Humpty Dumpty Snack Foods Inc. (TSE: SNX), a leading North American marketer and distributor of high-quality salty snack food products, yesterday announced second quarter results for the period ended March 31, 2001.

Second Quarter Financial Review

——————————-

Net sales increased 3.6% to $37.0 million from $35.7 million in the prior year. Sales growth was primarily driven by the Company’s strategic investment in the New England market in January 2000. Sales growth was also driven by the success of the Company’s Canadian cross-promotion with the World Wrestling Federation (WWF) on single-serve and extra large size potato chips, which resulted in double-digit growth for the products included in the program.

Net loss during the quarter was $696,000 compared to a net loss of $654,000 in the prior year. The loss per share remained consistent with previous year results of $0.07 per share.

Gross margin decreased to 39.3% of net sales in the second quarter from 40.6% in the prior year. The decrease in margins resulted from higher manufacturing costs, particularly fuel cost increases in the quarter.

Selling and administrative costs, which include distribution and marketing expenses, decreased slightly in the second quarter to 39.8% of net sales from 40.0% in second quarter of 2000. The favourable effect of volume growth was offset by the Company’s continued investment in selling infrastructure and increased transportation costs.

EBITA for the quarter decreased to ($158,000) from $207,000 in the prior year, mainly due to the higher manufacturing costs in the quarter. Amortization expense decreased by $291,000 in the quarter, as certain assets became fully amortized.

Interest expense of $374,000 remained consistent with the prior year of $370,000, as higher interest rates offset the reduced level of indebtedness.

Cash flow provided by operations during the second quarter was $2.8 million compared to net cash flow used of $1.2 million in the prior year. The $4.1 million improvement in cash flow resulted from improved working capital in the quarter. Net cash used in financing and investing activities during the second quarter was $2.8 million, as the Company repaid $2.0 million of its operating line and $695,000 of term debt. In the second quarter of the prior year, the Company increased its net borrowing for financing and investing activities by $1.2 million to fund expansion into the U. S.

Six-Month Financial Review

————————–

For the first six months of fiscal 2001, net sales increased 4.9% to $81.6 million from $77.8 million in the prior year. Bottom-line results were consistent with the previous year at $364,000, or $0.04 per share.

Gross margin increased to 42.3% from 40.8% in the previous year. The improvement in margins resulted primarily from growth in branded sales, driven by increased investment in the Humpty Dumpty brand. This increase was partially offset by rising fuel costs.

Selling and administrative costs increased to 38.8% from 36.4% in the previous year, as the Company invested in selling infrastructure to support its branded growth initiative.

EBITA in the first six months was $2.9 million, down from $3.4 million in the prior year. Amortization expense decreased by $533,000 during this period, and interest expense increased by $89,000.

During the first six months of fiscal 2001, cash flow provided by operations improved by $1.7 million, driven by improved working capital. Net cash used in financing and investing activities during this period was $763,000, as the Company reduced its operating line and long-term debt. In the first half of fiscal 2000, borrowing net of investments increased by $956,000, to fund investment in capital assets, as well as the working capital required by the acquisition of U.S.-based Humpty Dumpty.

Outlook

——-

Sales growth is expected to continue, fuelled by organic market growth as well as expanded market share in Canada and the U.S. as the Company continues to expand distribution of the Humpty Dumpty brand both north and south of the border.

“We will continue to invest in aggressive sales and marketing programs designed to expand and strengthen our share of the branded market,” said Gerry Schmalz, Chairman and CEO of Humpty Dumpty Snack Foods. “We are confident the Company will deliver sustained sales growth and profit improvement during the last half of the fiscal year, resulting in enhanced shareholder value.”

Humpty Dumpty Snack Foods Limited is a North American marketer and distributor of salty snack food products, operating primarily in eastern regions of Canada and the United States. Marketed under the well-known Humpty Dumpty brand, the Company also supplies a full line of private label products to leading retail chains.


