Ceres Global Ag Corp
1920 Yonge Street Suite 200
Toronto, Ontario
Canada M4S 3E2
ceresglobalagcorp.com
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The province of
Saskatchewan is rich
in agricultural and
natural resources.
The next booming market
Agriculture
The agriculture industry in
Saskatchewan is the most
diversified industry sector in
Canada with $11.1 billion in export
sales in 2012. This is an 83%
increase from 2007 levels.
Saskatchewan’s top three exported
agriculture commodities include
non-durum wheat, canola seed
and canola oil with annual sales
of $6 billion.
Oil and gas production
Saskatchewan is Canada’s second
largest oil producer with ~10%
of Canada’s reserves for oil and
25% of its gas reserves. There are
approximately 8 billion bbl of crude
oil resources and 10 tn cubic feet of
natural gas resources in Saskatchewan.
The province produces 40,000 bbl/
day or more than 20% of total
Canadian oil production. From this
about 83% is exported.
Energy and natural resources
The province produces more
than 8 million tonnes of potash per
year. Only about 5% is consumed
in Canada, with the remainder
being exported.
Saskatchewan is Canada’s third-
largest coal producer and is
also rich in high grade uranium
resources. Uranium is processed
domestically then exported to
international markets.
CERES GLOBAL AG CORP. ANNUAL REPORT
1
We are in the process of constructing a new commodity
logistics centre on 1,300 acres of land, located on the border
between Northgate SK and Northgate ND, effectively linking
Saskatchewan’s resources to the U.S. Midwest. The Northgate
Commodity Logistics Centre (“NCLC,” “Northgate”) is designed
to utilize high-efficiency rail loops, capable of handling unit
trains of up to 140 railcars. The site will initially contain a grain
handling and shipping facility, followed by the construction
of an oil and natural gas supply logistics centre to facilitate
exports from Saskatchewan’s and Western Canada’s energy
sector. A frac sand, pipe and cement unloading centre will be
added to bring these products in from the United States to
service Western Canada’s energy industry.
Northgate will connect directly with 32,000-mile BNSF
network and is expected to give shippers direct access to
customers and markets in 28 American states, including over
45 crude-by-rail destinations, as well as to numerous Pacific
and Gulf ports, and to Mexico. Access to many other strategic
interior locations in the Eastern U.S. and at Atlantic ports
are also available through BNSF’s interline rail connections,
providing new options to Canadian farmers and oil exporters.
2
Our next great initiative
With exports in commodities and natural resources
growing, the government has invested a record
$4.3 billion in transportation infrastructure since 2008.
Regina
Canadian Pacific Main Line
Richardson
Tyvan
Filmore
Stewart Sourthern Railway
US/Canada Border
Northgate
Minot
Burlington Northern Santa Fe Main Line
Northgate �
provides a key north-south
connection between the US
and Canada.
Regional rail networks ˇ
show a gap in linking
north-south rail routes.
Edmonton
Red Deer
Vancouver
Trail
Calgary
Lethbridge
Swi(cid:8) Current
Saskatoon
Regina
Brandon
Winnipeg
Minot
Thunder Bay
Minneapolis
St. Paul
Toronto
CERES GLOBAL AG CORP. ANNUAL REPORT
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Our Northgate facility
This key north-south
transportation link will service
the grain commodity and
energy sectors.
4
Northgate Facility Design
The transloading facility will contain 12,500
km of rail line, including an 2.6 km rail loop.
The terminal will be able to load 2.2 million
bushels of grain onto 120 railcars within a
12-hour period. For NGLs, the facility could
potentially serve up to 105 million gallons in
annual capacity.
Grain Terminal
Oil Loading Area
Transload Area
Oil Terminal
Customs Building
CERES GLOBAL AG CORP. ANNUAL REPORT
5
Commodity logistics is
already in our blood.
Moving grain and oil
commodities is our business.
Our 25% ownership stake in
Stewart Southern Railway adds
depth to our logistics profile.
6
Canadian Pacific Main Line
Regina
Richardson
Stewart Sourthern Railway
Tyvan
Filmore
The Stewart Southern Railway (“SSR”) is a 132 km short line railway that runs
from Richardson, SK to Stoughton, SK. Although traditionally a link for grain
transport, the SSR has recently diversified into providing transportation for
crude oil production from the Bakken region and has also capitalized on the
opportunities from the construction of a direct pipeline into Stoughton from a
major regional oil producer. With approximately 18,000 railcars in the 2014 fiscal
year, the SSR is aggressively looking for increased shipment opportunities in oil,
grain and other commodities.
CERES GLOBAL AG CORP. ANNUAL REPORT
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Our expertise lies in
moving grain across
the US Midwest and
Canada.
Riverland Ag’s storage and handling facilities are
strategically located – with connections to key trucking
routes as well as rail and shipping channels. We see
significant synergies between Northgate and Riverland
Ag. As planned operators of the Northgate facility,
Riverland Ag will be able to capitalize on additional grain
origination opportunities direct from Western Canadian
farmers, as well as a feeder source to the downstream
improvement of Riverland Ag’s existing storage assets
by lowering grain purchase costs, increasing throughput
and inventory turns, and improving capacity utilization.
8
Leveraging our expertise
onto Riverland...
All Along the Grainbelt: Riverland Ag Grain Storage Facilities
CERES GLOBAL AG CORP. ANNUAL REPORT
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British ColumbiaAlbertaSaskatchewanManitobaOntarioQuebecNew YorkMichiganPennsylvaniaOhioIndianaIllinoisIowaWisconsinNorth DakotaSouth DakotaNebraskaColoradoRiverland grain terminalsMajor grain terminal hubsIdahoWashingtonOregonWyomingMontanaVermontMinnesota With our positioning in
Northgate, we hope to be
a significant part of the
Bakken expansion story.
In recent years, the production of oil and natural gas
liquids (“NGL”) in the Bakken Shale has more than
doubled to approximately 50 million barrels/day.
The build-out of additional pipelines and terminals
could see regional production rise more than six-fold
by 2018. In Saskatchewan alone, there are approximately
8 billion bbl of crude oil resources and 10 tn cubic feet
of natural gas resources.
10
...while capitalizing on regional
energy production.
Rail and NGL pipeline infrastructure moves mainly east and west
Northwest Territories
Alberta
Regina
Stewart Sourthern Railway
Richardson
Tyvan
Filmore
Manitoba
British Columbia
Saskatchewan
Northgate
Manitoba
Bakken Shale
North Dakota
Washington
Regina
Richardson
Tyvan
Filmore
Stewart Sourthern Railway
Ontario
Northgate
Montana
Wyoming
North Dakota
South Dakota
Minnesota
Wisconsin
Nebraska
Iowa
Michigan
Ohio
Illinois
Indiana
Kansas
Texas
Missouri
Oklahoma
VT NH
New York
Pennsylvania
Enbridge
Inter Pipeline
Access
Plains Midstream
Pembina
Suncor
Spectra Energy
Trans Canada
Kinder Morgan
Trans Northern
Portland Montreal
CERES GLOBAL AG CORP. ANNUAL REPORT
11
Segment Highlights
Riverland Ag Revenue
SSR EBITDA
223.1
232.4
184.4
5.83
4.80
1.00
F2012
F2013
F2014
F2012
F2013
F2014
Steady growth to Riverland’s top line
Significant improvements to SSR’s operating profits
13%
Average annual growth
in revenue since 2012
95%
Three-year compound
annual growth rate
12
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
You are cordially invited to our annual and special meeting (the “Meeting”) of shareholders
of CERES GLOBAL AG CORP. (the “Corporation”), which will be held on September 29, 2014
at the Omni King Edward Hotel, Belgravia Room, 37 King Street East, Toronto, ON, M5C 1E9.
The specific details of the matters to be put before the Meeting are set forth in the
Management Information Circular.
CERES GLOBAL AG CORP. ANNUAL REPORT
13
Message from the Chairman
To Our Fellow Shareholders:
I am pleased to report on the many activities and accomplishments of your company during fiscal
year 2014.
In the fall of 2013, Ceres Global Ag Corporation saw the appointment of new members to its Board
of Directors and the start of the transition to internalizing the management of the company.
As a first step, the new Board undertook a rigorous strategic review of all aspects of the company.
It was clear that the largest asset – Riverland Ag Corporation – had strong management and
good assets but had too much capacity for the markets it served. Secondly, Riverland had one
strategic disadvantage of not being able to source grain directly from farm producers. In other
words, it lacked good origination.
The other large asset – the Northgate Commodity Logistics Centre (Northgate) – is strategically
located in Southern Saskatchewan in the centre of Western Canada’s agricultural production
area and also is located in the centre of the Bakken oil field. Additionally Northgate connects
directly to the 32,000-mile Burlington Northern Santa Fe rail network, offering north/south service
not only to Riverland but also to all markets and ports in the United States and Mexico. Hence
this location offered large profit generating possibilities for many products as well as strategic
origination of grain for Riverland Ag.
These facts led to the Board’s decision to retain the complete ownership and operation of the
rail loop and the grain facility at Northgate. In order to facilitate grain shipments as quickly as
possible from Northgate to Riverland and potentially to other locations, the Board decided to
install a temporary grain transloading facility at Northgate. This will allow grain shipments to take
place while the permanent grain storage and shipping facility is being built. We anticipate that
Riverland Ag will benefit from grain origination in Canada this coming fall. Consequently, grain
volume throughput and enhanced profitability at Riverland will be realized as quickly as possible.
To reduce grain storage capacity, Riverland Ag has divested two grain elevators since the
beginning of 2014 for gross proceeds of US $7.6 million. The elevators are located at Manitowac,
Wisconsin and at Wahpeton, North Dakota.
These divestments put us on the right path towards improving capacity utilization at Riverland.
Going forward, Riverland’s management team is focussed on reducing costs and creating
additional value from its core assets, while working to improve margins and grow earnings.
With the removal of the Canadian Wheat Board marketing monopoly in Canada, there will be a
much larger north/south movement of grain between Canada and the United States and Mexico.
Our company is perfectly positioned to take advantage of this flow of products having grain
assets on both sides of the border.
I can also report that construction of all our facilities at Northgate is proceeding on schedule and
on budget. We anticipate that the horizontal build of the rail loops and the laying of the track will
be completed in September and the temporary grain transloader will be operational in October.
As I mentioned earlier, we have been developing the plans for larger grain storage and shipping
terminal which will accommodate unit trains of approximately 110 cars.
14
On the energy side, Ceres has a number of opportunities at Northgate and the Board is currently
analysing each one for longer term profitability potential.
I am also pleased to report that Ceres arranged a US $20 million bridge loan which will allow us
to complete both the horizontal build and the temporary grain transload facility at Northgate.
The Special Committee of the Board is exploring alternate ways to raise capital to finance the
permanent grain facility as well as other opportunities at Northgate.
Our third largest asset is our 25% interest in the Stewart Southern Railway (SSR), a 132-kilometre
(82-mile) short-line railway that extends from Richardson Saskatchewan (just southeast of
Regina) to Stoughton, Saskatchewan. The SSR’s recent move into transporting of oil by rail car
makes our investment more compelling. We anticipate that increased sales at SSR will continue
throughout 2015 and beyond given the growth in both regional energy production and continued
strong volumes of grain shipments. In combination, our investments in the SSR and in our
Northgate project offer unique shipping opportunities for the growing volumes of commodities
being exported from Southeastern Saskatchewan and Western Canada.
Earlier this year, the Board of Directors started a world-wide search to find the right person to
lead the company into the future. I am pleased to report that Mr. Pat Bracken will be joining our
company on September 1, 2014 as President and CEO. Pat has over 30 years of experience in
senior management positions in both the agribusiness and energy sectors. Pat replaces Michael
Detlefsen who provided leadership as we moved from an external management team to in house
management. I want to welcome Pat and also thank Michael for his contribution over the past
year.
Pat will be joining our Board of Directors along with Mr. Harold Wolkin. Harold has an extensive
background in investment banking and will provide valuable guidance as we examine alternate
ways to raise additional capital.
In summary, we have made considerable progress this past year. We have a well-defined
strategy, we have rationalized our capacity at Riverland, we have moved quickly to complete the
horizontal build of the loop track at Northgate, the temporary grain loading facility is nearing
completion, and we have hired an experienced President and CEO and we have expanded our
Board of Directors.
I am the first to admit that much remains to be done. Our strategy is to take advantage of
the many opportunities that we have and to maximize the value of our investments for our
shareholders. We recognize it will take time to realize the benefits of our plan but I am confident
that Ceres is well on its way to improved profitability and to growth.
As always we are grateful for the support, diligence, and guidance of our Board of Directors, and,
for the understanding and loyalty of our shareholders. I also wish to thank all of our employees
for their dedication and hard work as we realize the benefits of the many changes we have
implemented. We very much look forward to continuing with our plan.
Sincerely,
Douglas E. Speers
Chairman, Ceres Global Ag Corp.
CERES GLOBAL AG CORP. ANNUAL REPORT
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
This annual management’s discussion and analysis (“MD&A”) presents management’s
discussion and analysis of the consolidated financial position of Ceres Global Ag Corp. (“Ceres”
or the “Corporation”), the consolidated results of its operations, liquidity and capital resources,
business risks and future outlook. This MD&A should be read in conjunction with Ceres’ annual
audited consolidated financial statements for the years ended March 31, 2014 and 2013, which
are prepared in accordance with International Financial Reporting Standards (“IFRS”).
Riverland Ag Corp. and Riverland Agriculture, Ltd. (collectively, “Riverland Ag”) represent
Ceres’ largest investment and are wholly-owned subsidiaries of Ceres. In discussing the annual
results of operations, reference will be made to results on a consolidated basis and to results for
Riverland Ag separately.
This MD&A has been prepared as of June 16, 2014. Unless otherwise indicated, all dollar
amounts are reported in Canadian dollars (“CAD”). Additional information relating to Ceres,
including the Corporation’s Annual Information Form for fiscal 2014, can be obtained on
SEDAR at www.sedar.com.
FORWARD-LOOKING INFORMATION
This annual MD&A contains information that is “forward-looking information”, “forward-
looking statements” and “future oriented financial information” (collectively herein referred to as
“forward-looking statements”) within the meaning of applicable securities laws. Forward-
looking statements in this document may include, among others, statements regarding future
operations and results, anticipated business prospects and financial performance of Ceres and its
subsidiaries, expectations or projections about the future, strategies and goals for growth,
expected and future cash flows, costs, planned capital expenditures, anticipated capital projects,
construction and completion dates, including the plans, costs, timing and capital requirements for
the development of the Northgate Commodities Logistics Centre (“NCLC”), operating and
financial results, critical accounting estimates and the expected financial and operational
consequences of future commitments.
Generally, forward-looking statements can be identified by the use of forward-looking
terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “outlook”,
“likely”, “probably”, “going forward”, “scheduled”, “estimates”, “forecasts”, “intends”,
“anticipates” or “does not anticipate”, “believes”, “may have implications” or similar words and
phrases or statements that certain actions, events or results “may”, “could”, “should”, “would”,
“might”, or “will be taken”, “occur”, or “be achieved”. Forward-looking statements in this
document are intended to provide Ceres’ shareholders and potential investors with information
regarding Ceres and its subsidiaries, including Management’s assessment of future financial and
operational plans and outlook for Ceres and its subsidiaries.
Forward-looking statements are based on the opinions and estimates of management at the date
the information is made, and are based on a number of assumptions and subject to a variety of
risks and uncertainties and other factors that could cause actual events or results to differ
materially from those projected in the forward-looking statements. Actual results or events may
differ from those predicted in these forward-looking statements. All of the Corporation’s forward-
looking statements are qualified by the assumptions that are stated or inherent therein, including
the assumptions listed below. Although Ceres believes these assumptions are reasonable, this list
is not exhaustive of factors that may affect any of the forward-looking statements.
Key assumptions have been made in connection with the forward-looking statements in this
annual MD&A. These assumptions include, but are not limited to, the following (in no particular
order of importance):
- The expected transition towards a more integrated North American grain commodity
markets as a result of the deregulation and privatization of the Canadian Wheat Board,
which has effectively dismantled the monopoly in marketing wheat crops in Canada
enabling farmers to gain more direct access to the open market;
- Volume and quality of grain held on-farm by producers in North America are expected to
increase as a result of the opening up of the Canadian grain market;
- No material change in the regulatory environment in Canada and the United States;
- Supply and demand factors as well as the pricing environment for grains and other
agricultural commodities;
- Fluctuation of currency and interest rates;
- General financial conditions for Western Canadian and American agricultural producers;
- Market share that will be achieved by the Corporation;
- Riverland Ag’s ability to maintain existing customer contracts and relationships;
- Expected increase in the utilization of Riverland Ag’s facilities;
- Continued compliance by Riverland Ag with its loan covenants;
- The successful financing and completion of Northgate Commodities Logistics Centre
(“NCLC”) and all required regulatory permits and approvals;
- The ability of Riverland Ag to successfully plan, design, build and operate the Northgate
grain elevator as well as its ability to realize the economic benefits resulting from the
synergies with NCLC;
- The successful internalization of Ceres’ management, processes and procedures;
- Ceres’ ability to obtain financing on acceptable terms;
- The successful negotiation of competitive rail freight agreements with Burlington
Northern Santa Fe Railway (“BNSF”) at Northgate; and
- The ability of Stewart Southern Railway Inc. (“SSR”) to continue its growth in grain and
oil shipments by rail, without service disruption.
1
2
16
document are intended to provide Ceres’ shareholders and potential investors with information
regarding Ceres and its subsidiaries, including Management’s assessment of future financial and
operational plans and outlook for Ceres and its subsidiaries.
Forward-looking statements are based on the opinions and estimates of management at the date
the information is made, and are based on a number of assumptions and subject to a variety of
risks and uncertainties and other factors that could cause actual events or results to differ
materially from those projected in the forward-looking statements. Actual results or events may
differ from those predicted in these forward-looking statements. All of the Corporation’s forward-
looking statements are qualified by the assumptions that are stated or inherent therein, including
the assumptions listed below. Although Ceres believes these assumptions are reasonable, this list
is not exhaustive of factors that may affect any of the forward-looking statements.
