Manitoba Committee Hansard — 16 May 1977 (Education Committee, Sitting 2, 30th Legislature, 4th Session)

30-4-ed2

Manitoba — Debates (Hansard)

Legislative Assembly of Manitoba HEARING OF THE STANDING COMMITTEE ON ECONOMIC DEVELOPMENT Chairman Mr. D. James Walding Constituency of St. Vital MONDAY, May 16, 1977, 8:00p.m. Printed by P.N. Crosbie- Queen's Printer for the Province of Manitoba

ftE: 8:00 p.m. I. CHAI Mr. D. Jame s Walding. 1: Economic Development Monday, May 16, 1977 MR. CHAIRMAN: We have a quorum, gentlemen. The committee will come to order. The item on l agenda forth is evening is consideratio n of the Report of t he A. E.McKenzie Compa ny Limited. Mr. ans would yo u introduce the Chairman, please. MR. EVANS: Yes, Mr. Chairman. it is my pleasure to once agai n in troduce to the members of the onomic Developme nt Committee of the Legislature, Mr.

Robert Clement, a.c., a very well know n rrister and solicitor in Manitoba, a very well known Brandon bu s inessman an d one who has voted a lot of time and attention to community af fairs in the province an d particularly in the City of ando n. We are very pleased that Mr. Clement is providi ng his talents an d skills and energy to thi s ry important task. I want to take this opportunity to extend our thanks to him for hi s services 1dered during the past year. it is my pleasure, Mr. Chairman, to call upon Mr. Clement at this time to give hi s repo rt . MR. CHAIRMAN: Mr. Clement. MR. ROBERT CLEMENT: Mr.

Chairman, members of the Committee, tha nk yo u, Mr. Eva ns. ln the dorful brochure which yo u have there are two loose pages which is a resume of the operatio ns of e company for last fiscal year. it is rather brie f and I would like to read it to yo u while yo u are havi ng 1 opportunity of looking at it or looking at the statement which is attached. The A. E. McKenzie Company Limited, Canada's largest garden seed distributor, ended it s 1976 1cal year reporting a pro fit from operations of over $200,000. 00.

Ad ju stments on the di spo sal of :ed assets and investments and prior year's sales ad justments reduced this pro fit to $21 ,320.00. In 19 76, the company announced that it would no longer stock or sell bulk qua ntitie s of un blended ass seeds. This was considered to be a speculative market and not compati ble with the compa ny's msumer packaged horticultural lines. This actio n, together with the lower market price levels of ass seed, resulted in a reduced level of sales revenues over the 19 7 5 figures. Sales of packet seeds 1d onion sets continued to expand.

The compa ny now services over 19,000 accounts from coast to coa s t in Ca nada an d mai ntai ns a rge and growi ng portion of the Canadian market for packet seeds, onio n sets , onion multipliers, 1ckaged lawn grass mixtures and flower bulbs. There are approximately 15 other ma jo r competitor s the Brandon market. During the year, substantial reductions were achieved in the compa ny's operati ng co sts. The co s t • production wa s reduced from over 46 percent to under 43 perce nt of the gro ss revenues .

Other >sts were reduced by over $250,000 and it is an ticipated that further reductions will be achieved In 1e present operating year. Interest expense still remains a heavy burden for the compa ny. In 1976, terest charges an d guarantee fees paid to the Ba n k of Montreal and the Government of Ma nito ba nounted to over $900,000 bei n g 13.7 perce nt of the gross revenues. During the year, the Ba n k of ontreal reduced its guarantee requirement by $2 millio n. The company has, at peak sea son, 27 0 employees.

The large ma jo rity of the s e employee s is >Cated at Brandon where the compa ny operates a pla nt and warehouse of over 130,000 square feet 1 the downtown area. The pay roll of the Brandon pla nt amounts to over $1,700,000 per an num in !.laries an d benefits. Property and busi ness taxes paid to the City of Bra ndo n in 19 7 6 amounted to ver $40,000. 00.

With over 6 1h months of the present operating year an d 80 percent of the present selling seaso n ow over, the compa ny is con fident that the 19 77 fi nancial statements will reflect higher sales and 1duced operating costs which will result in increased pro fits. That is a brie f resume of the operatio n of the provincially ow ned company and its subsidiarie s . MR. CHAIRMAN: Are there an y questions on Mr. Clement's general remarks before we go in to the age by page? Mr. McGill. MR. McGILL: Yes, Mr. Chairman.

I have not had an opportu nity really to examine the fi na ncial tatements that have been handed to us but I am pleased to note that Mr. Clement expects the coming ea son to be one of greater pro fits in McKenzie Seeds. I recall, Mr. Chairman, there wa s some iscussion a year ago ab out the first six months of that operating year an d of the optomi stic vie ws rhich the company had at that time of increased pro fit. I think, Mr. Chairma n, Mr.

Clement indicated lathe was con fident that the net pro fit of the company would be between $300,000 and $600, 000for le year and while we were ab le to show a pro fit, it was considera bly less tha n that amou nt, some 21 ,000. 00. I wonder, Mr. Chairman, if Mr. Clement could indicate just what it was that happe ned in le last six months that reduced that pro fit pro jection. MR.

CLEMENT: Well, my predictio n was based on an operating pro fit an d, as yo u will note, the ro fit thi s last year from operatio ns -you see this on Page 4-net ear nings from operatio ns for the ear $200, 688, which is not too far from what we expected it to be an d the n from our net ear nings from 7

Economic Development Monday, May 16, 1977 these operations we paid some disposal items, which are bookkeeping items listed below, we sol, warehouse in Regina and are using a rented warehouse. That's the Loss and Disposal of Fixed Ass' which carried on our books at $15,000 more than we got for it, but it will be a substantial saving operation because it was costing us more than rent would normally be to pay taxes and look after1 maintenance of it. The disposal of other investments was a tidying up of our Brett-Young sale.

Some items therett were finished and this year there will be a corresponding balance from credit items that are coming still from the sale of the Brett-Young Company. The extraordinary items were from past year's operations and they are explained in Note No. 8 the Financial Statement. MR. McGILL: Mr. Chairman, Mr. Clement has again pointed out that very great difficulty t company has in meeting the annual interest expenses and the drain that that puts upon the li qL position of the company. I wonder if he could indicate to the committee just what solution he sees 1 this ongoing pro blem.

Is the Company taking any steps to relieve the operation from this anm interest charge on bank loans? Is there any solution in the of fing for that pro blem? MR. CLEMENT: You are quite right, Mr. McGill, I think the normal business pro ba bly expects th 1 or 2 percent of its revenues would be devoted to interest charges. In the caseo fMcKenzie'sthere over 13 percent of our operation devoted to interest charges and that's because we largely operate < borrowed money, partly from the bank and partly from the government through the Manitol Development Corporation.

The solution is not in the company's hands and I think you would have to ask the shareholder i1 wou Id intend to in ject further capital in the company. I think that's the only solution that the compa r could suggest other than sale of the company. lt is now more than paying its way. The indications ' our first six months' business is that this trend is going to continue. The only suggestion the compa r . has is that it can support those interest charges at the present levels, but it would be ab le to do a bett1 jo b if it had an in jection of capital. MR. McGILL: Mr.

