MRRM Inc. - DIRECTORS' REPORT And MANAGEMENT DISCUSSION And ANALYSIS Of The FINANCIAL CONDITION And RESULTS Of OPERATIONS - Interim 2011.Q3 November 30, 2010 (3rd Quarter)

The following discussion and analysis should be read in conjunction with the Annual Report.  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 assessed 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, Jan. 13 /CNW Telbec/ -

Consolidated  Earnings And Comprehensive Income and Retained Earnings

Revenues for the period (last year) were $47,939,000 ($50,627,000) decreasing by $2,688,000 (-5.3%). As shown in the segmented information, sales and income from operating activities amounted to $47,635,000 ($49,930,000) being 99.4% (98.6%) of total revenues. Income from corporate totaled $304,000 ($697,000). Unrealized gains in fair market value of the portfolio amounted to $165,000 ($713,000). Operating Revenues decreased by $2,295,000 (-4.6%) compared to last year. Revenue from Corporate decreased by $393,000; for details refer to Portfolio Income Summary under Corporate Investments.

Costs and expenses for the period (last year) were $45,948,000 ($49,365,000), a decrease of $3,417,000 (-6.9%). Costs related to operating activities, before exchange and interest, decreased by $3,314,000 (-6.8%). Expenses related to corporate decreased by $35,000.  

Operating results are discussed later on in this report.

The impact of the fluctuating Canadian dollar resulted in a total currency exchange gain of $136,000 versus a gain of $47,000 last year all included under cost of sales. As disclosed in the Notes, the net exposures were as follows: at November 30, 2010, US$2,033,000; at November 30, 2009, US$(492,000); at February 28, 2010, US($450,000); at February 28, 2009, US($404,000). The above US dollars include the equivalent for euros which is not material.

The company uses foreign exchange contracts to manage foreign exchange exposure. At November 30, 2010, the Company had foreign exchange contracts outstanding allowing the Company to buy USD$13,200,000 at an average rate of 1.0169. The maturity dates of these contracts range from December 2010 to June 2012. The Company has recorded a current and a long term asset on the balance sheet under the caption "fair value of cash flow hedges". The Company also recorded comprehensive income in the amount of $154,000 to reflect the fair value of these foreign exchange forward contracts.

Interest expensed on bank indebtedness and the reducing term loan amounted to $92,000 compared to $165,000 last year for a decrease of $73,000. Interest related to the long-term debt was $55,000 compared to $86,000 last year.

Earnings before income taxes for the period (last year) were $1,991,000 ($1,262,000), an increase of $729,000. Earnings from operating activities for the period (last year) were $1,837,000 ($750,000), an increase of $1,087,000. Earnings from corporate for the period (last year) were $154,000 ($512,000), a decrease of $358,000.

Income taxes for the period (last year) were $568,000 ($304,000). Details of the income tax components are presented in the Notes to the financial statements.

Net earnings for the period (last year) were $1,423,000 ($958,000) or $0.56 ($0.38) per share.

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.

Summary of Quarterly Financial Results for the eight most recent fiscal quarters Nov 30,
2010
(2011.Q3)
Aug 31,
2010
(2011.Q2)
May 31,
2010
(2011.Q1)
Feb 28,
2010
(2010.Q4)
Nov 30,
2009
(2010.Q3)
Aug 31,
2009
(2010.Q2)
May 31,
2009
(2010.Q1)
Feb 28,
2009
(2009.Q4)
(Expressed in thousands, except for amounts per share - unaudited) $ $ $ $ $ $ $ $
Revenues 15,870 16,471 15,598 15,181 17,672 15,466 17,489 16,502
Net Earnings (loss) 654 449 320 562 455 169 334 -200
Earnings (loss) per share 0.26 0.17 0.13 0.22 0.18 0.07 0.13 -0.08
Dividends per share 0.00 0.00 0.00 0.10 0.00 0.00 0.00 0.00

Revenues for this quarter (last year) were  $15,870,000 ($17,672,000), a decrease of $1,802,000 (-10.2%). Revenue from operating activities amounted to $15,613,000 ($17,518,000) being 98.4% (99.1%) of total revenues. Income from corporate totaled $257,000 ($154,000). Operating revenues for this quarter decreased  by $1,905,000 (-10.9%) compared to this quarter last year.  Revenue from Corporate increased by $103,000 of which $227,000 was attributable to unrealized fair value of investments held for trading and lower realized gains of $130,000.

