Ridley Inc.
TSX : RCL

Ridley Inc.

May 08, 2008 09:45 ET

Ridley Inc. Reports Financial Results for Third Quarter of Fiscal 2008

MANKATO, MINNESOTA and WINNIPEG, MANITOBA--(Marketwire - May 8, 2008) - Ridley Inc. (TSX:RCL) today reported its financial results for its fiscal 2008 third quarter ended March 31, 2008. All currency amounts are stated in U.S. dollars unless otherwise noted.

For the three months ended March 31, 2008, earnings before interest, taxes, amortization and asset impairment loss (EBITA(i)) for continuing operations, were $11.0 million compared to $6.8 million in the same period last year. Ridley reported net earnings of $5.0 million after income taxes in the third quarter of fiscal 2008 or 37 cents per share compared to net earnings of $3.1 million or 22 cents per share for the same period last year.

"Ridley's net earnings growth of 65% in the third quarter of fiscal 2008 was an encouraging result because it was a product of generally strong earnings across all of our divisions under increasingly challenging market conditions", reported Steve VanRoekel, President and CEO of Ridley Inc. "Gross profits improved by 25% over the same period last year, largely as a result of strong volumes in our U.S. businesses, which benefited from an exceptionally cold winter season in contrast to last year, good margins and well managed operating costs. This led to an increase in third quarter EBITA over last year of 62% for Ridley as a whole", added VanRoekel.

Ridley's operating environment has become increasingly challenging as a result of extraordinary increases and volatility in the price of raw materials for feed production, resulting from growth in the global demand for agricultural commodities. While North American grain producers are enjoying record prices, these same conditions are pressuring all livestock and poultry producers, especially the hog sector, which has experienced recent record or near-record losses.

In particular, the Canadian swine industry is already well into a significant herd reduction, the first period of negative growth in more than a decade. As a result, in the first and second quarters of fiscal 2008 Ridley initiated a restructuring in its Canadian operations to reduce operating costs. Ridley earlier reported the rationalization of manufacturing facilities in Lethbridge, Alberta and Winnipeg, Manitoba as a part of that plan. The restructuring plan was successfully completed by the end of December and led to a significant improvement in Canadian earnings in the third quarter.

In March of this year, we also announced the acquisition of the feed supplement block manufacturing business of Ultralyx and 4 Seasons Marketing, LLC located in Flemingsburg, Kentucky. The acquisition expanded RNS's block product lines into a new category featuring the use of ethanol co-products, and enabled us to consolidate production from our Syracuse, Indiana plant to generate cost synergies. The Syracuse facility was subsequently closed in early April.

"For the near-term, we are certainly concerned for the general economic health of our customers in all livestock sectors, especially pork producers" commented VanRoekel. "At the same time, however, the herd liquidation already underway will eventually bring economic stability, and North America will continue to be the world's most important supplier to meet the demand for food. In the meantime, the current environment proves the benefit of Ridley's balance between livestock sectors, customers, geographic regions and product categories; and our ability to manage through challenges."

Strategic Review

Ridley Inc. previously reported on May 6, 2008 that its Board of Directors has initiated a strategic review process. This process is being undertaken as a result of Ridley Corporation Limited, the Company's 69% controlling shareholder, advising the Company's Board of Directors of its desire to sell its investment in the Company subject to receiving satisfactory offers. As a result, the Company has initiated a process to explore potential sale alternatives for Ridley Corporation Limited and other shareholders. The Company has retained CIBC World Markets Inc. as its financial advisor and Davies Ward Phillips & Vineberg LLP as its legal advisor in connection with this process. The Company has commenced contacting potentially interested parties, certain of whom have entered into confidentiality agreements pursuant to which they will be provided with access to confidential information concerning the Company.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management Discussion and Analysis as of May 8, 2008 is based on the accompanying financial statements prepared using Canadian Generally Accepted Accounting Principles ("GAAP"). All amounts are in U.S. dollars unless otherwise stated.

Forward-Looking Information

This report contains "forward-looking" information. The forward-looking information includes statements concerning Ridley's outlook for the future, as well as other statements of beliefs, plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. Forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, contemplated or implied by, such statements. These risks and uncertainties include the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, the availability and prices of raw materials and supplies, livestock disease, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards and other regulatory requirements affecting Ridley's business, adverse results from ongoing litigation and actions of domestic and foreign governments. Other risks are outlined in the Risk Management section of the MD&A included in Ridley's Annual Report. Unless otherwise required by applicable securities law, Ridley disclaims any intention or obligation to publicly update or revise this information, whether as a result of new information, future events or otherwise. Ridley cautions readers not to place undue reliance upon forward-looking statements.

Third Quarter Results

The following summary data is presented to assist in understanding the fiscal 2008 third quarter results:



-----------------------------------------------------------------------
(Millions of U.S. dollars 3 Months 3 Months 9 Months 9 Months
except for EPS) Ended Ended Ended Ended
March 31 March 31 March 31 March 31
2008 2007 2008 2007
-----------------------------------------------------------------------
Revenue $167.3 $136.9 $474.1 $405.3
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Net earnings from continuing
operations before exceptions 5.2 3.0 10.7 9.1
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Exceptions, net of income tax
(noted below (ii)) (0.2) - (5.9) (2.1)
-----------------------------------------------------------------------
Net earnings from continuing
operations 5.0 3.0 4.8 7.0
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Net earnings from discontinued
operations - 0.1 - 0.6
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Net earnings 5.0 3.1 4.8 7.7
-----------------------------------------------------------------------
Diluted earnings per share (EPS) 0.37 0.22 0.35 0.55
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EBITA (i) 11.0 6.8 25.6 22.6
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(i) EBITA - Operating income before amortization, asset impairment loss, gain on sale of facilities and claim settlement. EBITA does not have a standardized meaning prescribed by Canadian GAAP and therefore is not readily comparable to similar measures presented by other companies. However, management believes that this measure provides investors with useful supplemental information.

(ii) Exceptions - In the preceding summary data, net earnings from continuing operations were reported before exceptions. Those exceptions, which are mainly unusual or non-recurring items, are summarized below, net of income tax:



--------------------------------------------------------------------
(Millions of U.S. dollars) 3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
March 31 March 31 March 31 March 31
(net of income tax) 2008 2007 2008 2007
--------------------------------------------------------------------
Gain on sale of facilities - - 0.6 -
--------------------------------------------------------------------
Asset impairment loss (0.2) - (0.7) (2.1)
--------------------------------------------------------------------
Claim settlement - - (4.4) -
--------------------------------------------------------------------
Valuation reserve on tax loss
carryforwards - - (1.4) -
--------------------------------------------------------------------
Total exceptions (0.2) - (5.9) (2.1)
--------------------------------------------------------------------


Consolidated Financial Results

Revenue in the third quarter of fiscal 2008 increased by 22.2% to $167.3 million compared with $136.9 million in the prior year. Generally, a comparison of revenue on a dollar basis is not necessarily indicative of the strength of Ridley's business since fluctuating commodity prices may influence revenue. The revenue increase in the third quarter of 2008 is due mainly to higher commodity prices, the effect of currency exchange rates on Canadian revenues and a continuing shift in product mix towards higher value added products.

Overall tonnage sales volumes in the third quarter of the current year were flat relative to last year. Good tonnage growth from U.S. operations was offset by a 9% decrease in volume at Canadian operations. Volume was favourably impacted in the third quarter by increased customer demand stimulated by a return to generally colder winter conditions in the U.S. Volume from Canadian operations was lower, as in the previous quarter this year, due to the seriously weakened economic conditions in the Canadian swine and cattle production industries.

Gross profit in the third quarter of fiscal 2008 increased by 25.0% to $27.2 million from $21.7 million in the same period last year. The increase in gross profit over the prior year reflects strong volume growth in U.S. operations, strong demand for low inclusion and higher value specialty products and tight control over manufacturing costs.

Net operating expenses in the third quarter of fiscal 2008 were $18.5 million, compared to $17.1 million in the prior year, an increase of $1.4 million. While Canadian dollar denominated operating expenses in the third quarter this year were lower than the prior year, conversion to U.S. currency for reporting purposes had the effect of stating higher Canadian operating expenses relative to the prior year. Approximately half of the reported increase in operating expenses in the third quarter reflects the 17.4% average appreciation of the Canadian dollar to the U.S. dollar in the same period. Operating expenses in the third quarter were also higher due to increased employment expenses in U.S. operations, increased bad debt provisions, and the asset impairment associated with the Syracuse plant.