Key assumptions have been made in connection with the forward-looking statements in this
annual MD&A. These assumptions include, but are not limited to, the following (in no particular
order of importance):
- The expected transition towards a more integrated North American grain commodity
markets as a result of the deregulation and privatization of the Canadian Wheat Board,
which has effectively dismantled the monopoly in marketing wheat crops in Canada
enabling farmers to gain more direct access to the open market;
- Volume and quality of grain held on-farm by producers in North America are expected to
increase as a result of the opening up of the Canadian grain market;
- No material change in the regulatory environment in Canada and the United States;
- Supply and demand factors as well as the pricing environment for grains and other
agricultural commodities;
- Fluctuation of currency and interest rates;
- General financial conditions for Western Canadian and American agricultural producers;
- Market share that will be achieved by the Corporation;
- Riverland Ag’s ability to maintain existing customer contracts and relationships;
- Expected increase in the utilization of Riverland Ag’s facilities;
- Continued compliance by Riverland Ag with its loan covenants;
- The successful financing and completion of Northgate Commodities Logistics Centre
(“NCLC”) and all required regulatory permits and approvals;
- The ability of Riverland Ag to successfully plan, design, build and operate the Northgate
grain elevator as well as its ability to realize the economic benefits resulting from the
synergies with NCLC;
- The successful internalization of Ceres’ management, processes and procedures;
- Ceres’ ability to obtain financing on acceptable terms;
- The successful negotiation of competitive rail freight agreements with Burlington
Northern Santa Fe Railway (“BNSF”) at Northgate; and
- The ability of Stewart Southern Railway Inc. (“SSR”) to continue its growth in grain and
oil shipments by rail, without service disruption.
2
CERES GLOBAL AG CORP. ANNUAL REPORT
17
The preceding list is not exhaustive of all possible factors. All factors should be considered
carefully when making decisions with respect to Ceres. Many such factors and events are not
within the control of Ceres. Factors that could cause actual results or events to differ materially
from current expectations include, among others, risks related to weather, politics and
governments, changes in environmental and other laws and regulations, competitive factors in
agricultural, food processing and feed sectors, construction and completion of capital projects,
labour, equipment and material costs, access to capital markets, interest and currency exchange
rates, technological developments, global and local economic conditions, the ability of Ceres to
successfully implement strategic initiatives and whether such strategic initiatives will yield the
expected benefits, the operating performance of the Corporation’s assets, the availability and
price of commodities, and the regulatory environment, processes and decisions. Although Ceres
has attempted to identify important factors that could cause actual actions, events or results to
differ materially from those described in forward-looking statements, there may be other factors
that cause actions, events or results that are not anticipated, estimated or intended. There can be
no assurance that forward-looking information will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements or information.
By its nature, forward-looking information is subject to various risks and uncertainties, including
those risks discussed in other sections of this annual MD&A and in other filings and
communications, any of which could cause Ceres’ actual results and experience to differ
materially from the anticipated results or published expectations. Additional information on these
and other factors is available in the reports filed by Ceres with Canadian securities regulators.
Readers are cautioned not to place undue reliance on this forward-looking information, which is
given as of the date of this annual MD&A or otherwise, and not to use future-oriented
information or financial outlooks for anything other than their intended purpose. Ceres
undertakes no obligation to update publicly or revise any forward-looking statements or
information, whether as a result of new information, change in management’s estimates or
opinions, future events or otherwise, except as required by law.
CAUTIONARY STATEMENT AS TO NON-IFRS FINANCIAL MEASURES
Ceres provides a non-IFRS measure as supplementary information, which management believes
is useful to users of this MD&A to explain Ceres’ financial results. This non-IFRS measure is
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), which is not a
standardized financial measure prescribed by IFRS. However, management believes that most
shareholders, creditors, other stakeholders and investment analysts benefit from using this
performance measure in analyzing Ceres’ results. Ceres also uses this measure internally to
monitor the Corporation’s performance.
In calculating EBITDA, Ceres also excludes its share of the net income (net loss) from
investments in associates, the gain (loss) on sale of property, plant and equipment and the loss on
impairment of assets held for sale. Ceres may calculate EBITDA differently than other
companies; therefore, Ceres’ EBITDA may not be comparable to similar measures presented by
other issuers. Investors are cautioned that EBITDA should not be construed as an alternative to
net income or net loss, or to other standardized financial measures determined in accordance with
IFRS, and is not intended to represent cash flows or results of operations in accordance with
IFRS.
OVERVIEWS
The following table represents an analysis of the components of Ceres’ equity attributable to
shareholders as at year ended March, 31, 2014 and March 31, 2013 and reflects the value at
which individual items are carried on Ceres’ balance sheet (in millions of Canadian dollars,
except total equity attributable per share issued and outstanding):
Notes Year ended March 31,
1
2
3
4
5
6
7
8
Cash and cash equivalents
Portfolio investments
Accounts receivable and sundry current assets
Investment in the SSR
Investment in land and capitalized costs in NCLC
Investment in Riverland Ag
Net working capital, net of assets held for sale and all debt
Assets held for sale
Fixed assets, at net book value
Investment in Canterra Seeds Holdings, Ltd. (“Canterra”)
Total investment in Riverland Ag
Less: All (current) liabilities
Total equity attributable to Shareholders
Number of common shares issued and outstanding (in millions
Total equity attributable per share issued and outstanding
of shares)
Notes:
2014
$ 6.9
$ 0.8
$ 1.5
$ 3.5
$ 14.8
$ 39.9
$ 18.2
$ 50.7
$ 1.2
$ 110.0
$ (3.5)
2013
$ 18.8
$ 6.5
$ 0.1
$ 2.8
$ 5.0
$ 46.0
-
$ 66.0
$ 1.5
$ 113.5
$ (1.7)
$ 134.0
$ 144.9
14.2
$ 9.44
14.3
$ 10.11
1. Cash and cash equivalents exclude cash held by subsidiaries.
2. The SSR is 25% owned by Ceres and is accounted for using the equity method.
3. The investment in NCLC represents an investment in approximately 1,300 acres of land
in Saskatchewan and North Dakota, plus costs capitalized to date for the purposes of
developing the site for the logistics hub.
4. Ceres owns 100% of Riverland Ag and consolidates the accounts of Riverland Ag in the
annual and interim financial statements. In the foregoing analysis, the investment in
Riverland Ag is accounted for using the equity method.
5. The net working capital of Riverland Ag represents primarily the aggregate of owned
inventory (marked to market), trade accounts receivable and amounts due from brokers,
less all bank indebtedness. The aggregate of other current assets is substantially offset by
the aggregate of other liabilities.
6. Represents land, buildings, silos/elevators, machinery and equipment and other assets
held for sale for the Manitowoc, Wisconsin and Savage, Minnesota locations.
7. Represents approximately 51 million bushels of storage space in 2014 (2013 - 52
million).
8. Canterra is 25% owned by Riverland Ag and is accounted for using the equity method.
3
4
18
OVERVIEWS
The following table represents an analysis of the components of Ceres’ equity attributable to
shareholders as at year ended March, 31, 2014 and March 31, 2013 and reflects the value at
which individual items are carried on Ceres’ balance sheet (in millions of Canadian dollars,
except total equity attributable per share issued and outstanding):
Cash and cash equivalents
Portfolio investments
Accounts receivable and sundry current assets
Investment in the SSR
Investment in land and capitalized costs in NCLC
Investment in Riverland Ag
Net working capital, net of assets held for sale and all debt
Assets held for sale
Fixed assets, at net book value
Investment in Canterra Seeds Holdings, Ltd. (“Canterra”)
Total investment in Riverland Ag
Less: All (current) liabilities
Total equity attributable to Shareholders
Number of common shares issued and outstanding (in millions
of shares)
Total equity attributable per share issued and outstanding
Notes:
2
3
4
5
6
7
8
1
Notes Year ended March 31,
2013
2014
$ 18.8
$ 6.9
$ 6.5
$ 0.8
$ 0.1
$ 1.5
$ 2.8
$ 3.5
$ 5.0
$ 14.8
$ 39.9
$ 18.2
$ 50.7
$ 1.2
$ 110.0
$ (3.5)
$ 134.0
$ 46.0
-
$ 66.0
$ 1.5
$ 113.5
$ (1.7)
$ 144.9
14.2
$ 9.44
14.3
$ 10.11
1. Cash and cash equivalents exclude cash held by subsidiaries.
2. The SSR is 25% owned by Ceres and is accounted for using the equity method.
3. The investment in NCLC represents an investment in approximately 1,300 acres of land
in Saskatchewan and North Dakota, plus costs capitalized to date for the purposes of
developing the site for the logistics hub.
4. Ceres owns 100% of Riverland Ag and consolidates the accounts of Riverland Ag in the
annual and interim financial statements. In the foregoing analysis, the investment in
Riverland Ag is accounted for using the equity method.
5. The net working capital of Riverland Ag represents primarily the aggregate of owned
inventory (marked to market), trade accounts receivable and amounts due from brokers,
less all bank indebtedness. The aggregate of other current assets is substantially offset by
the aggregate of other liabilities.
6. Represents land, buildings, silos/elevators, machinery and equipment and other assets
held for sale for the Manitowoc, Wisconsin and Savage, Minnesota locations.
7. Represents approximately 51 million bushels of storage space in 2014 (2013 - 52
million).
8. Canterra is 25% owned by Riverland Ag and is accounted for using the equity method.
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CERES GLOBAL AG CORP. ANNUAL REPORT
19
Ceres Global Ag Corp.
Ceres is a company currently focused on two primary businesses:
1. Grain Storage, Handling and Merchandising - represented by Riverland Ag, a
collection of North American commercial grain storage and handling assets; and
2. Commodity Logistics - represented by (a) the SSR, a short-line rail company based in
Southeastern Saskatchewan; and (b) NCLC, the proposed commodities logistics centre at
Northgate.
Riverland Ag
Riverland Ag engages in cereal grain storage, customer-specific procurement and “process-
ready” cleaning of specialty grains such as oats, barley, rye and durum wheat. It offers a
comprehensive range of services to its customers to help manage the risks associated with the
price, quality, and availability of these critical food grains.
Riverland Ag owns and operates ten (10) grain storage and handling facilities in the American
states of Minnesota, North Dakota, New York and Wisconsin, and the Canadian province of
Ontario (See Subsequent Event). Riverland Ag also manages two facilities in Wyoming on
behalf of its customer-owner. Riverland Ag’s facilities are strategically located, with excellent
rail, truck and ship transportation logistics and close proximity to major grain-processing
facilities in the United States. Many of the grain storage facilities are located at deep-water ports
in the Great Lakes and along the upper Mississippi River, allowing access for lakers and barges,
and enabling the efficient global import and export of grains.
The majority of Riverland Ag’s facilities are qualified as ‘regular for delivery’ locations for
certain futures contracts on the Minneapolis and Chicago exchanges, allowing Riverland Ag to
earn carrying charges against grain stored for delivery to the exchanges by matching deliverable
cash inventories with futures contracts. This delivery mechanism helps to mitigate risk for
Riverland Ag and it is an important component of its credit facilities, as it provides Riverland Ag
with the option of delivering certain grain against futures contracts and enhances overall liquidity.
The majority of Riverland Ag’s current storage space is utilized to benefit from grain trading,
arbitrage and merchandising opportunities. Management determines which of Riverland Ag’s
facilities to be employed for the storage or throughput of a particular grain shipment based on the
source of the grain shipment, the elevator location relative to the end customer(s), the cost of
logistics to transport the grain, and the availability of space in the intended elevator.
Riverland Ag focuses on the storage, handling, trading and merchandising of cereal grains with
particular emphasis on wheat, oats, barley and rye. In the case of wheat and oats, there are
futures markets which it uses to hedge its inventories. For barley and rye, where no futures
markets exist, Riverland Ag stores the grain under contract with end users.
Grains purchased by Riverland Ag are primarily bought from third-party grain companies in the
United States and Canada, although Riverland Ag has an ever-expanding direct-to-farmer
purchase program that is expected to become increasingly important as the industry consolidates.
5
20
Grains are usually sold to grain processing and milling companies along with food and beverage
companies and livestock-related businesses, as well as delivered into the futures markets.
The nature and location of Riverland Ag’s assets allow it to be flexible in different types of grain
markets, but typically Riverland Ag has performed best in an environment of strong production,
resulting in surplus grains that need to be stored, combined with a futures market in contango (as
further described below. The multiple inversions of the wheat and oats markets have posed
significant challenges to Riverland Ag in the past two years. In addition, the Dodd-Frank
legislation in the United States significantly reduced futures market activities as financial
institutions retreated from the sector. This resulted in an excess in storage capacity at Riverland
Ag, with corresponding low capacity utilization rates. Riverland Ag responded to this market
development by selling non-core assets and entering into strategic partnerships with key
customers. Going forward, management expects to continue the process of optimizing its grain
elevator capacity and will likely pursue strategic partnerships and longer-term storage agreements
with key cereal grain customers to raise capacity utilization and enhance profitability. With the
NCLC project, Riverland Ag also expects to: (i) gain access to key origination markets, such as
Western Canada; (ii) implement its direct-from-farmer buying programs to purchase grain at
wholesale prices; (iii) attract additional downstream customers which will translate to elevator
utilization improvement; and (iv) ultimately improve profit margin.
Historically, Riverland Ag made the majority of its revenues and profits from a ‘contango’
business model, in which it purchased grain inventories futures, earning a net carry charge that
covered the costs of storage and interest, plus a profit margin. During the period from 2010 to
early 2012, this strategy was highly profitable, given the large crop surpluses, significant
participation in the long futures markets by a variety of financial players and a widening
benchmark storage rate. Since that period, the market dynamics have changed substantially, with
the financial players dropping out as counterparties in the futures market (driven primarily by
provisions of the Dodd-Frank legislation in the United States), several crop years of production
rebalancing grain market inventories and the more gradual than expected opening of the North
American grain markets with the deregulation of the Canadian Wheat Board, such that the
contango business model alone is no longer sufficiently profitable to generate sufficient returns
on Riverland Ag’s invested capital.
In response to changing grain environment Riverland Ag’s Strategy focused on these platforms:
A merchandising trading deck matching customer demand with supply chain efficiencies
Maximizing carrying charges in commodities deliverable against futures where we are
“regular” for delivery
Maximizing third-party storage income.
With the deregulation and privatization of the Canadian Wheat Board, management expects this
to strengthen Riverland Ag’s position in the spring wheat delivery market. NCLC is strategically
located to facilitate the southbound grain movement and as such can enhance Riverland Ag’s
potential profitability.
The Northgate Commodities Logistics Centre (“NCLC”) in Saskatchewan
Ceres owns approximately 1,300 acres of land at Northgate, Saskatchewan and Northgate, North
Dakota, where it is constructing a new commodity logistics centre that is designed to utilize high-
6
CERES GLOBAL AG CORP. ANNUAL REPORT
21
efficiency rail loops, capable of handling unit trains of up to 120 railcars. A grain handling and
shipping facility is expected to be the initial focus, followed by an oil and natural gas supply
logistics centre to facilitate exports from Saskatchewan’s and Western Canada’s energy sector,
and a frac sand, pipe and cement unloading centre to bring these products in from the United
States to service Western Canada’s energy drilling industry.
NCLC’s direct connection to the 32,000-mile BNSF network is expected to give shippers direct
access to customers in 28 American states, to numerous Pacific and Gulf ports, and to Mexico,
including over 45 crude-by-rail destinations. Access to many other strategic interior locations in
the Eastern U.S. and at Atlantic ports are also available through BNSF’s interline rail
connections, providing new options to Canadian farmers and oil exporters.
Initially, Ceres intended to partner with a major U.S. based agricultural supply chain company to
develop the grain facility at NCLC. Following the completion of a comprehensive strategic
review that was launched in September, 2013, Ceres decided to continue the development of the
grain facility at NCLC without the involvement of a partner. Accordingly, in January 2014,
Ceres terminated its arrangements and ongoing discussions with the proposed partner and
announced the following plans with respect to NCLC:
To complete the remaining site preparation and the installation of rail and associated
infrastructure for NCLC to allow manifest and unit trains to cross the border into Canada
and to facilitate the transloading of agricultural, petroleum and other bulk commodity
products;
To use its 100% owned subsidiary, Riverland Ag, to bring in-house the design and
development of the proposed grain facility at NCLC; and
To spend up to an additional $15.2 million of capital during the 2014 construction season
for the planning and design of the grain facility and the planning, design and initial
construction of the oil and natural gas liquids transload facilities at NCLC.
As at March 31, 2014, Ceres has incurred $14.8 million of capital costs (2013 - $5.0 million) for
the Canadian portion of NCLC, including land acquisition costs, environmental costs, mass
grading and site preparation costs and initial rail costs. Ceres proposes to finance the remaining
NCLC site development and construction costs with a combination of cash flows from operations,
proceeds from the sale of selected non-core assets debt and equity financing.
The fully-completed grain facility at NCLC is expected to include a 2.2 million bushel high-speed
shuttle grain loading facility capable of loading a unit train of 120 railcars within 12 hours to be
operated by Riverland Ag and to provide substantial grain origination opportunities and have
significant synergies with the remaining Riverland Ag assets. The Northgate elevator is expected
to become a significant contributor to Riverland Ag, both as a Canadian-based originator of
cereal grains from Western Canada, direct from farmers, and as a feeder to the downstream
improvement of Riverland Ag’s existing storage assets. Management expects that the Northgate
elevator will serve as a powerful catalyst to accelerate the repositioning and turnaround of
Riverland Ag, as well as serve as the linchpin of the Northgate Commodity Logistics Centre. At
full capacity, management believes that the NCLC will significantly enhance the profitability of
Riverland Ag by lowering grain purchase costs, increasing throughput and inventory turns, and
improving capacity utilization.
7
22
efficiency rail loops, capable of handling unit trains of up to 120 railcars. A grain handling and
shipping facility is expected to be the initial focus, followed by an oil and natural gas supply
logistics centre to facilitate exports from Saskatchewan’s and Western Canada’s energy sector,
and a frac sand, pipe and cement unloading centre to bring these products in from the United
States to service Western Canada’s energy drilling industry.
NCLC’s direct connection to the 32,000-mile BNSF network is expected to give shippers direct
access to customers in 28 American states, to numerous Pacific and Gulf ports, and to Mexico,
including over 45 crude-by-rail destinations. Access to many other strategic interior locations in
the Eastern U.S. and at Atlantic ports are also available through BNSF’s interline rail
connections, providing new options to Canadian farmers and oil exporters.
Initially, Ceres intended to partner with a major U.S. based agricultural supply chain company to
develop the grain facility at NCLC. Following the completion of a comprehensive strategic
review that was launched in September, 2013, Ceres decided to continue the development of the
grain facility at NCLC without the involvement of a partner. Accordingly, in January 2014,
Ceres terminated its arrangements and ongoing discussions with the proposed partner and
announced the following plans with respect to NCLC:
To complete the remaining site preparation and the installation of rail and associated
infrastructure for NCLC to allow manifest and unit trains to cross the border into Canada
and to facilitate the transloading of agricultural, petroleum and other bulk commodity
products;
To use its 100% owned subsidiary, Riverland Ag, to bring in-house the design and
development of the proposed grain facility at NCLC; and
To spend up to an additional $15.2 million of capital during the 2014 construction season
for the planning and design of the grain facility and the planning, design and initial
construction of the oil and natural gas liquids transload facilities at NCLC.