Costs and expenses for this quarter (last year) were $15,000,000 ($17,040,000), a decrease of $2,040,000 (-12.0%). Costs related to operating activities, before exchange and interest, decreased by $2,005,000 (-11.8%). 

Included in the financial results for this quarter (last year) was investment tax credits of $51,000 ($24,000).

Interest expense for this quarter (last year) was $24,000 ($49,000) and was $30,000  in 2011.Q2 and $38,000 in 2011.Q1. As well this quarter, the Company recovered $12,000 due to variation in fair value of the interest rate swap which is a component of the long term debt facility.

Earnings before income taxes for this quarter (last year) were $870,000 ($632,000), an increase of $238,000. Earnings from operating activities were $652,000 ($526,000), an increase of $126,000 and corporate were $218,000 ($106,000), an increase of $112,000.

Income taxes for this quarter (last year) were $216,000 ($177,000). The effective tax rates are presented in the Notes to the financial statements.
Net earnings for this quarter (last year) was $654,000 ($455,000) or $0.26 ($0.18) per share.

Consolidated Cash Flows, Liquidity and Balance Sheets

In investing activities, the Company added $363,000 of net property, plant and equipment compared to $617,000 last year.

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 $7,000,000 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 the Canadian prime rate plus 0.125% for Canadian loans and U.S. base rate plus 0.125% for U.S. loans 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. These covenants are being respected and have been met. 

Cash position was $4,393,000 compared to bank indebtedness of $922,000 at last year-end. 

Receivables increased by $852,000 compared to last fiscal year-end. 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 decreased by $1,562,000 (-20.0%) while overall volumes of rice decreased by 2.3%. 

Marketable securities - see table below for financial summary and investment mix.

Property, plant and equipment decreased by $504,000 comprised of additions of $363,000 and amortization of $867,000

Payables increased by $3,044,000 mainly arising from increases in amounts due related to the agency business.

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 $180,000 which is mainly attributable to the amortization of property, plant and equipment that accounts for $98,000 of the increase at November 30, 2010.

Shareholders' equity increased by $1,536,000 to $19,460,000 from $17,924,000 and represents $7.68 ($7.07) 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

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 28, 2010.  An extract of these policies is set out in the notes to the quarterly consolidated financial statements.

New accounting policy

Effective March 1, 2010, the Company uses hedge accounting.  At the inception of a hedging relationship, the Company designates and formally documents the relationship between the hedging instrument and the hedged item, its risk management objective and its strategy for undertaking the hedge. The documentation identifies the anticipated cash flows being hedged, the risk that is being hedged, the type of hedging instrument used and how effectiveness will be assessed.

The Company also formally assesses, both at inception and at least quarterly thereafter, whether or not the derivatives that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in cash flows of the hedged items. If a hedge relationship becomes ineffective, it no longer qualifies for hedge accounting and any subsequent change in the fair value of the hedging instrument is recognized in earnings. When hedge accounting is appropriate, the hedging relationship is designated as a cash flow hedge. In a cash flow hedge, the change in fair value of the hedging instrument is recorded, to the extent it is effective, in other comprehensive income until the hedged item affects net earnings. The Company uses cash flow hedges to mitigate the risk from variable cash flows associated with forecasted foreign currency denominated cash flows.

Hedge ineffectiveness is measured and recorded in current period earnings in the consolidated statement of earnings. When cash flow hedge is discontinued, any cumulative adjustment to either the hedged item or other comprehensive income is recognized in earnings as the hedged item affects earnings, or when the hedged item is derecognized. If a designated hedge is no longer effective, the associated derivative instrument is subsequently carried at fair value through earnings without any offset from the hedged item. Changes in the fair value of derivatives that do not qualify for hedge accounting are recorded in the consolidated statement of earnings. The balance of other comprehensive income consists of the accumulated variation in the fair value of foreign exchange forward contracts net of future income tax.