Chairman, the shares are now all owned by the Province of Manito ba? MR. CLEMENT: I believe so. The company has signed its final agreement, and I believe tt Brandon University has signed its final agreement, and the shares are all owned by the Province • Manito ba. MR. McGILL: The question of the transfer of those shares and the money which would be paid f< them, if any, was the subject of our discussions of a year ago' and I think at that time the Minister • Industry and Commerce said that an announcement would be made.

There was some pro blel introduced into the debate by the government representatives at that time, that this matter was ne one for discussion during the consideration of the annual report, but rather would be dealt with whe the announcement was made. I wonder if we are now nearer to some pu blic statement being made< the circumstances and agreements that have been made with respect to the transfer of the share1 MR. CLEMENT: Mr. McGill, I deliberately try and avoid operating the government or having an suggestion ab out it. lt's enough of a jo b to try and operate McKenzie, so I don't know ...

I know a the mechanics on the part of the Brandon University, and McKenzie's have been fulfilled, but I reall don't know what the government position is on it. MR. CHAIRMAN: Mr. Evans. MR. EVANS: Mr. Chairman, I might add in answer to Mr. McGill, that matter is indeed in proces1 I'm not sure ...

I believe some of the legal technicalities are still to be cleared up, but it's true as M1 Clement has indicated, certain documents have been signed by the university, and by the company. believe there is nevertheless still some legal work to be completed, but the matter is in process, an1 when a decision is made on this matter-I agree with you, I think everybody agrees that there is question of the proper or appropriate equity ratio to be concerned with.

Of course if we did provid some equity, it, Sir, would be more bookkeeping item than anything else, because it still wouldn' af fect you know the income, the net earnings of the company before these other deductions. In othe words what I'm suggesting, Mr. Chairman, is that the company has shown great improvement in th1 past year on its operations, and whether we change this particular situation or not, it is not a1 important as seeing that great improvement in the operating side of the company, which is there anc is here for us to see.

But in answer to your question directly, I simply report that the matter is ir process, the matter is in hand, and when a decision is made it is a government decision as th• shareholder, and when the policy has been made the decision will be announced to the pu blic and t< the Legislature. MR. CHAIRMAN: Mr. McGill. MR. McGILL: Well, Mr. Chairman, I think as the Minister says, it's rather important to record thil historically for all future generations to read the beginning of the A. E.

McKenzie Trust on behalf o Brandon College, and later Brandon University, and then finally to see how this matter wa1 terminated and the propriety with which the agreement was made. So I hope that that announcemen will be made, and that there will be an opportunity for the pu blic to be in formed. 8

Economic Development Monday, May 16, 1977 I note that in the Pu blic Accounts the province lists a trust, the A. E. McKenzie Trust with the value some 330-odd thousand dollars. Will this value of the trust as recorded in the accou nts be a nsideration in the final settlement of this transfer? MR. EVANS: Yes, well that matter too has to be attended to. This, I'm assuming here, would be part the final agreement, the clearing up of the trust fund. MR. McGILL: Mr. Chairman, If I may return to Mr. Clement's presentation. An nually 1 thi n k we !Uire as to the status of the Mexican venture.

Last year no change had occurred. Is there some �overable sum in the hands of your former representatives in the Cari bbean? Has an y recovery en effected? MR. CHAIRMAN: Mr. Clement. MR. CLEMENT: Mr. McGill there has been a change in the situation during the past year . Our �xican partner was killed in an aeroplane crash, so we no longer have a living partner down there, d we have instructed our Mexican attorneys to collect whatever funds are collectable. So 1 thi nk at clearly could perhaps be written off in the next year, depending on what they collect from them. MR. McGill: I presume then, that the A. E.

McKenzie Ltd. has filed a claim against the estate of the 1ceased? MR. CLEMENT: lt has instructed its attorneys in Mexico to file the claim. The Mexican Court do n't cognize anything from Canada unless it's filed through a Mexican attorney. We have so instructed m. I'm informed the pro ba te of the deceased partner has not yet been made in the Mexica n Courts 1t when it is made our claim will be filed. MR. McGILL: Just one final question, Mr. Chairma n. The decision to get out of the un blended ass seeds in bulk -what was the ba ckground for that decision?

Was this an area in which the »mpany was regularly failing to meet its expe nses, or was there another reason for that? lt seemed me that the company had developed over the years a reputati on in that field for the supplyi ng of ·ass seed in bulk. MR. CLEMENT: Well ab out three years ago, I think it was Mr .

McGill, there was a very bla n k arket in grass seed an d the price escalated to an extent that in dicated extreme speculatio n in the orld market in grass seed, and most of the grass suppliers around the world endeavoured to protect eir local customers by purchasing sufficient at these high prices for their needs. And it was noted at when these high prices had ob tained for a short time, colloquially speaking, the bottom fell out of e grass seed market, which indicated a degree of manipulation in the market.

McKe nzie's were not 1 adversely affected in that as we were ab le to dispose of all of that grass seed which had been �qui red during that market period. But we had a very close look at that operatio n an d decided that it as of a much more speculative nature than any of the rest of our operatio n an d that for a very small argin of profit which was in it, there was to much risk. So we simply elimi nated that phase of the :>eration, although we do still sell the packaged mixtures of grass seed, which compleme nt our ther package seeds. MR. McGILL: Mr.

Chairman, the employment levels at McKenzie's are at peak seaso n arou nd 270. rith the anticipated increase in sales in the coming year, is it an ticipated that employ ment pportu nities will increase with the company or be maintained at the same level? MR. CLEMENT: I wouldn't expect that there wou Id be an increase in employme nt on our package �ed operation. I think our increased sales can be handled with more efficient productio n methods hich have bee n placed in order and that we have an excellent staff there now.

They are worki ng very fficiently, the full-time people, and we're fortunate in havi n g a large number of employees who wish >work part-time an d do work part-time, but they do it year after year after year, so they are quite <illed in the operatio ns they are required to perform. What I do see is an increased employment opportunity and a judicious entry in to an expa nded >rm of merchandisi ng which will use our chain store displays a longer period of the year.

We are I ready doing some of that in our Dutch bul b sales which are goi n g into stores, some of them goi ng in 1 the fall for winter work and we are now looking at expandi ng our operation into more of a year round operation, but we are going to do it on a very limited experimental ba sis to makesurethat the 1arket will respond to our efforts and up to it, that we won't have a large stock on ha nd of unsold roducts.

I might say that some of these so-called convenience products that we endeavoured to use for rinter sales programs in other years and found that in the chain stores and in the indepe ndent stores, 1ey were not being sold in any great quantities. We now find that we have another sales orga nizatio n perated coast to coast that use a door-to-door selling technique, something like the Girl Guide ookies and the chocolate ba rs that are sold by groups goi ng door to door. Some of these onvenience products are being handled that way and we've had to restock this particular item, avi n g found out how to stock. MR.

