The Goldfarb Corporation announces third quarter results
Revenues from operations for the third quarter of 2009 were
For the nine-month period ended
The accompanying 10 pages of unaudited interim financial statements have been prepared by and are the responsibility of the Corporation's management. The Corporation's auditor has not performed a review of these interim financial statements.
Statement of Income (Loss), Comprehensive Income (Loss) and Deficit
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(unaudited) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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(thousands of dollars
except per share information) $ $ $ $
Interest revenue 9 109 85 408
Administrative expenses 268 338 773 1,771
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(259) (229) (688) (1,363)
Litigation recovery (note 8(a)) - - 1,315 -
Litigation settlement (note 8(b)) - - - (1,500)
Depreciation (1) (1) (3) (3)
Foreign exchange gains (losses) (63) 76 (247) 218
Impairment charge on long-term
investments (note 2) - (1,371) - (1,371)
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Net Income (Loss) and
Comprehensive Income (Loss) (323) (1,525) 377 (4,019)
Deficit, beginning of period (32,524) (30,770) (33,224) (28,276)
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Deficit, end of period (32,847) (32,295) (32,847) (32,295)
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Basic Income (Loss) per Share (0.06) (0.26) 0.06 (0.68)
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Weighted average number of
shares outstanding 5,936,660 5,936,660 5,936,660 5,936,660
Cash Flow Statement
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(unaudited) Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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(thousands of dollars) $ $ $ $
Operating Activities
Income (Loss) from operations (323) (1,525) 377 (4,019)
Add (deduct) items not
involving cash:
Depreciation 1 1 3 3
Foreign exchange (gains)
losses 63 (76) 247 (218)
Impairment charge on long-term
investments (note 2) - 1,371 - 1,371
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(259) (229) 627 (2,863)
Changes in non-cash working
capital balances (note 5) 78 (1,528) (103) 288
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Cash provided by (used in)
operating activities (181) (1,757) 524 (2,575)
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Financing Activities
Distribution to shareholders
(note 4) - - (6,530) -
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Cash used in financing
activities - - (6,530) -
Investing Activities
Acquisition of short-term
investments (1,330) (6,531) (6,785) (6,531)
Redemption of short-term
investments - - 6,582 9,491
Principal and interest
received on long-term
investments (note 2) 40 - 860 -
Repayment of note receivable 1,122 - 1,478 -
Acquisition of capital
assets, net - (1) - 1
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Cash provided by (used in)
investing activities (168) (6,532) 2,135 2,961
Foreign exchange gain (loss)
on cash held in foreign
currency (124) 43 (247) 150
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Increase (decrease) in cash
and cash equivalents for
the period (473) (8,246) (4,118) 536
Cash and cash equivalents,
beginning of period (note 5) 1,535 13,303 5,180 4,521
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Cash and cash equivalents,
end of period (note 5) 1,062 5,057 1,062 5,057
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Balance Sheet
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(unaudited) September 30 December 31
2009 2008
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(thousands of dollars) $ $
ASSETS
Current Assets
Cash and cash equivalents (note 5) 1,062 5,180
Short-term investments 6,785 6,582
Accounts receivable and prepaid expenses 103 78
Current portion of note receivable (note 3) - 355
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Total Current Assets 7,950 12,195
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Long-term Investments (note 2) 8,962 9,822
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Note Receivable (note 3) - 1,123
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Capital Assets 14 17
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16,926 23,157
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 114 192
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Total Current Liabilities 114 192
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Shareholders' Equity
Capital stock (note 4) 49,206 55,736
Contributed surplus 453 453
Deficit (32,847) (33,224)
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Total Shareholders' Equity 16,812 22,965
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Contingency (note 9)
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16,926 23,157
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Notes to Interim Financial Statements
For the period ended September 30, 2009 (thousands of dollars)
(unaudited)
1. Significant Accounting Policies
The disclosures contained in these unaudited interim financial statements
do not include all requirements of generally accepted accounting
principles for annual financial statements. The unaudited interim
financial statements are based upon accounting principles consistent with
those used and described in the annual financial statements for the year
ended December 31, 2008. The unaudited interim financial statements
should be read in conjunction with the annual financial statements for
the year ended December 31, 2008.