Future Accounting Changes:

International Financial Reporting Standards (IFRS)

In 2005, the Accounting Standards Board of Canada (AcSB) announced that accounting standards in Canada are to converge with IFRS. In March 2009, the CICA published an updated version of its "Implementation Plan for Incorporating International Financial Reporting Standards from 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 for year ends beginning on or after January 1, 2011.

The Company has established an IFRS convergence team that oversees and is actively involved in the transition to IFRS. The Company is devoting the necessary resources to achieve a seamless transition to IFRS by the required date of conversion.

In order to integrate new accounting and reporting standards and assess the impact that the new policies may have on our activities, the Company has undertaken the development of a changeover plan to ensure that a smooth transition occurs.

Discussion of Results:

In Dainty Foods, net sales decreased by $3,900,000 (-8.2%) to $43,621,000 for the period and decreased by $2,363,000 (-14.2%) for the quarter compared to last year while rice sales volumes increased by 6.1% for period and  decreased by 5.5% for the quarter compared to last year. The net sales reduction is primarily a result of lower selling prices due to reduced cost of rice and the weaker US Dollar. The volume reduction for the quarter is primarily driven by a temporary reduction in purchases by a major flour customer. Costs and expenses decreased by $4,688,000 (-10.0%) to $42,349,000 for the period; decreased by $2,591,000 (-15.9%) for the quarter compared to last year as commodity prices continue to decline. Earnings before income taxes for the period increased by $788,000 to $1,272,000 and by $228,000 for the quarter compared to last year.

The Company continues to pursue new value-added retail products some of which will be outsourced. 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 continue to be developed and are intended to add strength to our retail sales efforts.

The 2010 rice harvest volume in the United States is the largest on record. Notwithstanding, industry milling yield to date for new crop rice has generally been low in North America, leading to higher prices for long grain and parboiled rice and lower prices for broken rice due to its increased availability. American rice prices are currently higher than the cost in foreign markets. Dainty Foods endeavours to manage these conflicting variables and to purchase rice at opportune times.

In Robert Reford, revenue increased by $1,605,000 (66.6%) to $4,014,000 for the period and by $458,000 (49.4%) for the quarter compared to last year reflecting  the addition of Montship Inc. as well as increased growth in both Robert Reford and Norton Lilly.

Earnings before income taxes for the period increased by $299,000 to $565,000 and decreased by $102,000 compared to this quarter last year which is in accordance with the terms of our partnership agreement. 

Corporate Investments,  portfolio income is summarized as follows:

  For the period  For the quarter
  2011 2010 2011 2010
Dividend and interest income   $112,000 $101,000 $37,000 $37,000
Capital gains (losses) $27,000   -$117,000 -$4,000 $120,000
Unrealized change in Fair Value $165,000 $713,000 $224,000 $3,000
Totals: $304,000 $697,000 $257,000   $154,000

During this quarter, global financial markets continued to improve, contributing to a gain in Fair Market Value of $165,000 for the period compared to $713,000 last year. The portfolio remains conservatively invested and no significant policy changes are foreseen. The Corporate Investments continue to be held with a long term view.

Investment Mix Nov 30,
2010
(2011.Q3)
Aug 31,
2010
(2011.Q2)
May 31,
2010
(2011.Q1)
Feb 28,
2010
(2010.Q4)
Nov 30,
2009
(2010.Q3)
Cash & Equivalents 5.7% 3.7% 1.1% 0.2% 0.5%
Bonds 26.5% 28.4% 27.2% 27.2% 27.9%
Preferred Shares 13.7% 15.8% 17.5% 17.6% 17.6%
Canadian Equities 38.2% 36.5% 37.9% 37.7% 37.3%
U.S. & Foreign Equities 15.9% 15.6% 16.3% 17.3% 16.7%

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

Dainty Foods expects to gradually increase retail volumes of value-added products in Canada and the USA. Recent private label retail launches are expected to yield increased revenues going forward. Additional retail product launches are planned for the next three quarters.

Margins on our U.S. sales are expected  to decline as a result of the weakening U.S. Dollar and continued pressure on flour pricing  as a result of the reduced commodity prices.  