As at March 31, 2014, Ceres has incurred $14.8 million of capital costs (2013 - $5.0 million) for
the Canadian portion of NCLC, including land acquisition costs, environmental costs, mass
grading and site preparation costs and initial rail costs. Ceres proposes to finance the remaining
NCLC site development and construction costs with a combination of cash flows from operations,
proceeds from the sale of selected non-core assets debt and equity financing.
The fully-completed grain facility at NCLC is expected to include a 2.2 million bushel high-speed
shuttle grain loading facility capable of loading a unit train of 120 railcars within 12 hours to be
operated by Riverland Ag and to provide substantial grain origination opportunities and have
significant synergies with the remaining Riverland Ag assets. The Northgate elevator is expected
to become a significant contributor to Riverland Ag, both as a Canadian-based originator of
cereal grains from Western Canada, direct from farmers, and as a feeder to the downstream
improvement of Riverland Ag’s existing storage assets. Management expects that the Northgate
elevator will serve as a powerful catalyst to accelerate the repositioning and turnaround of
Riverland Ag, as well as serve as the linchpin of the Northgate Commodity Logistics Centre. At
full capacity, management believes that the NCLC will significantly enhance the profitability of
Riverland Ag by lowering grain purchase costs, increasing throughput and inventory turns, and
improving capacity utilization.
To take advantage of the current logistics bottleneck and the upcoming harvest, the Corporation
expects to install a temporary grain transloading facility over the summer so that grain can be
shipped in the fall of 2014, while the permanent elevator is under construction. This temporary
facility is expected to be able to load up to 72 grain car loads per week, serviced by the BNSF’s
manifest local service 2-3 times per week.
Significant upgrades made by the BNSF to its network on the U.S. side of the border, required to
support the NCLC, have neared completion with the rail and bed in place, and recently connected
to the Canadian side of the project. Currently, site preparation grading at NCLC is 80%
completed and Ceres has installed 1,150 metres out of anticipated 12,552 metres of rail track
running north from the Canada-U.S. border into the site. Construction of the remaining site
infrastructure and rail is expected to continue over the summer, with track completion expected in
early fall, 2014. In February 2014, the Corporation received approval from Canadian and US
customs authorities on the border crossing with the tracks connected across the border in early
May 2014. The timing for initial rail shipments and the overall completion of the NCLC
transloading project will depend on the Corporation obtaining appropriate financing.
The Stewart Southern Railway (“SSR”)
Ceres owns a 25% interest in the SSR, a 132 kilometre (82-mile) short-line railway that extends
from Richardson, Saskatchewan (just southeast of Regina) to Stoughton, Saskatchewan. The
SSR was purchased in 2010 from Canadian Pacific Railway, with which the SSR has a five-year
haulage agreement that runs through mid-2015.
Historically, the SSR only shipped grain and, in 2010 and 2011, was challenged by low local
production caused by excessive moisture. In February 2012, the SSR began shipping oil from the
Stoughton area and monthly volumes have grown steadily. The Stoughton oil trans-loading
facility now has a capacity of over 45,000 barrels per day (“bpd”) of production, and has become
one of the largest crude oil by rail loading sites in Western Canada.
In April 2014, Crescent Point Energy opened a direct pipeline connection between its Viewfield
storage complex and its Stoughton loading facility, enhancing the flows and reducing volume
fluctuations caused by weather and local road bans. In addition, the SSR has recently been
successful in developing a rail car storage program for shippers, which has broadened its revenue
and earnings profile. Finally, with the strong 2013 harvest, sizeable grain volumes have returned
to the SSR. Management expects that the SSR will transport as many as 18,000 railcars in the
2014 fiscal year, up from just over 1,000 in SSR’s first year of operation. Having successfully
absorbed this initial level of significant growth, the SSR is aggressively looking for increased
shipment opportunities in oil, grain and other commodities.
7
8
CERES GLOBAL AG CORP. ANNUAL REPORT
23
SUMMARY OF SELECTED ANNUAL FINANCIAL INFORMATION
The following table summarizes selected annual financial information in accordance with
International Financial Reporting Standards (“IFRS”), in Canadian dollars, being the presentation
and functional currency of the Corporation). Details concerning prior quarterly results may be
found in the respective interim or annual financial statements and MD&As.
in millions, except per share data
Total revenues
Gross profit
Net loss
Basic and diluted loss per share
Total assets
2014
2013
2012
$
232.4
$
223.1
$
184.4
$
4.4
$
2.0
$
16.0
$
(19.3)
$
(11.5)
$
(3.8)
$
(1.4)
$
(0.8)
$
(0.3)
$
232.2
$
296.2
$
292.4
Total non-current financial liabilities (including current portion)
$ Nil
$ Nil
$
47.8
Distributions or cash dividends declared per common share
$ Nil
$ Nil
$ Nil
Net loss of $19.3 million (2013 – net loss of $11.5) includes a one-time charge of $6.6 million
from the termination of the Management Agreement with Front Street Capital.
RESULTS OF OPERATIONS FOR THE YEAR AND THE QUARTER ENDED MARCH
31, 2014
Through Riverland Ag, Ceres is principally involved in an agricultural commodity-based
business, in which changes in selling prices generally move in relation to changes in purchase
prices. Therefore, increases or decreases in prices of the agricultural commodities that the
business deals in will have a relatively equal impact on sales and cost of sales and a minimal
impact on gross profit. Accordingly, management believes it is more important to focus on
changes in gross profit than it is to focus on changes in revenue dollars.
Revenues and Gross Profit
For the year ended March 31, 2014, revenues totalled $232.4 million (2013 - $223.1 million) and
gross profit was $4.4 million (2013 - $2.0 million). For the year ended March 31, 2014, gross
profit margin was 1.9% (2013 - 0.9%). The increase in gross profit of $2.4 million is primarily
attributable to increased merchandising gains that included appreciation in basis levels across a
number of the cereal grains as a result of strong end-user demand that was not being fulfilled due
to logistical issues throughout North America.
For the quarter ended March 31, 2014, revenues were $33.5 million (2013 - $60.4 million) and
gross profit was $3.7 million (2013 - $2.0 million). Gross profit margin for the period was 11.0%
(2013 - 3.2%). The increase in gross profit margin for the quarter, compared to the same quarter
in the prior year, is attributable to increased trading margins and the appreciation in the basis of
spring wheat coupled with increased storage and rental income. Earnings from operations and the
gross profit margin were still lower in this quarter compared to past historical levels due to
depressed carrying charges in cereal grains.
9
24
SUMMARY OF SELECTED ANNUAL FINANCIAL INFORMATION
The following table summarizes selected annual financial information in accordance with
International Financial Reporting Standards (“IFRS”), in Canadian dollars, being the presentation
and functional currency of the Corporation). Details concerning prior quarterly results may be
found in the respective interim or annual financial statements and MD&As.
in millions, except per share data
Total revenues
Gross profit
Net loss
Total assets
Basic and diluted loss per share
2014
2013
2012
$
232.4
$
223.1
$
184.4
$
4.4
$
2.0
$
16.0
$
(19.3)
$
(11.5)
$
(3.8)
$
(1.4)
$
(0.8)
$
(0.3)
$
232.2
$
296.2
$
292.4
Total non-current financial liabilities (including current portion)
$ Nil
$ Nil
$
47.8
Distributions or cash dividends declared per common share
$ Nil
$ Nil
$ Nil
Net loss of $19.3 million (2013 – net loss of $11.5) includes a one-time charge of $6.6 million
from the termination of the Management Agreement with Front Street Capital.
RESULTS OF OPERATIONS FOR THE YEAR AND THE QUARTER ENDED MARCH
31, 2014
Through Riverland Ag, Ceres is principally involved in an agricultural commodity-based
business, in which changes in selling prices generally move in relation to changes in purchase
prices. Therefore, increases or decreases in prices of the agricultural commodities that the
business deals in will have a relatively equal impact on sales and cost of sales and a minimal
impact on gross profit. Accordingly, management believes it is more important to focus on
changes in gross profit than it is to focus on changes in revenue dollars.
Revenues and Gross Profit
For the year ended March 31, 2014, revenues totalled $232.4 million (2013 - $223.1 million) and
gross profit was $4.4 million (2013 - $2.0 million). For the year ended March 31, 2014, gross
profit margin was 1.9% (2013 - 0.9%). The increase in gross profit of $2.4 million is primarily
attributable to increased merchandising gains that included appreciation in basis levels across a
number of the cereal grains as a result of strong end-user demand that was not being fulfilled due
to logistical issues throughout North America.
For the quarter ended March 31, 2014, revenues were $33.5 million (2013 - $60.4 million) and
gross profit was $3.7 million (2013 - $2.0 million). Gross profit margin for the period was 11.0%
(2013 - 3.2%). The increase in gross profit margin for the quarter, compared to the same quarter
in the prior year, is attributable to increased trading margins and the appreciation in the basis of
spring wheat coupled with increased storage and rental income. Earnings from operations and the
gross profit margin were still lower in this quarter compared to past historical levels due to
depressed carrying charges in cereal grains.
For the quarter ended March 31, 2014, the income from operations was $1.4 million (2013 –
operating loss of $0.8 million), an increase of $0.6 million compared to the same period last year.
This was driven by an increase in merchandising gains along with a slight increase in carrying
charges across most of the different varieties of wheat.
General and Administrative Expenses
For the year ended March 31, 2014, general and administrative expenses totalled $17.2 million
(2013 - $10.6 million), representing an increase of $6.6 million for the year compared to the year
ended March 31, 2013. This increase in general and administrative expenses includes the
following one-time charges recognized in the year ended March 31, 2014:
a)
b)
c)
The management transition payment of $5.0 million on October 1, 2013 to Front Street
Capital;
A provision of $1.0 million for contingent future additional payments to Front Street
Capital totaling up to $2.0 million; and
Expenses of $0.6 million associated with the negotiation of the early termination of the
management agreement with Front Street Capital.
In addition, legal, consulting, and other expenses of $1.5 million related to corporate initiatives
concerning primarily the NCLC were also charged to general and administrative expenses.
For Q4 2014, consolidated general and administrative expenses totalled $1.3 million (Q4 2013 -
$3.0 million), representing a decrease of $1.7 million. For the quarter ended March 31, 2014, on-
going general and administrative expenses for Ceres at the corporate level totalled approximately
$1.0 million.
Finance Income (Loss)
Finance income (loss) for the years ended March 31, 2014 and 2013 and the three-month periods
then ended are summarized as follows:
(in millions of dollars)
Interest and other revenues
Realized loss on sale of investments
Realized loss on currency-hedging transactions
Realized and unrealized (loss) gain on foreign exchange
Change in fair value of investments
3 months
2014
2013
12 months
2014
2013
$
0.0
$
0.0
$
0.0
$
0.0
0.0
0.0
(0.0)
(0.0)
(0.0)
(0.6)
0.0
(1.5)
(3.0)
(0.5)
0.0
0.5
(0.0)
(0.3)
0.0
(4.4)
$
(0.0)
$
(2.1)
$
(2.9)
$
(4.7)
9
10
Realized loss on the sale of non-core investments for the year ended March 31, 2014 was $2.9
million (2013 - $4.7 million) as Ceres sold its holdings in EcoSynthetix Inc. and Potash Ridge
Corporation for a loss of $1.7 million and $1.3 million, respectively, consistent with the
Corporation’s strategic plan to sell non-core assets to fund its NCLC project. The Corporation
continues to evaluate the timing of the sale of its one remaining portfolio investment and is
expected to make a decision during the coming fiscal year. Changes in realized and unrealized
Derivative assets
Unrealized gain on forward foreign exchange contracts
Unrealized gains on open cash contracts
Derivative liabilities
Unrealized loss on forward foreign exchange contracts
Unearned premiums on written options
Unrealized losses on open cash contracts
CERES GLOBAL AG CORP. ANNUAL REPORT
25
June 30,
2011
March 31,
2011
April1,
2010
$
-
$
-
$
1,006,364
2,439,428
1,899,160
-
$
2,439,428
$
1,899,160
$
1,006,364
$
-
$
-
$
41,151
-
-
3,446,761
2,468,358
537,694
-
$
3,446,761
$
2,468,358
$
578,845
gains and losses for foreign exchange, currency-hedging and fair value of investments reflect
fluctuations in the currency and equity markets.
Finance loss for the three months ended March 31, 2014 was $0.03 million (2013 - $2.1 million)
as a result of a reduced level of activities and investment holdings.
Finance Expenses
For the years and the quarters ended March 31, 2014 and 2013, finance expenses all related to
Riverland Ag and included interest on short-term and long-term debt plus the amortization of
related financing transaction costs and an early payment penalty on long-term debt. For the year
ended March 31, 2014, finance expenses totalled $4.7 million (2013 - $11.6 million). For the
fourth quarter ended March 31, 2014, finance expenses were $1.1 million (2013 - $1.9 million).
The decreases in finance expenses for the year ended March 31, 2014 and for Q4 2014 reflect:
The repayment in full on December 17, 2012 of the balance of long-term debt then
owing, the one-time charge in that quarter (Q3 2013) for the early debt repayment penalty
of $2.5 million and the related amortization of the remaining unamortized financing costs
of $0.3 million;
A decrease in the total amount of borrowings during the year ended March 31, 2014
compared to the year ended March 31, 2013, which is due to a decrease in grain
inventories owned throughout the year and a reduction in overall grain prices during the
period. As at March 31, 2014, inventories totalled $113.3 million (2013 - $164.8 million)
and the aggregate of bank indebtedness and repurchase obligations as at that date was
$87.7 million (2013 - $143.5 million); and
A lower interest rate on the short-term borrowing facility compared to the previous long-
term debt facility.
11
26
EBITDA
The following table is a reconciliation of EBITDA for Ceres on a consolidated basis and for
Riverland Ag for the year ended March 31, 2014 and 2013:
EBITDA (in millions of dollars)
Periods ended March 31, 2014
Net income (loss) for the period
Add (deduct):
finance expenses
income taxes expense (recovery)
depreciation on property, plant and equipment
EBITDA before gain on sale of property, plant and equipment,
loss on impairment of assets held for sale and
share of (net income) net loss in associates
Add (deduct):
gain on sale of property, plant and equipment
loss on impairment of assets held for sale
share of net (income) loss in associates
12 months, 2014
12 months, 2013
Consolidated
Riverland Ag
Consolidated
Riverland Ag
$
(19.3)
$
(4.9)
$
(11.5)
$
(2.4)
4.7
(1.3)
3.0
(12.9)
(0.2)
0.8
(0.5)
4.7
(1.3)
3.0
1.5
(0.2)
0.8
0.4
11.6
(2.6)
2.9
0.5
(9.6)
-
(1.2)
11.6
(2.6)
2.9
9.6
(9.6)
-
(0.0)
EBITDA
$
(12.8)
$
2.4
$
(10.3)
$
(0.1)
Riverland Ag’s EBITDA for the year ending March 31, 2014 was $2.4 million (2013 – ($0.1)
million) representing an increase of $2.5 million. This increase in EBITDA is attributable to an
increase in trading gains due to basis appreciation in spring wheat coupled with slight reduction
in operating costs at the facilities, which are captured in cost of sales.
The consolidated EBITDA loss for the year ended March 31, 2014 was significantly affected by
the additional one-time changes to general and administrative expenses totaling $6.6 million as
discussed above under “General and Administrative Expenses”.
The following table is a reconciliation of EBITDA for Ceres on a consolidated basis and for
Riverland Ag for the three-month periods ended March 31, 2014 and 2013:
EBITDA (in millions of dollars)
Periods ended March 31
Net income (loss) for the period
Add (deduct): finance expenses
income taxes expense (recovery)
depreciation on property, plant and equipment
EBITDA before gain on sale of property, plant and equipment,
loss on impairment of assets held for sale and
share of (net income) net loss in associates
Add (deduct): gain on sale of property, plant and equipment
loss on impairment of assets held for sale
share of net (income) loss in associates
3 months, 2014
3 months, 2013
Consolidated
Riverland Ag Consolidated Riverland Ag
$
0.4
$
(0.3)
$
0.8
$
3.8
1.1
(0.1)
0.8
2.2
(0.0)
0.8
0.2
1.1
(0.1)
0.8
1.6
(0.0)
0.8
0.4
1.9
4.0
0.7
7.4
(9.7)
-
(0.2)
1.9
4.0
0.7
10.5
(9.7)
-
0.2
EBITDA
$
3.1
$
2.7
$
(2.5)
$
1.0
12
CERES GLOBAL AG CORP. ANNUAL REPORT
27
Consolidated net loss includes Finance income (loss) which consists primarily of realized losses
on the sale of portfolio investments, realized gains and losses on currency-hedging transactions,
realized and unrealized gains and losses on foreign exchange and the unrealized gains and losses
in the fair value of portfolio investments. For the quarter ended March 31, 2014, consolidated net
loss includes finance loss of $0.03 million (2013 - $2.1 million). Excluding the effect of the
finance loss for the quarter ended March 31, 2014, adjusted consolidated EBITDA would have
been income of $3.1 million (2013 - loss of $0.4 million). Fluctuations in this adjusted
consolidated EBITDA reflect changes in the equity and currency markets.