Operating income before interest and taxes was $8.7 million in the third quarter of fiscal 2008, compared to $4.6 million in the third quarter of fiscal 2007.

Third quarter income tax expense of $3.2 million in fiscal 2008 and $1.4 million in fiscal 2007 reflect effective income tax rates of 39% and 33%, respectively. The effective income tax rate is impacted by the geographic distribution of income and losses between Canada and the United States. Ridley's U.S. entities generated increased taxable income, which is taxed at a higher rate than the Canadian statutory tax rate.

Earnings from discontinued operations in the third quarter of fiscal 2007 of $0.1 million were the result of the wind-up of the U.K. swine genetics business. Discontinued operations had no effect upon third quarter earnings in 2008.

Net earnings for the fiscal 2008 third quarter were $5.0 million (diluted earnings per share of $0.37) compared with earnings of $3.1 million (diluted earnings per share of $0.22) in fiscal 2007.

As noted in our interim financial statements, Ridley has adopted new guidelines of the Canadian Institute of Chartered Accounts (CICA) including the reporting of comprehensive income and its components. Comprehensive income (or loss) is the change in Ridley's net assets that result from transactions, events and circumstances from sources other than investments by and/or distributions to Ridley's shareholders. Ridley's comprehensive income in the third quarter of fiscal 2008 was $3.9 million comprised of net earnings of $5.0 million as reported above, and $1.1 million of unrealized losses on translation to U.S. currency of financial statements of related entities with foreign functional currency. Comprehensive income in the third quarter of the prior year was $2.6 million comprised of $3.1 million in net earnings as reported above less $0.4 million of unrealized losses on translation to U.S. currency of financial statements of related entities with foreign functional currency. Other changes in accounting policies noted in Ridley's interim financial statements had no material effect on its financial condition.

Nine Months Results

Revenue for the nine months year to-date of fiscal 2008 increased by 17.0% to $474.1 million, compared with $405.3 million for the same period in fiscal 2007. The increase in revenues parallels increases in the cost of feed commodities and other raw materials for the same period. Total sales volumes measured in tons of feed were 2.7% lower in the first nine months of fiscal 2008 compared to the prior year. Lower sales volumes are reflective of a continuing trend away from low-margin complete feeds towards higher value-added, low-inclusion products such as supplements and premixes. Volumes were most affected by the weakening livestock industry in Canada while generally improved weather conditions over the winter months helped to moderately increase sales volumes of feed supplement blocks.

Gross profit for the first nine months of fiscal 2008 was $73.5 million, compared with $68.5 million in the same period last year. The improvement in gross profit was due to strong unit margins from a favourable product mix across each of the U.S. based businesses segments and reduced manufacturing overhead costs, particularly insurance and workers' compensation costs.

Net operating expenses in the nine months of fiscal 2008 were $60.1 million, compared to $55.7 million in the previous year. As was previously reported in Ridley's second quarter results, a claim settlement expense of $6.0 million was recorded in anticipation that the courts in Canada will approve a settlement agreement with the plaintiffs in the BSE class action lawsuits. Operating expenses also include asset impairment losses for closed facilities of $0.9 million in fiscal 2008 compared to $3.1 million for fiscal 2007. Fiscal 2008 also included a gain of $0.8 million on the sale of the Winnipeg, Manitoba premix facility. Additionally, operating expenses in fiscal 2008 included $0.7 million for restructuring costs in Canadian operations. Excluding these unusual items, operating expenses in the first nine months of fiscal 2008 would have been $53.3 million, compared to $52.6 million in the previous year. Much of the remaining increase in operating expenses related to the rise in the Canadian currency exchange rate as well as increased employment costs and professional fees, including legal fees related to the BSE lawsuits.

Finance costs in the first nine months of fiscal 2008 were $2.1 million compared with $1.6 million in the same period of fiscal 2007, reflective of the $6.5 million increase in debt between the end of the third quarter in fiscal 2007 and 2008.

The provision for income taxes in the first nine months of fiscal 2008 was $7.1 million, compared with $4.8 million recorded in the same period of fiscal 2007. In the second quarter of fiscal 2008, Ridley established a valuation allowance in respect to income tax loss carry-forwards that are set to expire by 2010. Key factors in establishing this allowance were material losses in the Canadian tax entity due to the claim settlement, restructuring costs and uncertainty surrounding the short-term outlook for Canadian operations. This valuation allowance increases income tax expense by $1.4 million. In the second quarter of fiscal 2008, reductions in Canadian income tax rates were substantively enacted. Due to Ridley's net tax asset position within its Canadian entities, tax benefits were reduced, thus increasing income tax expense by $0.2 million. As previously noted, the effective income tax rate is impacted by the geographic distribution of income and losses between Canada and the United States. Ridley's U.S. entities generated increased taxable income, which is taxed at a higher rate than the Canadian statutory tax rate. Canadian entities reported pre-tax losses, to which an income tax benefit was recorded, but at a lower rate than taxes on U.S. income. The effective income tax rate exclusive of the valuation allowance is 47% on current year to date earnings compared to a 40% effective tax rate in the same period of last year; this is due primarily to a significant increase in U.S. income which is taxed at a higher rate.

Net earnings from discontinued operations recorded in fiscal 2007 relate to the settlement of legal issues arising from the sale in 2002 of Ridley's swine genetics business in the United Kingdom and recognizing future tax benefits associated with liquidating the remaining U.K. structure. These transactions and associated professional fees yielded net income from discontinued operations of $0.6 million.

Net earnings for the nine months to-date in fiscal 2008 were $4.8 million (diluted earnings per share of $0.35) compared with earnings of $7.7 million (diluted earnings per share of $0.55) in fiscal 2007. Year to date EBITA from continuing operations was $25.6 million in fiscal 2008 compared with $22.6 million in fiscal 2007.

Ridley's comprehensive income in the first nine months of fiscal 2008 was $6.2 million comprised of net earnings of $4.8 million as reported above, and $1.4 million of unrealized gains on translation to U.S. currency of financial statements of related entities with foreign functional currency. Comprehensive income in the first nine months of the prior year was $5.7 million comprised of $7.7 million in net earnings as reported above, less $2.0 million of unrealized losses on translation to U.S. currency of financial statements of related entities with foreign functional currency.

Segment Results

Starting in fiscal 2008, the Company is reporting the results of its Ridley Feed Ingredients (RFI) business unit as a separate reporting segment. The prior year's segment results have been reclassified to conform to the current year reporting. RFI accounts for about 9% of Ridley's revenues and about 10% of total assets. In prior year financial reports, the results of RFI were included with the results of the Ridley Feeds Operations (RFO) reporting segment.

The Ridley Feed Operations (RFO) segment consists of full-line feed production facilities operating in the United States and Canada, producing and marketing products for the core animal nutrition market. RFO revenues increased in the third quarter of fiscal 2008 over the prior year by 20.3% as a result of higher unit prices that followed from increased input costs for raw materials and, to a lesser degree, a continuing shift towards higher value added supplement products. With about one-third of RFO revenues originating in Canada, RFO's reported revenues were also higher due to the 17% average appreciation in the Canadian dollar against U.S. currency between the third quarters of fiscal 2007 and 2008. For the first nine months of fiscal 2008, RFO revenues are 17.4% higher than the previous year due to higher input costs and 13% average appreciation of the Canadian dollar.

Overall sales volumes of the U.S. and Canadian business units within the RFO segment were lower by 2.8% in the third quarter of fiscal 2008 compared to last year. Sales volume of U.S. based operations within RFO increased by 1.2% in the third quarter of fiscal 2008 as a result of higher demand for feed supplement blocks and other supplements for cattle stimulated by more favourable winter weather conditions. Canadian feed volumes were lower by 9.4% in the third quarter as a result of a sharp decline in volumes of complete feed for swine across several of Ridley's plants stemming from the deteriorating economic conditions for Canadian hog producers. Ridley's lower Canadian volumes in the third quarter also reflect closure of a feed production facility in Alberta in January 2007.