McGJLL: Thank you. MR. SPIVAK: I would just like to establish a couple of things first. Does McKenzie Seed pay taxes? MR. CLEMENT: lt pay s property taxes. Is that what you were saying? 9

Economic Development Monday, May 16, 1977 • MR. SPIVAK: lt's not required to pay any tax? So that really, whe n we deal with the stateme nt terms of your presentatio n with respect to a profit in operations of over $20,000, really, in an alyzi this operation, which in effect is a gover nment operation, al beit in a peculiar way it arrives to becor a gover nme nt operation, there is one ba sic difference between this Crow n corporation an d others, that you do not pay taxes. Do you pay property taxes? MR. CLEMENT: Yes, we pay property taxes. MR.

SPIVAK: And the sales tax is collected, you are a collector for sales tax? MR. CLEMENT: Yes. MR. SPIVAK: Okay, so that in the only area that ... MR. CLEMENT: Our general ma nager tells us that we pay sales tax but we don't collect it . Tl retailer collects it. MR. SPIVAK: Then in terms of an alyzing this, because I think this is important because this is or of the few Crown corporatio ns that ca n realistically appear here now and indicate both a substa ntl volume, with their head appearing to be ab ove water, but the reality is you still do n't pay taxes.

To th extent, in terms of analyzing this stateme nt, and there's nothing hidden in it I'm not suggesting th1 that it is still a factor in the determi nation of the relative economic positio n of the corporatic because it really has a privilege that private corporations do not have. MR. CLEMENT: I would just say that with a private company that had losses for several years, th1 are entitled to carry those losses forward an d they would not be paying income tax this year L pro bab ly for two or three years on McKenzie Seeds. MR.

SPIVAK: I know, I appreciate that, but I want to establish the basis for what may happe n in tt future with respect to the compa ny, as I said, one at least is on the critical path, which appears tot superior to other Crown corporations. That's one situatio n. The other thing is, can you tell me ho many board of directors meetings were held? MR. CLEMENT: We have a normal practice of meeti ng once a month an d we usually skip July c ·A ugust and hold a two-day meeting in the spri ng for budget purposes. They ru n eleven to twel11 meeti ngs. MR. SPIVAK: There were eleven to twelve meetings.

The director's fees an d expe nses wer $8,996.00. Do you have a breakdown of what the expe nses were as opposed to the actw remuneration and can we be given the ba sis for remuneration for the directors? MR. CLEMENT: The directors are paid $100 a meeting. MR. SPIVAK: $100 a meeting. So there are approximately meetings, that will be $1,200 a yea Okay. Ca n I ask, with respect to your breakdown of your sales, if that is your expenses, with respect t the sales? Dealing first with the selling expe nse which is $1,677,000, ca n you indicate how much c that was automo bile an d travel? MR.

CLEMENT: In 19 75, the comparison year, automo bile an d travel was $23 7,829. 00. In 19 7 E last year, it was $2 60,5 48.0 0 . MR. SPIVAK: How much of that is automo bi le an d how much of that is travel? MR. CLEMENT: We don't segregate it on the statements that I look at . MR. SPIVAK: Well, the board of directors, do they have an an alysis of how much is really .. . Wel excuse me, that wouldn't include an automo bile allowa nce for salesmen, plus specific travel a employees? You don't have a breakdow n on that? MR. CLEMENT: No, we use air travel, automo bi le travel, bus travel, rail.

This bulk figure include part-time people who are brought in to do special jo bs. lt doesn't seem out of the way to the directors so ... MR. SPIVAK: That would represent approximately between a fifth and a sixth of your sellin! expenses. And what are the commissions themselves? MR. CLEMENT: We don't pay commissio ns; everybody is on salary. MR. SPIVAK: On a salary ... MR. CLEMENT: But we have a bonus, an incentive bonus. MR. SPIVAK: What are the salaries themselves in the selling? In your selling expe nse, what an your total salaries? MR.

CLEMENT: Again, in 19 75, the salaries and employee benefits were $625,800 an d in 19 76 they were $6 49,812. 00. MR. SPIVAK: That wou Id be approximately ab out a 3 to 1 ratio as far as- no, may be not-2 � times? it's too much, may be I shouldn't use that. MR. CLEMENT: Our sales are $6,623,000 ... MR. SPIVAK: No, no, no, I am trying to equate the salary as part of your selling expe nse, your salaries as opposed to your automo bi le and travel. MR.

CLEMENT: Well, all I ca n say to that really is that it's a rather unusual compa ny because we have, you might say, one shot at the market once a year and if we don't sell our product in one year. we do n't have an other cha nce until the next year to do it. 10

Economic ueve1opmem Monday, May 16, 1977 Now, the automo bi le and travel expenses include both the costs of going out and booking the ers and then the pick-up trucks that are used af ter the sales period is finished, and the salesmen m selves go around and pick up the unsold consignment goods and bring them ba ck so that they 1 be analyzed to see if they are sti 11 of germination quality and whether they can be used again, or ether they have to be destroyed. This is one of the very di fficult things ab out the packaged seed ;iness.

The fact that in Canada, we have one growing season and that we have to look af ter the mination quality of our product because it bears our name and The Canada Seed Act makes the ·son whose name is on the packet as the owner of the packet, responsi ble for the germination :�.I ity of the seed. McKenzie's are very proud of that reputation but it is an expensive thing to do with ges going up, salaries going up, truck costs going up, gasoline costs going up. I am sort of rather azed that we've been ab le to contain our costs and still use this rather expensive way of 1rchandising.

The only way I can excuse it to myself is to look around the world and find that every 1er ma jor seed house in the world uses this same method because you have to be sure that the �d. when it's planted will germinate and the onlyway that you can do it is to pick it up because there la lot of very fine retailers who don't have the facilities of caring for seed that might be lefto ver and eping it dry and cool so that it won't start germinating during the winter. So we pick it up, pass it to � end before it goes out, or destroy it if it is not of high quality. MR.

SPIVAK: In reality, your selling expenses are only $50,000 higher from 1975to 1976, although ur volume is less. Your dollar sales are less. MR. CLEMENT: Yes, but our package sales are substantially more because we don't have the bulk ass seed sales and they were largely sold over the telephone so that the expense of selling them 1sn't .. . they weren't handled like the packaged seeds. But I am not trying to frustrate you, but I ink it is a complicated business to .. . MR. SPIVAK: No, what I am ba sically asking you with respect to the operation is that your dollar ,lume is down by some $600,000. 00. MR.

CLEMENT: Yes. MR. SPIVAK: Your actual selling costs are up by ab out $50,000. 00. The ba sic component of your 'I ling costs-it's not entirely the component- but at least over hal f of it is made up of salaries, nployees, employee benefits and automo bile and travel. Realistically it's over the 50 percent mark. 1ere doesn't appear to be any ad justment considering the fact that there is realistically almost a 10 !rcent reduction in dollar volume. · MR. CLEMENT: I don't know whether you've had an opportunity to read Paragraph 2 of the sume which I had read when we opened.

There is a little two-page resume in here . This really is the tplanation of that, that the year you're comparing it with was the year in which we sold very high >liar quantities of bulk grass seed and we made very little on it, and our selling expense was very tie. Most of the cost was buying it and reselling it so that really, what we did we sold more packaged !eds than we did a year ago, and our selling expense in a percentage way was considera bly less. MR. SPIVAK: During your administration, can you tell me what your seller's employee benefits ere, the cost please, of the administration? MR.

