,491 $ 7,301 $ 15,339 $ 7,347

Net book value $ 8,190 $ 7,992

In 2006, the Company acquired software for an amount of $251,000 ($165,000 in 2005). In 2005, the Company completed theacquisition of client relationships for an amount of $357,000.

As at December 31, 2006, amortization of deferred charges of $2,862,000 ($2,896,000 in 2005) is presented as a reduction of sales.

7. Bank indebtednessThe Company has various authorized lines of credit totalling $48,000,000 in 2006 and 2005, of which an amount of$5,740,000 is drawn as at December 31, 2006 and no amount was drawn as at December 31, 2005. These lines of credit bearinterest at the prime rate or banker’s acceptance rates prevailing on the markets plus stamping fees and are renewable annuallyeach November. As at December 31, 2006, the rate was 6.0%. Accounts receivable and inventories are assigned as security forthe bank indebtedness. The credit facilities include covenants, which require the Company to maintain a financial ratio. Thefinancial ratio was met as of December 31, 2006 and 2005.

8. Long-term debt2006 2005

Loan, 5.90%, secured by a movable and immovable hypothec oncertain equipment and buildings, payable through 2015 by afirst instalment of $80,000 in October 2005 and by monthlyprincipal instalments of $180,000 thereafter, renewable onSeptember 23, 2014. The Company has the option toreimburse up to a maximum of 15% of the balance of theloan on each anniversary date. $ 18,900 $ 21,060

Loan, 5.50%, secured by a movable and immovable hypothec oncertain equipment and buildings, payable through 2013 inmonthly principal instalments of $89,500 beginning inOctober 2005, renewable on May 23, 2008. The Companyhas the option to reimburse up to a maximum of 15% of thebalance of the loan on each anniversary date. 7,339 8,413

Loan, 6.50% (4.80% in 2005), secured by a movable andimmovable hypothec on certain equipment and buildings,payable through 2014 in monthly principal instalments of$40,000 beginning in October 2005. The Company has theoption to reimburse up to a maximum of 15% of the balanceof the loan on each anniversary date. 3,400 3,880

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8. Long-term debt (continued)

2006 2005

Loans, non-interest bearing, payable starting in 2006 in fiveequal and consecutive annual instalments through 2010. $ 2,734 $ 2,734

Obligation related to the acquisition of equipment, non-interestbearing, payable starting in December 2005 in eight equalannual instalments of $182,025. 1,092 1,274

Loan, non-interest bearing, payable in monthly instalments of $5,952. 349 420

Loan, non-interest bearing, payable upon certainconditions and maturing in 2008. 125 125

33,939 37,906

Current portion 5,061 4,514

$ 28,878 $ 33,392

During the second quarter of 2006, the Company renegotiated the interest rate on one of its long-term loans repayable until 2014. The interest rate increased from 4.80% to 6.50%, a rate that will be valid until the loan matures.

The book value of the assets provided as security for debt as at December 31, 2006 was $54,733,000 ($50,030,000 in 2005).

The first instalment of the loan payable starting in 2006 was withdrawn on January 3, 2007 by the lending institution.

On July 3, 2006, the Company accepted an offer of a repayable loan that will not exceed $2,250,000 and will be non-interestbearing. As at December 31, 2006, no amount has been received for the loan.

Principal payments due within each of the next five years on long-term debt are as follows:

2007 $ 5,0612008 4,6392009 4,5142010 4,5142011 3,959

9. Capital stockAuthorized

An unlimited number of first and second rank preferred shares, non-voting, issuable in one or several series, the attributes of which will be determined by the directors before their issuance. First preferred shares rank prior to second preferred shares with respect to the payment of dividends and reimbursement of capital, without par value

An unlimited number of Class A subordinate voting shares, without par value

An unlimited number of Class B multiple voting shares, without par value

2006 2005

Issued2,969,360 Class A shares (3,061,860 in 2005) $ 13,376 $ 13,7923,752,620 Class B shares 5,986 5,986

$ 19,362 $ 19,778

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9. Capital stock (continued)

During the year, the Company redeemed 92,500 Class A subordinate voting shares on the market for a cash consideration of$3,463,000, including $416,000 as a reduction of capital stock, $3,033,000 as a reduction of retained earnings and $14,000 asa reduction of contributed surplus.

Stock option plan

The Company established a stock option plan pursuant to which it may grant stock options for Class A shares to its employeesand those of its subsidiaries. The exercise price of each stock option is equal to the closing price of the Company’s shares onthe day preceding the grant date. These stock options generally vest at the annual rate of 20% and expire five to six years following the grant date. As at December 31, 2006 and 2005, 150,000 stock options for Class A shares were available under the stock option plan, but none were granted.

EARNINGS PER SHARE

Basic and diluted earnings per share is calculated using the weighted average number of shares outstanding during the year.The Company uses the treasury stock method for determining the dilutive effect of stock options. For the years ended December 31, 2006 and 2005, there is no impact on the weighted average number of shares outstanding used to calculate the basic and diluted earnings per share.