The unaudited interim financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are, in the opinion
of management, necessary to present fairly the financial position of the
Corporation as of September 30, 2009 and the results of operations and
cash flows for the periods ended September 30, 2009 and 2008.
In February 2008, the CICA announced that Canadian generally accepted
accounting principles for public companies will be replaced by
International Financial Reporting Standards ("IFRS") for fiscal years
beginning on or after January 1, 2011. As a result, the conversion from
Canadian generally accepted accounting principles to IFRS will occur in
the first quarter of 2011. Comparative information for the previous
fiscal year will be required to be in accordance with IFRS. The
Corporation expects the transition to IFRS to impact accounting and
financial reporting and is currently assessing the impact of the
transition to ensure that conversion to IFRS occurs on a timely basis.
2. Long-Term Investments (formerly Asset-Backed Commercial Papers
("ABCP"))
In 2007, the Corporation invested $17.1 million in three separate non-
bank sponsored asset-backed commercial papers that did not redeem on
maturity. Dominion Bond Rating Service Limited ("DBRS") had rated these
commercial papers as R-1 High at the time of purchase. These investments
did not settle on maturity as a consequence of liquidity issues in the
non-bank sponsored ABCP market. Since that time, the market for these
asset-backed securities has been frozen. As a result, the Corporation has
classified its investment as held for trading long-term investments.
These investments are recorded at fair value with unrealized holding
gains and losses included in earnings.
The securities were subject to restructuring by the Pan-Canadian
Investors Committee (the "Committee") pursuant to which the holders of
the ABCP, including the Corporation, would exchange their securities for
new floating rate notes with maturities that match the maturities of the
underlying assets. In January 2009, the Ontario Superior Court of Justice
granted an order for the implementation of the Committee's final amended
restructuring plan for the ABCP. The restructuring was completed on
January 21, 2009 and on closing the Corporation exchanged their holdings
of ABCP for $17.1 million of long-term floating rate notes from Master
Asset Vehicle 2 ("MAV 2").
On closing, interest (net of actual and future estimated restructuring
fees and expenses) of $572 was received on the ABCP for the period from
August 13, 2007 to August 31, 2008. Interest for the period from
September 1, 2008 through January 21, 2009 in the amount of $246 was
received in May 2009. These amounts have been included in the calculation
of the fair value of the long-term investments.
The MAV II Notes can be summarized as follows at September 30, 2009:
Note Categories Interest Rate
--------------- ------------- $
Class A-1 BA - 50 bps 5,968
Class A-2 BA - 50 bps 8,497
Class B BA - 50 bps 1,542
Class C 20% 496
Class 15 Tracking Notes Floating 541
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Balance at January 21, 2009 17,044
Interest received (844)
Valuation provision (7,238)
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Balance at September 30, 2009 8,962
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Interest on the Class A-1 and A-2 Notes is payable quarterly after
payment of the margin funding facility ("MFF"). The Class B and C Notes
pay interest only after the Class A-1 and A-2 Notes are fully repaid. The
Class 15 Notes pay interest quarterly to the extent that proceeds are
realized and cash is available for that note. The Class A-1 and A-2 Notes
were assigned an "A" rating by DBRS. In August 2009, DBRS downgraded the
rating of the Class A-2 Notes to BBB (low) from A and maintained the
rating Under Review with Negative Implication. The remaining notes are
not rated.
Interest rates on the MAV II Notes are primarily based on prevailing
Banker's Acceptance rates. First quarter interest on the Class A-1 and A-
2 Notes was not paid when it became due because the prevailing banker's
acceptance rates were so low and there were insufficient funds to pay the
fixed expense of the MFF required to be paid prior to interest being
paid. By July 2009, rates had improved sufficiently to pay the accrued
MFF shortfall and both the first and second quarter interest due.
However, third quarter interest was not paid because rates were again too
low. Interest on the Class 15 Notes was paid for the first, second and
third quarters. During the third quarter, a one-time principal repayment
attributable to excluded securities was received on the Class A-1 Notes.