CLEMENT: Well, the salaries of the . . . MR. SPIVAK: No, what I wanted is if you had the breakdown of the actual , not as a whole, just the �tual amount. MR. CLEMENT: Yes, I have it here. MR. SPIVAK: And could you also give me the automo bi le and travel? MR. CLEMENT: Yes, we could. In the administration area, in 1975, the administration's salaries nd employee benefits were $344,519 and in 1976, they were $334,350.00. The automo bile and travel 1 1975 was $17,368 and in 1976, $22, 443.0 0. MR.

SPIVAK: Your overall administration was reduced then by approximately, well, almost 200,000, and that realistically, came out of where, salaries? MR. CLEMENT: Quite a bit of it was more of a skillful handling of our collection procedures. MR. SPIVAK: Let us go ba ck to your salaries that you gave me before of 1976 and 1975. MR. CLEMENT: They are was ab out $10,000 less than salaries. MR. SPIVAK: That's all? MR. CLEMENT: Yes. MR. SPIVAK: So you were ab le to reduce it by $200,00 0. 00. All right, now let us just look at that 1reakdown. Where did you save the money in terms of administration? In ba d debts? MR.

CLEMENT: Well, that was the largest item. We were more ef fective in collecting our accounts 1nd collecting them promptly. I' MR. SPIVAK: What were your ba d debts in 1975 and 1976? MR. CLEMENT: In 1975, ba d debts were $120,636 and in 1976, they were $48,619.00. MR. SPIVAK: That would account for what, ab out $80,000. 00. What I don't understand with aspect to administration is where the actual saving was. 11

Economic Development Monday, May 16, 1977 MR. CLEMENT: Well, there was $10,000 in office supplies and postage. MR. SPIVAK: You've still got $100,000 to go. MR. CLEMENT: Our equipment rental was ab out $50,000 less. Instead of renting a lar1 computer, and renting space on it, we purchased a small computer. MR. SPIVAK: That came under administration; that didn't come under plant overhead, then� MR. CLEMENT: No. Equipment rental -historically we are in administration. MR. SPIVAK: When did you computerize it? MR. CLEMENT: A year and a half ago. We went to a computer at the time we took over Steel1 Briggs.

That's ab out four or a little over four years ago, and ab out a year and a half ago, we wentto small in-house computer which is working very well. MR. SPIVAK: What were your professional fees in 19 7 5 and 19 76 under Administration? MR. CLEMENT: In 19 75, they were $5 4,654; in 19 76 they were $2 4,2 48. 00. MR. SPIVAK: Can you tell me what those professional fees were for? MR. CLEMENT: Mostly for accounting work. In 19 75, we had the assistance of our chartere accountants in setting up the new computer system and helping us with the systems.

Last year,"' were ab le to largely dispense with any special services. We were ab le to do all our accounting wo r in-house. There were may b e a thousand or two thousand dollars of legal fees in connection with th Brett-Young sale. I would say it was very reasona ble. MR. SPIVAK: Can I ask a couple of things with respect to the directors?

The kind of analysis th1 I'm just dealing now with you which is very superficial and I acknowledge that-that's done by th Board of Directors, that is the analysis, the determination, with respect to the ba sic breakdown ofth statement, not the audited statements presented here but its breakdown. Is that correct? MR. CLEMENT: Yes. We have a monthly statement every month with all our costs on it, our sale and all our costs and we examine it every month. MR. SPIVAK: And that's presented to the Board of Directors? MR. CLEMENT: The Board of Directors at every Director's meeting.

We now have the accountin! faci.lity to do this and we have confidence in it because at the end of the year, it squareswith theaudi MR. SPIVAK: And so you are satisfied with respect to the breakdowns of the ba sic component that make up your central heading of expenses and plant overhead , selling and administration� MR. CLEMENT: No, I'm not. We're going to do a lot better than that this year. MR. SPIVAK: But you are at least satisfied with the accuracy of the statements and the ... th1 ab ility they ... MR. CLEMENT: They are accurate but I'm not satisfied with them, no. MR. SPIVAK: Well, Mr.

Chairman, my only comment would be to Mr. Evans. I wonder if he coulc indicate how many other Crown corporations are in the ba sic same position as A. E. McKenzie to b1 ab le to have the chairman say to this committee, as he just has, that in effect the directors meet; tha there's a breakdown of the expenses for the analysis, that in effect, they are going to do better bu they understand it. To my recollection, this is pro ba bly the first Crown corporation to present itself ir this way. MR. CHAIRMAN: Mr. Patrick. MR. PATRIC K: I have a question to Mr. Clement.

I am looking at the Financial Statement of thE McKenzie Seed and subsidiary companies and, of course, the loss from 618 to approximately 21 h extremely ... you know, somebody must have done a pretty good jo b . But, still looking at your salel and then costs of sales -and I don't know what's included in the cost of sales but it's $2, 838,00( which is perhaps the total la bour and so on, and then again, when we go into expenses, we hav E another item which was mentioned by the Member for River Heights, another $1,677,000, anothe1 charge to selling.

So is there any cost of sales included in that first item which is cost of sales? If there is, then it would appear that may be it's quite heavy in the way we're either promoting or using � course of action that we're taking in the selling. Is there any cost charge to selling as well in that cos1 of sales or not? MR. CLEMENT: I presume you are looking at the Consolidated Statement of Earnings sheet in the statement. MR. PATRICK: That's right. MR. CLEMENT: The top line on it in 19 76 is our total sales $6,623,000.00.

Then, 42.85 percent o1 that is our cost of sales which is the cost of the product we buy-we don't raise the seed or grow the seed that we sell, we buy it -and that's what the cost of sales is. MR. PATRICK: I see. MR. CLEMENT: Buying it and getting it into our plant. MR. PATRICK: So then the total selling expenses would be under the expenses and. MR. CLEMENT: Yes. Yes. MR. PATRICK: .. . which is 1. 6 . MR. CLEMENT: And included in the selling is delivering it to the customer, the freight out of our plant. 1?

Economic Development Monday, May 16, 1977 III R. PATRICK: In the cost are the transportation charges as well. III R. CLEMENT: Yes. III R. PATRICK: I see. III R. CLEMENT: And picking it up again and bringing it back to our plant because, again, we are ling with a perishable product. We can't .. . at least we don't feel yet that we can leave thi s duct for a year on the retailers' shelves without radical change in the way the retailer would store I keep the product. We may be able to do that someday but we can't yet. MR. PATRICK: Is that reasonable cost compared to some of the other corporati on s ? MR.

CLEMENT: I think we are the only company that makes a public statement or con fession, as case may be, of our operation but we do buy a lot of seed from an American company , Northrup ,g, and they were really surprised that our selling costs were as modest as they were becau s e irs were about 3 percent higher in the United States so that is one basis of compari son. Being in United States, they are able to sell in a much more concentrated market and one would have 1ught that their costs of selling would have been less but actually it is more than ours. We instituted a fairly rigid discipline with our salesmen.