For the nine months of fiscal 2008, RFO sales tonnage overall was lower by 3.6% compared to the prior year. Volumes at U.S. based operations of the segment had a slower start to the current fiscal year but improved as more normal winter conditions returned to key markets in the Midwest and Corn Belt states. Lower seasonal volumes for young calves earlier in the year and reduced swine feed volumes at our operations in the eastern U.S. accounted for the lower overall U.S. tonnage. Volumes for dairy and poultry feed improved over last year as those sectors are enjoying favourable producer economics. Canadian feed volumes are lower for the year to date mainly due to the closure of the Alberta facility and weaker livestock producer economics.

RFO reported an increase in gross profits by 17.3% in the third quarter of fiscal 2008 compared to the prior year. The improvement in gross profits in the third quarter was concentrated in the U.S. operations of RFO. Canadian gross profits in Canadian dollar denominated currency were flat in the third quarter and reflected the loss last year of volume from a premix business unit due to competitive pressures. Improved unit margins in the traditional feed operations in Canada reflected a recovery in performance over a difficult prior year and reduced volumes of lower-margin complete feed products. Unit margins improvements in U.S. operations were the result of strong demand for low inclusion and higher value specialty products and tight control over manufacturing costs. For the 2008 fiscal year to date, RFO reported gross profits that were 0.9% higher than the same period in fiscal 2007. Moderate improvement in gross profits at U.S. operations of RFO earlier in the year were more than offset by reduced gross profits at Canadian operations resulting from significant competitive pressures affecting a specialized premix business unit.

For the third quarter of fiscal 2008, RFO reported operating income of $4.7 million, compared with $3.0 million in the same period of fiscal 2007. RFO operating income for the first nine months of fiscal 2008 was $10.7 million compared to $7.5 million in the year prior. However, excluding asset impairment losses, RFO would have reported operating income of $10.6 million in the prior year.

RFO operating income for fiscal 2008 to-date reflects several structural changes arising in periods prior to the third quarter, including:

- implementation of a restructuring plan at Canadian feed operations;

- reduced volumes and income from a specialized premix business unit affected by significant competitive pressures;

- the closure of a redundant premix facility in Lethbridge, Alberta;

- the sale of a redundant premix facility and a fabrication/repair shop, both located in Winnipeg, Manitoba; and

- the write-down of the Lacombe, Alberta production facility.

The Ridley Feed Ingredients (RFI) segment consists of Ridley vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives and micro feed ingredients produced and distributed through RFI's facility in Illinois. RFI's revenues in the third quarter of fiscal 2008, including intersegment sales, increased over the previous year by 29.9%, partly due to a 9.7% increase in tonnage volume as well as price increases in response to higher cost of raw material inputs. For the year to date, RFI revenues increased by 20.4% on volume growth of 7.0%. A favourable product margin mix and good cost controls yielded an increase in RFI operating income to $2.3 million in the third quarter of fiscal 2008 from $1.0 million in the prior year. For the year to date, RFI operating income increased to $5.4 million in fiscal 2008 from $2.1 million in fiscal 2007.

Ridley Nutrition Solutions (RNS) includes the feed supplement block operations and equine nutrition business. Sales volumes of RNS in the third quarter of fiscal 2008 were 14.5% higher than the same period of last year. Sales of feed supplement blocks benefited from a return to more normal winter weather conditions in most market areas. However, volumes were negatively impacted earlier in the year by persistent drought conditions in the south-eastern region of the U.S. For the nine months year to date RNS volumes are ahead of last year by 2.2% aided by improved tonnage of low-moisture blocks and equine feed products.

Gross profits contributed by RNS were $6.9 million in the third quarter of fiscal 2008 compared to $5.4 million in the same period last year. Increased tonnage volumes combined with a moderate improvement in unit margins accounted for the 26.6% improvement in gross profits. For the nine months of fiscal 2008 RNS gross profits were $18.4 million compared to $17.5 million last year. As in the third quarter, RNS gross profits for the year to date benefited from improved unit margins and moderately increased volumes.

RNS operating expenses of $3.9 million in the third quarter of fiscal 2008 were higher by $0.4 over the previous year as a result of an increase in shared services allocations and increased selling expenses. As a result of the $1.5 million improvement in gross profits and limiting operating expenses to an increase of $0.4 million, RNS operating income improved to $2.9 million in the third quarter of 2008 compared to $1.9 million in the previous year. For the year to date, RNS operating income was $7.0 million compared to $7.3 million in the previous year. Weaker gross profits earlier in the year and the increase in shared services allocations accounted for the slightly lower RNS operating income for the year to date.

Subsequent to the end of the third quarter, the RNS division closed a feed supplement block manufacturing facility in Syracuse, Indiana. Production from the Syracuse plant will be moved to Flemingsburg, Kentucky where Ridley acquired a larger, more efficient block manufacturing facility in March, 2008.

Corporate expenses were $1.2 million in the third quarter of fiscal 2008 compared to $1.3 million in the same period of fiscal 2007. For the year to date, excluding the claim settlement, corporate expenses are lower by $0.5 million than the prior year.

Liquidity/Capital Resources/Cash Flow

Ridley's working capital and debt to equity positions are summarized below:



March 31 June 30 March 31
Balances ($000) as of: 2008 2007 2007
----------------------------------------------------
Working capital (i) 53,138 41,872 35,659
Debt 24,908 24,963 18,395
Equity 152,078 145,863 141,873
Debt to equity ratio 16.4% 17.1% 13.0%
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(i) Working capital is defined as current assets less current liabilities, not including claim settlement provisions or assets held-for-sale. Debt is defined as bank obligations and capital leases.

In the three months between December 31, 2007 and March 31, 2008, total debt increased by $4.6 million to $24.9 million. The increase in debt was due to the increase in working capital that followed from a seasonal reduction in accounts payable of $11.1 million and reduced advances from dealers and producers of $4.0 million. Inventory balances increased $4.0 million in response to higher prices for feed ingredients and higher sales volumes. Working capital as at March 31, 2008 was $53.1 million, or $17.5 million higher than the same time last year. Much of this increased working capital is due to a $12.2 million increase in inventories that reflects higher purchase costs for raw materials and commodities and an $8.9 million increase in accounts receivable that follows from higher sales volumes and increased feed prices.

In the third quarter of fiscal 2008, due to a $19.7 million increase in working capital requirements, Ridley utilized net cash for operating activities of $11.2 million. By comparison, in the same period of the prior year, cash utilized for operating activities was $10.1 million net of a $14.8 million increase in working capital requirements.

Capital Expenditures

Expenditures on capital plant and equipment in the third quarter of fiscal 2008 were $1.9 million. By comparison capital expenditures for the same period a year ago were $1.6 million. Year-to-date capital asset expenditures of $7.5 million in fiscal 2008 include $2.4 million for implementation of new management information systems and $1.0 million for the buyout of the lease on Ridley's feed manufacturing plant in Beloit, Kansas. The balance of capital expenditures was made on a variety of smaller projects for the maintenance or replacement of production, packaging and storage equipment at various facilities.

Business Acquisitions

On March 10, 2008 Ridley acquired substantially all of the assets and assumed the outstanding debt of 4 Seasons Marketing, LLC and its affiliate, Ultralyx, Inc., a manufacturer of feed supplement blocks operating a single plant in Flemingsburg, Kentucky. Consideration for the acquisition included cash payment of $1.1 million, assumption of $1.9 million in loans and $0.4 million in deferred payments. Transaction costs for the acquisition were $0.3 million. This acquisition provides Ridley with expanded production capabilities to reach markets in the eastern United States. The Flemingsburg plant will absorb volume from the Syracuse, Indiana feed supplement block plant which ceased production in April 2008. These operations are recorded under the Ridley Nutrition Solutions segment.

There were no business acquisitions during the first nine months of fiscal 2007. The first quarters of fiscal 2008 and 2007 include instalment payments related to a fiscal 2006 acquisition.

Selected Quarterly Financial Information

The following is a summary of unaudited quarterly financial information (in millions of U.S. dollars except per share information):



Fiscal First Second Third Fourth
Year Quarter Quarter Quarter Quarter
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Revenue 2008 139.8 167.0 167.3 -
2007 124.4 144.0 136.9 126.3
2006 120.5 138.3 131.1 115.7

Net earnings from continuing
operations (before
claim settlement, asset
impairment loss, gain on 2008 2.0 3.5 5.2 -
sale of facilities and tax loss 2007 1.8 4.3 3.0 1.2
carryforward valuation 2006 2.5 4.8 3.9 2.1
reserves, net of income tax).

