MRRM Inc. - Directors' report and management discussion and analysis of the financial condition and results of operations - Interim 2009.Q2 - August 3
Thu Oct 9, 11:41 PMThe following discussion and analysis should be read in conjunction with
the preceding year's Annual Report. The Company's interim quarterly
statements for fiscal year 2009 are for the quarter ended as indicated
above. Included in these documents may be forward-looking statements with
respect to the Company. These forward-looking statements by their nature
necessarily involve risks and uncertainties that could cause actual
results to differ materially from those contemplated by such statements.
The Company considers the assumptions on which these forward-looking
statements are based to be reasonable at the time they were prepared but
cautions the reader that these assumptions regarding future events, many
of which are beyond the control of the Company, may ultimately prove to
be incorrect
The unaudited interim consolidated financial statements were prepared by
the Company in accordance with Canadian generally accepted accounting
principles and have not been reviewed by the Company's auditors. Certain
comparative figures have been reclassified to conform with the
presentation adopted in the financial statements.
Additional documents and information are available at the System for
Electronic Document Analysis and Retrieval (SEDAR) and can be accessed
through the internet: For MRRM's profile go to www.sedar.com or for
documents go to www.sedar.com Information is also available on the
Corporate website at www.MRRM.ca .
MONTREAL, Oct. 9 /CNW Telbec/ -
Consolidated Earnings And Comprehensive Income and Retained Earnings
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Revenues for this period (last year) were $27,410,000 ($25,577,000) increasing by $1,833,000 (7.2%). As shown in the segmented information, sales and income from operating activities amounted to $27,254,000 ($25,577,000) being 99.4% (100.0%) of total revenues. Income from corporate totaled $156,000 ($0,000). Operating Revenues increased by $1,677,000 (6.6%) compared to last year. Revenue from Corporate increased by $156,000 of which $172,000 was attributable to a higher unrealized fair value of investments held for trading.
Costs and expenses for this period (last year) were $26,837,000 ($25,577,000), an increase of $1,260,000 (4.9%). Costs related to operating activities, before exchange and interest, increased by $1,247,000 (4.9%). Expenses related to corporate increased by $6,000. Overall margins continue to improve when compared to this period last year.
Operating results are discussed later on in this report.
The impact of the fluctuating Canadian dollar resulted in a currency exchange gain of $43,000 for the period compared to a gain this period last year of $18,000. As disclosed in the Notes, the net exposures were as follows: at August 31, 2008, US($69,000); at August 31, 2007, US$439,000; at May 31, 2008, US$3,880,000 & at May 31, 2007, US$1,050,000; at February 29, 2008, US$1,438,000 & February 28, 2007, US($1,148,000); at November 30, 2007, US($440,000) & November 30, 2006, US($5,616,000). The above US dollars include the equivalents for euros and pounds sterling which are not material.
During the first quarter, the Company entered into foreign exchange futures maturing this fiscal year which cover a significant portion of its USF requirements. The Company uses the fair value accounting method for such instruments. Under this method any unrealized gains or losses caused by fluctuation to the market value are to be recorded in income for the period. As these fluctuations on an interim basis represent a temporary gain or loss and will not impact the financial results of the fiscal year, these gains or losses have not been recorded on the interim financial statements.
Interest expensed on bank indebtedness and the reducing term loan amounted to $172,000 compared to $141,000 this period last year for an increase of $31,000. Interest of $48,000 pertaining to the Time-Wise project was capitalized in the first quarter last year. Total interest accrued and paid amounted to $172,000 compared to $189,000 this period last year. Interest related to the long-term debt was $80,000 compared to $99,000 this period last year.
The Earnings before income taxes for this period were $573,000 compared to $0,000 last year, an increase of $573,000. Earnings from operating activities were $526,000 ($103,000), an increase of $423,000. Earnings from corporate were $47,000 compared to $-103,000, an increase of $150,000.
Income taxes for the period were $172,000 ($10,000). The effective tax rates are presented in the Notes to the financial statements.
Net Earnings (loss) for the period were $401,000 (-$10,000) or $0.16 ($0.00) per share.
Dividends paid during the period last year amounted to $127,000. As indicated in the MD&A for the first quarter, the declaration of the quarterly dividend has been suspended in order to support the cash requirements resulting from the Time-Wise investment. The declaration and payment of dividends is at the discretion of the Board of Directors.