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION
The following table summarizes selected financial information for each of the last eight (8) fiscal
quarters ended March 31, 2014:
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
Reporting dates
2014-03-31
2013-12-31
2013-09-30
2013-06-30
2013-03-31
2012-12-31
2012-09-30
2012-06-30
(in millions except per share)
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Revenues
Gross profit (loss)
$
33.5
$
54.8
$
74.4
$
69.7
$
60.4
$
84.6
$
35.1
$
42.9
$
3.7
$
0.1
$
2.6
$
(2.1)
$
2.0
$
(2.4)
$
1.1
$
1.4
Loss from operations
$
2.4
$
(1.3)
$
(8.9)
$
(5.0)
$
(1.0)
$
(5.0)
$
(1.5)
$
(1.0)
Net income (loss)
$
0.4
$
(2.1)
$
(11.7)
$
(5.8)
$
0.8
$
(7.1)
$
(1.1)
$
(4.0)
Weighted-average number of
common shares for the quarter
14.2
14.2
14.3
14.3
14.3
14.3
14.4
14.5
Basic and fully diluted earnings
(loss) per share
$
0.03
$
(0.15)
$
(0.82)
$
(0.41)
$
0.06
$
(0.50)
$
(0.08)
$
(0.28)
EBITDA, consolidated
$
3.1
$
(1.6)
$
(10.2)
$
(4.1)
$
(2.5)
$
(5.3)
$
0.1
$
(2.6)
EBITDA per share, consolidated
$
0.22
$
(0.12)
$
(0.71)
$
(0.28)
$
(0.17)
$
(0.37)
$
0.01
$
(0.18)
EBITDA, Riverland Ag
$
2.7
$
(0.3)
$
2.3
$
(2.3)
$
1.0
$
(2.9)
$
0.7
$
1.1
EBITDA per share, Riverland Ag
$
0.19
$
(0.02)
$
0.16
$
(0.16)
$
0.07
$
(0.20)
$
0.05
$
0.08
Cash and portfolio investments,
net of shorts and options, as
at reporting date
$
12.9
$
7.3
$
15.9
$
24.1
$
26.9
$
29.8
$
34.0
$
35.4
Shareholders' equity, as at
reporting date
$
134.1
$
129.3
$
128.0
$
142.8
$
144.9
$
141.8
$
147.7
$
153.4
Shareholders' equity per common
share, as at reporting date
$
9.44
$
9.10
$
9.00
$
9.96
$
10.11
$
9.89
$
0.01
$
0.01
The following comments relate to certain variances reported in selected line items above:
Revenues: As a commercial commodities storage business, revenues may vary from quarter to
quarter. The Corporation has the flexibility to be opportunistic in its decision to sell, or may
make delivery sales in certain markets. The large increase in sales in Q3 2013 was attributable to
large quantities of certain grains delivered on futures contracts in December 2012. The larger
volumes of sales in Q1 2014 and Q2 2014 were attributable to continued selling of grain
13
28
Consolidated net loss includes Finance income (loss) which consists primarily of realized losses
on the sale of portfolio investments, realized gains and losses on currency-hedging transactions,
realized and unrealized gains and losses on foreign exchange and the unrealized gains and losses
in the fair value of portfolio investments. For the quarter ended March 31, 2014, consolidated net
loss includes finance loss of $0.03 million (2013 - $2.1 million). Excluding the effect of the
finance loss for the quarter ended March 31, 2014, adjusted consolidated EBITDA would have
been income of $3.1 million (2013 - loss of $0.4 million). Fluctuations in this adjusted
consolidated EBITDA reflect changes in the equity and currency markets.
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION
The following table summarizes selected financial information for each of the last eight (8) fiscal
quarters ended March 31, 2014:
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
Reporting dates
2014-03-31
2013-12-31
2013-09-30
2013-06-30
2013-03-31
2012-12-31
2012-09-30
2012-06-30
(in millions except per share)
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Revenues
Gross profit (loss)
$
33.5
$
54.8
$
74.4
$
69.7
$
60.4
$
84.6
$
35.1
$
42.9
$
3.7
$
0.1
$
2.6
$
(2.1)
$
2.0
$
(2.4)
$
1.1
$
1.4
Loss from operations
$
2.4
$
(1.3)
$
(8.9)
$
(5.0)
$
(1.0)
$
(5.0)
$
(1.5)
$
(1.0)
Net income (loss)
$
0.4
$
(2.1)
$
(11.7)
$
(5.8)
$
0.8
$
(7.1)
$
(1.1)
$
(4.0)
common shares for the quarter
14.2
14.2
14.3
14.3
14.3
14.3
14.4
14.5
(loss) per share
$
0.03
$
(0.15)
$
(0.82)
$
(0.41)
$
0.06
$
(0.50)
$
(0.08)
$
(0.28)
EBITDA, consolidated
$
3.1
$
(1.6)
$
(10.2)
$
(4.1)
$
(2.5)
$
(5.3)
$
0.1
$
(2.6)
EBITDA per share, consolidated
$
0.22
$
(0.12)
$
(0.71)
$
(0.28)
$
(0.17)
$
(0.37)
$
0.01
$
(0.18)
EBITDA, Riverland Ag
$
2.7
$
(0.3)
$
2.3
$
(2.3)
$
1.0
$
(2.9)
$
0.7
$
1.1
EBITDA per share, Riverland Ag
$
0.19
$
(0.02)
$
0.16
$
(0.16)
$
0.07
$
(0.20)
$
0.05
$
0.08
at reporting date
$
12.9
$
7.3
$
15.9
$
24.1
$
26.9
$
29.8
$
34.0
$
35.4
reporting date
$
134.1
$
129.3
$
128.0
$
142.8
$
144.9
$
141.8
$
147.7
$
153.4
share, as at reporting date
$
9.44
$
9.10
$
9.00
$
9.96
$
10.11
$
9.89
$
0.01
$
0.01
The following comments relate to certain variances reported in selected line items above:
Revenues: As a commercial commodities storage business, revenues may vary from quarter to
quarter. The Corporation has the flexibility to be opportunistic in its decision to sell, or may
make delivery sales in certain markets. The large increase in sales in Q3 2013 was attributable to
large quantities of certain grains delivered on futures contracts in December 2012. The larger
volumes of sales in Q1 2014 and Q2 2014 were attributable to continued selling of grain
Weighted-average number of
Basic and fully diluted earnings
Cash and portfolio investments,
net of shorts and options, as
Shareholders' equity, as at
Shareholders' equity per common
inventories along with large amounts of spring wheat being delivered in the market. Revenues
were lower in Q4 2014 due to less grain bushels sold in the cash market and no bushels delivered
against futures contracts.
Gross profit / Income from operations: The increase in gross profit in Q4 2014 was attributable to
trading gains driven by basis appreciation in spring wheat along with slight increases in storage
and rental income. The increase in gross profit in Q3 2014 compared to Q3 2013 reflects
merchandising grains attributable to basis appreciation on certain inventories, coupled with a
slight increase in carrying income and the one-time loss of $2.4 million incurred in Q3 2013 on
the deliveries of certain grains against December 2012 futures contracts as part of management’s
strategic decision as discussed in paragraphs above. Gross profit may vary from quarter to
quarter depending on gains from trading, carrying income and basis income against changing
inventory levels, as discussed above under “Revenues and Gross Profit”.
BUSINESS REVIEW – RIVERLAND AG
Riverland Ag is principally involved in an agricultural commodity-based business, in which
changes in selling prices generally move in relation to changes in purchase prices. Therefore,
increases or decreases in prices of the agricultural commodities that the business deals in are
expected to have a relatively equal impact on sales and cost of sales and a minimal impact on
gross profit. Accordingly, management believes it is more important to focus on changes in gross
profit than it is to focus on changes in revenue dollars.
For the year ended March 31, 2014, revenues totaled $232.4 million (2013 - $223.1 million) and
gross profit was $4.4 million (2013 - $2.0 million). Gross profit margin for the year ended March
31, 2014 was 1.9% (2013 - 0.9%).
For the quarter ended March 31, 2014, revenues were $33.5 million (2013 - $60.4 million) and
gross profit was $3.7 million (2013 - $2.0 million). The gross profit margin for the quarter ended
March 31, 2014 was 11.0% (2013 - 3.2%). The increase in gross profit margin for the quarter,
compared to the same quarter in the prior year, was attributable to: (i) trading gains in spring
wheat; (ii) increased inventory value during the quarter; and (iii) bushels sold during the quarter
at basis levels that were at a premium to their carrying value.
Furthermore, improved results for Riverland Ag in Q4 2014 were driven by four primary factors:
•
•
•
•
An increase in the realized and unrealized trading gains in spring wheat, which was
driven by an appreciation of the basis levels throughout the fourth quarter;
A slight increase in storage and rental income, which was due to an increase in the
quantity of bushels stored and handled in-and-out of Riverland Ag’s facilities during the
quarter for third-party storage customers;
An increase in rail freight trading margin, which consisted of Riverland Ag selling rail
certificates of transportation (“COTs”) to counterparties at a premium compared to the
levels at which the COTs were acquired. This appreciation of COT premiums during the
quarter was attributable to the rail gridlock and rail car shortage throughout North
America; and
A reduction in Riverland Ag’s operating expense during the quarter, which is captured
within cost of sales.
13
14
CERES GLOBAL AG CORP. ANNUAL REPORT
29
There has been rail gridlock on both sides of the Canadian/U.S. border, in particular on the
Canadian side. Accordingly, the transport of harvested crops has been significantly slowed down
this year compared to previous periods. This grain logistics gridlock has particularly affected
cereal grains and those shippers that normally do not ship in unit trains. This allowed Riverland
Ag to hold and to sell its grain inventories at a strong premium relative to the futures price of the
grain, which generated merchandising gains. It also widened the basis for many of Riverland
Ag’s core cereal grains, generating basis gains that were primarily taken into income in the fourth
quarter. Basis gains are generally higher in Q3 and Q4 as the harvest season creates a logistic
bottleneck which will be restored to normal in Q1 and Q2 typical of the seasonality of the grain
business,
With the privatization of the Canadian Wheat Board, Canada continues to transition into an open
market for wheat and barley. However, this transition has been slower than originally expected,
as farmers have been reluctant to move wheat off the farm in the quantities originally anticipated
in the past. The current rail logistics gridlock and the railcar shortage throughout North America,
and particularly in Canada, further aggravates and delays the process. Management believes this
makes Ceres’ proposed grain facility at NCLC as an origination strategy very attractive as it is
expected to facilitate alleviating congestion with a unique rail opportunity with BNSF.
Despite a stronger than normal harvest throughout Canada and the Dakotas and some movement
of wheat throughout the Dakotas early in the harvest year, the movement of wheat in North
America has faced rail logistics challenges. The supply of railcars is not meeting the demand of
wheat that needs to be moved. This has contributed to the delay of the movement of this year’s
harvested wheat and other North American grains. While this delay has contributed to some lost
opportunity, Riverland Ag has capitalized on the logistical gridlock by (1) capturing margins on
trading COTs, as noted above; and (2) capturing significant basis gains on increased prices for
spring wheat inventories on hand.
As one of the largest independent grain companies, with over 50 million bushels of storage
located in the Upper Lakes and Mississippi River area strategically close to the Canadian border,
Riverland Ag is in a unique position to benefit from the structural changes occurring in the North
American markets.
BUSINESS REVIEW – The Stewart Southern Railway Inc. (“SSR”)
Ceres has a 25% investment in the SSR, which is a short-line railway operating in southeastern
Saskatchewan. The SSR continued its impressive movement of oil and transported an average of
approximately 28,000 barrels of oil per day for the quarter ended March 31, 2014 compared to
30,000 barrels per day for the quarter ended December 31, 2013 and 24,000 barrels per day for
the quarter ended September 30, 2013. The SSR continued to see a meaningful movement of
grain shipments, shipping 265 grain cars during the quarter.
For the year ended March 31, 2014, Ceres’ share of SSR’s net income was $0.8 million (2013 -
$1.2 million). Except for the effect of the one-time non-cash charge in SSR’s accounts that was
recognized by Ceres’ in Q2 2014 (Ceres’ share of which was approximately $0.3 million), the
fiscal year figures are generally comparable and continue to show strength in the operations of the
SSR. In addition, during the 12-month period ended March 31, 2014, the SSR repaid all of its
shareholder loans and declared its first dividend. Ceres’ original investment in the SSR in
December 2010 was $1.7 million for its 25 % interest. Since its acquisition, Ceres’ investment in
the SSR has increased by $1.8 million, representing an increase of 105.4% over 39 months.
With the benefit of its location in Saskatchewan, and in particular in and around the oil
exploration activity around Stoughton, management believes that the SSR is well-positioned to
take advantage of significant growth opportunities in agriculture, energy production and energy
exploration inputs.
FINANCIAL POSITION AS AT MARCH 31, 2014
Portfolio investments and cash on hand
The following is a summary of the portfolio investments and cash on hand as at March 31, 2014
and 2013:
(in millions of dollars)
Portfolio investments, at fair value
Cash
Portfolio investments
2014
2013
$
0.8
$
6.5
$
12.0
$
20.4
As at March 31, 2014, the percentage of the fair value of the portfolio invested in public
companies was nil% (2013 – 62.9%) of the total portfolio, and that of private companies was
100% (2013 - 37.1%). Nonetheless, as at March 31, 2014, 0.6% (2013 – 1.2%) of shareholders’
equity was represented by portfolio investments in private companies. As at March 31, 2014,
Nil% (2013 – 3.3%) of shareholders’ equity was invested in equity instruments of publicly traded
companies located in Canada.
Ceres’ undertook a strategic review process in 2013 and determined that its portfolio investments
were non-core assets and should be liquidated to raise cash that could be better invested in Ceres’
core businesses. Thus, during the quarter ended December 31, 2013, Ceres sold its investment in
EcoSynthetix Inc. for proceeds of $3.0 million, realizing a loss of $1.7 million, and its investment
in Potash Ridge Corporation for proceeds of $0.23 million, realizing a loss of $1.3 million.
During the quarter and the year ended March 31, 2013, the only portfolio sale was a small portion
of the investment in Potash Ridge Corporation for proceeds of $0.04 million, for which the
realized loss was $0.02 million. For the year ended March 31, 2014, the unrealized increase in
the fair value of the portfolio investments represented the reversal of previously recognized
unrealized losses in the investments in EcoSynthetix Inc. and Potash Ridge Corporation of $1.4
million, partially offset by an increase in the unrealized loss on the investment in Ocean Harvest
Technology (Canada) Inc. of $0.8 million.
As part of the Corporation’s strategy to manage its risks and minimize its exposure to securities
and assets denominated in foreign currencies, the Corporation has from time to time, in the recent
past, committed to certain forward foreign exchange contracts. As at March 31, 2014, the
Corporation had no commitment to any forward foreign exchange contract (2013 - forward
foreign exchange contract for US$30 million, term of 34 days). The Corporation will continue to
assess its foreign exchange exposure and may enter into foreign exchange contracts if needed.
15
16
30
With the benefit of its location in Saskatchewan, and in particular in and around the oil
exploration activity around Stoughton, management believes that the SSR is well-positioned to
take advantage of significant growth opportunities in agriculture, energy production and energy
exploration inputs.
FINANCIAL POSITION AS AT MARCH 31, 2014
Portfolio investments and cash on hand
The following is a summary of the portfolio investments and cash on hand as at March 31, 2014
and 2013:
(in millions of dollars)
2014
2013
Portfolio investments, at fair value
Cash
$
0.8
$
6.5
$
12.0
$
20.4
Portfolio investments
As at March 31, 2014, the percentage of the fair value of the portfolio invested in public
companies was nil% (2013 – 62.9%) of the total portfolio, and that of private companies was
100% (2013 - 37.1%). Nonetheless, as at March 31, 2014, 0.6% (2013 – 1.2%) of shareholders’
equity was represented by portfolio investments in private companies. As at March 31, 2014,
Nil% (2013 – 3.3%) of shareholders’ equity was invested in equity instruments of publicly traded
companies located in Canada.
Ceres’ undertook a strategic review process in 2013 and determined that its portfolio investments
were non-core assets and should be liquidated to raise cash that could be better invested in Ceres’
core businesses. Thus, during the quarter ended December 31, 2013, Ceres sold its investment in
EcoSynthetix Inc. for proceeds of $3.0 million, realizing a loss of $1.7 million, and its investment
in Potash Ridge Corporation for proceeds of $0.23 million, realizing a loss of $1.3 million.
During the quarter and the year ended March 31, 2013, the only portfolio sale was a small portion
of the investment in Potash Ridge Corporation for proceeds of $0.04 million, for which the
realized loss was $0.02 million. For the year ended March 31, 2014, the unrealized increase in
the fair value of the portfolio investments represented the reversal of previously recognized
unrealized losses in the investments in EcoSynthetix Inc. and Potash Ridge Corporation of $1.4
million, partially offset by an increase in the unrealized loss on the investment in Ocean Harvest
Technology (Canada) Inc. of $0.8 million.
As part of the Corporation’s strategy to manage its risks and minimize its exposure to securities
and assets denominated in foreign currencies, the Corporation has from time to time, in the recent
past, committed to certain forward foreign exchange contracts. As at March 31, 2014, the
Corporation had no commitment to any forward foreign exchange contract (2013 - forward
foreign exchange contract for US$30 million, term of 34 days). The Corporation will continue to
assess its foreign exchange exposure and may enter into foreign exchange contracts if needed.
16
CERES GLOBAL AG CORP. ANNUAL REPORT
31
Effects of changes in the rate of foreign exchange
As at March 31, 2014, for accounting purposes, Ceres’ investment in the net assets of Riverland
Ag was US$95.0 million. During the year then ended, the Canadian dollars became weaker
against the United States dollars (“USD”) by 8.8% (2013 – 1.9%). This change is the primary
cause of the gain on translation of foreign currency accounts of foreign operations in the amount
of $9.4 million (2013 - $2.0 million) reported as other comprehensive gain in the consolidated
statement of comprehensive income (loss) for the year ended March 31, 2014.
Riverland Ag’s reporting and functional currency is the USD. Riverland Ag has no assets or
liabilities denominated in currencies other than USD. Therefore, it is not directly exposed to
currency risk in its normal operations. Currency risk related to the accounts of Riverland Ag
relates primarily to the translation of its USD accounts into CAD for the purposes of the
consolidated financial reporting of the Corporation. Adjustments related to the translation of
Riverland Ag’s USD assets and liabilities are included as other comprehensive income (loss) and
have no effect on the determination of consolidated net income or loss of Ceres for an interim or
annual reporting period.
Furthermore Ceres may commit to a forward foreign exchange contract to manage exposure to
changes in the CAD/USD exchange rate. Management monitors changes in foreign exchange
rates on an ongoing basis and considers appropriate strategies and actions related to the assets and
accounts of Riverland Ag and to Ceres’ direct exposure to changes in the USD, as and when the
need arises.
Other assets and liabilities
As at March 31, 2014, the consolidated balance sheet reflects changes in the assets and liabilities
of the Corporation since March 31, 2013. During the year ended March 31, 2014, total assets
decreased by approximately $64.0 million, caused primarily by the following increases
(decreases), in millions of dollars:
Cash and portfolio investments
Trade accounts receivables
Inventories
Assets held for sale
Other current assets
Investments in associates
Investment property
Property, Plant and equipment
($14.1)
($ 6.5)
($51.4)
$18.2
($ 5.0)
$ 0.3
$ 9.8
($15.3)
The decrease in trade accounts receivable reflects the decrease in revenues during the quarter
ended March 31, 2014. The decrease in inventories reflects primarily the reduction in bushels
owned by Riverland Ag, and secondarily the decreases in commodity prices compared to last
year. The increase in the assets held for sale reflects the reclassification of property, plant and
equipment at the Manitowoc and Savage facilities being actively marketed for sale. The increase
in investment property reflects additional development and other costs capitalized to NCLC
during the year. The decrease in property, plant and equipment reflects the following factors: (i)
the reclassification as assets held for sale of the facilities at Manitowoc; (ii) the disposal of certain
assets during the year; (iii) the effects of depreciation expense, all of which are net of the effects
of a weaker CAD used to translate accounts of Riverland Ag from USD; and (iv) the cost of
acquiring certain assets.