Net earnings/(loss) 2008 2.6 (2.8) 5.0 -
2007 1.8 2.8 3.1 1.3
2006 2.5 4.8 3.9 2.1

Diluted earnings/(loss) per
share (EPS) 2008 0.19 (0.21) 0.37 -
2007 0.13 0.20 0.22 0.10
2006 0.18 0.34 0.29 0.15


Outstanding Share Data

Ridley's share capital consists of an unlimited number of common shares, with no par value. The number of shares outstanding as at March 31, 2008 and as at May 8, 2008 was 13,859,300.

Internal Control Over Financial Reporting

The Chief Executive Officer and Chief Financial Officer have signed form 52-109F2 - Certification of Interim Filings and filed it with the appropriate securities regulators in Canada in compliance with Multilateral Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings issued by the Canadian Securities Administrators. There has been no change in Ridley's internal controls over financial reporting or disclosure controls and procedures that occurred during the most recent interim period that has materially affected, or is reasonably likely to materially affect, Ridley's internal control over financial reporting.

Litigation

The actions by proposed representative plaintiffs continue against the Government of Canada and Ridley Inc. In claims filed in April 2005, the plaintiffs seek to certify class actions in Alberta, Saskatchewan, Ontario and Quebec to include all Canadian cattle farmers who allegedly suffered damage as a result of international bans on trade in Canadian beef and cattle following the May 2003 diagnosis of Bovine Spongiform Encephalopathy (BSE) in a cow in Alberta. The Ontario action seeks a national class to include affected cattle farmers residing in the six remaining Canadian provinces.

The proposed representative plaintiffs seek general, special, aggravated and punitive damages on behalf of themselves and each of the proposed Canadian cattle farmer class members. Full particulars of the claims are yet to be provided.

In a decision released on June 15, 2007, the Superior Court of Quebec authorized the plaintiff to institute the Quebec action as a class action. A notice to class members in Quebec was approved by the Court and published in September, 2007. A trial date in Quebec has yet to be scheduled. None of the remaining actions have been certified to proceed to trial as a class action in any other province. In the Ontario action, the Court of Appeal for Ontario dismissed each of the appeals by the parties against the decision to strike the claims in a decision released June 22, 2007. A hearing of the plaintiff's motion to certify the Ontario action as a class action has yet to be scheduled.

In September 2007, Ridley Inc. and the Government of Canada filed applications with the Supreme Court of Canada seeking leave to appeal from the decision of the Court of Appeal for Ontario denying the motions of Ridley and the Government of Canada to strike the claims of the Ontario plaintiff. The Court's decision on the leave applications will stay in reserve pending the decision in a similar case currently before the Court.

The actions in Saskatchewan and Alberta are in abeyance. There has been no decision made on the merits of the actions in any province.

On February 5, 2008 Ridley reached a settlement agreement with the plaintiffs in all four of the BSE lawsuits. Under the settlement agreement, Ridley will pay CAD $6 million into a plaintiffs' settlement trust fund and will effectively cap its exposure to the claims made by the plaintiffs to the $6 million. However, Ridley will remain a participant in the ongoing litigation as plaintiffs continue their claim against the Government of Canada.

Counsel for the plaintiffs have applied to the Canadian courts for approval of the settlement agreement and Ridley will consent to certification of the class actions. Through notices published in various agricultural journals and newspapers in April 2008, the settlement class members were notified of their right to object to the settlement. A hearing is scheduled before the Superior Court of Quebec on May 22-23, 2008 for the approval of the settlement agreement in the Quebec action. A hearing is scheduled before the Superior Court of Justice for Ontario on June 9, 2008 for the approval of the settlement agreement in the Ontario action.

The settlement agreement will be finalized and Ridley will pay the settlement funds provided the Ontario and Quebec courts both approve the settlement and the number of class member opt-outs is below an agreed threshold. The financial results for Ridley's nine months of fiscal 2008 reflect a provision of $6.0 million for this contingent liability. Ridley will continue to incur legal expenses as a result of the settlement approval process and its continuing involvement in the actions. No accruals have been made in respect of ongoing legal expenses related to the actions. Ridley will continue to fund these expenses out of earnings.

Outlook

A key driver of Ridley's operating performance over the next several months when weather conditions are a less influencing factor on feed demand will be the financial condition of livestock producers whose own operations have been adversely impacted by continuing high costs for feed ingredients, energy and other inputs. Most industry analysts doubt that any significant relief from high feed grain prices will materialize for livestock producers this year. The impact of highly volatile raw material markets on all aspects of Ridley's operations will continue to be the most significant operating issue for the foreseeable future.

The North American swine sector, in particular, is suffering from an oversupply of pork production, lower farm gate prices, trade concerns for Canadian producers, and high feed grain costs, such that most producers will operate with negative margins throughout the current year. The Company's market for commercial swine feed in Canada will be pressured by the significant liquidation in the Canadian swine herd.

While prices for cow-calf operators in the U.S. are holding up, the cattle sector in general is under similar pressures from abundant meat supplies and higher fuel and feed costs. In contrast, dairy producers to this point in time have enjoyed a favourable economic environment, despite high input costs, as high milk prices have been supported by global demand resulting from tight world supplies for dairy products, the weak U.S. dollar and rising consumer incomes in Asian markets. Current market conditions are also more favourable for our customers in the U.S. egg sector and the Canadian supply managed dairy and poultry sectors.

Maintaining a balanced presence amongst the diverse sectors of meat, milk and egg producers will remain an important factor in Ridley's ability to sustain steady performance. In the longer term, the continuing growth in global demand for farm commodities, combined with the productive efficiency of the North American livestock and poultry industries, remain the most positive drivers for Ridley and the commercial feed industry.

Ridley Inc. previously reported on May 6, 2008 that its Board of Directors has initiated a strategic review process. This process is being undertaken as a result of Ridley Corporation Limited, the Company's 69% controlling shareholder, advising the Company's Board of Directors of its desire to sell its investment in the Company subject to receiving satisfactory offers. As a result, the Company has initiated a process to explore potential sale alternatives for Ridley Corporation Limited and other shareholders. The Company has retained CIBC World Markets Inc. as its financial advisor and Davies Ward Phillips & Vineberg LLP as its legal advisor in connection with this process. The Company has commenced contacting potentially interested parties, certain of whom have entered into confidentiality agreements pursuant to which they will be provided with access to confidential information concerning the Company.

Ridley Inc. (www.ridleyinc.com), headquartered in Mankato, Minnesota and Winnipeg, Manitoba, is one of North America's leading commercial animal nutrition companies. Ridley employs more than 1,000 people in the United States and Canada in the manufacture and distribution of a full range of animal nutrition products under highly regarded trade names.

Ridley's common shares are listed on The Toronto Stock Exchange (Trading symbol: RCL).

Additional information, including our Annual Information Form (AIF), is available on SEDAR at www.sedar.com.




CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, expressed in U.S. dollars)

RIDLEY Inc.