	    HUMPTY DUMPTY SNACK FOODS INC.
Consolidated Balance Sheets

(In thousands of dollars)
————————————————————————
————————————————————————
March 31 March 31
2001 2000
————————————————————————
(Unaudited) (Unaudited)
(Restated)
(Note 1)
Assets

Current Assets:
Trade accounts receivable $ 16,292 $ 18,445
Inventories 5,807 5,579
Prepaids 1,424 1,443
————————————————————————
23,523 25,467

Capital assets 32,949 34,432

Other assets (Note 1) 13,836 13,682

————————————————————————
$ 70,308 $ 73,581
————————————————————————
————————————————————————

Liabilities and Shareholders’ Equity

Current Liabilities:
Bank indebtedness $ 6,270 $ 12,458
Accounts payable and accrued liabilities 23,303 22,558
Income taxes payable 512 371
Provision for restructuring costs – 335
Current portion of long-term debt 3,030 2,780
————————————————————————
33,115 38,502

Long-term debt 2,793 5,573
Future income taxes (Note 1) 5,097 4,125
Subordinated loans 8,345 5,000
Non-controlling interest – 300

Shareholders’ equity
Share capital 21,032 21,032
Contributed surplus 519 519
Retained earnings (deficit) (Note 1) (593) (1,470)
————————————————————————
20,958 20,081

————————————————————————
$ 70,308 $ 73,581
————————————————————————
————————————————————————

See accompanying notes to consolidated financial statements.

HUMPTY DUMPTY SNACK FOODS INC.
Consolidated Statements of Earnings and Retained Earnings (Deficit)

(In thousands of dollars)

————————————————————————
————————————————————————
Three months ended Six months ended
March 31 March 31 March 31 March 31
2001 2000 2001 2000
————————————————————————
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated)
(Note 1)

Net sales $ 36,982 $ 35,708 $ 81,635 $ 77,836
Cost of sales 22,430 21,202 47,063 46,045

————————————————————————
Gross margin 14,552 14,506 34,572 31,791

Selling and
administrative expenses 14,710 14,299 31,655 28,394

————————————————————————
Earnings before interest,
income taxes and
amortization (EBITA) (158) 207 2,917 3,397

Amortization of
capital assets 594 774 1,199 1,536
Amortization
of other assets 136 247 276 472
Interest on long term debt 202 217 388 394
Other interest 172 153 392 297
————————————————————————
1,104 1,391 2,255 2,699

————————————————————————
Earnings before
income taxes (1,262) (1,184) 662 698

Income taxes (566) (530) 298 321

————————————————————————
Net earnings $ (696) $ (654) $ 364 $ 377
————————————————————————

Deficit, beginning
of period
as previously reported $ 103 $ (816) $ (381) $ (1,367)
Adjustment to Deficit,
beginning of period as
a result of changes in
accounting policies
(Note 1) $ – $ – (576) (480)
————————————————————————
Deficit, beginning
of period, restated $ 103 $ (816) (957) (1,847)

Retained earnings
(deficit), end of period $ (593) $ (1,470) $ (593) $ (1,470)
————————————————————————
————————————————————————

Basic earnings per share $ (0.07) $ (0.07) $ 0.04 $ 0.04
————————————————————————

See accompanying notes to consolidated financial statements.

HUMPTY DUMPTY SNACK FOODS INC.
Consolidated Statements of Cash Flows

(In thousands of dollars)

————————————————————————
————————————————————————
Three months ended Six months ended
March 31 March 31 March 31 March 31
2001 2000 2001 2000
————————————————————————
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated)
(Note 1)

Cash flows from operating
activities:
Net earnings (696) (654) 364 377
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Amortization 731 1,021 1,475 2,008
Future income taxes (88) 21 (200) –
Loss on disposal
of capital assets 15 – 15 2
Changes in assets
and liabilities:
Receivables 4,029 1,702 2,880 238
Inventories 365 535 869 1,428
Prepaid expenses (543) (261) (528) (732)
Deferred costs – – – –
Net pension assets – – – –
Accounts payable and
accrued liabilities (376) (2,149) (4,448) (3,490)
Income taxes (598) (760) 356 (32)
Provision for
restructuring costs – (681) (20) (755)
————————————————————————
2,839 (1,226) 763 (956)

Cash flows from
financing activities:
Short term borrowings
(repayments) (1,966) 5,317 (2,586) 6,563
Redemption of
non-controlling interest – – – –
Increase in
subordinated loans 4 – 3,504 –
Repayment of
long-term debt (695) (695) (1,390) (1,390)
————————————————————————
(2,657) 4,622 (472) 5,173