In the shipping agency, overall revenue continues to remain strong.  The volume of ships in the seaway has recovered this year, however imports of steel remain low compared to 2008.  Our joint venture with Norton Lilly and Montship continues to be a success. We have obtained a strong base of operations on the West coast with Montship, and Norton Lilly continues to enhance our marketing efforts with their world wide sales coverage.

While the Company is anticipating continued growth in food processing and selling and maintaining a strong position within the ship agency services business, growth will be impacted by several factors including (i) the ability of the Company to secure rice at competitive prices (ii) the rate of acceptance of new private label products (iii) the ability within the marketplace to manage price increases 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.

Management is studying requirements associated with the impact of the construction of the Windsor-Essex Parkway on the Company's Windsor facility.

With the exception of the above, 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 Sustain Revenue
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.

The Board of Directors, in consultation with Management, has declared a special year-end dividend of $0.15 per share payable on February 28, 2011 to Common Shareholders of record on February 10, 2011. This special dividend was deemed appropriate in light of current and anticipated year end results to make a special distribution to our shareholders. A quarterly dividend payment continues to be suspended at this time to continue to support operating cash requirements.

The declaration and payment of dividends remains at the discretion of the Board of Directors.

On behalf of the Board

(signed)

Nikola M. Reford       
Chairman       
(signed)

Terry Henderson
President & Chief Executive Officer

Dated at Montreal (Westmount), Quebec,  January 13, 2011.


MRRM  Inc.
CONSOLIDATED  EARNINGS
 
(unaudited)       For the NINE Months Ending   For the Quarter Ending
    November 30,   November 30,   November 30,   November 30,
    2010   2009   2010   2009
    '000   '000   '000   '000
Revenues                
  Sales $47,635   $49,930   $15,613   $17,518
  Increase in fair value of marketable securities held for trading 304   697   257   154
 
    47,939   50,627   15,870   17,672
 
Costs and expenses 
  Cost of sales, selling and administrative 45,027   48,373   14,699   16,714
  Amortization 867   872   289   289
  Interest on long-term debt   55   86   16   26
  Other interest  37   79   8   23
  Change in fair value of interest rate swap (38)   (45)   (12)   (12)
    45,948   49,365   15,000   17,040
Earnings before income taxes   1,991   1,262   870   632
 
Income taxes                 
  Current 427   190   143   133
  Future 141   114   73   44
    568   304   216   177
 
Net earnings   $1,423   $958   $654   $455
 
 
Basic earnings per share   $0.56   $0.38   $0.26   $0.18
           


MRRM  Inc.
CONSOLIDATED COMPREHENSIVE INCOME
 
(unaudited)       For the NINE Months Ending   For the Quarter Ending
    November 30,   November 30,   November 30,   November 30,
    2010   2009   2010   2009
    '000   '000   '000   '000
 
Net earnings   $1,423   $958   $654   $455
Other comprehensive income
  Changes in fair value of foreign exchange forward contracts designated as cash flow hedges 215   0   (244)   0
  Future income taxes on changes in fair value of foreign exchange forward contracts designated as cash flow hedges (55)   0   62   0
  Settlements of foreign exchange forward contracts, recorded in the consolidated earnings (64)   0   (52)   0
  Income taxes on settlements of foreign exchange forward contracts, recorded in the consolidated earnings 17   0   14   0
 
Other comprehensive income for the period   113   0   (220)   0
 
Comprehensive income $1,536   $958   $434   $455
               


MRRM Inc.                
CONSOLIDATED RETAINED EARNINGS
 
(unaudited) For the NINE Months Ending   For the Quarter Ending
  November 30,   November 30,   November 30,   November 30,
  2010   2009   2010   2009
  '000   '000   '000   '000
               
Balance, beginning of period $17,385   $16,119   $18,154   $16,622
Net earnings 1,423   958   654   455
 