Three and nine months ended March 31, 2008 and 2007



RIDLEY Inc.
Consolidated Balance Sheets
(Unaudited, expressed in thousands of U.S. March 31 June 30 March 31
dollars) 2008 2007 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

ASSETS
Current assets
Cash and short-term deposits 1,147 2,315 703
Accounts receivable 39,406 30,733 30,546
Inventories 59,172 50,702 46,946
Income taxes recoverable - 402 -
Prepaids and other current assets 1,936 1,452 1,528
Current portion of loans receivable 2,255 1,755 2,291
Assets held-for-sale (Note 5) 713 - -
Future income tax benefit 1,127 1,623 2,174
---------------------------------------------------------------------------
Total current assets 105,756 88,982 84,188

Non-current assets
Loans receivable, less current portion 773 1,872 2,032
Property, plant and equipment 94,198 93,113 90,674
Other assets 2,648 3,182 3,269
Other intangibles (Note 7) 4,526 3,856 3,877
Goodwill 50,484 50,062 49,123
---------------------------------------------------------------------------
Total non-current assets 152,629 152,085 148,975

---------------------------------------------------------------------------
TOTAL ASSETS 258,385 241,067 233,163
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Outstanding cheques in excess of bank balance 5,596 272 6,583
Short-term debt 3,517 3,711 3,134
Accounts payable and accrued liabilities 37,167 38,633 30,292
Advances from customers 4,690 3,116 6,424
Claim settlement provision (Note 11) 5,839 - -
Income taxes payable 830 1,329 2,036
Current portion of long-term debt 105 49 60
---------------------------------------------------------------------------
Total current liabilities 57,744 47,110 48,529

Long-term liabilities
Long-term debt, less current portion 21,286 21,203 15,201
Future income tax liability 22,846 22,959 23,584
Other accrued liabilities 4,431 3,932 3,976
---------------------------------------------------------------------------
Total long-term liabilities 48,563 48,094 42,761

---------------------------------------------------------------------------
Total liabilities 106,307 95,204 91,290

Shareholders' equity
Share capital 57,604 57,604 57,604

Retained earnings 81,398 76,602 75,293
Accumulated other comprehensive income (Note 4) 13,076 11,657 8,976
---------------------------------------------------------------------------
94,474 88,259 84,269
---------------------------------------------------------------------------
Total shareholders' equity 152,078 145,863 141,873

---------------------------------------------------------------------------

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 258,385 241,067 233,163
---------------------------------------------------------------------------
---------------------------------------------------------------------------



RIDLEY Inc.
Consolidated Statements of Earnings
and Retained Earnings
(Unaudited, expressed in
thousands of U.S. dollars) Three Months Ended Nine Months Ended
March 31 March 31
2008 2007 2008 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Revenue 167,311 136,869 474,091 405,266
Cost of sales 140,126 115,123 400,592 336,800
---------------------------------------------------------------------------
Gross profit 27,185 21,746 73,499 68,466
---------------------------------------------------------------------------

Operating (income) expenses
Selling, general and
administrative 15,822 14,613 47,167 45,198
Amortization of property, plant
and equipment 2,047 2,119 6,037 6,395
Gain on sale of facilities
(Note 10) - - (829) -
Research and development 322 306 747 682
Other amortization 29 91 71 275
Asset impairment loss (Note 5) 234 - 946 3,130
Claim settlement (Note 11) - - 6,000 -
---------------------------------------------------------------------------
Net operating expenses 18,454 17,129 60,139 55,680
---------------------------------------------------------------------------

Operating income 8,731 4,617 13,360 12,786

Finance costs (659) (405) (2,073) (1,576)
Interest income 214 195 589 594
---------------------------------------------------------------------------

Earnings before income taxes 8,286 4,407 11,876 11,804

Provision for income taxes
(Note 12) 3,246 1,447 7,080 4,759
---------------------------------------------------------------------------

Net earnings from continuing
operations 5,040 2,960 4,796 7,045

Net earnings from discontinued
operations (Note 6) - 92 - 631
---------------------------------------------------------------------------

Net earnings 5,040 3,052 4,796 7,676
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Retained earnings, beginning of
period 76,358 72,241 76,602 67,617
Current year earnings 5,040 3,052 4,796 7,676
---------------------------------------------------------------------------

Retained earnings, end of period 81,398 75,293 81,398 75,293
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Earnings per share from continuing
operations, basic and diluted 0.37 0.21 0.35 0.51

Net earnings per share, basic and
diluted 0.37 0.22 0.35 0.55



Consolidated Statements of
Comprehensive Income
(Unaudited, expressed in
thousands of U.S. dollars) Three Months Ended Nine Months Ended
March 31 March 31
2008 2007 2008 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net earnings 5,040 3,052 4,796 7,676
Unrealized gains (losses) on
translation of financial
statements of related entities
with foreign functional
currency to U.S. dollar
reporting currency (1,096) (448) 1,419 (1,999)
---------------------------------------------------------------------------
Other comprehensive income (loss) (1,096) (448) 1,419 (1,999)

Comprehensive income 3,944 2,604 6,215 5,677
---------------------------------------------------------------------------
---------------------------------------------------------------------------



RIDLEY Inc.
Consolidated Statements of Cash
Flows
(Unaudited, expressed in Three Months Ended Nine Months Ended
thousands of U.S. dollars) March 31 March 31
2008 2007 2008 2007
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash flow from operating activities
Net earnings for the period 5,040 3,052 4,796 7,676
Add (deduct) items not affecting
cash:
Amortization of property, plant
and equipment 2,047 2,119 6,037 6,395
Future income taxes 1,129 172 353 (2,448)
Foreign currency translation gain
(Note 6) - (860) - (860)
Asset impairment loss (Note 5) 234 - 946 3,130
Claim settlement (Note 11) - - 6,000 -
(Gain) loss on sale of property,
plant and equipment 1 64 (24) 231
Gain on sale of facilities - - (829) -
Other amortization 29 91 71 275
Other items not affecting cash 62 28 169 207
---------------------------------------------------------------------------
8,542 4,666 17,519 14,606

Net change in non-cash working
capital balances related to
operations:
Accounts receivable 324 7,326 (7,237) (2,683)
Inventories (3,971) (2,338) (7,191) (6,553)
Prepaids and other current assets 678 1,149 (426) (323)
Accounts payable and accrued
liabilities (11,121) (15,764) (2,693) (5,446)
Advances from customers (3,959) (4,409) 1,574 (221)
Income taxes payable and
recoverable (1,648) (729) (143) 2,321
---------------------------------------------------------------------------
Net cash from (utilized for)
operating activities (11,155) (10,099) 1,403 1,701
---------------------------------------------------------------------------

Cash flow from investing
activities
Proceeds on disposal of
facilities, property, plant and
equipment 52 127 2,879 329
Purchase of property, plant and
equipment and investments (1,922) (1,592) (7,480) (5,603)
Decrease (increase) in loans
receivable, net 382 (141) 622 (436)
Business acquisitions (Note 7) (1,088) - (1,226) (138)
---------------------------------------------------------------------------
Net cash utilized for investing
activities (2,576) (1,606) (5,205) (5,848)

Cash flow from financing
activities
Repayment of short- and
long-term debt (8,845) (4,647) (31,805) (25,738)
Proceeds from short- and
long-term debt 12,076 7,287 29,071 21,316
Payment of finance costs - - - (181)
Issuance of share capital - - - 169
---------------------------------------------------------------------------
Net cash from (utilized for)
financing activities 3,231 2,640 (2,734) (4,434)

Effect of exchange rate changes
on cash 62 - 44 25
Decrease in cash and cash
equivalents (10,438) (9,065) (6,492) (8,556)
Cash and cash equivalents -
beginning of period 5,989 3,185 2,043 2,676
---------------------------------------------------------------------------

Cash and cash equivalents -
end of period (4,449) (5,880) (4,449) (5,880)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash and cash equivalents
Cash and short-term deposits 1,147 703 1,147 703
Outstanding cheques in excess of
bank balance (5,596) (6,583) (5,596) (6,583)
---------------------------------------------------------------------------

(4,449) (5,880) (4,449) (5,880)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


RIDLEY Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2008 (unaudited)

1. Significant accounting policies and basis of presentation

These interim unaudited consolidated financial statements are based on accounting principles and practices consistent with those used in preparation of the annual audited financial statements, with the exception of the changes in accounting policies as outlined in Note 2. These interim consolidated financial statements do not include all the disclosures normally included in the Company's annual consolidated financial statements. They should be read in conjunction with the Company's consolidated financial statements for the year ended June 30, 2007, as set out in the 2007 Annual Report. All amounts are in U.S. dollars unless otherwise stated.

2. Changes in accounting policies

The Company has adopted the following Canadian Institute of Chartered Accountants (CICA) guidelines effective for the commencement of its 2008 fiscal year:

CICA 3855 Financial instruments - recognition and measurement

This pronouncement establishes standards for recognizing and measuring financial assets and liabilities and non-financial derivatives. It requires that: a) all financial assets and liabilities be measured initially at fair value, b) all financial assets be subsequently measured at either amortized cost or fair value depending on the type of instrument and any optional designations by the Company, c) all financial liabilities be subsequently measured at amortized cost or at fair value if they are classified as held for trading purposes, and d) all derivative financial instruments are measured at fair value, even when they are part of a hedging relationship. All changes in fair value are recorded in earnings unless cash flow hedge accounting is used in which case changes in fair value are recorded in other comprehensive income.