Summary of Quarterly Results
----------------------------
The following financial summary is derived from the company's financial statements for each of the eight most recently completed fiscal quarters.
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Summary
of
Quarterly
Financial
Results
for the
eight Aug 31, May 31, Feb 29, Nov 30, Aug 31, May 31, Feb 28, Nov 30,
most 2008 2008 2008 2007 2007 2007 2007 2006
recent (2009. (2009. (2008. (2008. (2008. (2008. (2007. (2007.
fiscal Q2) Q1) Q4) Q3) Q2) Q1) Q4) Q3)
quarters ------- ------- ------- ------- ------- ------- ------- -------
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(Expressed
in
thousands,
except for
amounts per
share -
unaudited) $ $ $ $ $ $ $ $
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Revenues 13,911 13,499 10,625 12,548 12,810 12,767 13,289 13,553
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Net
Earnings
(loss) 287 114 (134) 214 121 (131) 701 179
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Earnings
(loss)
per share 0.11 0.05 (0.05) 0.08 0.05 (0.05) 0.28 0.07
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Dividends
per share 0.00 0.00 0.00 0.00 0.00 0.05 0.20 0.05
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Revenues for this quarter were $13,911,000 ($12,810,000), an increase of
$1,101,000 (8.6%). Revenue from operating activities amounted to $13,888,000
($12,868,000) being 99.8% (100.5%) of total revenues. Income from corporate
totaled $23,000 ($-58,000). Operating revenues for the quarter increased by
$1,020,000 (7.9%) compared to this quarter last year. Revenue from Corporate
increased by $81,000 of which $76,000 was attributable to a change in fair
value of investments held for trading.
Costs and expenses for the quarter were $13,478,000 ($12,607,000), an
increase of $871,000 (6.9%). Costs related to operating activities, before
exchange and interest, increased by $866,000 (7.0%). Initial investments in
listing fees of $129,000 and other marketing activity applicable to the
Time-Wise product line were recorded last year during the second quarter. No
such expenditures have been incurred thus far this year.
Included in the financial results for this quarter are investment tax
credits of $77,000 representing 85% of total claimed for Federal and Ontario
pertaining to fiscal year 2008. The comparative amount for this quarter last
year was $100,000.
The currency exchange in this quarter resulted in a loss of $8,000
compared to a gain this quarter last year of $40,000, a variance of $48,000.
Interest expense for this quarter was $77,000 compared to $94,000 this
quarter last year and was $95,000 in 2009.Q1.
Earnings before income taxes for this quarter were $433,000 compared to
$203,000 last year, an increase of $230,000. Earnings from operating
activities were $470,000 ($323,000), an increase of $147,000 and corporate
were $-37,000 ($-120,000), an increase of $83,000.
Income taxes for the quarter were $146,000 ($82,000). The effective tax
rates are presented in the Notes to the financial statements.
Net earnings for the quarter were $287,000 ($121,000) or $0.11 ($0.05) per
share.
Consolidated Cash Flows, Liquidity and Balance Sheets
-----------------------------------------------------
Cash generated by operating activities, net earnings before changes for
non-cash items was $401,000 for the period compared to a usage of $10,000 last
year. Non-cash operating items used $993,000 for the period compared to usage
of $429,000 for this period last year. The increase in receivables was a
significant contributor.
In investing activities, the Company added $211,000 of net property, plant
and equipment compared to $502,000 for this period last year; last year, this
amount included $319,000 for the investment in the new value added Time-Wise
rice line which became available for commercial production in June 2007.
In financing activities, bank indebtedness increased by $963,000 of which
$627,000 of funds were used in operations, $11,000 used for investing
activities and $325,000 to cover the long-term debt payments.
Working capital amounted to $1,308,000 at the end of this period, an
increase of $573,000 compared to $735,000 at last fiscal year-end. This change
was attributable to a net increase in current assets of $3,704,000 and a net
increase in current liabilities of $3,131,000.
Available credit facilities
The credit facilities available and reported at last year-end remain
substantially unchanged. The facilities are comprised of a revolving line of
credit for $4,750,000 CDN (or its US equivalent) and a 5 year reducing term
facility initially borrowed at fiscal year-end 2007 for $3,500,000. The
revolving line of credit bears interest at either the Canadian prime and/or
U.S. base rates and optionally the Company may take advantage of Bankers
Acceptances. The reducing term facility is at a combined fixed rate for
interest and fees of 5.83% for the term of the loan. The financial covenants
and arrangements relating to these facilities are detailed in the Notes to the
audited consolidated financial statements filed for last year-end. These
covenants are being respected and have been met.