17
32
During the year ended March 31, 2014, total liabilities decreased by $53.3 million (35.2%) in the
value of total liabilities since March 31, 2013. The decrease in liabilities reflects primarily the
reduction of the aggregate of short-term credit facility liabilities, which decreased by $55.8
million. The reduction in credit facility liability balances during the year is attributable primarily
to Riverland Ag reducing its inventories by $51.4 million and a reduction in cash and portfolio
investment balances of $14.1 million since March 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
Following Ceres’ acquisition of Riverland Ag in June 2010, Ceres began an orderly liquidation of
its investment portfolio to generate cash to support the growth of Riverland Ag and to invest in
other agricultural industry-related businesses. As at March 31, 2014, Ceres had $12.0 million
(2013 - $20.4 million) of cash available and approximately $0.8 million (2013 - $6.5 million)
invested in minority positions in several private companies. Ceres continues to monitor market
opportunities and plans to complete the process of liquidating its remaining non-core portfolio
investments.
The Corporation’s cash requirements include operating costs at the corporate level, funding the
growth of Riverland Ag and the build out of NCLC. Cash and portfolio investments, as well as
cash flows generated by Riverland Ag’s operations and the divestiture of Riverland Ag’s non-
core assets are available to support the continued growth of Riverland Ag and NCLC. These
investment activities may also be supplemented by other alternative financing.
Working Capital
Ceres’ working capital, defined as current assets excluding current assets held for sale less current
liabilities. At March 31, 2014, working capital of the Corporation was $45.6 million (2013 -
$69.4), a decrease of $23.8 million over March 31, 2013. The decrease in working capital is
primarily due to:
1. Decrease in bank debt of $44.6 million. Bank indebtedness was $71.7 million on March
31, 2014 (2013 - $116.3 million).
2. Decrease in repurchase obligations of $11.2 million. Repurchase obligation on March
31, 2014 was $15.9 million (2013 - $27.1 million).
3. Decrease in cash and due from brokers of $8.4 million and $7.3 million, respectively.
The above decrease in working capital was offset primarily by:
1. Reduction in inventory for debt repayment. Inventory at March 31, 2014 was $113.3
million (2013 - $164.8 million), a decrease of $51.5 million.
2. Decrease in cash of $8.4 million. Cash balance at March 31, 2014 was $12.0 million
(2013 - $20.4 million)
3. Decrease in value of portfolio investment partly as a result of the sale of non-core
portfolio investments resulting in proceeds of $3.2 million.
4. Decrease in accounts receivable of $6.4 million. Accounts receivable on March 31, 2014
was $6.8 million (2013 – $13.2 million).
18
CERES GLOBAL AG CORP. ANNUAL REPORT
33
Credit Facility
As at March 31, 2014, Riverland Ag had the following short-term credit facility:
On March 28, 2014, Riverland Ag entered into a syndicated uncommitted US$120,000,000,
364-day revolving credit agreement, bearing interest at LIBOR plus 2.875% with interest
calculated and paid monthly. Amounts under the credit agreement that remain undrawn are
not subject to a commitment fee. The credit agreement is subject to borrowing base
limitations. The credit facility is secured by predominantly all assets of Riverland Ag,
including cash and Riverland Ag’s Duluth Storage facility but excluding other property,
plant and equipment. Obligations under this facility are guaranteed by Ceres Canada
Holding Corp., Ceres U.S. Holding Corp., and Riverland Canada. As at March 31, 2014,
the balance payable by Riverland Ag on this uncommitted revolving credit line (excluding
the effect of unamortized financing costs) was US$65 million ($71.9 million) (2013 - under
the former committed facility described in the following paragraph: US$115 million
($116.8 million)).
Prior to March 28, 2014, Riverland Ag had a syndicated committed facility of up to US$180
million, under a two-year revolving credit agreement, which was also subject to borrowing base
limitations and secured by predominantly all assets of Riverland Ag, including cash but excluding
property, plant and equipment. This facility was renewed on July 31, 2012 for an additional two
years. Commencing on that date, interest was calculated at LIBOR plus 3.75%, calculated and
paid monthly and certain covenants were modified. Prior thereto, borrowings were subject to
interest at LIBOR plus 4.00%, calculated and paid monthly.
As at March 31, 2014 and 2013, Riverland Ag was in compliance with all debt covenants
concerning its short-term credit facilities.
During the year ended March 31, 2013 (on December 17, 2012), Riverland Ag repaid all of its
then outstanding term notes payable to Great Western Bank (“GWB”). The amount of principal
then repaid was US$44.6 million ($43.9 million). On repayment, Riverland Ag also paid an early
debt repayment penalty of US$2.5 million ($2.5 million) and amortized the full amount of the
remaining unamortized financing costs of US$0.3 million ($0.3 million) related to long-term
debt. The debt repayment penalty amount and the amortization of the long-term debt financing
costs are included in finance expenses for the year ended March 31, 2013.
Riverland Ag used its short-term credit facility to finance the full repayment of the long-term debt
loans payable. For the period from July 31, 2012 to March 27, 2014, the short-term credit facility
carried interest at the annual rate of LIBOR plus 3.75%. In the quarter ended March 31, 2013 and
throughout the year ended March 31, 2014, Riverland Ag realized savings resulting from the
reduced interest costs related to borrowings on the amount formerly financed by long-term debt
(which carried interest at rates ranging from 5.35% to 6.60%). The payback period on the early
debt repayment penalty is expected to be approximately 18 months.
Equity Financing
As discussed in the following paragraphs, except for additional warrants issued by Ceres on the
acquisition of Riverland Ag, the 2011-2012 NCIB (as defined below), the 2013-2014 NCIB (as
defined below) and the Deferred Share Units (as defined below), there has been no change in the
authorized capital of Ceres since March 31, 2008.
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34
Credit Facility
As at March 31, 2014, Riverland Ag had the following short-term credit facility:
On March 28, 2014, Riverland Ag entered into a syndicated uncommitted US$120,000,000,
364-day revolving credit agreement, bearing interest at LIBOR plus 2.875% with interest
calculated and paid monthly. Amounts under the credit agreement that remain undrawn are
not subject to a commitment fee. The credit agreement is subject to borrowing base
limitations. The credit facility is secured by predominantly all assets of Riverland Ag,
including cash and Riverland Ag’s Duluth Storage facility but excluding other property,
plant and equipment. Obligations under this facility are guaranteed by Ceres Canada
Holding Corp., Ceres U.S. Holding Corp., and Riverland Canada. As at March 31, 2014,
the balance payable by Riverland Ag on this uncommitted revolving credit line (excluding
the effect of unamortized financing costs) was US$65 million ($71.9 million) (2013 - under
the former committed facility described in the following paragraph: US$115 million
($116.8 million)).
Prior to March 28, 2014, Riverland Ag had a syndicated committed facility of up to US$180
million, under a two-year revolving credit agreement, which was also subject to borrowing base
limitations and secured by predominantly all assets of Riverland Ag, including cash but excluding
property, plant and equipment. This facility was renewed on July 31, 2012 for an additional two
years. Commencing on that date, interest was calculated at LIBOR plus 3.75%, calculated and
paid monthly and certain covenants were modified. Prior thereto, borrowings were subject to
interest at LIBOR plus 4.00%, calculated and paid monthly.
As at March 31, 2014 and 2013, Riverland Ag was in compliance with all debt covenants
concerning its short-term credit facilities.
During the year ended March 31, 2013 (on December 17, 2012), Riverland Ag repaid all of its
then outstanding term notes payable to Great Western Bank (“GWB”). The amount of principal
then repaid was US$44.6 million ($43.9 million). On repayment, Riverland Ag also paid an early
debt repayment penalty of US$2.5 million ($2.5 million) and amortized the full amount of the
remaining unamortized financing costs of US$0.3 million ($0.3 million) related to long-term
debt. The debt repayment penalty amount and the amortization of the long-term debt financing
costs are included in finance expenses for the year ended March 31, 2013.
Riverland Ag used its short-term credit facility to finance the full repayment of the long-term debt
loans payable. For the period from July 31, 2012 to March 27, 2014, the short-term credit facility
carried interest at the annual rate of LIBOR plus 3.75%. In the quarter ended March 31, 2013 and
throughout the year ended March 31, 2014, Riverland Ag realized savings resulting from the
reduced interest costs related to borrowings on the amount formerly financed by long-term debt
(which carried interest at rates ranging from 5.35% to 6.60%). The payback period on the early
debt repayment penalty is expected to be approximately 18 months.
Equity Financing
As discussed in the following paragraphs, except for additional warrants issued by Ceres on the
acquisition of Riverland Ag, the 2011-2012 NCIB (as defined below), the 2013-2014 NCIB (as
defined below) and the Deferred Share Units (as defined below), there has been no change in the
authorized capital of Ceres since March 31, 2008.
19
On June 11, 2010, and as part of the consideration paid for the acquisition of Riverland Ag, Ceres
issued 2,904,889 common shares at their quoted price of $5.99 each for consideration of $17.4
million, and 150,000 common share purchase warrants valued at $1.35 each for consideration of
$0.2 million. These common share purchase warrants were exercisable at any time prior to the
third anniversary of the closing date of the acquisition at an exercise price of $10.40 each. From
the date of their issuance to the date of their expiration on June 11, 2013, no warrants were
exercised. On the expiration of these warrants, Ceres allocated the aggregate stated capital value
of the warrants of $0.2 million to contributed surplus. As at March 31, 2014 and 2013, no stock
options were outstanding. No stock options were granted during the three-month and twelve-
month periods ended March 31, 2014 and during the year ended March 31, 2013.
On October 13, 2011, Ceres announced a normal course issuer bid commencing on October 17
(“the 2011-2012 NCIB”). For the period from April 1, 2012 to October 16, 2012, Ceres
purchased 246,600 common shares under the 2011-2012 NCIB for an aggregate consideration of
$1.6 million. The stated capital value of these repurchased shares was $2.4 million. The excess of
the stated capital value of the repurchased shares over the cost thereof, being $0.8 million, has
been allocated to retained earnings in the year ended March 31, 2013.
On July 9, 2013, Ceres announced a normal course issuer bid commencing on July 11 (“the 2013-
2014 NCIB”). For the period from July 11, 2013 to March 31, 2014, Ceres purchased 126,020
common shares under the 2013-2014 NCIB for an aggregate consideration of $1 million. The
stated capital value of these repurchased shares was $1.2 million. The excess of the stated capital
value of the repurchased shares over the cost thereof, being $0.2 million, has been allocated to
retained earnings in the year ended March 31, 2014.
Effective January 1, 2014, Ceres has a directors’ Deferred Share Unit Plan, whereby deferred
share units (“DSU”) are issued to eligible directors, in lieu of cash, for a portion of the directors’
fees otherwise payable to directors of Ceres. The fair market value of the DSUs on the date such
units are calculated and issued represents the volume-weighted average trading price of Ceres’
common shares for the five trading days immediately preceding the date of issuance of the DSUs.
Each DSU entitles the director to receive payment after the end of the director’s term in the form
of common shares of the Corporation. Under the DSU Plan, the aggregate number of common
shares issuable by Ceres is limited to 450,000 common shares. Certain insider restrictions and
annual dollar limits per eligible director exist. Dividends, if any, otherwise payable on the
common shares represented by the DSUs are converted into additional DSUs based on the fair
market value as of the date on which any such dividends would be paid. The DSU Plan also
provides for the Board to award additional DSUs (referred to in the plan agreement as “Matching
DSUs”) to an eligible director who has elected to receive DSUs pertaining to his/her “Annual
Cash Remuneration” amount (as defined by the DSU Plan). The Corporation intends to settle all
DSUs with shares through the issuance of treasury shares. As at March 31, 2014, the number of
DSUs issued and outstanding was 8,912.73 units having a weighted fair value of $7.01, for a total
recognized value of $0.06 million.
20
CERES GLOBAL AG CORP. ANNUAL REPORT
35
Summary of contractual maturities of financial liabilities
The following are the consolidated contractual maturities of all financial liabilities, including
interest payments, as at March 31, 2014:
(in millions of dollars)
Bank indebtedness
Repurchase obligations
Accounts payable and accrued liabilities
Derivatives
Provision for future payments to Front Street Capital
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
$
$
$
$
$
$
71.7
15.9
7.6
1.8
1.0
98.0
$
$
$
$
$
$
71.9
15.9
7.6
1.8
1.0
98.1
$
$
$
$
$
$
71.9
15.9
7.6
1.8
1.0
98.1
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
$
-
-
-
-
-
$
-
Future expected operational cash flows and sufficient current assets are available to fund the
settlement of these obligations in the normal course of business. In addition, the following
factors allow for the substantial mitigation of liquidity risk: (i) prompt settlement of amounts due
from brokers; (ii) active management of trade accounts receivable; and (iii) the lack of
concentration risk related thereto. The Corporation’s cash flow management activities and the
continued likelihood of its operations further minimize liquidity risk.
Market Outlook
Ceres is focused on expanding its commodity logistics assets and improving the effectiveness of
its grain handling and storage assets.
Commodity Logistics
As at March 31, 2014, Ceres had invested approximately $14.8 million for the Canadian portion
of NCLC. Management believes an additional investment of approximately $112 million over the
next 3 – 5 years, is required for NCLC to reach full capacity including a 2.2 million bushel grain
elevator, 72,000 barrels per day of oil capacity and 29,000 gallon per day in natural gas liquids
capacity. Within this budget, approximately $35-40 million is required to complete the first phase
of the project which would enable the movement of grain, oil and natural gas liquids. The Board
has authorized an additional $15.5 million to be spent during the 2014 construction season with
additional funds to be considered pending the outcome of the review of financing alternatives by
the subcommittee of the Board. Proceeds from the Riverland Ag asset sales, including the
completed sale of Manitowoc facility in Wisconsin, will be used to fund a portion of NCLC. A
special committee comprised of five directors was formed on May 9, 2014 to explore the
financing alternatives to fund the development of NCLC.
Based on the success of its financing strategies, Ceres anticipates the first phase of NCLC
construction could be completed in the fall of 2014 and early 2015, enabling the transportation of
grain, oil and natural gas liquids.
Management expects that the SSR will continue to benefit from increased grain shipments, as the
2013 harvest has been strong across Western Canada. In addition, if the WTI/Brent Crude
differentials continue to widen as they have recently, crude oil shipments from Stoughton could
continue to rise. SSR management is working with key customers to make investments to
increase the efficiency of the line, and move larger volumes going forward. Given the strength of
21
36
operations and the strong cash position generated by the SSR, management believes the SSR is in
a strong position to continue to return cash to shareholders.
Grain Handling and Storage
The record harvest in North America during 2013, coupled with the deregulation of the Canadian
wheat market as a result of the removal of the Canadian Wheat Board’s marketing monopoly,
has, in management’s opinion, created a favourable environment for the assets of Riverland Ag.
While management remains encouraged by the improved operational performance of Riverland
Ag this quarter, it will likely take a number of quarters before the full impact of the 2013 harvest
is reflected in Riverland Ag’s financial results. Current rail logistics delays in Western Canada
are holding back the movement of crops and management does not expect this to be resolved until
at least the spring of 2014. This delay in the movement of the current year’s harvest is reducing
the profit potential of Riverland Ag and other grain storage and handling companies without
access to origination assets.
Management believes that the deregulation of the Canadian wheat market presents an opportunity
for Riverland Ag to significantly expand its wheat merchandising presence. This is driven by an
ability to source a much larger spring wheat market, both in terms of quantity and variability in
quality, than existed in the past. In consideration of the combination of the removal of the
Canadian Wheat Board monopoly and accepting Canadian wheat for delivery against its
contracts, Riverland Ag can now originate and hedge Canadian spring wheat in a market that is
approximately 1.5 times larger than it was before the departure of the Canadian Wheat Board.
Management believes that the significant increase in the size of the spring wheat tributary to the
Minneapolis Grain Exchange (“MGEX”) wheat futures contract should add to its size and
flexibility and, going forward, should make it a more vibrant arena for hedging. In conjunction
with the increase in the geographic footprint of Minneapolis spring wheat, a wider variety of
quality is expected to now be available, which should benefit companies with commercial
storage, including Riverland Ag.
Use of derivatives
As described above concerning commodity risk, Riverland Ag generally uses exchange-traded
futures and options contracts in managing such risk, and to enhance margins whenever possible.
Changes to the market price of inventories of merchandisable agricultural commodities, forward
cash purchase and sales contracts, and exchange-traded futures contracts are recognized in the
Statement of Comprehensive Income (Loss) as a component of cost of sales. Unrealized gains
and losses on these derivative contracts are recognized on the balance sheet and included in due
from broker at March 31, 2014 for $4.6 million (2013 - $11.9 million) and as derivative assets or
derivative liabilities, as applicable, in unrealized net gains (losses) on open cash contracts. As at
March 31, 2014, unrealized gains were $3.0 million (2013 - $2.3 million) and unrealized losses
were $1.8 million (2013 - $1.6 million).
Ceres may use certain derivative instruments to manage its exposure to fluctuations in foreign
currency exchange rates on the portfolio investments. For the year ended March 31, 2014, the
realized loss on foreign currency hedging transactions was $0.5 million (2013 - $0.3 million).
For the quarter ended March 31, 2014, the realized gain on foreign currency hedging transactions
was $Nil (2013 - loss of $0.6 million). As at March 31, 2014, there was no unrealized gain or
loss on forward foreign currency contracts as no such contracts were outstanding as at that date
(2013 - unrealized gain of $0.01 million).
22
CERES GLOBAL AG CORP. ANNUAL REPORT
37
OUTSTANDING SHARE DATA
As at March 31, 2014 and the date of this MD&A the issued and outstanding equity securities of
the Corporation consisted of 14,208,679 common shares.
RELATED PARTY TRANSACTIONS
Front Street Capital 2004 and certain affiliates (collectively referred to as “Front Street Capital”)
were related parties to Ceres by virtue of a management agreement, pursuant to which Front
Street Capital provided certain services to Ceres (the “Management Agreement”). The
Management Agreement was terminated on November 30, 2013.