The Company has selected July 1, 2002 as its transition date to apply fair value accounting for all embedded derivatives. An embedded derivative is a component of a financial instrument or another contract of which the characteristics are similar to a derivative. The Company has determined that all of its embedded derivatives are exempt from fair value accounting.

CICA 3861 Financial instruments - disclosure and presentation

This pronouncement replaces handbook section 3860. It establishes standards for presentation of financial instruments and non-financial derivatives and identifies the information that should be disclosed.

CICA 1530 Comprehensive income

This pronouncement establishes reporting and disclosure of comprehensive income and its components. Comprehensive income is the change in a Company's net assets that result from transactions, events, and circumstances from sources other than investments by and/or distributions to the Company's shareholders. It includes items that would not normally be included in net earnings, such as: a) changes in the cumulative currency translation adjustments account relating to self-sustaining foreign operations, b) unrealized gains or losses on available-for-sale investments, and c) gains or losses on the effective portion of derivatives designated as cash flow hedges.

CICA 3251 Equity

This pronouncement replaces handbook section 3250 - Surplus with handbook section 3251 - Equity. It requires consistency of disclosure and presentation of equity components with the new requirements of section 1530 - Comprehensive Income.

CICA 3865 Hedges

This pronouncement establishes when and how hedge accounting may be applied. The standard replaces and expands upon Accounting Guideline 13 - Hedging Relationships, and requires hedges be designated as either fair value hedges, cash flow hedges or hedges of a net investment in a self-sustaining foreign operation. For a fair value hedge, the gain or loss on the hedging item is recognized in earnings in the period of change together with the offsetting change attributable to the hedged risk. For a cash flow hedge, as well as a hedge of a net investment in a self-sustaining foreign operation, the effective portion of the gain or loss on the hedging item is initially reported in other comprehensive income and subsequently recognized in earnings when the hedged item affects earnings.

As a result of the adoption of these standards, these additional items are now reported in the consolidated financial statements: a) comprehensive income and its components and b) accumulated comprehensive income and its components (Note 4). The comparative interim consolidated financial statements have not been restated, except for the retroactive restatement of the cumulative foreign currency translation adjustment account. All other sections have been applied retroactively, without restatement in accordance with the transitional provisions.

The following table presents the carrying amount and the fair value of the Company's financial instruments. Amortized cost is calculated using the effective interest rate method. Fair value is based on quoted market prices when available. However, when financial instruments lack an available trading market, fair value is determined using management's estimates and is calculated using market factors for instruments with similar characteristics and risk profiles. These amounts represent point-in-time estimates and may not reflect fair value in the future. These calculations are subjective in nature, involve uncertainties and are a matter of significant judgement.



---------------------------------------------------------------------------
Assets (Liabilities) Assets (Liabilities)
Carried at Cost/Amortized Cost Carried at Fair Value

As of March 31, 2008 Carrying Value Fair Value Carrying value
---------------------------------------------------------------------------

Cash and short-term
deposits 1,147 1,147 -
Accounts receivable 39,406 39,406 -
Loans receivable 3,028 3,028 -
Financial derivative
instruments - - 349
Outstanding cheques in
excess of bank balance (5,596) (5,596) -
Accounts payable and
accrued liabilities (37,167) (37,167) -
Advances from customers (4,690) (4,690) -
Claim settlement provision (5,839) (5,839) -
Short-term and Long-term debt (24,908) (24,908) -
Other accrued liabilities (387) (387) -


In the three and nine months ended March 31, 2008, the Company recorded a credit of $110,000 and $395,000 to cost of goods sold associated with market valuations of derivatives, respectively. In the three and nine months ended March 31, 2008, the Company recorded a charge of $156,000 and $255,000 to finance costs associated with market valuations of derivatives, respectively.

Risk management

The Company manages risk and risk exposures through a combination of insurance, derivative financial instruments, a system of internal and disclosure controls and sound business practices. The Company may use certain derivative financial instruments to manage risks of fluctuation in commodity prices, interest rates and foreign exchange rates. The Company mitigates its exposure to commodity price risk through several methods, including inventory management, purchase contracts, back-to-back buying and selling, and to a lesser extent hedging on regulated futures and options markets. The Company uses interest rate swap agreements to limit exposure to increases in interest rates and fix interest rates on certain portions of long-term debt. The Company may enter into foreign currency forward and option (floor and cap) contracts to limit exposure on certain anticipated future U.S. dollar cash flows in Canadian dollar functional currency companies. The Company is exposed to credit risk from its customers primarily in relation to accounts receivable. This risk is minimized by the Company's diverse customer base. The Company regularly performs credit assessments of its customers and provides allowances for potentially uncollectible accounts receivable.

3. Seasonality and commodity variability

The Company experiences seasonal variations in revenue. Historically, revenue is strongest in the second and third fiscal quarters, when the usually cold October through March weather creates increased demand for beef feed, low moisture supplement blocks and, to a lesser degree, dairy feed. Other product lines are only marginally affected by seasonal conditions.

Commodity-based agricultural raw materials constitute a significant component of the Company's complete feed production. Fluctuating commodity prices can influence revenues and associated cost of sales as selling prices and product costs move in relation to changes in commodity prices.

4. Accumulated other comprehensive income



Three Months Ended Nine Months Ended
March 31 March 31
2008 2007 2008 2007
($000) ($000) ($000) ($000)
---------------------------------------------------------------------------

Balance, beginning of period as
previously reported 14,172 9,424 - -
Unrealized gain on translation
of financial statements of
related entities with foreign
functional currency to U.S.
dollar reporting currency (note 2) - - 11,657 10,975
---------------------------------------------------------------------------
Restated balance, beginning of
period 14,172 9,424 11,657 10,975

Other comprehensive income (loss) (1,096) (448) 1,419 (1,999)
---------------------------------------------------------------------------
Balance, end of period 13,076 8,976 13,076 8,976
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The accumulated balances of other comprehensive income are comprised entirely of the unrealized gain on translation of financial statements of related entities with foreign functional currency to U.S. dollar reporting currency.

5. Asset impairment loss and restructuring costs

Long lived assets are tested for recoverability whenever changes in circumstances indicate that their carrying amount may exceed their fair value. Fair value is determined based on the net realizable value that could be obtained for assets, less costs of disposal or sale.

In the third quarter of 2008, the Company recorded a $234,000 ($142,000 after tax) impairment charge on equipment in the Company's Syracuse, Indiana plant. The production from this facility is being transferred to the newly purchased plant in Flemingsburg, Kentucky (note 7). This cost is recorded within the Ridley Nutrition Solutions segment.

In the second quarter of fiscal 2008 the Company recorded a $712,000 ($491,000 after tax) impairment charge from the closure of a plant in Lethbridge, Alberta. The loss of customers and sales volume at the plant led to the consolidation with another western Canadian plant. This cost is recorded within the Ridley Feed Operations segment. A portion of the associated land and buildings is expected to be sold in the fourth quarter of fiscal 2008 and is classified as assets held-for-sale. The estimated fair value of the held-for-sale assets exceeds its carrying value of $713,000.

Also in the second quarter of fiscal 2008, the Ridley Feed Operations segment incurred and paid restructuring costs of $1,449,000 related to a reduction in its Canadian workforce in response to lower sales volumes due to difficult market conditions and increased costs in Canada. These costs consist of: inventory obsolescence of $532,000 and severance of $200,000 recorded in cost of sales, and severance of $600,000 and other expenses of $117,000 recorded in selling, general and administrative expense.

In the second quarter of fiscal 2007 the Company recorded a $3,130,000 ($2,050,000 after tax) impairment loss related to the closure of a feed plant in Lacombe, Alberta. This cost is recorded within the Ridley Feed Operations segment.

6. Discontinued operations

In fiscal 2002, the Company sold its European swine breeding business. Subsequent to the sale, the purchaser initiated legal proceedings regarding warranty and indemnification claims. In the second quarter of fiscal 2007, the Company settled these legal claims and recorded a $528,000 charge. In the same period, the Company initiated activity to formally liquidate its remaining U.K. structure and a future tax benefit was recorded at that time.