Receivables increased by $2,257,000 compared to last fiscal year-end. The
regular account balances are substantially current, there are no anticipated
serious collection issues and any potential write-offs have been provided for
in the accounts.
Inventories increased by $1,290,000 (17.3%) while overall volumes of rice
decreased by 5.4%.
Marketable securities - see table below for financial summary. The
investment mix has been generally maintained through these market
fluctuations.
Property, plant and equipment decreased by $393,000 comprised of additions
of $212,000, disposals of $8,000, and amortization of $597,000.
Bank indebtedness was $4,261,000 compared to $3,298,000 at last year-end,
an increase of $963,000 as explained above.
Payables increased by $1,796,000 mainly arising from increases in amounts
due to the agency business and to the value of rice purchases.
Long-term debt is being repaid in accordance with the arrangements of the
five year reducing term facility agreement as described under credit
facilities.
Future income taxes, net liability, increased by $1,000 including an
increase of $8,000 due to the fair value pertaining to the unrealized gain at
August 31, 2008.
Shareholders' equity increased by $401,000 to $17,201,000 from $16,800,000
and represents $6.79 ($6.63) per share.
Capital stock remained unchanged at $539,000 and represents
2,535,000 issued common shares.
The MRRM Inc. shares have a very limited distribution and are infrequently
traded on the TSX-Venture Exchange under the symbol MRR.
www.TSX-Venture Exchange
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Critical Accounting Policies:
-----------------------------
The Company's critical accounting policies are those that it believes are
the most important in determining its financial condition and results. A
summary of the Company's significant accounting policies, including the
critical accounting policies, is set out in the notes to the consolidated
financial statements in the annual report for the year ended February 29,
2008. An extract of these policies is set out in the notes to the quarterly
consolidated financial statements.
Future Accounting Changes:
International Financial Reporting Standards
In 2005, the Accounting Standards Board of Canada (AcSB) announced that
accounting standards in Canada are to converge with IFRS. In May 2007, the
CICA published an updated version of its "Implementation Plan for
Incorporating International Financial Reporting Standards into Canadian GAAP".
This plan includes an outline of the key decisions that the CICA will need to
make as it implements the Strategic Plan for publicly accountable enterprises
that will converge Canadian generally accepted accounting standards with IFRS.
While IFRS uses a conceptual framework similar to Canadian GAAP, there are
significant differences in accounting policy which must be addressed. The CICA
has confirmed the changeover date from current Canadian GAAP to IFRS to be
January 1, 2011.
The Company has formed a committee which is currently assessing the future
impact of these new standards on its consolidated financial statements.
Discussion of Results:
----------------------
In Dainty Foods, net sales increased by $1,407,000 (5.7%) for the period
and by $796,000 (6.5%) for the quarter compared to last year while overall
rice sales volumes increased by 3.7% for the period and 4.3% for the quarter.
Costs and expenses increased by $1,209,000 (5.0%) and increased by
$820,000 (6.8%) for the quarter and earnings before income taxes for the
period increased by $198,000 and decreased by $24,000 compared to this quarter
last year.
The increase in sales and costs for the period and the quarter were mainly
attributable to increased sales of flour and bagged rice compared to last
year. As indicated in the last Annual Report and MD&A, the cost of rice had
been tracking at an all time high leading into this fiscal year with little
likelihood that this will change in the near future. As reported in Q1,
indications are that new crop prices will soften somewhat but still remain
extremely high compared to last year. Although the 2008 American rice harvest
has been negatively affected by the recent hurricanes, the extent of the
impact on yield, price, and quality cannot be determined at this time.
Recent selling price increases on our branded and private label items as
well as price increases that were introduced in the second half of last fiscal
year have contributed to improved margins.
Although cost of sales increased in line with increased sales, and
operating, selling, and administrative expenses decreased slightly for the
period, earnings before income taxes increased by $198,000.
The investment in the new Time-Wise rice line continues to produce
encouraging results. The Company anticipates this value added product line
will be a good contributor to margins. The Canadian retailers have listed a
number of Dainty "Stock Keeping Units of Measure" (SKUs) as well as a number
of selected private label items in the second half of last fiscal year.