On August 23, 2013, Ceres announced it had entered into a management transition agreement (the
“Transition Agreement”) with Front Street Capital, which provided, among other things, for the
early termination of the Management Agreement. The Transition Agreement was approved by
the shareholders at the annual and special meeting held on September 27, 2013. Under the terms
of the Transition Agreement:
The Management Agreement was terminated effective November 30, 2013;
Monthly management fee payments to Front Street Capital ceased at the end of
September 2013;
On October 1, 2013, Ceres paid Front Street Capital $5.0 million plus HST of $0.65
million;
Front Street Capital will be paid an additional $1.0 million if the five-day volume-
weighted average price of Ceres’ common shares on the TSX (the “5-day VWAP”)
reaches $10.00 within five years, and a further $1.0 million if the 5-day VWAP reaches
$11.00. These payments will become immediately payable if there occurs prior to the
fifth anniversary of the date of the Transition Agreement either a change in control or a
going private transaction (at a price in excess of $7.85 per share);
Ceres will deposit into an escrow fund 1/20th of any net sale proceeds (being gross sale
proceeds in excess of net book value and direct transaction costs) from the sale of any of
Ceres’ assets, to a maximum amount of $1.0 million and such escrow fund shall be paid
to Front Street Capital if the 5-day VWAP does not reach $10.00 within five years;
Michael Detlefsen was appointed President and Chief Executive Officer, with a mandate
to work with an expanded Board of Directors to facilitate a strategic review of Ceres,
develop and implement the resulting strategic plan, and develop and implement a new,
permanent management structure for Ceres, with the shared goal of a seamless transition
and continuity in the business;
Until November 30, 2013, Front Street Capital continued to provide services and support
to Ceres, with no additional management fee payable to Front Street Capital after
September 30, 2013; and
Until March 31, 2014, Front Street Capital continued to provide the services of Jason
Gould as Interim Chief Financial Officer.
Management has determined that, as at March 31, 2014, the fair value of the additional payments
provided for under the Transition Agreement remained unchanged at $1.0 million. The fair value
23
38
OUTSTANDING SHARE DATA
As at March 31, 2014 and the date of this MD&A the issued and outstanding equity securities of
the Corporation consisted of 14,208,679 common shares.
RELATED PARTY TRANSACTIONS
Front Street Capital 2004 and certain affiliates (collectively referred to as “Front Street Capital”)
were related parties to Ceres by virtue of a management agreement, pursuant to which Front
Street Capital provided certain services to Ceres (the “Management Agreement”). The
Management Agreement was terminated on November 30, 2013.
On August 23, 2013, Ceres announced it had entered into a management transition agreement (the
“Transition Agreement”) with Front Street Capital, which provided, among other things, for the
early termination of the Management Agreement. The Transition Agreement was approved by
the shareholders at the annual and special meeting held on September 27, 2013. Under the terms
of the Transition Agreement:
The Management Agreement was terminated effective November 30, 2013;
Monthly management fee payments to Front Street Capital ceased at the end of
On October 1, 2013, Ceres paid Front Street Capital $5.0 million plus HST of $0.65
September 2013;
million;
Front Street Capital will be paid an additional $1.0 million if the five-day volume-
weighted average price of Ceres’ common shares on the TSX (the “5-day VWAP”)
reaches $10.00 within five years, and a further $1.0 million if the 5-day VWAP reaches
$11.00. These payments will become immediately payable if there occurs prior to the
fifth anniversary of the date of the Transition Agreement either a change in control or a
going private transaction (at a price in excess of $7.85 per share);
Ceres will deposit into an escrow fund 1/20th of any net sale proceeds (being gross sale
proceeds in excess of net book value and direct transaction costs) from the sale of any of
Ceres’ assets, to a maximum amount of $1.0 million and such escrow fund shall be paid
to Front Street Capital if the 5-day VWAP does not reach $10.00 within five years;
Michael Detlefsen was appointed President and Chief Executive Officer, with a mandate
to work with an expanded Board of Directors to facilitate a strategic review of Ceres,
develop and implement the resulting strategic plan, and develop and implement a new,
permanent management structure for Ceres, with the shared goal of a seamless transition
and continuity in the business;
Until November 30, 2013, Front Street Capital continued to provide services and support
to Ceres, with no additional management fee payable to Front Street Capital after
September 30, 2013; and
Until March 31, 2014, Front Street Capital continued to provide the services of Jason
Gould as Interim Chief Financial Officer.
Management has determined that, as at March 31, 2014, the fair value of the additional payments
provided for under the Transition Agreement remained unchanged at $1.0 million. The fair value
of each of the additional payments was determined using the binomial options pricing model,
with a remaining term to September 30, 2018, using volatility of 35% and a risk-free interest rate
of 1.71%. For the year ended March 31, 2014, included in general and administrative expenses
was the payment of the management transition amount on October 1, 2013 and a provision in the
amount of $1.0 million for the additional payments.
Gary P. Selke is the President and Chief Executive Officer of Front Street Capital. Thomas P.
Muir and Michael Detlefsen are the controlling shareholders of Muir Detlefsen & Associates
Limited, which was retained by Front Street Capital to provide services to Ceres prior to the
termination of the Management Agreement. Accordingly, these individuals have a material
interest and therefore may benefit from payments made to Front Street Capital pursuant to the
Transition Agreement.
As at March 31, 2014 and 2013, the current liability for management fees payable and other
related provisions represents the following:
(in millions of dollars)
Management fees payable and related HST
Provision for future payments to Front Street Capital
2014
2013
-
$
1.0
1.0
$
0.3
$
-
$
0.3
The basis of the recognition of the provision for the future additional payments is reported in the
preceding paragraphs in this section.
(a) Management fees and incentive fees
For the three-month and twelve-month periods ended March 31, 2014 and 2013, management
fees and other fees charged to operations and included with general and administrative expenses
are as follows:
Management fees and related expenses
(in millions of dollars)
3 months
2014
2013
12 months
2014
2013
Management fees and related HST (Note 1)
Management transition payment (Note 2)
Provision for future additional payments to Front Street Capital (Note 3)
$
$
$
(0.2)
(0.7)
(0.6)
$
0.7
$
-
$
-
$
$
$
1.3
5.0
1.0
$
3.1
$
-
$
-
$
(1.4)
$
0.7
$
7.3
$
3.1
The amounts reported as recoveries of management fees and related expenses for the quarter
ended March 31, 2014 are explained as follows:
1.
2.
The recovery of management fees of $0.2 million represents primarily a claim of
the GST/HST applicable thereto as Input Tax Credits for the period from April 1,
2013 to September 30, 2013.
The recovery of $0.7 million for the management transition payment represents
the GST/HST applicable thereto, which were also claimed as Input Tax Credits
for the period from April 1, 2013 to September 30, 2013 to be recovered.
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24
CERES GLOBAL AG CORP. ANNUAL REPORT
39
3.
The reduction of $0.6 million in the provision for future additional payments to
Front Street Capital consists of two components:
i. A reduction of $0.4 million in the estimated fair value of the provision from
the original provisional amount of $1.4 million as at September 30, 2013 and
December 31, 2013 to the estimated fair value as at March 31, 2014 of $1.0
million; and
ii. The reversal on March 31, 2014 of the provision for GST/HST of $0.2
million related to the provision of $1.4 million initially recognized as at
September 30, 2013, once management determined in Q4 2014 that it was
not appropriate in the current circumstances to continue to record a provision
for GST/HST on the provisional future payments.
(b) Due to Front Street Capital
As at March 31, 2014, the Corporation had a liability to Front Street Capital in the amount of $Nil
million (2013 - $0.3 million).
SIGNIFICANT ACCOUNTING POLICIES
The preparation of Ceres’ annual consolidated financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results may vary from current estimates. Management reviews these estimates
periodically and, as adjustments become necessary, they are reported in the Statement of
Comprehensive Income (Loss) in the period in which they become known.
The following significant accounting policies involve the use of estimates.
Financial instruments
Trade accounts receivable are classified as loans and receivables. All other financial assets are
held for trading and classified at fair value through profit or loss. Current liabilities and long-
term debt are classified as other liabilities, except Derivative liabilities. Such derivative liabilities
include unrealized losses on open cash contracts, which are held-for-trading and classified at fair
value through profit or loss, and the Provision for future additional payments to Front Street
Capital, which have been classified at fair value through profit or loss. The carrying value of
financial assets classified as current assets and the carrying fair value of financial liabilities
classified as current liabilities approximate the fair value thereof given their short-term maturities.
Valuation of investments
Portfolio investments are held for trading, and are measured and reported at fair value. Securities
and ownership interests over which the Corporation exercises significant influence or control are
accounted for using the equity-accounting model or through consolidation, as appropriate.
As at a reporting date, the fair value of financial instruments traded in active markets (primarily
equity securities of public companies and related derivative instruments, if any) is based on the
bid price for investments held by the Corporation, and on the asking price for investments sold
short, if any. The fair value of financial instruments not traded in an active market (including but
25
40
not limited to securities in private companies, warrants and restricted securities) is determined
using valuation techniques. Depending on various circumstances, the Corporation may use
several methods and makes assumptions based on market conditions existing at each reporting
date. Valuation techniques may include, without limitation, the use of comparable recent arm’s
length transactions, discounted cash flow analysis, option-pricing models and other valuation
techniques commonly used by market participants.
Derivative commodity contracts
to minimize
To reduce price risk caused by market fluctuations, Riverland Ag generally follows a policy of
using exchange-traded futures and options contracts
its net position of
merchandisable agricultural commodity inventories and forward cash purchase and sales
contracts. Riverland Ag will also use exchange-traded futures and options contracts as
components of merchandising strategies designed to enhance margins. The results of these
strategies may be significantly influenced by factors such as the volatility of the relationship
between the value of exchange-traded commodities futures contracts and the cash prices of the
underlying commodities, and volatility of freight markets. Derivative contracts have not been
designated, and are not accounted for, as fair value hedges. Management determines fair value
based on exchange-quoted prices, and in the case of its forward purchase and sales contracts,
estimated fair value is adjusted for differences in local markets. Realized and unrealized gains
and losses in the value of inventories of merchandisable agricultural commodities, forward cash
purchase and sales contracts, and exchange-traded futures contracts are recognized in the
statement of comprehensive income as a component of cost of sales. Unrealized gains and losses
on these derivative contracts are recognized in earnings and classified on the balance sheet as due
from broker, derivative assets or derivative liabilities, as applicable.
Recognition of Riverland Ag revenues
Riverland Ag follows a policy of recognizing sales revenue at the time of delivery of the product
and when all of the following have occurred: a sales agreement is in place, title and risk of loss
have passed, pricing is fixed or determinable, and collection is reasonably assured. Grain storage,
rental and other operating income are recorded as earned on an accrual basis. Freight costs and
handling charges related to sales are presented gross in revenues and cost of sales. Other direct
and indirect costs associated with inventory and storage, including payroll and benefits of
elevator employees, depreciation of buildings, silos and elevators, utilities and other similar costs
are classified with cost of sales.
Income and expenses are recorded on an accrual basis. Investment transactions are recognized on
the trade date. Dividend revenues are recognized on the ex-dividend date. Interest and other
revenues are recognized as earned. Realized gains and losses from the sale of investments are
calculated using the average cost method. The change over a reporting period of the difference
between the fair value and the cost of portfolio investments is recognized in finance income (loss)
in the statement of comprehensive income (loss) as an unrealized increase (decrease) in fair value
of investments.
Inventories
Inventories represent agricultural grain commodities owned by Riverland Ag, such as oats, spring
wheat, barley, corn, and soybeans. Inventories are stated primarily at fair value less costs to sell.
Certain other inventories are stated at the lower of cost or market, with cost determined using the
average cost method. Fair value is primarily determined from market prices quoted on public
26
CERES GLOBAL AG CORP. ANNUAL REPORT
41
commodity exchanges, adjusted for expected freight costs to normal delivery points and a price
premium or discount to cover local supply and demand factors as estimated by management.
Changes in the fair value less costs to sell inventories of agricultural grain commodities are
charged to operations as and when they occur, and such changes are included as a component of
cost of sales.
Assets held for sale
It is unlikely that the disposal plan will be significantly modified or discontinued;
Assets are classified as held for sale when all of the following criteria are met:
Management commits to a plan to sell a property;
The property is available for immediate sale in its present condition;
Actions required to complete the sale of the property have been initiated;
Sale of the property is highly probable and management expects the completed sale will
occur within one year; and
The property is actively being marketed for sale at a price that is reasonable given its current
market value.
Upon designation as an asset held for sale, the Corporation records the carrying value of each
property held for sale at the lesser of its carrying value or its fair value less costs to sell, and
depreciation is no longer recognized.
Property, plant, and equipment
Property, plant, and equipment are stated at their fair value as at the date of the acquisition, plus
the cost of property, plant and equipment acquired thereafter, less accumulated depreciation and
accumulated impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset and to
bringing the asset to a working condition for its intended use.
If parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items (major components) of property, plant and equipment.
Gains or losses related to the disposition of property, plant and equipment are recognized in the
Statement of Comprehensive Income as other income.
Depreciation is determined over the depreciable amount, being the cost of the asset or other
amount substituted for cost, less its residual value, if any. Depreciation is recognized in net
income and is calculated using the straight-line method over the estimated useful lives of the
respective classes of assets as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment,
computer software and other property, plant and equipment
15 – 31 years
7 – 15 years
7 years
Depreciation methods, useful lives of the assets and their residual values are reviewed at fiscal
year-end and adjusted if appropriate.
Riverland Ag reviews property, plant, and equipment for impairment whenever events or changes
in circumstances indicate that the expected fair value of such assets might not be sufficient to
support the carrying amount of the assets.
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42
commodity exchanges, adjusted for expected freight costs to normal delivery points and a price
premium or discount to cover local supply and demand factors as estimated by management.
Changes in the fair value less costs to sell inventories of agricultural grain commodities are
charged to operations as and when they occur, and such changes are included as a component of
cost of sales.
Assets held for sale
Assets are classified as held for sale when all of the following criteria are met:
Management commits to a plan to sell a property;
It is unlikely that the disposal plan will be significantly modified or discontinued;
The property is available for immediate sale in its present condition;
Actions required to complete the sale of the property have been initiated;
Sale of the property is highly probable and management expects the completed sale will
The property is actively being marketed for sale at a price that is reasonable given its current
Upon designation as an asset held for sale, the Corporation records the carrying value of each
property held for sale at the lesser of its carrying value or its fair value less costs to sell, and
occur within one year; and
market value.
depreciation is no longer recognized.
Property, plant, and equipment
Property, plant, and equipment are stated at their fair value as at the date of the acquisition, plus
the cost of property, plant and equipment acquired thereafter, less accumulated depreciation and
accumulated impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset and to
bringing the asset to a working condition for its intended use.
If parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items (major components) of property, plant and equipment.
Gains or losses related to the disposition of property, plant and equipment are recognized in the
Statement of Comprehensive Income as other income.
Depreciation is determined over the depreciable amount, being the cost of the asset or other
amount substituted for cost, less its residual value, if any. Depreciation is recognized in net
income and is calculated using the straight-line method over the estimated useful lives of the
respective classes of assets as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment,
computer software and other property, plant and equipment
15 – 31 years
7 – 15 years
7 years
Depreciation methods, useful lives of the assets and their residual values are reviewed at fiscal
year-end and adjusted if appropriate.
Riverland Ag reviews property, plant, and equipment for impairment whenever events or changes
in circumstances indicate that the expected fair value of such assets might not be sufficient to
support the carrying amount of the assets.
27
Income taxes
Income tax expense comprises current and deferred taxes. Current tax and deferred tax are
recognized in profit or loss, except to the extent that it relates to a business combination, or to
items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year,
using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for the following temporary differences: the initial recognition of
assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences
arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted as at the reporting date. Deferred tax assets and
liabilities are offset to the extent that they relate to income taxes levied on the same
taxable entity by the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable income will be available against
which they can be utilized. A valuation allowance is established, if necessary, to reduce any
deferred tax asset to an amount that is probable to be realized.
Share-based payments, Deferred Share Unit Plan
The Corporation has established the DSU Plan, which became effective on March 10, 2014 and is
an equity-settled share-based payment plan. Under the DSU Plan, a director who is not an
employee of the Corporation or any affiliate and who is a non-executive Chair of the Board is an
eligible director. Any eligible director may elect to receive some or all the Annual Cash
Remuneration amount (as defined in the DSU Plan) for that director in the form of DSUs. DSUs
are settled by the issuance of common shares on the Entitlement Date (as defined under the DSU
Plan), which is a date after the end of a director’s term of service with the Board.
As at the dates on which DSUs are calculated under the DSU Plan, the Corporation recognizes as
an expense the amount of directors’ fees for the portion of such fees represented by the fair value
of the DSUs issued to the directors, and increases shareholders’ equity by an equal amount. The
Corporation revalues the DSUs as at the end of each reporting period, based on the volume-
weighted-average trading price per common share of the Corporation on the Toronto Stock
Exchange during the immediately preceding five (5) trading days. Revaluation adjustments are
recognized as an increase or decrease in the expense for Directors’ fees during the reporting
period, with a corresponding increase or decrease in shareholders’ equity.
28
CERES GLOBAL AG CORP. ANNUAL REPORT
43
CHANGES IN ACCOUNTING POLICIES
As a result of new standards having been issued by the International Accounting Standards
Board, commencing April 1, 2013, the Corporation adopted the following new accounting
policies.
The Corporation adopted IFRS 10 Consolidated Financial Statements, as well as the
consequential amendments to IAS 28 Investments in Associates and Joint Ventures. IFRS 10
provides a single model to be applied in the control analysis for all investees, and defines control
as when an investor has power over an investee and has the ability to use its power over the
investee to affect the amount of the investor’s returns. The effect of the adoption of IFRS 10 on
the Corporation’s consolidated financial position or results of operations is not material.
The Corporation adopted IFRS 12 Disclosures of Interests in Other Entities, which integrates all
of the disclosure requirements for interests in subsidiaries, joint arrangements, associates and
unconsolidated structured entities into a single standard. The required disclosures provide
information to evaluate the nature of, and risks associated with, an entity’s interest in other
entities, and the effects of those interests on the entity’s financial statements. The effect of the
adoption of IFRS 12 resulted in additional disclosures in the Corporation’s annual consolidated
financial statements, including: summarized financial information related to the associates, the
amount of Ceres` share of the net income of the associates that Ceres recognized in its annual
financial statements, and the amount of dividends, if any, received from the associates in the year,
as reflected in Note 9 (Investments in Associates).
The Corporation adopted IFRS 13 Fair Value Measurement, which is effective prospectively for
annual periods beginning on or after January 1, 2013. IFRS 13 replaces the fair value
measurement guidance contained in individual IFRSs with a single source of fair value
measurement guidance. The standard also establishes a framework for measuring fair value and
sets out disclosure requirements for fair value measurements to provide information that enables
financial statement users to assess the methods and inputs used to develop fair value
measurements and, for recurring fair value measurements that use significant unobservable inputs
(Level 3), the effect of the measurements on profit or loss or other comprehensive income. The
effect of the adoption of IFRS 13 is expected to result in certain additional disclosures in the
Corporation’s annual consolidated financial statements as and where required.