In the third quarter of fiscal 2007, the Company fully funded the pension obligation and substantially liquidated the U.K. entity. As a result of this substantial liquidation, the Company recognized a gain related to the cumulative foreign currency translation adjustment (CTA) associated with the U.K. structure.

The following summarizes the components of net income from discontinued operations as reported in the consolidated statements of earnings and retained earnings:



Three Months Ended Nine Months Ended
March 31 March 31
2008 2007 2008 2007
($000) ($000) ($000) ($000)
--------------------------------------------------------------------------

Gain on recognition of CTA - 860 - 860
Former employees pension obligation - (553) - (553)
Settlement with purchaser - - - (528)
Legal and professional fees - (141) - (212)
--------------------------------------------------------------------------
Pre tax income (loss) - 166 - (433)

Future tax benefit (liability) - (74) - 1,064
--------------------------------------------------------------------------

Net earnings from discontinued
operations - 92 - 631
--------------------------------------------------------------------------
--------------------------------------------------------------------------


7. Business acquisitions

On March 10, 2008, the Company acquired substantially all of the assets and assumed the outstanding debt of 4 Seasons Marketing, LLC and its affiliate, Ultralyx, Inc. for cash consideration of $1,088,000 and deferred consideration of $375,000. The deferred consideration is payable at varying amounts over a five-year period. The purchase price is allocated to assets and liabilities based on their estimated fair value at the closing date. The Company is finalizing certain closing date adjustments; therefore, the allocation of the purchase price is subject to refinement. The acquired business is a manufacturer and distributor of feed supplement blocks operating a single plant in Flemingsburg, Kentucky. This operation is recorded under the Ridley Nutrition Solutions segment.

This acquisition is accounted for using the purchase method of accounting, and the result of its operation is included in the consolidated financial statements from the date of acquisition. Details of the acquired assets and liabilities are as follows:



Assets ($000)
-------
Accounts receivable 1,018
Inventories 780
Property, plant and equipment 2,414
Other intangibles 750
-------
4,962

Liabilities
Accounts payable and accrued liabilities 1,614
Long-term debt 1,885
-------
3,499
-------

Net assets acquired 1,463
-------
-------

Cash consideration 1,088
Deferred consideration 375
-------
Total consideration 1,463
-------
-------


Other intangibles acquired include non-compete agreements valued at $225,000 and intellectual technology consisting of principally unpatented technology and license agreements valued at $525,000 with amortization periods of five years and fifteen years, respectively.

There were no business acquisitions for the year to date in fiscal 2007. Installments related to a fiscal 2006 acquisition have been paid in the first quarters of fiscal 2008 and 2007.

8. Statement of cash flow disclosures

The following amounts were paid on account of interest and taxes:



Three Months Ended Nine Months Ended
March 31 March 31
2008 2007 2008 2007
($000) ($000) ($000) ($000)
------------------------------------------------------------------

Interest 600 359 1,834 1,743
Income taxes, net of refund 3,769 2,071 6,827 3,800


9. Post retirement and pension expense

The Company's recorded estimated costs related to its non-contributory pension plans, post-retirement medical plan, and defined contribution plans are as follows:



Three Months Ended Nine Months Ended
March 31 March 31
2008 2007 2008 2007
($000) ($000) ($000) ($000)
--------------------------------------------------------------------

Non-contributory pension plan 345 319 1,034 957
Defined contribution plan 355 342 1,054 995


10. Gain on sale of facilities

Operating results in the first nine months of fiscal 2008 of the Ridley Feed Operations segment include pre-tax gains of $829,000 related to the sale of a premix facility and a fabrication shop, both of which are located in Winnipeg, Manitoba. Net proceeds on these sales were $2,441,000.

11. Litigation

The actions by proposed representative plaintiffs continue against the Government of Canada and Ridley Inc. In claims filed in April 2005, the plaintiffs seek to certify class actions in Alberta, Saskatchewan, Ontario and Quebec to include all Canadian cattle farmers who allegedly suffered damage as a result of international bans on trade in Canadian beef and cattle following the May 2003 diagnosis of Bovine Spongiform Encephalopathy (BSE) in a cow in Alberta. The Ontario action seeks a national class to include affected cattle farmers residing in the six remaining Canadian provinces.

The proposed representative plaintiffs seek general, special, aggravated and punitive damages on behalf of themselves and each of the proposed Canadian cattle farmer class members. Full particulars of the claims are yet to be provided.

In a decision released on June 15, 2007, the Superior Court of Quebec authorized the plaintiff to institute the Quebec action as a class action. A notice to class members in Quebec was approved by the Court and published in September, 2007. A trial date in Quebec has yet to be scheduled. None of the remaining actions have been certified to proceed to trial as a class action in any other province. In the Ontario action, the Court of Appeal for Ontario dismissed each of the appeals by the parties against the decision to strike the claims in a decision released June 22, 2007. A hearing of the plaintiff's motion to certify the Ontario action as a class action has yet to be scheduled.

In September 2007, the Company and the Government of Canada filed applications with the Supreme Court of Canada seeking leave to appeal from the decision of the Court of Appeal for Ontario denying the motions of the Company and the Government of Canada to strike the claims of the Ontario plaintiff. The Court's decision on the leave applications will stay in reserve pending the decision in a similar case currently before the Court.

The actions in Saskatchewan and Alberta are in abeyance. There has been no decision made on the merits of the actions in any province.

On February 5, 2008 the Company reached a settlement agreement with the plaintiffs in all four of the BSE lawsuits. Under the settlement agreement, the Company will pay CDN $6,000,000 into a plaintiffs' settlement trust fund and will effectively cap its exposure to the claims made by the plaintiffs to the CDN $6,000,000. However, the Company will remain a participant in the ongoing litigation as plaintiffs continue their claim against the Government of Canada.

Counsel for the plaintiffs have applied to the Canadian courts for approval of the settlement agreement and the Company will consent to certification of the class actions. Through notices published in various agricultural journals and newspapers in April 2008, the settlement class members were notified of their right to object to the settlement. A hearing is scheduled before the Superior Court of Quebec on May 22-23, 2008 for the approval of the settlement agreement in the Quebec action. A hearing is scheduled before the Superior Court of Justice for Ontario on June 9, 2008 for the approval of the settlement agreement in the Ontario action.

The settlement agreement will be finalized and the Company will pay the settlement funds provided the Ontario and Quebec courts both approve the settlement and the number of class member opt-outs is below an agreed threshold. The financial results for the Company's nine months of fiscal 2008 reflect a provision of CDN $6,000,000 for this contingent liability. The Company will continue to incur legal expenses as a result of the settlement approval process and its continuing involvement in the actions. No accruals have been made in respect of ongoing legal expenses related to the actions. The Company will continue to fund these expenses out of earnings.

12. Income taxes

In the second quarter of fiscal 2008, the Company established a valuation allowance on tax loss carry-forwards which are set to expire by 2010. This increased income tax expense by $1.4 million. Key factors in establishing this allowance were material losses in the Canadian tax entity due to the claim settlement and restructuring costs as well as uncertainty surrounding the short-term outlook for Canadian operations.

The provision for income taxes in the third quarter and nine months ended March 31, 2007 excludes the income tax benefit of capital losses realized on the liquidation of the Company's U.K. structure (Note 6). These income tax benefits are recorded as a component of discontinued operations and represent only the portion of capital losses that were utilized or carried back to offset prior years' capital gains.

The Company's income tax expense is also impacted by the geographic distribution of income and losses. U.S. entities generated taxable income which is taxed at a higher rate than the Canadian statutory tax rate. The Canadian entity reported pre-tax losses to which an income tax benefit is recorded, but at a lower rate than taxes on U.S. income.

13. Segment information

The Company's operations are conducted in four reportable segments as: Ridley Feed Operations, Ridley Feed Ingredients, Ridley Nutrition Solutions, and Corporate. The Company reports information about its operating segments based on the way management organizes and reports the segments within the organization for making operating decisions and evaluating performance. Beginning in fiscal 2008, the Company is reporting the results of its Ridley Feed Ingredients (RFI) business unit as a separate reporting segment reflecting changes in how the Company evaluates its operations. In previous fiscal years, RFI was included as part of Ridley Feed Operations. The prior year's segment results have been reclassified to conform to the current year reporting.