They don'tstay at the $32. 00 a night hotel s ey have about $12. 00 to $1 4.00 a night hotels to stay in so we don't ride the prestige cres t with our ling costs. MR. PATRICK: Would your staff have a certain area or certain accounts that they have to call on? MR. CLEMENT: Yes, it's regionalized across Canada. There is a group from Briti s h Columbia; a >up in Alberta and Saskatchewan; another group in Manitoba; the biggest market is in Ontario; the >st profitable market is in Quebec because our Quebec people do a wonderful job for us there; and 1 also have a Maritimes and Prince Edward Island selling group. MR.

PATRICK: That's all. MR. CHAIRMAN: Mr. Minaker. MR. MINAKER: Well, staying on that subject about the sales in Que bec. Do you have a French oduced catalogue as well, Mr. Clement? MR. CLEMENT: All our printing that goes into Quebec is bilingual. We don't have a French 1guage catalogue as we have no catalogue customers in Quebec.

Our catalogue, the McFady en .talogue you have there is mainly distributed in the Prairie Provinces and to some extent, Ontario. e are working on expanding this because if it is well handled, the catalogue sales program of a agnitude we should be able to mount , would be profitable for the company. MR. MINAKER: Mr. Chairman, I wonder if Mr. Clement could comment on the fact that he entioned that it is necessary to pick up the unsold packages of seeds at the end of the year and to ·ing them back and to check to see if they still had germination capabilities.

I wonderif Mr.Ciement >uld advise us what the normal shelf life of the seeds would be. Is it two year s , five year s , indefinite · how many times they can recycle them? MR. CLEMENT: The average is between four and five years but there are extreme varia bles �cause we sell quite a variety of seeds and some store a lot better than other s. it al s o depends on the >nditions under which they are on the shelf and when you say "on the shelf" really the retailers don't �ep them on the shelf once the growing season is over.

They would put them in a warehou s e or robably down in the basement and that might be the worse place in the world for seeds to be is in a asement if it was damp. What they need to have is cool, dry, well-ventilated storage to prevent any 1ange in germination. If that's possible, many seeds will la s t eight to ten year s and in first-class rder at the end of that time. McKenzie's name is stamped on every seed packet and we don't want to tke a chance on any substandard seeds being sold thefollowingyear so wepick them all up and put 1em back again in the selling season if they are still good.

We destroy any unusable seed. MR. MINAKER: Mr. Chairman, I wonder does that we mean that we guarantee to take back any nsold seeds at the end of the year after .. . like, the saleman goes out to sell a certain number of ollars of seeds, then these are taken back. Is it guaranteed we take all the unsold one s back? MR. CLEMENT: Well, we have two programs.

One of the programs is a guaranteed sales program nd it has been mounted with some of the larger retails like the chain stores and in thi s case, they are iven a special discount because they pay cash for all the seed we place in their store and then, at the nd of the selling season, we buy back everything they haven't sold. This provides us initially with the 1hole amount of money for this seed and we would like to see our whole program on that ba sis but he retail trade does not accept this selling program generally.

A large proportion of our sales are still 1n consignment, that is, the stands of packet seeds are placed on order, consigned order, in the etailer's store and then at the end of the season, the retailer pays for what sold out of that package tnd we take the rest of it back. We are finding that there are more efficient ways each year of handling this because we have tccumulated information as to the exact quantities of seed sold by every retailer in our connection md we are now sizing the size of the displays to fit with what they normally sell,

whereas, originally ve had about two sizes. Our display was too big for most retailers and the second size wa s al so too 13

Economic Development Monday, May 16, 1977 big for the smaller retailers so we now have more sizes and they are able to sell more with tyi ng up lE seed in an unsold conditio n. MR. MINAKER: Mr. Chairman, I wo nder would there be a normal percentage of seeds that� destroyed annually? Is there sort of an average figure that's comi ng forward that whe n they E brought back that there's five percent or four or two or a general known value that is bei ng destroye, MR. CLEMENT: Normally it's about 8 percent. That's 8 percent of what comes back.

We plac say, 100 percent of our expected sales out in a year and we get back usually just under 50 perce returns. Now, one of our mai n ma nagement ob jectives is to reduce that return factor because it h terrific implications both on our interest charges, our capital requirements, and our whole operatic if we can narrow that down. We are narrowi ng it down and this is why our statement is begin n ing look better. There is also the fact that we are havi ng to pay more and more for our seeds an d our cost product so that everyfewyears we have to increase the price of seed in a packet .

Whe n we do that, 11 have bee n in the habit of rippi ng all the packets an d emptying the seeds out an d maki ng a wholesa test of everything so that we have our an nual testing and the n we have our price changi ng testing.� are now going on to a program where we will cha nge prices on a few products each year so that tt ups and downs of these changes will not be so noticeable each year. MR. MINAKER: Well, Mr. Chairman, then I wonder if Mr. Clement could advise, the 8 perce ntth1 are destroyed, would they come under cost of sales? Is that where that figure would be enterec MR. CLEMENT: Yes. MR.

MINAKER: The n, the next question would be, the time of evaluati ng the destroyed seed: when would that be, after October 31st or prior to October 31st? MR. CLEMENT: Ok, it's usually prior to October 31st. The seed comes back usually in August an it is ha ndled during those last couple of mo nths. MR. MINAKER: So then both of these particular figures in 1975 and costs of sales, both of the r had the destroyed cost of the seeds deducted, or added to them. MR. CLEMENT: Yes, an nually. MR.

MINAKER: With regard to the Accounts Receivables, you indicated that yo u take int' account that sales are made and you have accounts receivables and the n there is a rebate if peopl haven't so ld the product. When is the accou nts receivables taken with regard to that? Is that prior t1 the year-end as well, that anythi ng that is returned is subtracted from the accou nts receiva bles an 1 added presumably to part of the cost of sales as they are destroyed? MR.

CLEMENT: Yes, our year-end is October 31st each year and that was designed to see the ent of the one year's operatio n so far as was possible to do so and then, after that, we start packagi ng an t getting ready for the next year's business. MR. MINAKER: Mr. Chairman, I wonder if Mr. Clement can advise why the general increase o in ventory as compared to 1975. I understand that it's now in creased by somethi ng like $890,001 approximately or $889,000, if you look on Page 2. What might be the reason for that in crease, Sir' MR. CHAIRMAN: Mr. Clement. MR.

CLEMENT: Our inventory consists of some seeds that isn't packaged, that has just beer bought, and also fully packaged seed an d in 1975 we didn't have as an efficie nt packagi ng year se that our made-up inventory, to which the cost of the printi ng and the la bels an d everythi ng wa1 added, as we did in 1976. 1n 1976we had more finished product readyat year end readyto ship so tha it was more valuable. lt doesn't mean that there is more in ventory, it means that there was more work· up on the in ve ntory of seeds that we had in stock. MR. CHAIRMAN: Mr. Minaker. MR. MINAKER: Mr.