The company continues to pursue new value-added retail type products some
of which will be outsourced until volumes and economies develop to a point
where in-house production is viable. This outsourcing will minimize capital
investment while enhancing Dainty Foods' offerings in the retail marketplace
for both branded and private label items. New selling relationships are also
being developed that are intended to add strength to our retail sales efforts.
Recent sales efforts in the United States have been productive. Several
retailers have committed to the introduction of Time-Wise products and will
begin initial shipments in Q3.
In Robert Reford, revenue increased by $270,000 (26.5%) for the period and
by $224,000 (40.3%) for the quarter compared to last year.
Earnings before income taxes for the period increased by $225,000 for the
period and by $171,000 compared to this quarter last year.
While these increases are very favourable, based on current market
conditions, and recent developments in the North American economy,
expectations for the next quarter are uncertain due to possible labour unrest
in the St. Lawrence seaway.
As mentioned in the last MD&A, on July 1, 2008 this division entered into
a joint revenue sharing agreement with Norton Lilly International, Inc. to
handle vessel and port operations coast to coast in Canada as well as at
U.S. Great Lakes. This relationship has had a slight positive impact on
revenue to date.
In Corporate Investments, portfolio income is summarized as follows:
For the period For the quarter
--------------------- ---------------------
2009 2008 2009 2008
---- ---- ---- ----
Dividend and interest
income $99,000 $81,000 $74,000 $48,000
Capital gains $3,000 $37,000 $3,000 $25,000
Unrealized change in
Fair Value $54,000 -$118,000 -$54,000 -$131,000
--------- ---------- ---------- ----------
Totals: $156,000 $0 $23,000 -$58,000
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Certification
The Company's management, under the direction and supervision of the Chief
Executive Officer and Chief Financial Officer, continually evaluates the
effectiveness of the Company's disclosure controls and procedures and has
concluded that such disclosure controls and procedures are effective.
The Company's management is also responsible for establishing and
maintaining internal controls over financial reporting. These controls were
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian GAAP.
There have been no changes in the Company's internal controls over
financial reporting during this quarter that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.
Outlook
Indications are that the Time-Wise products will provide additional growth
and although rice prices are at record highs, the current market still
provides an environment to secure rice at competitive prices and economic
conditions are likely to support growth in the food processing and selling
operations. The markets that the ship agency services operate in experienced a
good start in this quarter, however, as previously mentioned, expectations for
the next quarter are uncertain due to possible labour unrest in the
St. Lawrence seaway.
While the Company is anticipating continued growth in food processing and
selling, and while it will be maintaining a strong position within the ship
agency services business, growth in fiscal 2009 will be impacted by several
factors including (i) the demand for our new Time-Wise value added products
(ii) the ability of the Company to secure rice from U.S. rice mills at
competitive prices (iii) the ability within the marketplace to obtain price
increases in a timely manner to cover increased costs, and (iv) general
economic conditions.
Risks and Uncertainties
Overview
Management of risk includes properly identifying, communicating and
controlling the risks which may cause a serious impact to the business.
Management is confident that the Company employs effective procedures to
address all material risks.
The following items were discussed in the MD&A in the last Annual Report
and remain principally unchanged. Please refer to these documents for this
information.
Ability to Achieve Revenue Results
Ability to Address Cost and Expense Concerns
Economic Conditions
Environment
For further information regarding financial risk management, please refer
to the Notes to the interim financial statements.
On behalf of the Board
(signed) (signed)
Nikola M. Reford Terry Henderson
Chairman President & Chief Executive Officer
Dated at Montreal (Westmount), Quebec, October 9, 2008.
MRRM Inc.
CONSOLIDATED EARNINGS
And COMPREHENSIVE INCOME
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(unaudited) For the SIX Months Ending For the Quarter Ending
-------------------------- -----------------------
August 31, August 31, August 31, August 31,
---------- ---------- ---------- ----------
2008 2007 2008 2007
------ ------ ------ ------
'000 '000 '000 '000
Revenues
Sales 27,254 25,577 13,888 12,868
Increase (decrease) in
fair value of investments
held for trading 156 0 23 (58)
---------- ---------- ---------- ----------
27,410 25,577 13,911 12,810
---------- ---------- ---------- ----------
Costs and expenses
Cost of sales, selling
and administrative 26,111 24,917 13,094 12,264
Amortization 597 537 299 289
Exchange (gain) loss (43) (18) 8 (40)
Interest (a) 172 141 77 94
---------- ---------- ---------- ----------
26,837 25,577 13,478 12,607
---------- ---------- ---------- ----------
Earnings before income
taxes 573 0 433 203
---------- ---------- ---------- ----------
Income taxes (recovery)
Current 172 (10) 129 17
Future 0 20 17 65
---------- ---------- ---------- ----------
172 10 146 82
---------- ---------- ---------- ----------
Net earnings (loss) $401 ($10) $287 $121
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share $0.16 ($0.00) $0.11 $0.05
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(a) Additional information is included in the Notes to Consolidated
Financial Statements.