Ridley Feed Operations, which consists of both the U.S. and Canadian feed operations, manufactures and distributes livestock feed to customers primarily in the prairie region of Canada and the U.S. Midwest. The products include a full range of complete feeds and supplements and are marketed through a dealership network as well as directly to agricultural producers.

Ridley Feed Ingredients manufactures and distributes vitamin and trace mineral premixes, small packaged specialty products, medicated and non-medicated feed additives and micro feed ingredients.

Ridley Nutrition Solutions, which consists of the low moisture block operations, specialty products, Sweetlix feed supplements and the equine nutrition business, manufactures and distributes low moisture blocks, feed supplements and premium quality equine feeds.

Corporate contains no substantial revenue and is comprised of corporate costs and other activities not specific to reportable segments and is shown separately.

The Company evaluates performance based on operating income. Operating income is defined as earnings before finance costs, interest income, and income taxes.

An analysis of segment information is as follows:



RIDLEY Inc.

Segment Information Ridley Ridley Ridley
Feed Feed Nutrition
Three months ended Operations Ingredients Solutions
March 31 2008 2007 2008 2007 2008 2007
($000) ($000) ($000) ($000) ($000) ($000)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Revenue

Revenue from
unafiliated
customers 132,032 110,138 16,467 12,051 18,812 14,680
Intersegment revenues 1,950 1,238 12,582 10,314 11,609 10,060
---------------------------------------------------------------------------
Revenue 133,982 111,376 29,049 22,365 30,421 24,740
---------------------------------------------------------------------------
Cost of sales 116,800 96,725 25,922 20,703 23,545 19,307
---------------------------------------------------------------------------
Gross profit 17,182 14,651 3,127 1,662 6,876 5,433
Net operating
expenses 12,436 11,650 855 688 3,943 3,526
---------------------------------------------------------------------------
Operating income
(loss) 4,746 3,001 2,272 974 2,933 1,907
---------------------------------------------------------------------------


RIDLEY Inc.

Segment Information Corporate
and Ridley Inc.
Three months ended Eliminations Consolidated
March 31 2008 2007 2008 2007
($000) ($000) ($000) ($000)
---------------------------------------------------------
---------------------------------------------------------

Revenue

Revenue from
unafiliated
customers - - 167,311 136,869
Intersegment revenues (26,141) (21,612) - -
---------------------------------------------------------
Revenue (26,141) (21,612) 167,311 136,869
---------------------------------------------------------
Cost of sales (26,141) (21,612) 140,126 115,123
---------------------------------------------------------
Gross profit - - 27,185 21,746
Net operating
expenses 1,220 1,265 18,454 17,129
---------------------------------------------------------
Operating income
(loss) (1,220) (1,265) 8,731 4,617
---------------------------------------------------------



Ridley Ridley Ridley
Feed Feed Nutrition
Nine months ended Operations Ingredients Solutions
March 31 2008 2007 2008 2007 2008 2007
($000) ($000) ($000) ($000) ($000) ($000)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Revenue

Revenue from
unafiliated
customers 375,931 320,325 44,697 36,195 53,463 48,746
Intersegment revenues 4,078 3,276 36,447 31,193 27,609 25,258
---------------------------------------------------------------------------
Revenue 380,009 323,601 81,144 67,388 81,072 74,004
---------------------------------------------------------------------------
Cost of sales 332,645 276,679 73,382 63,299 62,699 56,549
---------------------------------------------------------------------------
Gross profit 47,364 46,922 7,762 4,089 18,373 17,455
Net operating
expenses 36,666 39,396 2,357 1,951 11,376 10,130
---------------------------------------------------------------------------
Operating income
(loss) 10,698 7,526 5,405 2,138 6,997 7,325
---------------------------------------------------------------------------


Corporate
and Ridley Inc.
Nine months ended Eliminations Consolidated
March 31 2008 2007 2008 2007
($000) ($000) ($000) ($000)
---------------------------------------------------------
---------------------------------------------------------

Revenue

Revenue from
unafiliated
customers - - 474,091 405,266
Intersegment revenues (68,134) (59,727) - -
---------------------------------------------------------
Revenue (68,134) (59,727) 474,091 405,266
---------------------------------------------------------
Cost of sales (68,134) (59,727) 400,592 336,800
---------------------------------------------------------
Gross profit - - 73,499 68,466
Net operating
expenses 9,740 4,203 60,139 55,680
---------------------------------------------------------
Operating income
(loss) (9,740) (4,203) 13,360 12,786
---------------------------------------------------------



Ridley Ridley Ridley
Feed Feed Nutrition
Operations Ingredients Solutions
As of March 31 2008 2007 2008 2007 2008 2007
($000) ($000) ($000) ($000) ($000) ($000)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total assets 162,032 148,320 26,500 20,715 66,529 60,782
Property, plant and
equipment 67,000 64,436 2,898 2,972 24,297 23,262
Goodwill 24,795 23,434 4,327 4,327 21,362 21,362


Corporate
and Ridley Inc.
Eliminations Consolidated
As of March 31 2008 2007 2008 2007
($000) ($000) ($000) ($000)
-------------------------------------------------------
-------------------------------------------------------
Total assets 3,324 3,346 258,385 233,163
Property, plant and
equipment 3 4 94,198 90,674
Goodwill - - 50,484 49,123



Three Months Ended Nine Months Ended
(Expressed in thousands of U.S. March 31 March 31
dollars) 2008 2007 2008 2007
--------------------------------------------------------------------------
Revenue from unaffiliated customers
U.S. 128,013 103,931 359,109 307,064
Canada 39,298 32,938 114,982 98,202
--------------------------------------------------------------------------
167,311 136,869 474,091 405,266



(Expressed in thousands of U.S. dollars) March 31 June 30 March 31
2008 2007 2007
------------------------------------------------------------------
Property, plant and equipment
U.S. 69,646 66,710 66,293
Canada 24,552 26,403 24,381
------------------------------------------------------------------
94,198 93,113 90,674

Goodwill
U.S. 37,982 37,982 37,982
Canada 12,502 12,080 11,141
------------------------------------------------------------------
50,484 50,062 49,123


14. Future accounting standards

Inventories

Section 3031 issued in June 2007 establishes new standards on the determination of cost and requires inventories to be measured at the lower of cost and net realizable value. The cost of inventories include the cost to purchase and other costs incurred in bringing the inventories to their present location. The new standard also requires additional disclosures regarding the accounting policies used in measuring the inventories, the carrying value of the inventories, amounts recognized as an expense during the period, write-downs and the amount of any reversal of write-downs recognized in the period. The standard is effective for fiscal periods beginning on or after October 1, 2007. The Company is evaluating the impact of this new standard on the consolidated financial statements and will adopt the standard commencing in fiscal 2009.

Goodwill and intangible assets

Section 3064 issued in February 2008 provides guidance on the recognition, measurement, presentation and disclosure for goodwill and intangible assets, other than initial recognition of goodwill and intangible assets acquired in a business combination. The standard is effective for fiscal periods beginning on or after October 1, 2008, and requires retroactive application to prior period financial statements. The Company is currently reviewing the impact of this standard and will adopt the standard commencing in fiscal 2010.

15. Comparative amounts

Certain comparative amounts have been reclassified to conform to the current period presentation.

16. Subsequent events

On May 6, 2008 the Board of Directors announced that it has initiated a strategic review process. This process is being undertaken as a result of Ridley Corporation Limited, the Company's 69% controlling shareholder, advising the Company's Board of Directors of its desire to sell its investment in the Company subject to receiving satisfactory offers. As a result, the Company has initiated a process to explore potential sale alternatives for Ridley Corporation Limited and other shareholders. The Company has retained CIBC World Markets Inc. as its financial advisor and Davies Ward Phillips & Vineberg LLP as its legal advisor in connection with this process. The Company has commenced contacting potentially interested parties, certain of whom have entered into confidentiality agreements pursuant to which they will be provided with access to confidential information concerning the Company.

Contact Information

  • Ridley Inc.
    Steve VanRoekel
    President and CEO
    (507) 388-9412
    or
    Ridley Inc.
    Mike Mitchell
    Chief Financial Officer
    (507) 388-9410
    Website: www.ridleyinc.com