Clement, there was at one time-I can't remember the name of the compa n� -whe n we dealt with the sale of- I don't know whether it was Brett You ng or Maple Leaf-some agreement where they took a percentage of the sales or profit. I'm tryi ng to remember the name of the company-unfortunately I didn't have the previous year end report. I was wondering, does that still exist or has everythi ng bee n settled on that? I notice there is $100,000 payment on purchase agreement to Maple Leaf on Page 5. I was wondering if that was one of those arrangements that we had in the past? MR.

CLEMENT: Well, that was the final purchase payme nt for Maple Leaf but it wasn't a percentage or a cost-sharing thin g. We are not on a percentage arrangement with an ybody except if we give discounts for large purchases or prompt payment, that's on a perce ntage arrangement but that's with our customers. MR. CHAIRMAN: Mr. Minaker. MR. MINAKER: So there is n't any outstanding agreements like there was say, two years ago, with companies that were sold ... MR. CLEMENT: No, we've got a very tidy operation. MR. MINAKER: 1 wonder if maybe Mr.

Clement could comment on Note 8 with regard to extraordinary items. lt says prior year's sales adjustment which amou nts to some $113,000. 1 wo nder 14

Economic Development Monday, May 16, 1977 lt these are made up or what they are? III R. CLEMENT: On Note 8, the two items, the second one was of all people, our accountant s 1n't billed us for services they had rendered by our year end and we accepted, finally, the :ement they gave us and paid it, but it was for services that . they had performed in the prior year, t was a $12,000 item.

On the $113,000 item, prior year's sales ad justments, they were largely returns from variou s npanies that had been under negotiation or disputed or guaranteed sales where we hadn't npleted our settlement, and this figure is the final determination of those settlements over the Jrns of seed and the payment of moneys tor rebates on guaranteed sales. MR. CHAIRMAN: Is the committee prepared to deal with the report page by page? Mr. Minaker. MR. MINAKER: I've finished. MR. CHAIRMAN: Mr. Banman. MR. BANMAN: Mr. Chairman, through you to Mr.

Clements, some of the question s that I wa s )Ut to ask was answered by the Member from St. James so I won't go into them. I notice that there is an increase in bank advances. Is that mainly due to the higher inventory that u are carrying? MR. CLEMENT: What page are you looking at? MR. CHAIRMAN: Is the committee prepared to go page by page through the report? MR. CLEMENT: Now that's related to our inventory item as well.

We pu shed the production ason forward so we had more product made up by the year end and therefore we borro wed the mey from the bank to pay our employees and pay for it and then that is recovered again. MR. BANMAN: I notice there is $50,000 due on this Sabetha Seed Company. Is that $50,000 thi s ar and $50,000 for the next year? MR. CLEMENT: Well, the present standing of that is there is $70,000 coming from Sabetha Seed, ere is $35,000 of it due this year and $35,000 of it due next year. And so far he' s paid every payment thin two days of the due date. MR.

BANMAN: I wonder, the figure on Page 6, as far as Notes Receivable are concerned, it clicates $100,000. Is that the total that Sabetha owes us? MR. CLEMENT: lt was at that time. lt's been paid. This statement is October 31, 1976, since then 1 has paid down to $70,000. MR. BAN MAN: You mentioned your Accounts Receivable before and I notice they are do w n quite 1bstantially, about $150,000. Is that because you are collecting a little harder now? MR.

CLEMENT: Partly that and partly our accounting people, I think they know what they are >ing and the invoices go out and everything matches up and there's hardly ever any rea son for a �rson to dispute an account. While we were putting together the two companies, the Steele-Briggs Toronto and the McKenzie operation in Brandon, there were a number of disputes over account s hich had to be settled before we could have the accounts paid and that did build up an Accounts eceivable. Now they have all been dealt with and caught up and that's the rea son for our pre sent ccounts Receivable being in good order. MR.

BANMAN: Would this basically be 30-day accounts. You mention that when you bring out �eds to a particular company they pay you and then when you go to pick up the seeds, let's say, at 1e end of the season you will re-imburse them for the seeds that they did not sell. So are we looking t 30-day accounts here or what would we be looking at? MR. CLEMENT: The average is a 30-day account, but some of our accounts pay them more uickly in order to earn a small discount.

There are some customers whose computer automatically rints a cheque if a discount is offered, so we offer a small discount to those people and we get paid nmediately, not 30 days but immediately the Accounts Receivable computer reads it and sends a heque back for it. But that $881 ,000 of Accounts Receivable has all been paid as of no w except for 30,000 of it.

That was what was owing October 31st but it has all been paid except $30,000 and I think 1ere is only 11 accounts represented in that amount and there are only one or two minor di spute s bout balances so that we think we have that part of the operation well in hand. What we will be 1orking away at in the coming months is to keep our costs of selling do w n to the minimum •ercentage figure that we can achieve and still service our product and still get back. MR. CHAIRMAN: Mr. Banman. MR. BANMAN: That's fine, thanks. MR. CHAIRMAN: Take the report page by page. Mr. Evans. MR.

EVANS: I would like to ask a question, justto have it on the record. Mr. Chairman, I would like o ask Mr. Clement whether the company has received any write-offs or interest forgiveness by the Aanitoba Development Corporation? MR. CLEMENT: That wasn't whether we had asked for it or not? No, we haven't. MR. EVANS: No write offs. MR. CLEMENT: We paid the standard rate. At least we were told it's the standard rate. MR. EVANS: Well thi s is my question, do you have any preferential interest rate from the money 15

Economic Development Monday, May 16, 1977 that yo u bo rrowed from the MDC. Do yo u pay any preferential interest rate? MR. CLEMENT: No . No , we do not. MR. CHAIRMAN: Mr. Evans. MR. EVANS: Well, no, I think I made the po int, Mr. Chairman, that there has been no spe< treatment given by the MDC to this co mpany. MR. CHAIRMAN: Page 1. Mr. Minaker. MR. MINAKER: No , I'm sorry, it's Page 2. MR. CHAIRMAN: Page 1-pass. Page 2, Mr. Minaker. MR. MINAKER: Just a curi osity. I was wondering why the page wasn't signed or was tha typ ographical error? MR.

CLEMENT: The signed co pies are in our safe in Brandon and I think this was duplicat bef ore the signatures were on it but there are signed co pies, exactly the same as this. MR. CHAIRMAN: Page 2. Mr. Minaker. MR. MINAKER: I'm sorry. Page 1, I was wondering, with regard to the Inventory , the $41h milli1 appr oximately, on Page 1 there, what would that be in terms of bulk seed? Percentage or value. Is tt mostly all packaged? MR. CLEMENT: Mr.

Mo o re tells me that there is appr oximately $1 milli on worth of bulk seeds tt1 hadn't been packaged at that peri o d and ab out $300,000 worth of bulk onio n sets that's not package MR. CHAIRMAN: Mr. Minaker. MR. MINAKER: Mr. Chairman, I have no idea of the seed market, ho w the prices fluctuate and 1 fo rth, but are they pretty well stable to what theywere-1 presume that the bulk seed yo u wouldvah them at the market value at that time at close off. Is it pretty well stable or has it co me up? MR. CLEMENT: We, as the note on the statement sh ows, we value the made up merchandise whichever is lower.