10. Risk management and fair value of financial instruments

FINANCIAL RISKS

Financial risk is the risk to the Company’s earnings that arises from fluctuations in interest rates and foreign exchange rates and the degree of volatility of these rates. The Company’s short-term credit facilities bear interest at variable rates.

The Company concluded approximately 6% of its sales and 46% of its purchases in foreign currency. Consequently, certainassets, liabilities, revenues and expenses are exposed to exchange risk. As at December 31, 2006, accounts receivable andaccounts payable totalled US$2,030,000 (US$3,329,000 in 2005) and US$3,220,000 (US$2,630,000 in 2005), respectively. TheCompany uses foreign exchange forward contracts when considered advantageous to reduce its exposure to foreign currencyrisk. The foreign exchange forward contracts available as at December 31, 2006 are described in Note 17.

CREDIT RISK

The Company provides credit to its customers in the normal course of business. Credit evaluations are performed on an ongoing basis and the consolidated financial statements take into account allowances for losses. Most of the accounts receivable balance consists of amounts receivable from customers related to the food industry. As at December 31, 2006,three clients represent 51% (45% in 2005) of the accounts receivable balance. The Company carries out 55.5% of its sales with three of its major clients (56.7% in 2005).

FAIR VALUE

The fair value of short-term investments, accounts receivable, bank overdraft, bank indebtedness, accounts payable and accrued liabilities approximates their book value because of their short-term maturities.

The difference between the book value and the fair value of long-term debt represents a positive value of approximately$577,000 ($607,000 in 2005).

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11. Employee future benefits

The Company offers defined benefit pension plans and defined contribution pension plans, which guarantee the payment of apension to most of its employees upon retirement. The information related to each of these plans is as follows:

i) Defined contribution pension plans

The Company’s pension cost relating to the defined contribution pension plans is as follows:

2006 2005

Defined contribution pension plans $ 1,324 $ 1,143

The assets of the defined contribution pension plans are kept by trustees on behalf of the employees. The contributions paid bythe Company to the pension fund become the immediate property of the employees. No liability is recorded in the Company’sbalance sheet.

ii) Defined benefit pension plans

The Company’s pension cost relating to the defined benefit pension plans, is as follows:

2006 2005

Defined benefit pension plansCurrent service cost, net of employees’ contributions $ 463 $ 374Interest cost of accrued benefit obligations 658 620Return on plan assets (1,066) (552)Amendments to pension plans 1,977Actuarial (gains) losses on the accrued benefit obligations (61) 1,969

Defined pension cost for the period (6) 4,388

Adjustments to recognize the long-term nature of this cost:Actual return on the plans’ assets 667 277Actuarial losses (gains) 569 (1,858)Amendments to pension plans 377 (1,599)Amortization of the initial accrued benefit transitional obligation 211 212

Defined benefit pension cost recognized $ 1,818 $ 1,420

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11. Employee future benefits (continued)

ii) Defined benefit pension plans (continued)

The obligations of these plans are presented as follows:

2006 2005

Accrued benefit obligationsBalance, beginning of year $ 12,824 $ 8,046Current service cost 476 385Interest cost of accrued benefit obligations 658 620Amendments to pension plans 1,977Benefits paid (171) (173)Actuarial (gains) losses (61) 1,969


Assets of the pension plansBalance, beginning of year $ 10,733 $ 5,044Actual return on plan assets 1,066 552Employer contributions 53 55Employee contributions 13 11Benefits paid (171) (173)Employer funding to the plans 2,433 5,244


Surplus (deficiency) in fair value of assets overaccrued benefit obligations $ 401 $ (2,091)

Unamortized initial transitional obligation 790 1,001Unamortized actuarial losses 2,419 3,655Unamortized amendments to pension plans 1,508 1,885

Net accrued benefit asset $ 5,118 $ 4,450

The composition of the pension plans’ assets is as follows:

Bonds 16.7% 12.2%Shares 29.7 26.0Mutual funds 10.4 10.5Others 43.2 51.3

100.0% 100.0%

During the year, the Company provided funding to the plan for management employees in the amount of $2,433,000.Furthermore, the Company made a plan contribution after the closing date for an amount of $340,000.

In 2005, the Company provided funding to the plan for management employees in the amount of $2,176,000.Furthermore, the Company made a plan contribution after the closing date for an amount of $2,094,000.

The initial accrued benefit obligation of $2,029,000, at the inception of the plans, is amortized over the average remaining service life of active employees.

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11. Employee future benefits (continued)

ii) Defined benefit pension plans (continued)

The significant actuarial assumptions used by the Company to measure its accrued benefit obligations are as follows:

2006 2005

Accrued benefit obligations as at December 31:Discount rate 4.8% to 5.0% 5.0% to 5.3%Rate of compensation increase 3.3% to 5.0% 3.5% to 5.0%

Benefit costs for the years ended December 31:Discount rate 5.0% to 5.3% 4.8% to 6.0%Expected rate of return on plan assets 3.3% to 7.5% 3.5% to 7.5%Rate of compensation increase 3.5% to 5.0% 3.3% to 5.0%

The accrued benefit obligations, the fair value of plan assets and the composition of pension plans’ assets are measured at the date of the annual financial statements. The most recent actuarial valuations, for funding purposes, of the plans were performed on September 30, 2006 and December 31, 2005 and the next actuarial valuations should be performed no later thanSeptember 30, 2007 and December 31, 2008.