MRRM Inc.
CONSOLIDATED RETAINED EARNINGS
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(unaudited) For the SIX Months Ending For the Quarter Ending
-------------------------- -----------------------
August 31, August 31, August 31, August 31,
---------- ---------- ---------- ----------
2008 2007 2008 2007
------ ------ ------ ------
'000 '000 '000 '000
Balance, beginning of
period 16,261 15,353 16,375 16,060
Adjustment to fair value
for investments held for
trading 0 965 0 0
Net earnings (loss) 401 (10) 287 121
---------- ---------- ---------- ----------
16,662 16,308 16,662 16,181
Dividends 0 127 0 0
---------- ---------- ---------- ----------
Balance, end of period $16,662 $16,181 $16,662 $16,181
---------- ---------- ---------- ----------
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MRRM Inc.
CONSOLIDATED CASH FLOWS
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(unaudited) For the SIX Months Ending For the Quarter Ending
-------------------------- -----------------------
August 31, August 31, August 31, August 31,
---------- ---------- ---------- ----------
2008 2007 2008 2007
------ ------ ------ ------
'000 '000 '000 '000
OPERATING ACTIVITIES
Net earnings (loss) 401 (10) 287 121
Defined benefit plan
payments (35) (8) (19) (4)
---- --- ---- ---
366 (18) 268 117
Non-cash items
Change in fair value of
investments held for
trading (57) 81 51 106
Loss on disposal of
equipment 7 0 7 0
Amortization 597 537 299 289
Accrued benefit cost 15 (74) 8 (83)
Future income taxes 1 20 18 64
--- ---- ---- ----
929 546 651 493
Change in receivables (2,257) (618) (1,398) 154
Change in inventories (1,290) 2,047 (2,006) 1,028
Change in tax credits
receivable (273) (94) (273) (94)
Change in prepaids 116 83 69 135
Change in payables 1,796 (2,231) 1,604 (378)
Change in income taxes
payable 352 (180) 328 (132)
---------- ---------- ---------- ----------
Cash flows from operating
activities (a) (627) (447) (1,025) 1,206
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Marketable securities (77) (634) (77) (78)
Disposals of marketable
securities 277 553 66 27
Property, plant and
equipment (212) (502) (98) (172)
Disposal of equipment 1 0 1 0
---------- ---------- ---------- ----------
Cash flows from investing
activities (11) (583) (108) (223)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Bank indebtedness 963 1,462 1,296 (831)
Long-term debt (325) (305) (163) (152)
Dividends 0 (127) 0 0
---------- ---------- ---------- ----------
Cash flows from financing
activities 638 1,030 1,133 (983)
---------- ---------- ---------- ----------
Net change in cash 0 0 0 0
Cash, beginning of period 0 0 0 0
---------- ---------- ---------- ----------
Cash end of period $0 $0 $0 $0
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Dividends per share $0.00 $0.05 $0.00 $0.00
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(a) Additional information is included in the Notes to Consolidated
Financial Statements.
MRRM Inc.
(Formerly: Mount Royal Rice Mills Limited)
CONSOLIDATED BALANCE SHEETS
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(unaudited) As at As at
August February
------ --------
31, 29,
-- --
2008 2008
---- ----
'000 '000
ASSETS
Current
Receivables 6,436 4,179
Inventories 8,761 7,471
Tax credits receivable 1,168 895
Prepaids 56 172
Future income taxes 15 15
---------- ----------
16,436 12,732
Marketable securities, at fair value (note 1) 4,754 4,897
Property, plant and equipment, net 15,427 15,820
---------- ----------
$36,617 $33,449
---------- ----------
---------- ----------
LIABILITIES
Current
Bank indebtedness 4,261 3,298
Payables 9,740 7,944
Income taxes 380 28
Current portion of long-term liabilities 747 727
---------- ----------
15,128 11,997
Accrued long-term benefit liability 626 646
Long-term debt, reducing term loan maturing in
2012 1,877 2,222
Future income taxes 1,785 1,784
---------- ----------
19,416 16,649
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock
Common shares, without nominal or par value
authorized in an unlimited number
Issued 2,535,000 shares 539 539
Retained earnings 16,662 16,261
---------- ----------
17,201 16,800
---------- ----------
$36,617 $33,449
---------- ----------
---------- ----------
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MRRM Inc.