  18,808   17,077   18,808   17,077
               
Dividends 0   0   0   0
               
Balance, end of period $18,808   $17,077   $18,808   $17,077
 


MRRM  Inc.
CONSOLIDATED CASH FLOWS
 
(unaudited) For the NINE Months Ending       For the Quarter Ending
    November 30,   November 30,   November 30,   November 30,
    2010   2009   2010   2009
    '000   '000   '000   '000
OPERATING ACTIVITIES              
Net earnings $1,423   $958   $654   $455
Defined benefit plan payments (41)   (44)   (13)   (13)
    1,382   914   641   442
Non-cash items                  
  Change in fair value of marketable securities held for trading (192)   (596)   (221)   (117)
  Change in fair value of interest rate swap contract (38)   (45)   (12)   (12)
  Unrealized foreign exchange (loss) (3)   0   (3)   0
  Amortization 867   872   289   289
  Pension benefit cost 22   (3)   7   (18)
  Future income taxes  142   114   74   44
    798   342   134   186
  Changes in non-cash working capital items 4,135   1,155   1,832   (625)
  Non-cash operating items generated (used) 4,933   1,497   1,966   (439)
Cash flows from operating activities   6,315   2,411   2,607   3
                   
INVESTING ACTIVITIES                
                   
Marketable securities (813)   (2,275)   (343)   (1,445)
Disposals of marketable securities 726   2,246   315   1,415
Property, plant and equipment (363)   (617)   (24)   (372)
                   
Cash flows from investing activities (450)   (646)   (52)   (402)
                 
FINANCING ACTIVITIES              
Bank indebtedness (922)   (1,245)   0   574
Long-term debt (550)   (520)   (183)   (175)
Cash flows from financing activities (1,472)   (1,765)   (183)   399
                 
Net change in cash 4,393   0   2,372   0
                 
Cash, beginning of period 0   0   2,021   0
Cash, end of period $4,393   $0   $4,393   $0
                 
Dividends per share $0.00   $0.00   $0.00   $0.00
 


MRRM Inc.   
CONSOLIDATED  BALANCE  SHEETS
           
(unaudited)   As at   As at
      November 30,   February 28,
      2010   2010
      '000   '000
ASSETS        
Current        
  Cash $4,393   $0
  Accounts receivable 7,045   6,193
  Fair value of cash flow hedges 88   0
  Inventories 6,269   7,831
  Income taxes receivable 0   35
  Tax credits receivable 287   94
  Prepaids 107   111
  Future income taxes 15   15
      18,204   14,279
           
Fair value of cash flow hedges   66   0
Tax credits receivable   758   868
Marketable securities, at fair value     4,704   4,425
Property, plant and equipment, net   14,225   14,729
Cash surrender value of life insurance policy   2   2
           
      $37,959   $34,303
           
LIABILITIES        
Current        
  Bank indebtedness $0   $922
  Accounts payable and accrued liabilities 14,168   11,124
  Income taxes payable 425   0
  Current portion of accrued benefit liability 56   56
  Current portion of long-term debt 773   739
  Future income taxes 22   0
      15,444   12,841
           
           
Long-term debt, reducing term loan maturing in 2012   200   784
Fair value of interest rate swap contract   20   58
Accrued benefit liability   549   568
Future income taxes   2,286   2,128
      18,499   16,379
         
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   18,808   17,385
Accumulated other comprehensive income   113   0
      19,460   17,924
           
      $37,959   $34,303
           


MRRM  Inc.  
NOTES To CONSOLIDATED  FINANCIAL  STATEMENTS  
November 30, 2010  
     
(unaudited)  
     
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 28, 2010 except for the adoption of a new accounting policy described below. 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.
   
    New accounting policy              
   
    Effective March 1, 2010, the Company uses hedge accounting.  At the inception of a hedging relationship, the Company designates and formally documents the relationship between the hedging instrument and the hedged item, its risk management objective and its strategy for undertaking the hedge. The documentation identifies the anticipated cash flows being hedged, the risk that is being hedged, the type of hedging instrument used and how effectiveness will be assessed.
   
    The Company also formally assesses, both at inception and at least quarterly thereafter, whether or not the derivatives that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in cash flows of the hedged items. If a hedge relationship becomes ineffective, it no longer qualifies for hedge accounting and any subsequent change in the fair value of the hedging instrument is recognized in earnings. When hedge accounting is appropriate, the hedging relationship is designated as a cash flow hedge. In a cash flow hedge, the change in fair value of the hedging instrument is recorded, to the extent it is effective, in other comprehensive income until the hedged item affects net earnings. The Company uses cash flow hedges to mitigate the risk from variable cash flows associated with forecasted foreign currency denominated cash flows.
   