There is currently a very illiquid market for the MAV 2 Notes. Trading
has been limited and at extremely distressed prices. It is uncertain when
or if this market will develop. As a result, the Corporation will
continue to estimate the fair value of its long-term investments using a
valuation technique which incorporates a probability weighted discounted
cash flow approach considering the best available market data for such
investments. At September 30, 2009, the Corporation estimated the fair
value of its long-term investments to be $9.0 million (December 31, 2008
- $9.8 million).
The significant assumptions used to value the Corporation's investment in
these securities are as follows:
Margin facility cost 1.0%
Timing of principal repayments at maturity
Risk free interest rate on Class A-1 and A-2 Notes 2.93% to 3.43%
Discount rate on Class B, C and Class 15 Notes 30%
Interest rate on Class A-1 and A-2 Notes 2.0%
Interest rate on Class B, C and Class 15 Notes 2.0% to 20.0%
Term of notes 6-8 years
Recovery of Class A-1 and A-2 Note principal and interest 40% to 100%
Recovery of Class B and C Note principal and interest 0% to 40%
Recovery of Class 15 Note principal and interest 50% to 100%
The fair value of these investments could range from $7.0 million to
$10.0 million using the same valuation methodology with alternative
reasonably possible assumptions. In subsequent periods, the recorded fair
values may change materially from the estimated fair values. No changes
to the fair value resulted from the completion of the restructuring in
January 2009. A 1% change in the discount rate would increase or decrease
the estimated fair value of these long-term investments by approximately
$0.6 million.
Currently, the Corporation has sufficient cash available to maintain its
operations. The balance of the Corporation's investments totaling $7.8
million are invested in highly rated liquid instruments.
3. Note Receivable
The following note represents the Corporation's pro-rata share (48.4%) of
the promissory note issued by SMK Speedy International Inc. ("Speedy"):
September 30 December 31
2009 2008
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$ $
T-Note (2008-US $1,209) - 1,478
Less: Amount due within one year - (355)
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- 1,123
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The T-note has terms and conditions that match the note that Speedy
received from the purchaser, Tuffy Associates Corp. (the "Purchaser"),
upon the sale of its Car-X business in 2002 and was comprised of:
a. A note in the amount of US $1,453 bearing interest at US prime
plus 3%, payable quarterly, with the principal due July 8, 2007.
b. A further note in the amount of US $2,906 bearing interest at US
prime plus 2% payable quarterly, with US $484 of principal
payments due on July 8 in each of the years 2007 through 2009 with
the balance of US $969 due on July 2, 2010.
In February 2007, the Purchaser renegotiated certain terms and conditions
of the note which resulted in an immediate prepayment of all principal
amounts due in 2007 and 2008 plus related accrued interest (US $2,219).
The maturity date of the remaining principal advanced to July 8, 2009.
The Purchaser has guaranteed the remaining principal balance. The
noteholders agreed to subordinate the remaining outstanding principal to
new increased senior bank financing of the Purchaser.
In December 2007, an additional principal repayment of US $244 was
received. In January 2009, a further principal repayment of US $291 was
received. The remaining outstanding balance, plus accrued interest, was
received on July 8, 2009.
4. Capital Stock
The Corporation's authorized capital stock is as follows:
- Unlimited number of Preference Shares, issued in series;
- Unlimited number of Class A Subordinate Voting Shares;
- 182,000 Class B Shares carrying 15 votes per share, convertible into
Class A Subordinate Voting Shares on a one-for-one basis. In certain
prescribed circumstances, additional Class B Shares as may be
required to effect the conversion of Class A Subordinate Voting
Shares into Class B Shares.
The issued share capital is summarized as follows:
September 30 December 31
2009 2008
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$ $
5,754,660 Class A Subordinate Voting Shares 49,193 55,523
182,000 Class B Shares 13 213
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49,206 55,736
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On February 6, 2009, the shareholders of the Corporation passed a special
resolution approving the reduction of the Corporation's stated capital by
an aggregate of $6.5 million, resulting in a distribution of $1.10 per
Class A Subordinate Voting Share and Class B Share. The distribution was
made on February 18, 2009.