NOTES To CONSOLIDATED FINANCIAL STATEMENTS
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(unaudited) August 31, 2008
---------- ----
1- Accounting Policies, Financial Risk management and Supplementary
Information
The unaudited interim consolidated financial statements were prepared by
the Company in accordance with Canadian generally accepted accounting
principles and have not been reviewed by the Company's auditors.
The accounting policies and procedures used in preparing these unaudited
interim consolidated financial statements are the same as those used in
preparing the audited annual consolidated financial statements for the year
ended February 29, 2008 except for new accounting policies that have been
adopted effective March 1, 2008. These unaudited interim statements should be
read along with the audited annual statements and notes included in the
Company's last Annual Report. Certain comparative figures have been
reclassified to conform with the presentation adopted at last fiscal year-end.
Changes in accounting policies
The Company adopted Canadian Institute of Chartered Accountants (CICA)
Handbook Section 1535, Capital Disclosures; Section 3031, Inventories; Section
3862, Financial Instruments - Disclosures; and Section 3863, Financial
Instruments - Presentation on March 1, 2008.
Capital Disclosures
In December 2006, the Canadian Institute of Chartered Accountants (CICA)
published Section 1535, "Capital Disclosures". This new standard establishes
disclosure requirements concerning capital such as: qualitative information
about an entity's objectives, policies and processes for managing capital;
quantitative data about what it regards as capital; whether the entity has
complied with any externally imposed capital requirements and, if not, the
consequences of such non-compliance. The Company has adopted this Section as
of March 1, 2008. Additional informations are presented in Note 7, "Capital
disclosures".
Inventories
The Company has adopted section 3031, this section provides more extensive
guidance on measurement, and expands disclosure requirements to increase
transparency.
Raw materials and supplies are recorded at the lower of cost, determined
on a weighted average basis, and net realizable value, being the estimated
selling price of finished goods less the estimated costs of completion of the
finished goods. Under the previous policy raw materials and supplies were
recorded at the lower of cost, determined on a weighted average basis, and
replacement cost.
Finished goods are recorded at the lower of cost and net realizable value.
Finished goods include the cost of direct labour, direct materials and
variable and fixed overhead related to production, including amortization,
applied at a standard rate, which approximates actual costs. There is no
financial impact to reported financial statements as a result of this new
standard.
Inventory valuation follows the accounting policy disclosed in the annual
audited financial statements with the exception of the treatment of temporary
inventory costing fluctuations which are not taken into income as they are
temporary in nature. Fluctuations, if any, in inventory costing resulting from
temporary production cost variances will be absorbed in income by fiscal year
end.
Future accounting standards
In February 2008, the CICA issued new Section 3450, "Research and
Development Costs". The new section sets out standards for recognition,
measurement, presentation and disclosure. The new standard is effective for
fiscal years beginning on or after November 1, 2008 and the Company will
implement it as of March 1, 2009. The Company is currently assessing the
impact.
Also in February 2008, Canada's Accounting Standards Board (AcSB)
confirmed that Canadian GAAP, as used by publicly accountable enterprises,
will be superseded by International Financial Reporting Standards (IFRS) for
fiscal years beginning on or after January 1, 2011. The Corporation will be
required to report under IFRS for its interim and annual financial statements
for the fiscal year ending February 29, 2012. The Corporation is currently
preparing its IFRS conversion plan. The plan will be aimed in particular at
identifying the differences between IFRS and the Corporation's accounting
policies, assessing their impact and, where necessary, analyzing the various
policies that the Corporation could elect to adopt.
2- Financial Instruments and Financial Risk factors
The Company's financial instruments recognized in the balance sheet
consist of cash, marketable securities, accounts receivable, accounts payable,
accrued liabilities and bank loan. The carrying value of these balance sheet
items approximates their fair market value. The Company is exposed to a number
of different financial risks arising from normal course business exposure, as
well as the Company's use of financial instruments. These risk factors include
credit risk, interest rate risk, liquidity risk, currency risk and price risk.