    Hedge ineffectiveness is measured and recorded in current period earnings in the consolidated statement of earnings. When a cash flow hedge is discontinued, any cumulative adjustment to other comprehensive income is recognized in earnings. If a designated hedge is no longer effective, the associated derivative instrument is subsequently carried at fair value through earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are recorded in the consolidated statement of earnings. The balance of other comprehensive income consists of the accumulated variation in the fair value of foreign exchange forward contracts net of future income tax.
       
  2- Financial Instruments and Financial Risk factors
 
    Hierarchy of Financial Instruments
   
    The Company categorizes its financial assets and liabilities, measured at fair value into one of three levels depending on the observability of the inputs used in the measurement as follows:
   
    - Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices in active markets that are accessible at the measurement date. The financial assets included in this level are marketable securities.
   
    - Level 2: This level includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Financial instruments in this category are valued using models or other industry standard valuation techniques derived from observable market inputs. This level includes the Company's derivative financial instruments composed of its interest rate swap agreement and the foreign exchange forward contracts.
   
    - Level 3: This level includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments' fair value. As at November 30, 2010, the Company does not have any financial assets, financial liabilities or derivative financial instruments, which should be included in this level.
   
    Derivative Financial Instruments
   
    The Company uses derivative financial instruments to manage its currency risk and interest rate risk as necessary.
   
    At November 30, 2010, the Company had foreign exchange contracts outstanding that allowed the Company to buy USD$13,200,000 at an average rate of 1.0169. The maturity dates of these contracts range form December 2010 to June 2012. The Company has recorded current and long term assets on the balance sheet under the captions "fair value of cash flow hedges" and comprehensive income in the amount of $154,000 to reflect the fair value of these foreign exchange forward contracts.
   
    The Company uses an interest rate swap arrangement, for a notional amount of $3,500,000 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.  The swap contract had a negative fair value of $20,000 at November 30, 2010 and as such, has been recorded in long-term liabilities under fair value of interest rate swap and recognized in Consolidated Earnings under other expenses for the year. The Company does not enter into derivative financial instruments for trading or speculative purposes.
   
    Fair Value and Classification of Financial Instruments
   
    - The following methods and assumptions were used to determine the estimated fair value of each class of financial instruments:
   
    - The fair values of bank indebtedness, trade accounts receivable and accounts payable and accrued liabilities are comparable to their carrying amounts, given their short maturity periods;
   
    - The fair value of marketable securities has been determined based on the current bid price at the balance sheet date;
   
    - The fair value of the long-term debt which bears interest at a variable rate approximates its carrying amount;
   
    - The fair values of the interest rate swap agreement and the foreign exchange forward contracts were determined by the Company's bank and represent the amounts required to realize favorable contracts or settle unfavorable ones.
   
    As at November 30, 2010, the financial instruments presented at fair value on the Company's consolidated balance sheet by level of the fair value hierarchy are as follows:
   
    (amounts are in thousands of dollars)     Level 1   Level 2   Level 3
    Financial Assets              
    Foreign exchange forward contracts     -   154   -
    Marketable securities     4,704   -   -
    Financial Liabilities              
    Interest rate swap     -   (20)   -
                   
    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 risks include credit risk, interest rate risk, liquidity risk, currency risk and other price risk. The Company's management is responsible for setting acceptable levels of risk and reviewing management activities as necessary.
   
    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 contracts. As at November 30, 2010, there were USD$13,200,000 of forward exchange forward contracts pending. The Company uses hedge accounting for such instruments. Under this method any changes in the fair value of the contracts caused by fluctuations in the spot foreign exchange rates are recorded in comprehensive income. 
   
    The Company has recorded a fair value of $154,000 on cash flow hedges at November 30, 2010. Based on the foreign currency exposure as at November 30, 2010 and assuming all other variables remain constant, a 10% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an increase/decrease of $15,000 in comprehensive income.
   