Cash flows from
investing activities:
Business acquisition – (3,331) – (3,331)
Additions to capital assets (185) (254) (294) (1,134)
Proceeds from
sale of capital assets 3 189 3 248
————————————————————————
(182) (3,396) (291) (4,217)

————————————————————————
Net change in cash
and cash equivalents – – – –

Cash and cash equivalents,
beginning of period – – – –

————————————————————————
Cash and cash
equivalents, end of period – – – –
————————————————————————
————————————————————————

Supplemental cash
flow information:
Cash paid for:
Interest 374 364 750 702
Income taxes 267 210 588 353
————————————————————————
————————————————————————

See accompanying notes to consolidated financial statements.

	    HUMPTY DUMPTY SNACK FOODS INC.
Notes to Consolidated Financial Statements

For the 6 months ended March 31, 2001
(In thousands of dollars)

————————————————————————

1. Changes in accounting policies:

(a) Income taxes:

On October 1, 2000, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) handbook section 3465, Income Taxes,
which replaces the deferral method with the liability method of
tax allocation.

Under the new (liability) method, future tax assets and
liabilities are determined based on differences between the
accounting and tax bases of the assets and liabilities. The future
tax is measured using the substantively enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. A valuation allowance is recorded against any future
income tax asset if it is more likely than not that the asset will
not be realized. Income tax expense or benefit is the sum of the
company’s provision for current income taxes and the difference
between the opening and ending balances of the future income tax
assets and liabilities.

Under the old (deferral) method, future tax expense was determined
based on differences in the treatment of income and expenses
reported for financial statement purposes and those reported for
tax return purposes. Deferred taxes were measured using the rate
in effect at the time the differences originated.

The Company has applied the new accounting standards retroactively
to 1994. The cumulative effect is a reduction to retained earnings
of $576 as at October 1, 2000 ($480 as at October 1, 1999). This
reduction is reported separately as a restatement of the opening
balance of retained earnings for the six months ended March 31st.
Due to the effects of adjustments for prior years purchase
business combinations there is also an increase in goodwill of
$3,362 at October 1, 2000 ($3,539 at October 1, 1999), and an
increase in future income taxes of $3,938 at October 1, 2000
($4,019 at October 1, 1999). The effect on pre-tax income for the
six months ended March 31, 2001 is to report income that is
approximately $ 88 lower that it would have been under the
previous standard (for March 31, 2000, $ 88 lower). Net income
reported is approximately $47 lower than would have been reported
under the previous standard for the six months ended March 31,
2001 ($47 lower for 2000). Basic earnings (loss) per share amounts
remain unchanged at $0.04 per share for the six months ended March
31, 2001 (($0.07) per share for March 31, 2000).

(b) Pension and other post-retirement benefits

On October 1, 2000, the Company adopted CICA handbook section
3461, Employee Future Benefits, which requires that all employee
future benefits be accounted for on an accrual basis.

The new standard moves the accounting for non-pension post-
retirement benefits from the cash basis of accounting to the
accrual basis of accounting. Pension plans now require the use of
a current settlement discount rate to measure the accrued pension
benefit obligation. Previously, pensions were valued using a long-
term rate of return.

The Company has applied the new accounting standards
prospectively. The application of the recommendation results in
pre-tax earnings for the six months ended March 31, 2001 that is
approximately $124 lower than it would have under the previous
accounting standards. Net income reported is approximately $68
lower than would have been reported for the six months ending
March 31, 2001. Basic earnings (loss) per share amounts remain
unchanged at ($0.07) per share for the three months ended March
31, 2001.

2. Segmented information:

Management has determined that the Company operates in one dominant
industry segment which involves the manufacture and distribution of
fresh and fragile salted snack foods. Foreign sales (the majority to
the United States) for the six months ended March 31, 2001 were
approximately $12,877,000 (2000 – $7,875,000). Foreign sales (the
majority to the United States) for the three months ended March 31,
2001 were approximately $6,192,000 (2000 – $4,790,000). At March 31,
2001 foreign capital assets totalled $2,494,000 (2000 – $2,618,000)
and goodwill amounted to $527,000 (2000 – $560,000).

3. Share capital:

The number of voting common shares outstanding at March
31, 2001 was 9,550,000 (2000 – 9,550,000.)