Fair value
Receivables, bank indebtedness and payables are financial instruments
whose fair values approximate their carrying values due to their short-term
maturity. The portfolio of marketable securities has been designated a
financial asset held for trading. These investments are recorded at fair value
based on the current bid price at the balance sheet date with fair value
changes recorded and disclosed in the Statement of Earnings. The Company uses
an interest rate swap arrangement through its bankers to effectively fix the
variable rate pertaining to the Reducing term loan which matures in February
2012. This arrangement has fixed the interest rate at 5.83% to maturity. Were
the Company to settle this swap agreement at the reporting date, the estimated
fair value based on quotes received from the Company's lender would be
unfavorable by $67,500 compared to a favorable position of $16,400 for the
same period last year. This value was unfavorable by $62,200 at last fiscal
year-end. These amounts are before income taxes and have not been recorded in
the financial statements.
Credit risk
Credit risk relates to the risk that a party to a financial instrument
will not fulfill some or all of its obligations, thereby, causing the Company
to sustain a financial loss. The credit risk for the Company relates to
accounts receivable. Credit risk is reduced by the active monitoring of the
accounts receivable. The Company performs ongoing credit reviews of all its
customers and establishes an allowance for doubtful accounts receivable when
accounts are determined to be noncollectable.
Interest rate risk
Receivables and payables are non-interest bearing. Bank indebtedness bears
interest at either the Canadian prime and/or U.S. base rates and optionally
the Company may take advantage of Bankers Acceptances. The interest rate risk
relating to the reducing term loan is as described under Fair value above. For
this quarter, a 0.5% hypothetical increase in the prime rate on bank
indebtedness would increase interest expense by approximately $4,000. A 0.5%
decrease in the prime rate would have had a reverse effect.
Liquidity risk
The Company is subject to debt covenants related to the revolving line of
credit and to the reducing long-term loan. The Company believes that future
cash flows from operations and availability under existing credit facilities
from banking institutions will be sufficient to meet its obligations. Under
senior management's supervision, the Company manages its liquidities according
to financial forecast and expected cash flows.
Currency risk
The Company is exposed to foreign currency risks due to its imports of
bulk rice from the USA and overseas. These risks are partially offset by sales
in U.S. funds and by the purchase of forward exchange futures. Last quarter,
the Company has entered into foreign exchange futures maturing this fiscal
year which cover a significant portion of its USD requirements. The Company
uses the fair value accounting method for such instruments. Under this method
any unrealized gains or losses caused by fluctuation to the market value are
to be recorded in income for the period. As these fluctuations on an interim
basis represent a temporary gain or loss and will not impact the financial
results of the fiscal year, these gains or losses have not been recorded on
the interim financial statements.
Foreign exchange exposure: At August 31, 2008, net US($69,000); at
August 31, 2007, net US$439,000; at May 31, 2008, net US$3,880,000; at May 31,
2007, net US$1,050,000; at February 29, 2008, net US$1,438,000; at February
28, 2007, net US($1,148,000); at November 30, 2007, net US($440,000); at
November 30, 2006, net US ($5,616,000). The above US numbers include
equivalent for euro and pounds stirling which are not material.
Price risk
The Company's price risk arises from changes in raw material prices, which
are significantly influenced by the fluctuating underlying markets. The
Company's objectives in managing its price risk are three fold: i) to protect
its financial results for the period from significant fluctuations in raw
material costs, ii) to anticipate, to the extent possible, and plan for
significant changes in the raw material markets and iii) to ensure sufficient
availability of raw materials required to meet the Company's manufacturing
requirements. To manage its exposure to price risks, the Company closely
monitors current and anticipated changes in market prices and develops pre-
buying strategies and patterns, and seeks to adjust its selling prices when
market conditions permit. Historical results indicate management's ability to
rapidly identify fluctuations in raw material prices and, to the extent
possible, incorporate such fluctuations in the Company's selling prices.