    As at November 30, 2010, assets denominated in foreign currencies consisting of cash, trade accounts receivable and marketable securities totaled US$5,539,173 or its Canadian equivalent of $5,685,407 (US$3,331,520 or its Canadian equivalent of $3,506,758 as at February 28, 2010). Bank indebtedness and accounts payable and accrued liabilities denominated in U.S. dollars totaled US$3,506,053 or its Canadian equivalent of $3,598,613 (US$3,781,970 or its Canadian equivalent of $3,980,902 as at February 28, 2010).
   
    Based on the net U.S. dollar exposure as of November 30, 2010, a 1 percent increase/(decrease) in the U.S. exchange rate will increase/(decrease) equity by approximately $20,000 ($5,000 in November 2009).
   
    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. In the normal course of business, the Company is exposed to credit risk from its customers, substantially all of which are in the retail and processing markets. Generally, the carrying amount reported on the Company's consolidated balance sheet for its financial assets exposed to credit risk, net of applicable provisions for losses, represents the maximum amount exposed to credit risk. The Company performs ongoing credit evaluations of new and existing customers' financial conditions and reviews the collectibility of its trade and other accounts receivable in order to mitigate any possible credit losses. The Company maintains an allowance for doubtful accounts that represents its estimate of uncollectible amounts. This allowance is related to specific losses estimated on individually significant exposures.
   
    Interest rate risk
   
    Receivables and payables are non-interest bearing. Bank indebtedness bears interest at the Canadian prime rate plus 0.125% for Canadian loans and U.S. base rates plus 0.125% for U.S.  loans 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.  The Company's investments in bonds bear interest at fixed rates and the Company is, therefore, exposed to the risk of changes in fair value resulting from interest rate fluctuations.
   
    Liquidity risk
   
    Liquidity risk is the risk that the Company will not be able to meet its financial liabilities and obligations as they become due. The Company is exposed to this risk mainly through its accounts payable and accrued liabilities, its long term debt and its contractual commitments. The Company finances its operations through a combination of cash flows from operations and its line of credit.
   
    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 liquidity according to financial forecast and expected cash flows.
 
    Price risk
   
    The Company's price risk arises from changes in raw material prices, which are significantly influenced by the fluctuating 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 and as such, any impact to consolidated earnings is not significant.
   
    Other price risk
   
    The Company is exposed to fluctuations in the market prices of its marketable securities that are classified as held-for-trading. Changes in the fair value of marketable securities are recorded in consolidated earnings. The risk is managed by ensuring a relatively conservative and diversified asset mix. For this quarter, the effect before income taxes represents an increase in income of $224,000 and a decrease of $3,000 for the same period last year. As at November 30, 2010, a 10% increase/(decrease) in the bid prices of the marketable securities would increase/(decrease) equity by approximately $470,000 ($443,000 in November 2009).
   
   
3- Information included in the Statement Of Earnings
      For the NINE Months Ending   For the Quarter Ending
      November 30,   November 30,   November 30,   November 30,
      2010   2009   2010   2009
      '000   '000   '000   '000
                   
    Income taxes (received) paid ($34)   ($31)   $36   $25
    Investment tax credits $155   $115   $51   $24
   
    Interest on long-term debt $56   $85   $17   $27
    Interest on bank indebtedness and other 42   82   11   25
    Interest paid $98   $167   $28   $52
 
   
4 - Income Taxes
    Tax at combined basic federal and provincial income tax rate $584   $394   $254   $197
    Non-taxable portion of capital (gains) losses  (4)   18   1   (18)
    Tax-free income 0   (22)   0   (8)
    Non-taxable portion of (increase) decrease in fair value of investments (24)   (110)   (28)   1
    Non-deductible expenses 23   22   6   7
    Other (12)   2   (18)   (2)
    Canadian entities 567   304   215   177
    U.S.A entity 1   0   1   0
      $568   $304   $216   $177
                   