Either what it co sts us including the pr oduct and the work on it or the n realizable value. MR. MINAKER: But ho w are the market prices on the bulk seed as co mpared today. ! wascuri o l as to whether it is a fluctuating market or is it generally stable? MR. CLEMENT: The market seems to be going up now. There was a peri o d when seed was ve1 sh ort and co mmanding very high prices but there seems to be more than ample supplies of seec now .

Three years ag o all the growers anticipated pe op le would gro w more and more gardens i apartments and ho mes and the growers put in acres and acres more of seed in response to the hig prices and, like everything else they overdid it so that there is more seed on the market and this hB made us able to get go od stocks of seed at reas onable prices. r- MR. CHAIRMAN: Mr. Minaker. � MR. MINAKER: Thank yo u. MR. CHAIRMAN: Page 2-p ass. Page 3-pass. Page 4. Mr. Adams. MR. ADAMS: Mr. Chairman, Mr. Clement, on Page 4 we have, down at the bo tto m of the pagE Other Items which are sh own on the double sheet.

Do yo u anticipate anything in the co ming year a far as other items that will affect yo ur ... MR. CLEMENT: Well, we are negotiating on the sale of some buildings and it may well be that the' might be sold. That would be the only thing, would be a co nversio n fro m a wh olly owned building t1 renting space in a seed wareh ouse fo r distribution and in many instances, since we've changed ant got away fro m this bulk seed business, we don't need the great big wareh ouses that we did neet years ag o .

So when we find a go od market fo r a wareh ouse, we are likely to sell the wareh ouse anc then just rent space in a br oker's wareh ouse fo r a limited time. MR. ADAM: Ho w many wareh ouses do we have yet that aren't utilized? MR. CLEMENT: Well, there's one in Winnipeg, one in To ro nto , one in British Co lumbia, an< Quebec. MR. ADAM: Are these rented? MR. CLEMENT: No , these are owned by McKenzie. MR. ADAM: I mean, do yo u rent them out? Are yo u receiving any inc ome? MR. CLEMENT: If we have surplus space we rent out space in it where we can and als o a co uple 01 these we just rent space in.

We have the wareh ouse facility there in th ose cities and we use them as distributing po ints. MR. ADAM: So if yo u don't have this type of a situati o n on yo ur next inc ome, yo ur pr ofit co uld be between $200,000 or $300,000. 00? Wo uld that be a fair estimate? MR. CLEMENT: Well, Mr. McGill reminded me earlier that I'd made a fo recast of pr ofitability that wasn't co mpletely accurate so perhaps I co uld beg off this time. MR. CHAIRMAN: Mr. Evans. MR. EVANS: Just a general po int. The po int was made by Mr.

Spivak that, yo u know, as a Cr own agency the co mpany does not pay inc ome tax on its pr ofits, and of co urse this is no different fro m any other Cr own co rp orati on anywhere in Canada, whether it be Federal or Pr ovincial. But is it not the case that if yo u were in a sufficiently pr ofitable po siti o n whereby-yo u know, much stronger than 16

Economic Development Monday, May 16, 1977 -while it is true you would not pay income tax, is it nottruethat you would be paying all of those fits to the government, to the Crown, as does the Manitoba Telephone System, for example? III R. CLEMENT: I think, Mr. Chairman, as far as the company is concerned, the company would fer to pay profits from the company on equity investment to the government for the people of 1itoba, rather than paying it out in interest to the bank or in income tax to the Federal Government. MR. CHAIRMAN: Page 4-pass. Mr. Minaker. MR. MINAKER: Mr. Chairman, I wonder if Mr.

Clements can advise ... he indicated that when y calculate their sales, that they have subtracted all of the returned items for stock. What has the centage of returned items been running from year to year on these packaged goods, is it 10 cent, 20 or what? MR. CHAIRMAN: Mr. Clement. MR. CLEMENT: I'll just check with .... MR. MINAKER: Well what I was wondering was what roughly is your bookings a year and ... MR. CLEMENT: On the packet seeds, it was 50. 1 percent in 1975, last year in 1976, it was 45. 3. MR. MINAKER: So in actual fact then, Mr.

Chairman, when they initially booked the sales, you're (ing probably around $12 million worth of sales, and then you subtract yo ur inventory that yo u 'le coming back to get this $6,600,000 figure? MR. CLEMENT: What the retailer books is, is a rack of a certain size with a retail value of packets of He books a rack of that size, and then when we come around and count what he has sold, we bill n, and that's all he buys, just what's sold off there. So we don't count that as a sale until it's been Id off his rack on the consignment sales.

On the guaranteed sales the retailer pays us for all the eds that are ordered, and then if he doesn't sell some of them, we buy it back from him . So it ,uldn't be exactly double, it could be something less than double. MR. MINAKER: But I would think, Mr. Chairman, you must have some kind of a book value even on ase consignment ones, that there's an understanding that if you get a signature from the people at take it on consignment that they'll be paying you for that year's, so that you must have mewhere in your computer a figure of the value of goods that are out on the shelf to prior to 1llection date. MR.

CLEMENT: Well this is true during the year, but at the time that the statement is made up there e no seeds out on shelves at all, they're all back in the plant again and this statement is made up on e sales we know, and the inventory we know, if it's back in the plant. So this statement is completely ean in that regard because there isn't anything out on the shelves. October 31st is nota garden time Canada. MR. MINAKER: And all the seeds have been checked for germination qualities by that date and Jt back on the shelf or storage in your area? MR.

CLEMENT: Well most of it is. lt is usually tested for germination just before it's packaged, and e inventory listed there is packaged, but there is also about $1 million worth of bulk seed that hasn't I been tested because it's done just before it's packaged. MR. MINAKER: When would it be packaged? MR. CLEMENT: lt's done continuously. lt's usually finished by the middle of February. MR. MINAKER: So that in actual fact, would there be an 8 percent loss on that million dollars in LJik, or is that not in that? MR.

CLEMENT: No, that wouldn't come about unti I the next fall when the testing was done on the �ed that was brought back into the plant. lt's just one time of year that seed is destroyed, and that's hen it comes back in the fall if it's not up to standard. Our new seed is tested as is purchased, and it's 1ixed and blended with ... MR. MINAKER: I see, okay . Thank you very much. MR. CHAIRMAN: Mr. Spivak. MR. SPIVAK: What would your payables be over 90 days? MR. CLEMENT: Zero. MR.

SPIVAK: That would mean that your capital tax, if you were paying it, would be between 16 nd 18 thousand dollars, which is another benefit that you have. MR. CLEMENT: We do pay Manitoba capital tax. MR. SPIVAK: You do pay capital tax? MR. CLEMENT: We are not exempt. MR. SPIVAK: Not exempt. Where is the capital tax shown? In your salary? MR. CHAIRMAN: Order please. Mr. Clement I wonder if you would answer the last question so hat it will appear in Hansard. MR. CLEMENT: There are no accounts payable over 90 days other than ... well the ones shown o the Maple Leaf Milling, it's been paid. MR. CHAIRMAN: Mr. Spivak.