5. Supplementary Cash Flow Information
a) Changes in non-cash working capital balances
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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$ $ $ $
Decrease (increase) in accounts
and other receivables 60 112 (25) (39)
Increase (decrease) in accounts
payable and accrued liabilities 18 (1,640) (78) 327
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Changes in non-cash working
capital balances 78 (1,528) (103) 288
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b) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and with banks, and
short-term investments in highly liquid instruments with original
maturities of 365 days or less. Cash and cash equivalents included in
cash flow statements comprise the following balance sheet amounts:
September 30
2009 2008
--------------------
$ $
Cash on hand and with banks 85 20
Short-term investments 977 5,037
--------------------
1,062 5,057
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c) Income taxes recovered
There were no income tax payments or recoveries during the periods ended
September 30, 2009.
6. Income Taxes
At December 31, 2008, the Corporation had non-capital losses available to
reduce future taxable income of approximately $14.5 million. If unused,
these losses expire as follows:
Year Of Expiry Amount
---------------------------
$
2009 80
2010 1,094
2026 10,702
2028 2,576
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14,452
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No tax benefit has been recognized on these losses because it is more
likely than not that the benefit of these losses will not be realized. At
December 31, 2008, the Corporation had capital losses available to offset
future capital gains of approximately $27.0 million. These capital losses
do not expire.
7. Segmented Information
The Corporation's sole business segment is an investment holding company.
The Corporation's operations reside entirely in Canada.
8. Litigation Settlements
(a) In the fourth quarter of 2006, the Corporation settled the $110
million claim that had been filed against the Corporation and
certain of its officers by the purchaser of Goldfarb
Consultants, the market research and consulting business sold
by the Corporation in 1998. The settlement was in the amount of
$12 million. The Board of Directors of the Corporation
appointed a committee of independent directors to represent the
Corporation's interest in this litigation. Amongst other
things, the committee approved the payment of the settlement
and applicable expenses of all defendants, being the
Corporation's Chairman, Secretary, its former Executive-Vice
President and its former Chief Financial Officer. The
Corporation, on behalf of the defendants, sought reimbursement
of a portion of the settlement from the insurer of the
Corporation's directors and officers. In April 2009, a panel of
arbitrators ruled in favour of the Corporation and determined
that the insurer should contribute US$ 960 plus related
interest costs. On April 30, 2009, the Corporation received Cdn
$1.32 million. The recovery has been recorded as income in the
second quarter of 2009.
(b) An action was filed against the Corporation and certain of its
directors and officers by the trustee of Fleming Packaging
Corp. ("Fleming"). In May 2008, the Corporation reached a
settlement with the plaintiff for US$ 1.45 million. The
settlement was approved by the Illinois Bankruptcy Court on
June 3, 2008. The Corporation is seeking contribution toward
the settlement amount from the insurer of the Corporation's
directors and officers. The amount to be contributed by the
insurance company has not been determined at this time.
9. Contingency
In 2003, the Corporation received a notice of withdrawal liability
assessment and demand for payment of US$ 900 from the GCIU-Employer
Retirement Fund in connection with the unionized employees' pension plan
of Fleming. A claim was filed in connection with this notice in 2007. The
claim was dismissed by the Illinois District Court in August 2008 but was
appealed by the plaintiff. On May 11, 2009, the judgment of the district
court was affirmed. On August 10, 2009, the appeal period for the
plaintiff expired and the claim is now fully concluded.
10. Financial Instruments
The carrying values reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable, interest
receivable and accounts payable and accrued liabilities approximate fair
values due to the short maturity of those instruments. Prior to
repayment, the carrying value of the note receivable approximated fair
value because the interest rate on this instrument changed with market
interest rates. Long-term investments are carried at estimated fair
value.