    Effective tax rate [Canadian entities] 28.5%   24.2%   24.8%   28.2%
                   
    The Company's future income tax liabilities (assets) are as follows:              
    Employee future benefits ($186)   ($202)    $2   $8
    Research and development tax credits 268   288   (6)   (9)
    Property, plant and equipment 2,066   2,054   47   46
    Loss carry forwards 0   (47)   0   0
    Derivatives 38   0   (77)   0
    Other 107   10   31   (1)
      $2,293   $2,103   ($3)   $44
    Comprising              
       Asset: Current ($15)   ($15)   $0   $0
       Liability: Current 22   0   (44)   0
    Non-current 2,286   2,118   41   44
      $2,293   $2,103   ($3)   $44
                 
                 
  5- Supplemental Cash Flow Information:
    Changes in non-cash working capital items              
       Accounts receivable ($852)   ($917)   $1,619   ($908)
       Inventories 1,562   3,071   (568)   1,142
       Income Tax receivable 35   0   0   0
       Tax credits receivable (83)   52   25   36
       Prepaids 4   (9)   45   (99)
       Accounts payable and accrued liabilities 3,044   (1,201)   606   (954)
       Income taxes payable 425   159   105   158
      $4,135   $1,155   $1,832   ($625)
                 
                   
6- Segmented Information
    Revenue              
    Food processing and selling $43,621   $47,521   $14,227   $16,590
    Ship agency services 4,014   2,409   1,386   928
    Operating 47,635   49,930   15,613   17,518
    Corporate 304   697   257   154
      $47,939   $50,627   $15,870   $17,672
    Earnings              
    Food processing and selling $1,272   $484   $532   $304
    Ship agency services 565   266   120   222
    Operating 1,837   750   652   526
    Corporate 154   512   218   106
    Earnings before income taxes 1,991   1,262   870   632
    Income Taxes 568   304   216   177
    Net earnings $1,423   $958   $654   $455
                 
    Assets              
    Food processing and selling $28,189   $29,690   $280   ($1,110)
    Ship agency services 6,421   2,073   435   1,022
    Operating 34,610   31,763   715   (88)
    Corporate 3,349   4,333   224   148
      $37,959   $36,096   $939   $60
    Capital expenditures              
    Food processing and selling $363   $605   $24   $371
    Ship agency services 0   12   0   1
    Operating 363   617   24   372
    Corporate 0   0   0   0
      $363   $617   $24   $372
    Amortization              
    Food processing and selling $847   $848   $282   $281
    Ship agency services 20   24   7   8
      $867   $872   $289   $289
                 
                   
7- Capital disclosures
    The Company defines its capital as bank indebtedness, long-term debt (including the current portion), shareholders' equity and cash and cash equivalents. Capital is calculated as follows:
                   
    Bank indebtedness and current portion of long-term debt $773   $4,080        
    Long-term debt and fair value of interest rate swap contract 220   1,047        
    Total debt 993   5,127        
    Shareholders' equity 19,460   17,616        
    Cash 4,393   0        
    Total capitalization $24,846   $22,743        
                 
    Debt as % of capitalization 4%   23%        
                 
    The Company's objectives for managing its capital structure are to ensure financial capacity, liquidity and flexibility to maintain a strong capital base to sustain ongoing development and operations.
   
    The Company's credit facilities are subject to a number of covenants and these have been met as indicated under "Liquidity risk". These 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 1.0 on a post-dividend basis.
   
    The primary source of capital is shareholders' equity. The credit facilities available and reported at last year-end remain substantially unchanged. The facilities are comprised of a revolving line of credit for $7,000,000 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 the Canadian prime rate plus 0.125% for Canadian loans and U.S. base rate plus 0.125% for U.S. loans 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. The Corporation is not subject to any external capital restrictions and has no commitments to sell common shares.
                 
  8- Geographic Information
    External customer revenues (1)              
    Canada $40,488   $40,004   $13,843   $13,846
    U.S.A. 7,451   10,623   2,027   3,826
      $47,939   $50,627   $15,870   $17,672
                   
 (1) Revenues from external customers are attributed to countries based on the location where goods or services were provided.
    Assets              
    Canada $37,923   $36,096   $903   $60
    U.S.A. 36   0   36   0
      $37,959   $36,096   $939   $60

SOURCE MRRM Inc.

For further information:

Lou Younan, Vice-President Finance & CFO, MRRM Inc., (514) 908-7777, Fax: (514) 906-0220, mr@mrrm.ca

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MRRM Inc.

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