MR. SPIVAK: Well, I wonder if through you, Mr. Chairman, to the Minister, can we establish .. 17

Economic Development Monday, May 16, 1977 Do all Cr own co rp orati ons pay the capital tax? MR. CHAIRMAN: Mr. Eva ns. MR. EVANS: I am a little leery to an swer that question. There may be some differential depe nd on what the nature of the Cr own co rp orati on is. I thi nk the Wo rkers' Co mpe nsatio n Boarc classified as a Cr own co rp orati on, fo r example, legally. So , I am not really sure, but yo u know co uld fi n d that out. I would be glad to fi nd that out, but I really co uldn't an swer McKe nzieis require< pay that tax because it is co nsidered to be a normal co mmercial op erati on. MR.

CHAIRMAN: I wo nder if we co uld restrict our questions to Mr. Clement on the item tha befo re us an d not get in to the broa der topic of Cr own co rp orati ons. MR. SPIVAK: I thi nk, Mr. Chairma n ... MR. EVANS: Mr. Chairma n, I do n't have the an swer. MR. SPIVAK: Well, I thi nk, thr ough yo u because we will be deali ng with the other Cro • co rp orati ons, it would be imp orta nt to know whether they do, in fact, pay the capital tax, whetl Hydro pays a capital tax, the Teleph one System pays a capital tax. MR. CHAIRMAN: I am not sure that they are particularly releva nt to A.E. McKe nzie Compa r MR.

SPIVAK: Well, I am quite surprised that they pay the capital tax, because if you say that th sh ouldn't pay inco me tax because the mo ney go es to the pe op le, the n I ca n't understand t rati onale fo r capital tax. I accept that .. . MR. EVANS: The federal law says that a Cr own co rp orati on doesn't pay in co me tax, federal, a therefore, doesn't pay pr ovi ncial, but this is a pr ovi ncial capital tax an d it has been deemed tt McKe nzie's, as a co mmercial op erati on, shall pay this tax. We do n't like it but we pay it.

I ca n't an sVII yo ur other question, but that co uld legitimately be put to the Mi nister of Fi na nce an d he co uld gi yo u the rest I am sure. I do n't have the in fo rmati on. MR. CHAIRMAN: Page 4-pass ; Page 5-pass ; Page 6-pass ; Page 7. Mr . Spivak. MR. SPIVAK: I refer to the Audit or's Repo rt, an d this is the last page. I wo nder, through you to 1\i Clement, whether he ca n indicate wheter on an y occasi on the Pr ovi ncial Audit o r has bee n request• or asked to assist or participate in an y of the activities of A. E. McKe nzie, or exami natio n of ar activities. MR.

CLEMENT: No t as far as I am aware. MR. SPIVAK: There was never an occasi on in which there was a request made to him or a reque fro m him thr ough the Mi nister to yo u? MR.

CLEMENT: He may have had some lo ok at the statement with regard to the evaluati on 1 shares an d the nego tiati ons with Bra n do n University, but so far as the Ma nagemen t of McKe nzie 's co ncerned, we have had a local firm do the audit fo r years, an d he is not only very well ac quai ntE with the op era ti on of McKe nzie's but is quite helpful in bringi n g fo rward methods of ha ndli n co mputer work an d acc o u nti n g work, so that we rely on him both fo r experie nce an d for expe rtis ' MR. EVANS: Mr. Chairma n, just fo r clarificati on, it is co rrect, Mr .

Clement's an swer wa s correct, was the shareh olders wh o asked the Provi ncial Audit o r fo r an op i nion with respect to t� nego tiati ons that have been go ing on with Bra ndo n University, vis-a-vis the Trust Acc o u nt, an d fc an indepe nde nt evaluati on an d appraisal of the share value. But, as I understand, as Mr . Clement ha said, this has bee n a lo ng time, this is a well established Bra n do n firm which has been used for ma n years -ho w ma n y years is it? MR. CLEMENT: Oh, 15 years an yway. MR. EVANS: lt is the same co mpa ny that has bee n used fo r ab out 15 years I understand. MR.

SPIVAK: To wh o m does the Pr ovi ncial Audit o r rep ort his fi ndi ngs? The shareholders? Th University of Bra ndo n ? MR. EVANS: Well, yes, we asked him on this one specific issue to give the .. . MR. SPIVAK: Wh o? The university or the governme nt? MR. EVANS: Well, it is to the go vernme nt, but that info rmati on would be made availa ble to th university to o. MR. SPIVAK: And he presented a rep ort. MR. EVANS: Yes, a very brief op i nion as to the value. Only with regard to thi s one specifi t question of the trust fu n d an d the acquisiti on of the shares by the go vernme nt. MR.

SPIVAK: And that rep ort was satisfactory with respect to all the thi ngs that were represented or was there an y recommendati ons ... MR. EVANS: Well we didn't ask him to pr ovide this ... to the co mpa ny. MR. SPIVAK: No , no, I am not aski ng, but were there an y recommendati ons on his pa rt or wa s i just an accepta nce of the .. . ? MR.

EVANS: Yes, I believe, as I recall, Bra ndo n University wa nted to be satisfied with th E arra ngements that were being suggested an d we asked fo r the Audit o r to give us an op in io n on tha an d he gave us an op in io n . lt wasn't on the op erati on of the co mpa ny or on the validity of th E statements. MR. SPIVAK: What was his op in io n ? 18

Economic Development Monday, May 16, 1977 IR. EVANS: What wash is opinion? His opinion was - I don't know whether I can paraphrase it , it been some time since I read the statement and it was very brie f , and I have given it to some body to analyze - but , as I understand it the gist of it is that the agreement, the payment that wewant ake or are hoping to ag ree with the university, you know, was an adequate payment. Again I am a 1 hesitant to answer because I would like to read the statement and answer you because I don' t t to give you any m is leading in formation.

He clari fied to the satis faction of the university what the ·es were worth of the company. I think there was some opinion among the Board of Governors of university that the shares had a certain additiona l va lue which we maintain they did not , given the istic situation that the company was in and he gave us an opinion on that which was made la ble to the Board of Governors. III R. SPIVAK: Well, the on ly thing disturbing ab out the Minister's statement is the fact that he is analyzing it.

You know, if the Provincial Auditor has given him a statement, that or someone from department is ana lyzing it I find it a little bit strange. VIR. EVANS: Well you didn't hear my answer. VIR. SPIVAK: Yes, I was listening. Well, no but even so, I think it is pecu lia r that it has to be trpreted. ""R. EVANS: lt is not that comp licated that it has to be interpreted, it is just a matter of ninistrative procedure. I like certain other people to tell me that they are satis fied with what the nnorandum said to us, and I think I am satis fied with it. MR.

CHAIRMAN: Page 7-pass ; Report be received. (Agreed) That being the on ly item on the 1nda this evening, I thank you, Mr. Clement. Committee rise. 19

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Document details

Collection	Manitoba — Debates (Hansard)
Citation	30-4-ed2
Type	hansard
Volume / chapter	30th 4th hansardpdf ed2.pdf
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	c40d5c4aeefc8d337bb14dfbfea778269aa7df73

Source file is stored in the law ingest library (pdf).