12. Amortization

2006 2005

Amortization of fixed assets $ 8,800 $ 8,544Amortization of software 265 270 Amortization of trademarks 271 271Amortization of client relationships 383 294

$ 9,719 $ 9,379

13. Financial expenses

2006 2005

Interest on long-term debt $ 1,827 $ 1,934Interest on bank indebtedness 39 73Interest on income taxes payable 597Bank charges 159 182Interest income (458) (305)Exchange loss 16 30

$ 2,180 $ 1,914

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14. Income taxesThe components of the provision for income taxes for the years ended December 31 are as follows:

2006 2005

Current $ 11,013 $ 5,498Future (257) 3,049

$ 10,756 $ 8,547

Short-term future income tax assets:Accounts payable and accrued liabilities $ 119 $Tax loss 53 122Derivative instruments 153

$ 172 $ 275

Short-term future income tax liabilities:Research and development $ 79 $ 76

Long-term future income tax liabilities:Fixed assets $ 10,815 $ 10,959Other long-term assets 536 339Accrued benefit asset 1,731 2,147

$ 13,082 $ 13,445

Reconciliation of the statutory income tax rate and the effective income tax rate on earnings is as follows:

2006 2005

Combined basic federal and provincial income tax rate 32.0% 31.0%

Tax on large corporations - net 0.4

Taxable income at reduced rate (1.9)

Future income taxes adjustment (4.9) 2.0

Retroactive adjustment – provincial income taxes 15.9

Allocation of taxable income among the provinces 0.7 1.7

Other items 0.2 0.1

Effective income tax rate on earnings 43.9% 33.3%

On June 9, 2006, the Government of Québec enacted Bill 15 to amend the Taxation Act and other legislative provisions. As aresult of this amendment, the Company recorded an unusual income tax expense of $3,730,000.

On June 22, 2006, several tax measures introduced in the 2006 federal budget were enacted. As a result, there will be a 2%reduction in the corporate federal tax rate by 2010, and elimination of the surtax effective January 1, 2008. To give effect tothese federal tax measures, the Company recorded a reduction of its income tax expense in the amount of $1,013,000.

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15. Additional cash flow information

2006 2005

Changes in non-cash operating working capital itemsAccounts receivable $ (4,202) $ (5,012)Inventories (4,725) (4,352)Prepaid expenses 243 37Accounts payable and accrued liabilities 2,650 (2,385)Income taxes 5,230 2,600

$ (804) $ (9,112)

Interest paid $ 1,866 $ 2,007Income taxes paid 5,783 2,898

In 2006, the Company acquired fixed assets of which an amount of $885,000 was unpaid as at December 31, 2006.Furthermore, the Company recorded a capital tax credit receivable of $281,000 related to its fixed assets investments.

16. Segmented information

The Company operates only one reportable segment: the processing, conditioning, packaging and marketing of food products.Geographical information is presented as follows:

2006 2005

Net salesCanada $ 328,943 $ 296,738United States 15,617 17,068Other 8,758 8,957

$ 353,318 $ 322,763

The Company’s assets are in Canada.

17. Commitments and contingencies

i) At year-end, outstanding foreign exchange forward contracts to hedge fluctuations in currencies with respect to future purchases amount to $21,994,000.

In order to reduce the potential negative impact of a decrease in the value of the Canadian dollar compared to theU.S. dollar, the Company entered into several transactions in order to hedge future purchases in U.S. dollars:

Forward contracts Type Rate Contractual amounts Fair value(CDN dollars) positive

From 1 to 12 months Purchase 1.1033 to 1.2044 US$19,000,000 $56,000

Forward contracts are contracts whereby the Company is committed to purchase currencies at a predetermined rate.

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17. Commitments and contingencies (continued)

ii) The Company is committed under operating leases for equipment and office space. In addition, the Company entered into brand licensing agreements under which minimum annual payments must be made for royalties.The payments over the forthcoming years are as follows:

2007 $ 3,145 2008 1,5712009 1,0322010 8912011 879

iii) The Company is committed under various contracts to purchase raw materials for an amount of $68,748,000 in 2007.

iv) As at December 31, 2006, the Company had letters of credit totalling $147,860 ($138,860 in 2005).

v) When it sold its Chinese subsidiary in 2003, the Company became a guarantor in the event where there would be unknown liabilities at the closing date in excess of US$1,000,000. The Company did not record any provision to this effect because it considers that there was no unknown liability at the closing date.

vi) During the normal course of business, various proceedings and claims are instituted against the Company. The Company contests the validity of these claims and proceedings, and management believes that any settlement will not have a materialeffect on the financial position or on the consolidated earnings of the Company.

18. Related party transaction

During the second quarter, the Company acquired land from a company controlled by a director of the Company who is also amajority shareholder. The transaction was measured at the exchange amount. The Company paid the total consideration of$110,000 at the transaction date.

19. Comparative figures

Certain comparative figures have been reclassified to conform to the current year’s presentation.

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consolidated financial statements report

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