The nature of these financial instruments and the Corporation's structure
as an investment holding company expose the Corporation to credit risk,
interest rate risk, currency risk and liquidity risk. The Corporation
manages its exposure to these risks by employing risk management
strategies and policies to ensure that any exposure to risk is in
compliance with the Corporation's capital management objectives and risk
tolerance levels. These risks are monitored in relation to market
conditions. The Board of Directors has overall responsibility for the
establishment and oversight of the Corporation's risk management
framework.
a) Credit risk
Financial instruments that potentially subject the Corporation to
concentrations of credit risk consist of cash and cash equivalents,
short-term and long-term investments, accounts receivable and, prior to
repayment, the note receivable. The Corporation's cash and cash
equivalents and short-term investments consist of bank deposits and
investments in highly rated liquid investments with Canadian financial
institutions. The T-Note receivable represented the Corporation's pro-
rata share of the promissory note issued by Speedy arising from the sale
of its Car-X business in 2002 as described in Note 3. The long-term
investments are in floating rate notes receivable (formerly ABCP).
Financial instruments are exposed to credit risk as a result of the risk
of the counter-party defaulting on its obligations. The Corporation
monitors and limits its exposure to credit risk on a continuous basis.
The Corporation provides reserves for credit risks based on the financial
condition and short and long-term exposures to counter-parties.
As at September 30, 2009, the maximum exposure to credit risk was $16,912
(December 31, 2008 - $23,140) being the carrying value of its cash and
cash equivalents, short-term and long-term investments and accounts
receivable. None of the financial assets that are fully performing have
been renegotiated during the year with the exception of ABCP. The
Corporation does not believe that there is significant credit risk
arising from any of its receivables and investments except in connection
with its long-term investments as disclosed in Note 2.
b) Interest rate risk
The Corporation is exposed to interest rate risk arising from
fluctuations in interest rates on its cash and cash equivalents, short-
term investments, note receivable and long-term investments. Cash and
cash equivalents which are in excess of day-to-day requirements are
placed on short-term deposit with Canadian financial institutions and
earn interest at rates available at the time the deposits are made. Prior
to repayment, the T-Note receivable had a floating interest rate which
was based on the Wall Street Journal prime rate of interest. A 1% change
in market interest rates would have increased or decreased interest
revenue by approximately $64 for the nine months ended September 30,
2009. The Corporation also has interest rate risk relating to its long-
term investments as disclosed in Note 2.
c) Currency risk
The Corporation has financial assets which are denominated in U.S.
dollars and are subject to fluctuations in exchange rates of the Canadian
dollar with the U.S. dollar. The Corporation does not utilize any
financial instruments or cash management policies to mitigate the risks
arising from changes in exchange rates. At September 30, 2009, the
Corporation had cash and cash equivalents of $977 and accounts payable of
$43 which were denominated in U.S. dollars. A 10% change in the foreign
exchange rate from Canadian dollars to United States dollars would have
increased or decreased the foreign exchange gain by approximately $525
for the nine months ended September 30, 2009.
d) Liquidity risk
The Corporation's approach to managing liquidity is to ensure that it
will have sufficient liquidity to meet its liabilities when they are due.
The Corporation manages liquidity risk through timing the maturities of
its investments to match its financial obligations and ensuring that it
invests in secure instruments. The Corporation's contractual obligations
are specifically related to its accounts payable and accrued liabilities.
At September 30, 2009, the Corporation's accounts payable and accrued
liabilities were $114, all of which become due for payment within the
normal terms of trade, generally between 30 and 60 days (December 31,
2008 - $192).
11. Capital Management
The Corporation defines its capital as cash and cash equivalents, short-
term investments and long-term investments. Since the sale of Speedy, the
Board of Directors have been evaluating the various alternatives for the
use of the cash proceeds from the transaction, including determining the
cash available for distribution. The Board will consider alternative
methods of effecting a tax efficient distribution of the proceeds prior
to making such a distribution. The Corporation's objectives in managing
its capital are to provide an appropriate return on investment to its
shareholders while maintaining capital preservation.
There were no changes in the Corporation's approach to capital management
in the period ended September 30, 2009.
The Goldfarb Corporation trades on the NEX Board of the TSX Venture
Exchange under the symbol GDF.H.
%SEDAR: 00002535E
For further information: Karen Killeen, Chief Financial Officer, at (416) 928-3710, Toronto, [email protected]
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