Commencing April 1, 2013, the Corporation adopted the new disclosure requirements in IFRS 7
Financial Instruments: Disclosures. The effective date for the amendments to IFRS 7 is for
annual periods beginning on or after January 1, 2013. These amendments are to be applied
retrospectively. The amendments to IFRS 7 contain new disclosure requirements for financial
assets and liabilities that are offset in the statement of financial positions; or subject to master
netting arrangements or similar arrangements. The effect of the adoption of the new disclosure
requirements in IFRS 7 is reflected in Note 6 (Due from (to) Brokers).
CONTINGENT LIABILITY
During the quarter ended March 31, 2014, Ceres terminated its arrangements and ongoing
discussions with a potential development partner with respect to the development and
construction of a grain facility at NCLC. The termination of discussions with the potential
partner may have implications for any amounts to be collected from the potential partner and
amounts previously paid to Ceres by the potential partner in respect to its portion of NCLC site
29
44
preparation costs under a cost-sharing agreement. The recovery and/or reimbursement of such
amounts, if any, will be subject to negotiations with the potential partner. As at the date of
preparation of these consolidated financial statements, management cannot predict with
reasonable certainty the outcome of future negotiations, if any.
On June 12, 2014, the potential partner initiated an action against the Corporation for injunctive
relief and unspecified damages relating to the development and construction of a grain facility at
the Corporation’s NCLC. At the preparation of this MD&A, the Corporation is reviewing the
compliant and intends to vigorously defend against this action.
SUBSEQUENT EVENT
On May 23, 2014, the Corporation, through Riverland Ag, closed the sale of the Manitowoc grain
storage facility. The gross proceeds from the sale were US$6.2 million. Pursuant to the purchase
and sales agreement, Riverland Ag will lease back from the purchaser one million bushels of
storage capacity at the Manitowoc grain facility for a three-year term.
CONTROLS AND PROCEDURES
Disclosure controls and procedures
Ceres maintains appropriate information systems, procedures and controls to ensure that new
information disclosed externally is complete, reliable and timely. National Instrument 52-109
Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”) requires the
Chief Executive Officer and the Chief Financial Officer to certify that they are responsible for
establishing and maintaining disclosure controls and procedures (“DC&P”) and that they have, as
at March 31, 2014, designed DC&P (or have caused such DC&P to be designed under their
supervision) to provide reasonable assurance that material information relating to Ceres is made
known to them by others, particularly during the period in which Ceres’ annual filings are being
prepared, and that information required to be disclosed by Ceres in its annual filings, interim
filings or other reports filed or submitted by Ceres under applicable securities legislation is
recorded, processed, summarized and reported within the time periods specified in applicable
securities legislation.
Internal control over financial reporting
NI 52-109 also requires the Chief Executive Officer and the Chief Financial Officer to certify that
they are responsible for establishing and maintaining internal control over financial reporting
(“ICFR”) and that they have, as at March 31, 2014, designed ICFR (or have caused such ICFR to
be designed under their supervision) to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with IFRS. The control framework used by the Chief Executive Officer and the Chief Financial
Officer to design Ceres’ ICFR is the Risk Management and Governance: Guidance on Control
(COCO Framework) published by The Canadian Institute of Chartered Accountants. During the
period beginning on April 1, 2013 and ended on March 31, 2014, there have been no changes in
Ceres’ ICFR that have materially affected, or are reasonably likely to materially affect, Ceres’
ICFR.
Dated this 16th day of June, 2014
30
CERES GLOBAL AG CORP. ANNUAL REPORT
45
Consolidated Financial Statements of
For the years ended March 31, 2014 and 2013
46
Consolidated Financial Statements of
Table of Contents
Management’ Responsibility for Financial Reporting
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
38
39
41
42
43
44
For the years ended March 31, 2014 and 2013
Notes to the Consolidated Financial Statements
45-83
CERES GLOBAL AG CORP. ANNUAL REPORT
47
Management’s Responsibility for Financial Reporting
These consolidated financial statements of the Corporation are the responsibility of management. The
consolidated financial statements were prepared by management in accordance with International
Financial Reporting Standards (“IFRS”) using information available to June 16, 2014 and
management’s best estimates and judgments, where appropriate.
Management has established a system of internal accounting and administrative controls to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions are
properly authorized and recorded, and financial records are properly maintained for the preparation of
reliable financial statements.
The Board of Directors discharges its responsibility for the consolidated financial statements primarily
through its Audit Committee, which comprises members of the Board of Directors. The Audit
Committee meets with management and with the external auditors to discuss the results of the audit
examination and review the consolidated financial statements of the Corporation. The Audit
Committee also considers, for review by the Board and approval by the shareholders, the engagement
or re-appointment of the external auditors. The financial statements have been approved by the Board
of Directors and have been audited by KPMG LLP, Chartered Accountants, in accordance with
Canadian generally accepted auditing standards. Their Independent Auditors’ Report outlines their
responsibilities, the scope of their audit, and their opinion on the accompanying consolidated financial
statements. KPMG LLP has full and unrestricted access to the Audit Committee.
Signed “Michael Detlefsen”
Signed “Amy Stephenson”
Michael Detlefsen
Chief Executive Officer
Amy Stephenson
Chief Financial Officer
48
Management’s Responsibility for Financial Reporting
These consolidated financial statements of the Corporation are the responsibility of management. The
consolidated financial statements were prepared by management in accordance with International
Financial Reporting Standards (“IFRS”) using information available to June 16, 2014 and
management’s best estimates and judgments, where appropriate.
Management has established a system of internal accounting and administrative controls to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions are
properly authorized and recorded, and financial records are properly maintained for the preparation of
reliable financial statements.
The Board of Directors discharges its responsibility for the consolidated financial statements primarily
through its Audit Committee, which comprises members of the Board of Directors. The Audit
Committee meets with management and with the external auditors to discuss the results of the audit
examination and review the consolidated financial statements of the Corporation. The Audit
Committee also considers, for review by the Board and approval by the shareholders, the engagement
or re-appointment of the external auditors. The financial statements have been approved by the Board
of Directors and have been audited by KPMG LLP, Chartered Accountants, in accordance with
Canadian generally accepted auditing standards. Their Independent Auditors’ Report outlines their
responsibilities, the scope of their audit, and their opinion on the accompanying consolidated financial
statements. KPMG LLP has full and unrestricted access to the Audit Committee.
Signed “Michael Detlefsen”
Signed “Amy Stephenson”
Michael Detlefsen
Chief Executive Officer
Amy Stephenson
Chief Financial Officer
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Ceres Global Ag Corp.
We have audited the accompanying consolidated financial statements of Ceres Global Ag Corp., which
comprise the consolidated balance sheets as at March 31, 2014 and March 31, 2013, the consolidated
statements of comprehensive loss, changes in shareholders’ equity and cash flows for the years then
ended, and notes, comprising a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
CERES GLOBAL AG CORP. ANNUAL REPORT
49
KPMG LLP Suite 2000 - One Lombard Place Winnipeg MB R3B 0X3 Canada Telephone (204) 957-1770 Fax (204) 957-0808 Internet www.kpmg.ca KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG Network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity KPMG Canada provides services to KPMG LLP. Sender Name Title/EnclosuresLetter Template.Docx
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Ceres Global Ag Corp. as at March 31, 2014 and March 31, 2013, and
its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Chartered Accountants
June 16, 2014
Winnipeg, Canada
50
CERES GLOBAL AG CORP.
Consolidated Balance Sheets
ASSETS
Current
Cash
Portfolio investments owned, at fair value
Due from Brokers
Derivatives
Accounts receivable, trade
Inventories, grains
GST - HST recoverable
Income taxes recoverable
Assets held for sale
Prepaid expenses and sundry assets
Current assets
Investments in associates
Intangible assets
Investment property
Property, plant and equipment
Non-current assets
TOTAL ASSETS
LIABILITIES
Current
Bank indebtedness
Accounts payable and accrued liabilities
Repurchase obligations
Derivatives
Income taxes payable
Management fees payable
Due to Manager
Provision for future payment to Front Street Capital
Current liabilities
Non-current liability, deferred income taxes
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Common shares
Warrants
Deferred share units
Contributed surplus
Currency translation account
Deficit
CONTINGENT LIABILITY
SUBSEQUENT EVENT
Note
March 31,
March 31,
2014
2013
$
12,009,400
$
20,443,836
113,320,466
164,750,108
161,760,523
220,611,523
848,163
4,620,007
2,965,891
6,757,757
1,469,543
58,465
18,233,455
1,477,376
4,625,667
331,650
14,803,988
50,687,083
70,448,388
7,567,634
15,941,080
1,752,256
-
-
-
970,000
6,488,254
11,943,310
2,311,882
13,215,771
-
-
-
1,458,362
4,349,467
304,800
4,975,921
66,007,982
75,638,170
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
-
$
232,208,911
$
296,249,693
$
71,746,950
$
116,327,864
97,977,920
151,161,910
156,534
207,272
98,134,454
151,369,182
137,100,022
138,298,904
-
62,500
9,228,422
8,072,943
(20,389,430)
202,384
-
9,026,038
(1,292,904)
(1,353,911)
14(a)
5
6
7
8
9
10
11
12
13
14(a)
17(a)
17(b)
17(a)
18(a)
15(e)
15(e)
16
23
24
1
TOTAL SHAREHOLDERS' EQUITY
134,074,457 144,880,511
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
232,208,911
$
296,249,693
The accompanying notes are an integral part of these financial statements.
ON BEHALF OF THE BOARD
Signed
"James Vanasek"
Director
Signed
"Doug Speers"
Director
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Ceres Global Ag Corp. as at March 31, 2014 and March 31, 2013, and
its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Chartered Accountants
June 16, 2014
Winnipeg, Canada
CERES GLOBAL AG CORP.
Consolidated Balance Sheets
ASSETS
Current
Cash
Portfolio investments owned, at fair value
Due from Brokers
Derivatives
Accounts receivable, trade
Inventories, grains
GST - HST recoverable
Income taxes recoverable
Assets held for sale
Prepaid expenses and sundry assets
Current assets
Investments in associates
Intangible assets
Investment property
Property, plant and equipment
Non-current assets
TOTAL ASSETS
LIABILITIES
Current
Bank indebtedness
Accounts payable and accrued liabilities
Repurchase obligations
Derivatives
Income taxes payable
Management fees payable
Due to Manager
Provision for future payment to Front Street Capital
Current liabilities
Non-current liability, deferred income taxes
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Common shares
Warrants
Deferred share units
Contributed surplus
Currency translation account
Deficit
Note
5
6
14(a)
7
8
9
10
11
12
13
14(a)
17(a)
17(b)
17(a)
18(a)
15(e)
15(e)
16
March 31,
2014
March 31,
2013
$
12,009,400
848,163
4,620,007
2,965,891
6,757,757
113,320,466
1,469,543
58,465
18,233,455
$
20,443,836
6,488,254
11,943,310
2,311,882
13,215,771
164,750,108
-
-
-
1,477,376
1,458,362
161,760,523
220,611,523
4,625,667
331,650
14,803,988
50,687,083
70,448,388
4,349,467
304,800
4,975,921
66,007,982
75,638,170
$
232,208,911
$
296,249,693
$
71,746,950
7,567,634
15,941,080
1,752,256
-
-
-
970,000
97,977,920
156,534
$
116,327,864
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
-
151,161,910
207,272
98,134,454
151,369,182
137,100,022
-
62,500
9,228,422
8,072,943
(20,389,430)
138,298,904
202,384
-
9,026,038
(1,292,904)
(1,353,911)
TOTAL SHAREHOLDERS' EQUITY
134,074,457 144,880,511
CONTINGENT LIABILITY
SUBSEQUENT EVENT
23
24
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
232,208,911
$
296,249,693
The accompanying notes are an integral part of these financial statements.
ON BEHALF OF THE BOARD
Signed
"James Vanasek"
Director
Signed
"Doug Speers"
Director
CERES GLOBAL AG CORP. ANNUAL REPORT
51
1
CERES GLOBAL AG CORP.
Consolidated Statements of Comprehensive Loss
For the years ended March 31
REVENUES
Cost of sales
GROSS PROFIT
General and administrative expenses
LOSS FROM OPERATIONS
Finance loss
Finance expenses
Loss on impairment of assets held for sale
Gain on sale of property, plant and equipment
LOSS BEFORE INCOME TAXES AND THE UNDERNOTED ITEM
Income taxes recovered
LOSS BEFORE THE UNDERNOTED ITEM
Share of net income in investments in associates
NET LOSS FOR THE YEAR
Other comprehensive gain for the year
Gain on translation of foreign currency accounts of foreign operations
TOTAL COMPREHENSIVE LOSS FOR THE YEAR
Note
2014
2013
$232,353,830 $223,079,919
(227,982,570) (221,040,333)
4,371,260
2,039,586
(17,227,514) (10,641,561)
(12,856,254) (8,601,975)
(2,918,839) (4,664,051)
(4,717,551) (11,620,188)
-
(763,201)
199,540
9,598,255
(21,056,305) (15,287,959)
(1,322,628) (2,571,270)
(19,733,677) (12,716,689)
463,700
1,231,563
(19,269,977) (11,485,126)
9,365,847
$
(9,904,130)
1,997,975
$
(9,487,151)
14(b)
8
9
WEIGHTED-AVERAGE NUMBER OF SHARES FOR THE YEAR
14,260,601
14,397,241
LOSS PER SHARE
Basic
Diluted
Supplemental disclosure of selected information:
Depreciation included in Cost of sales
Depreciation included in General and administrative expenses
Amortization of financing costs included in Finance expenses
Personnel costs included in Cost of sales
Personnel costs included in General and administrative expenses
The accompanying notes are an integral part of these financial statements.
$ (1.35) $ (0.80)
$ (1.35) $ (0.80)
$ 2,843,568 $ 2,777,276
$ 156,167 $ 144,314
$ 530,988 $ 1,128,219
$ 1,527,417 $ 1,753,086
$ 442,982 $ 494,053
52
2
CERES GLOBAL AG CORP.
Consolidated Statements of Cash Flows
For the years ended March 31
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year
Adjustments for:
Depreciation of property, plant and equipment
Realized loss on sale of investments
Unrealized (increase) decrease in fair value of investments
Loss on impairment of assets held for sale
Gain on sale of property, plant and equipment
Finance expenses
Income taxes recovered
Deferred share units issued to Directors
Share of net income in investments in associates
Changes in non-cash working capital accounts
Interest paid
Income taxes recovered
Cash flow provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments, investments sold short and options
Proceeds from sale of investments
Dividend received from associate
Repayment of loan receivable from associate
Acquisition of, and costs capitalized on, investment property
Proceeds from sale of property, plant and equipment, net of costs to dispose
Acquisition of property, plant and equipment
Cash flow (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
(Net repayment of) net proceeds from bank indebtedness
(Net repayment of) net proceeds from repurchase obligations
Financing costs paid
Repayment of long-term debt
Repurchase of common shares under normal course issuer bid
Cash flow (used in) provided by financing activities
Foreign exchange cash flow adjustment on accounts
denominated in a foreign currency
Decrease in cash for the year
Cash, beginning of year
Cash, end of year
The accompanying notes are an integral part of these financial statements
Note
14(b)
14(b)
18(a)
16
21
9(b)
10
11
15(b)
2014
2013
$
(19,269,977)
$
(11,485,126)
2,999,735
2,974,760
(513,896)
763,201
(199,540)
4,717,551
(1,322,628)
62,500
(463,700)
(10,251,994)
79,030,214
(4,634,761)
955,867
65,099,326
-
3,189,928
125,000
62,500
(9,806,713)
1,549,940
(2,509,343)
(7,388,688)
(52,670,000)
(12,939,394)
(105,340)
-
(964,424)
(66,679,158)
2,921,590
14,931
4,369,758
-
(9,598,255)
11,620,188
(2,571,270)
-
(1,231,563)
(5,959,747)
(13,307,434)
(10,425,283)
1,031,289
(28,661,175)
(1,050,000)
39,420
-
-
(2,071,720)
12,959,804
(1,452,058)
8,425,446
35,045,500
26,737,963
(823,562)
(48,467,092)
(1,531,991)
10,960,818
534,084
(8,434,436)
20,443,836
12,009,400
$
(15,216)
(9,290,127)
29,733,963
20,443,836
$
CERES GLOBAL AG CORP. ANNUAL REPORT
53
3
CERES GLOBAL AG CORP.
Consolidated Statements of Changes in Shareholders' Equity
For the years ended March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Consolidated Statements of Changes in Shareholders' Equity
For the years ended March 31, 2014 and 2013
Note
Common
shares
Warrants
Deferred
share
units
Contributed
surplus
-
$
$
(1,198,882)
138,298,904
15(c)
15(b)
16
Balances, April 1, 2013
Changes for the year ended March 31, 2014
Expiry of warrants, June 11, 2013
Repurchases under normal course issuer bid
Balances, April 1, 2013
-
Issuance of Deferred Share Units
-
Other comprehensive income
Changes for the year ended March 31, 2014
-
Net loss for the year
137,100,022
Balances, March 31, 2014
Expiry of warrants, June 11, 2013
$
$
Repurchases under normal course issuer bid
Issuance of Deferred Share Units
Other comprehensive income
Net loss for the year
Repurchases under normal course issuer bid
Other comprehensive income
Net loss for the year
Balances, April 1, 2012
Changes for the year ended March 31, 2013
Balances, March 31, 2013
140,678,062
138,298,904
(2,379,158)
15(b)
$
$
$
-
-
The accompanying notes are an integral part of these financial statements
Balances, March 31, 2014
202,384
(202,384)
-
-
-
-
-
202,384
-
-
-
202,384
$
$
$
-
Note
-
-
62,500
-
-
$
62,500
15(c)
$
$
-
15(b)
-
16
-
-
$
-
$
$
9,228,422
$
9,026,038
(1,353,911)
Retained
earnings
(deficit)
$
Currency
translation
account
Common
$
(1,292,904)
shares
-
-
138,298,904
-
-
9,365,847
8,072,943
$
-
$
(3,290,879)
(1,198,882)
-
234,458
$
-
-
(19,269,977)
(20,389,430)
202,384
-
$
-
-
-
9,026,038
$
9,284,048
-
-
-
-
1,997,975
-
$
(1,292,904)
9,026,038
847,167
-
(11,485,126)
(1,353,911)
-
-
$
-
$
137,100,022
$
Balances, April 1, 2012
Changes for the year ended March 31, 2013
Repurchases under normal course issuer bid
Other comprehensive income
Net loss for the year
15(b)
(2,379,158)
-
-
Balances, March 31, 2013
$
138,298,904
$
The accompanying notes are an integral part of these financial statements
54
$
140,678,062
$
202,384
$
-
$
9,026,038
$
(3,290,879)
$
9,284,048
$
155,899,653
Total
$
144,880,511
Warrants
-
(964,424)
202,384
62,500
9,365,847
(19,269,977)
$
134,074,457
(202,384)
$
155,899,653
-
(1,531,991)
-
1,997,975
-
(11,485,126)
144,880,511
-
-
$
Deferred
share
units
Contributed
surplus
Currency
translation
account
Retained
earnings
(deficit)
Total
$
-
$
9,026,038
$
(1,292,904)
$
(1,353,911)
$
144,880,511
202,384
62,500
234,458
-
(964,424)
62,500
9,365,847
9,365,847
(19,269,977)
(19,269,977)
$
62,500
$
9,228,422
$
8,072,943
$
(20,389,430)
$
134,074,457
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
202,384
4
1,997,975
847,167
(1,531,991)
1,997,975
(11,485,126)
(11,485,126)
$
-
$
9,026,038
$
(1,292,904)
$
(1,353,911)
$
144,880,511
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
1. CORPORATE STATUS, REPORTING ENTITY AND NATURE OF OPERATIONS
Ceres Global Ag Corp. (hereinafter referred to as “Ceres” or the “Corporation”) was incorporated on
November 1, 2007, as amended on December 6, 2007, under the provisions of the Business Corporations
Act (Ontario). On April 1, 2013, Ceres Global Ag Corp. amalgamated with Corus Land Holding Corp.