For the SIX Months Ending For the Quarter Ending
-------------------------- -----------------------
August 31, August 31, August 31, August 31,
---------- ---------- ---------- ----------
2008 2007 2008 2007
------ ------ ------ ------
'000 '000 '000 '000
3- Information included in the Statement Of Earnings
Income taxes paid (received) $181 ($170) $200 ($150)
---- ------ ---- ------
---- ------ ---- ------
Investment tax credit $77 $100 $77 $100
--- ---- --- -----
--- ---- --- -----
Interest on long-term debt $80 $99 $38 $49
Interest on bank
indebtedness and other $92 $90 $39 $45
--- --- --- ----
Total Interest paid $172 $189 $77 $94
Less, interest capitalized $0 $48 $0 $0
-- --- -- ---
-- --- -- ---
Interest expensed $172 $141 $77 $94
---- ---- --- ----
---- ---- --- ----
4- Increase (decrease) in fair value of investments held for trading
Interest and dividend
income $99 $81 $74 $48
Net change in fair value
of investments held for
trading $57 ($81) ($51) ($106)
--- ----- ----- ------
$156 $0 $23 ($58)
---- -- --- -----
---- -- --- -----
5- Income Taxes %
--
Combined basic federal and
provincial income tax
rate $191 $0 33.2%
Non-taxable portion of
capital (gains) losses ($1) $13 (0.1)%
Tax-free income (net) ($23) ($19) (4.0)%
Other $5 $16 0.9%
-- --- ----
$172 $10 30.0% - %
---- --- ----- ---
---- --- ----- ---
* The combined basic income tax rate and adjustments are not meaningful
for this quarter and have been omitted.
MRRM Inc.
NOTES To CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) For the SIX Months Ending For the Quarter Ending
-------------------------- -----------------------
August 31, August 31, August 31, August 31,
---------- ---------- ---------- ----------
2008 2007 2008 2007
------ ------ ------ ------
'000 '000 '000 '000
6- Segmented Information
Revenue
Food processing and
selling 25,966 24,559 13,108 12,312
Ship agency services 1,288 1,018 780 556
----- ----- --- ----
Operating 27,254 25,577 13,888 12,868
Corporate 156 0 23 (58)
--- -- -- ----
$27,410 $25,577 $13,911 $12,810
------- ------- -------- --------
------- ------- -------- --------
Earnings
Food processing and
selling 351 153 267 291
Ship agency services 175 (50) 203 32
--- ---- --- --
Operating 526 103 470 323
Corporate 47 (103) (37) (120)
-- ----- ---- -----
Earnings before income
taxes 573 0 433 203
Income Taxes 172 10 146 82
--- -- --- --
Net Earnings (loss) $401 ($10) $287 $121
---- ----- ---- -----
---- ----- ---- -----
Assets
Food processing and
selling 30,919 26,252 2,897 (1,312)
Ship agency services 955 685 491 (3)
--- --- --- ---
Operating 31,874 26,937 3,388 (1,315)
Corporate 4,743 4,987 (29) (73)
----- ----- ---- ----
$36,617 $31,924 $3,359 ($1,388)
------- ------- ------ --------
------- ------- ------ --------
Capital expenditures
Food processing and
selling 209 500 95 171
Ship agency services 3 2 3 1
-- -- -- ---
Operating 212 502 98 172
Corporate 0 0 0 0
-- -- -- ---
$212 $502 $98 $172
---- ---- --- -----
---- ---- --- -----
Amortization
Food processing and
selling 570 519 285 280
Ship agency services 27 18 14 9
-- -- -- ---
$597 $537 $299 $289
----- ----- ----- -----
----- ----- ----- -----
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7- Capital disclosures
The Company defines its capital as long-term debt (including the current
portion), shareholders' equity, minus cash and cash equivalents. Capital is
calculated as follows:
Short-term and current
portion of long-term debts
5,008 3,499 1,306 (822)
Long-term debt 1,877 2,556 (173) (161)
Shareholders' equity 17,201 16,720 287 121
------ ------ --- ----
$24,086 $22,775 $1,420 ($862)
------- ------- ------ ------
------- ------- ------ ------
The Company's objectives for managing its capital structure is to ensure financial capacity, liquidity and flexibility to maintain a strong capital base to sustain ongoing development and operations.
Company's credit facilities are subject to a number of covenants and those have been met as indicated under "Liquidity risk". Those covenants are as follows: i) A revolving line of credit secured by accounts receivable and marketable securities; and ii) Maintain a Debt Service Coverage ratio of not less than 1.25 on a pre-dividend basis and 1.00 on a post-dividend basis.
8- Subsequent event
Subsequent to August 31, 2008, as at close of business on September 30th, the decrease in value in marketable securities is estimated at 4.3% compared to the decrease in the Dow Jones industrial average of 6.0%. There are no impaired assets in the portfolio.
ContactsMr. Lou YounanChief Financial Officer
younl@dainty.ca
(519) 972-8888
Fax: (519) 966-3298
78.40 (0.93%)