Thereafter, the amalgamated corporation continued operating as Ceres Global Ag Corp. Ceres is a
corporation domiciled in Canada, and the address of its registered office is 1920 Yonge Street, Suite 200,
Toronto, Ontario, Canada, M5S 3E2.
These consolidated financial statements of Ceres as at and for the year ended March 31, 2014 include the
accounts of Ceres and its wholly owned subsidiaries Ceres Canada Holding Corp., Riverland Agriculture
Limited (“Riverland Canada”), Ceres U.S. Holding Corp., and Riverland Ag Corp. (“Riverland Ag”). All
intercompany transactions and balances have been eliminated.
Unless otherwise stated, Riverland Ag and Riverland Canada will be collectively referred to as Riverland
Ag. Riverland Ag is an agricultural cereal grain storage, customer-specific procurement and supply
ingredient company that owns and operates ten (10) grain storage, handling and merchandising facilities
in the states of Minnesota, New York and Wisconsin, and the province of Ontario, with a combined
licensed capacity of 51,000,000 bushels. Riverland Ag also manages two facilities in Wyoming on behalf
of its customer-owner (Note 24).
2.
BASIS OF PREPARATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS). The accounting, estimation and valuation policies, as described below, have
been consistently applied to all periods presented herein.
These consolidated financial statements of Ceres, as at and for the years ended March 31, 2014 and 2013,
were authorized for issue by the Audit Committee of the Board of Directors on June 16, 2014.
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars (“CAD”), which is the
Corporation’s functional currency.
Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis, except for the
following material items in the statement of financial position:
Derivative financial instruments are measured at fair value;
Financial instruments at fair value through profit or loss are measured at fair value; and
Inventories are measured at fair value less costs to sell.
CERES GLOBAL AG CORP. ANNUAL REPORT
55
5
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
2.
BASIS OF PREPARATION (continued)
Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management
to make judgments, estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods
affected.
Significant accounting judgments, estimates and assumptions used by management in preparing these
consolidated financial statements are described in Note 4.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies described below have been applied consistently to all periods presented in these
consolidated financial statements.
Investments in associates
Associates are entities in which Ceres has significant influence, but has no control, over the financial and
operating policies. Significant influence is presumed to exist when the Corporation holds between 20 and
50 percent of the voting power of another entity. Ceres has a 25 percent equity ownership interest in two
Canadian companies.
Investments in associates are accounted for using the equity method and are recognized initially at cost.
The Corporation’s investment includes goodwill identified on acquisition, net of any accumulated
impairment losses. The consolidated financial statements include the Corporation’s share of the after-tax
net income (or net loss) and of the changes in equity during a reporting period, after adjustments (if any)
to align the accounting policies with those of the Corporation, from the date that significant influence
commences until the date that significant influence ceases. If the Corporation’s accumulated share of net
losses in an associate were to exceed the carrying amount of its interest in that associate, the carrying
amount of that interest, including any long-term investments, would be reduced to nil and the recognition
of further losses would be discontinued except to the extent the Corporation were to have an obligation or
were to have made payments on behalf of the associate.
The Corporation reviews its investments in associates for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the investments may not be recoverable.
Evidence of impairment in value might include the absence of an ability to recover the carrying amount of
the investments, the inability of the associates to sustain earnings capacity that would justify the carrying
amount of the investments, or, where applicable, estimated sales proceeds that are insufficient to recover
the carrying amount of the investments. Management’s assessment as to impairment in value, if any, is
based on its assessment on whether evidence indicates the carrying amount of the investments is
recoverable or whether the investees have the ability to sustain earnings capacity that would justify the
carrying amount of the investments. If the recoverable amount of the investments is determined to be less
than the carrying amount, an impairment write-down is recorded based on the excess of the carrying
amount over management’s estimate of the recoverable amount.
6
56
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Transaction costs
Portfolio transaction costs include brokerage commissions incurred in the purchase and sale of portfolio
securities in which Ceres invests. Corporate transaction costs include costs directly attributable to the
acquisition of subsidiaries and the investments in associates. All such costs are expensed in the period
incurred and classified with General and administrative expenses in the Statement of Comprehensive
Income.
Transaction costs related to the issuance of equity instruments of the Corporation or its subsidiaries are
accounted for as a reduction of the stated capital of the equity securities issued. Transaction costs related
to the issuance of debt instruments of the Corporation or its subsidiaries are considered in the
determination of amortized cost using the effective interest method for the measurement of non-derivative
financial liabilities, and relate to bank indebtedness. Transaction costs related to debt instruments are
amortized using the straight-line method over the term of the financing arrangement.
Classification of financial instruments
Financial assets
A financial asset is classified at fair value through profit or loss, if it is classified as held for trading or is
designated as such upon initial recognition. Financial assets are designated at fair value through profit or
loss if the Corporation manages such investments and makes purchase and sale decisions in accordance
with the Corporation’s documented risk management and investment strategies. Financial assets at fair
value through profit or loss are measured at fair value, and changes therein are recognized in net income
or loss. Portfolio investments represent non-derivative financial assets classified as held for trading. The
Corporation’s unrealized gains on open cash contracts are derivative financial assets classified as held for
trading.
Financial assets having fixed or determinable payments, and which are not quoted in an active market are
defined as loans and receivables. Such assets are initially recognized at fair value plus directly attributable
transaction costs, if any. Thereafter, loans and receivables are measured at amortized cost using the
effective interest method, less impairment losses, if any. Loans and receivables include due from Brokers,
and accounts receivable, trade.
Financial liabilities
Unrealized losses on open cash contracts are classified as held for trading and valued at fair value through
profit or loss. The provision for future payment to Front Street Capital is also valued at fair value through
profit and loss.
Non-derivative financial liabilities of the Corporation include bank indebtedness, accounts payable and
accrued liabilities, repurchase obligations, management fees payable, and due to Manager. These
financial liabilities are initially recognized at fair value plus any directly attributable transaction costs.
Thereafter, these financial liabilities are measured at amortized cost using the effective interest method.
CERES GLOBAL AG CORP. ANNUAL REPORT
57
7
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Classification of financial instruments (continued)
Equity
Common shares and warrants
Common shares and warrants are classified as equity. Incremental costs directly attributable to the issue of
common shares and warrants are recognized as a deduction from equity, net of the effects of income taxes,
if any.
Contributed surplus
The value of warrants issued that have expired is recognized as contributed surplus, net of the effects of
income taxes, if any.
Repurchase of common shares
When common shares recognized as equity are repurchased, the amount of the consideration paid (which
may include directly attributable transaction costs) is recognized as a deduction from equity, net of the
effects of income taxes, if any. The portion of the consideration paid that represents the value of the stated
capital of the shares repurchased is deducted from the carrying amount of common shares. Any difference
between the total consideration paid and the stated capital amount of the shares repurchased is added to
(or deducted from) retained earnings, as applicable.
Valuation of investments
Portfolio investments are held for trading, and are measured and reported at fair value. Securities and
ownership interests over which the Corporation exercises significant influence or control are accounted
for using the equity-accounting model or through consolidation, as appropriate.
As at a reporting date, the fair value of financial instruments traded in active markets (primarily equity
securities of public companies and related derivative instruments, if any) is based on the bid price for
investments held by the Corporation, and on the asking price for investments sold short, if any. The fair
value of financial instruments not traded in an active market (including but not limited to: securities in
private companies, warrants and restricted securities) is determined using valuation techniques.
Depending on various circumstances, the Corporation may use several methods and makes assumptions
based on market conditions existing at each reporting date. Valuation techniques may include, without
limitation, the use of comparable recent arm’s length transactions, discounted cash flow analysis, option-
pricing models and other valuation techniques commonly used by market participants.
Recognition of investments
Purchases and sales of investments are recognized on the trade date, being the date on which the
Corporation commits to purchase or sell an investment. Investments cease to be recognized when the
rights to receive cash flows from the investments have expired or the Corporation has transferred
substantially all risks and rewards of ownership.
Derivative contracts
Ceres may purchase forward foreign exchange contracts to act as an economic hedge against assets and
liabilities denominated in foreign currencies. As at a reporting date, forward foreign exchange contracts
are valued based on the difference between the forward contract rate and the forward bid rate (for
currency held). Unrealized gains and losses, if any, on these forward contracts used to hedge foreign
currency assets and liabilities are presented separately on the Balance Sheet and included in Derivative
assets or Derivative liabilities, as applicable, and are recognized in the Statement of Comprehensive
Income as a component of Finance income (loss) and included with the change in fair value of
investments. Upon the closing out of these contracts, any gains or losses on foreign exchange are reported
in Finance income (loss) in the Statement of Comprehensive Income as realized gain (loss) on currency-
hedging transactions.
To reduce price risk caused by market fluctuations, Riverland Ag generally follows a policy of using
exchange-traded futures and options contracts to minimize its net position of merchandisable agricultural
commodity inventories and forward cash purchase and sales contracts. Riverland Ag will also use
exchange-traded futures and options contracts as components of merchandising strategies designed to
enhance margins. The results of these strategies may be significantly influenced by factors such as the
volatility of the relationship between the value of exchange-traded commodities futures contracts and the
cash prices of the underlying commodities, and volatility of freight markets. Derivative contracts have
not been designated, and are not accounted for, as fair value hedges. Management determines fair value
based on exchange-quoted prices, and in the case of its forward purchase and sale contracts, estimated
fair value is adjusted for differences in local markets. Realized and unrealized gains and losses in the
value of inventories of merchandisable agricultural commodities, forward cash purchase and sales
contracts, and exchange-traded futures contracts are recognized in the Statement of Comprehensive
Income as a component of Cost of sales. Unrealized gains and losses on these derivative contracts are
recognized in earnings and classified on the Balance Sheet as Due from Broker, Derivative assets or
Derivative liabilities, as applicable.
Fair value measurements
The Corporation must use a three-tier hierarchy as a framework for disclosing fair values, based on inputs
used to value the Corporation's investments. This hierarchy is summarized as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that can be
assessed at the measurement date;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e., prices) or indirectly (i.e., derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
Details of the fair value measurements are reported in Note 14(d) (Financial Instruments – Fair value
measurements). Changes in valuation methods may result in transfers into or out of an investment's
assigned level.
58
8
9
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
Classification of financial instruments (continued)
Equity
Common shares and warrants
if any.
Contributed surplus
income taxes, if any.
Repurchase of common shares
Common shares and warrants are classified as equity. Incremental costs directly attributable to the issue of
common shares and warrants are recognized as a deduction from equity, net of the effects of income taxes,
The value of warrants issued that have expired is recognized as contributed surplus, net of the effects of
When common shares recognized as equity are repurchased, the amount of the consideration paid (which
may include directly attributable transaction costs) is recognized as a deduction from equity, net of the
effects of income taxes, if any. The portion of the consideration paid that represents the value of the stated
capital of the shares repurchased is deducted from the carrying amount of common shares. Any difference
between the total consideration paid and the stated capital amount of the shares repurchased is added to
(or deducted from) retained earnings, as applicable.
Valuation of investments
Portfolio investments are held for trading, and are measured and reported at fair value. Securities and
ownership interests over which the Corporation exercises significant influence or control are accounted
for using the equity-accounting model or through consolidation, as appropriate.
As at a reporting date, the fair value of financial instruments traded in active markets (primarily equity
securities of public companies and related derivative instruments, if any) is based on the bid price for
investments held by the Corporation, and on the asking price for investments sold short, if any. The fair
value of financial instruments not traded in an active market (including but not limited to: securities in
private companies, warrants and restricted securities) is determined using valuation techniques.
Depending on various circumstances, the Corporation may use several methods and makes assumptions
based on market conditions existing at each reporting date. Valuation techniques may include, without
limitation, the use of comparable recent arm’s length transactions, discounted cash flow analysis, option-
pricing models and other valuation techniques commonly used by market participants.
Recognition of investments
Purchases and sales of investments are recognized on the trade date, being the date on which the
Corporation commits to purchase or sell an investment. Investments cease to be recognized when the
rights to receive cash flows from the investments have expired or the Corporation has transferred
substantially all risks and rewards of ownership.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
Derivative contracts
Ceres may purchase forward foreign exchange contracts to act as an economic hedge against assets and
liabilities denominated in foreign currencies. As at a reporting date, forward foreign exchange contracts
are valued based on the difference between the forward contract rate and the forward bid rate (for
currency held). Unrealized gains and losses, if any, on these forward contracts used to hedge foreign
currency assets and liabilities are presented separately on the Balance Sheet and included in Derivative
assets or Derivative liabilities, as applicable, and are recognized in the Statement of Comprehensive
Income as a component of Finance income (loss) and included with the change in fair value of
investments. Upon the closing out of these contracts, any gains or losses on foreign exchange are reported
in Finance income (loss) in the Statement of Comprehensive Income as realized gain (loss) on currency-
hedging transactions.
To reduce price risk caused by market fluctuations, Riverland Ag generally follows a policy of using
exchange-traded futures and options contracts to minimize its net position of merchandisable agricultural
commodity inventories and forward cash purchase and sales contracts. Riverland Ag will also use
exchange-traded futures and options contracts as components of merchandising strategies designed to
enhance margins. The results of these strategies may be significantly influenced by factors such as the
volatility of the relationship between the value of exchange-traded commodities futures contracts and the
cash prices of the underlying commodities, and volatility of freight markets. Derivative contracts have
not been designated, and are not accounted for, as fair value hedges. Management determines fair value
based on exchange-quoted prices, and in the case of its forward purchase and sale contracts, estimated
fair value is adjusted for differences in local markets. Realized and unrealized gains and losses in the
value of inventories of merchandisable agricultural commodities, forward cash purchase and sales
contracts, and exchange-traded futures contracts are recognized in the Statement of Comprehensive
Income as a component of Cost of sales. Unrealized gains and losses on these derivative contracts are
recognized in earnings and classified on the Balance Sheet as Due from Broker, Derivative assets or
Derivative liabilities, as applicable.
Fair value measurements
The Corporation must use a three-tier hierarchy as a framework for disclosing fair values, based on inputs
used to value the Corporation's investments. This hierarchy is summarized as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that can be
assessed at the measurement date;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e., prices) or indirectly (i.e., derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
Details of the fair value measurements are reported in Note 14(d) (Financial Instruments – Fair value
measurements). Changes in valuation methods may result in transfers into or out of an investment's
assigned level.
8
CERES GLOBAL AG CORP. ANNUAL REPORT
59
9
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation, transactions and balances of Ceres
Foreign currency transactions are translated into Canadian dollars (“CAD”) using the exchange rates
prevailing at the dates of the transactions. As at a reporting date, assets and liabilities denominated in a
foreign currency are translated into CAD, as follows:
Foreign currency monetary items are translated using the spot exchange rate in effect at the
reporting date; and
Non-monetary items measured at fair value in a foreign currency are translated using the
exchange rate(s) in effect as at the date(s) on which fair value was determined.
Foreign exchange gains or losses resulting from the settlement of such transactions and from the
translation as at a reporting date of assets and liabilities denominated in foreign currencies are reflected in
the Statement of Comprehensive Income. Translation gains or losses on securities included in the
investment portfolio of the Corporation are recognized in Finance income (loss) in the Statement of
Comprehensive Income and classified with the change in fair value of investments.
Foreign currency translation, foreign operations of Riverland Ag
Riverland Ag Corp. is a foreign operation and its functional currency is the U.S. dollar (“USD”). For the
preparation of these consolidated financial statements, all assets and liabilities are translated into the
presentation currency of Canadian dollars using the foreign exchange rate in effect as at the reporting date
with income statement accounts translated using the average exchange rate for the reporting or applicable
period. Translation adjustments arising from changes in exchange rates are reported as a component of
other comprehensive income and form part of the cumulative translation account in shareholders’ equity.
When a foreign operation is disposed of such that control, significant influence or joint control is lost, the
cumulative amount in the translation account related to that foreign operation is reclassified to profit or
loss as part of the profit or loss on disposal.
Revenue recognition, net sales and cost of sales
Riverland Ag follows a policy of recognizing sales revenue at the time of delivery of the product and
when all of the following have occurred: a sales agreement is in place, title and risk of loss have passed,
pricing is fixed or determinable, and collection is reasonably assured. Grain storage, rental and other
operating income are recorded as earned on an accrual basis. Freight costs and handling charges related to
sales are presented gross in Revenues and Cost of sales. Other direct and indirect costs associated with
inventory and storage, including payroll and benefits of elevator employees, depreciation of buildings,
silos and elevators, utilities and other similar costs are classified with Cost of sales.
Income and expenses are recorded on an accrual basis. Investment transactions are recognized on the trade
date. Dividend revenues are recognized on the ex-dividend date. Interest and other revenues are
recognized as earned. Realized gains and losses from the sale of investments are calculated using the
average cost method. The change over a reporting period of the difference between the fair value and the
cost of portfolio investments is recognized in Finance income (loss) in the Statement of Comprehensive
Income (Loss) as an unrealized increase (decrease) in fair value of investments.
60
10
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation, transactions and balances of Ceres
Foreign currency transactions are translated into Canadian dollars (“CAD”) using the exchange rates
prevailing at the dates of the transactions. As at a reporting date, assets and liabilities denominated in a
foreign currency are translated into CAD, as follows:
Foreign currency monetary items are translated using the spot exchange rate in effect at the
reporting date; and
Non-monetary items measured at fair value in a foreign currency are translated using the
exchange rate(s) in effect as at the date(s) on which fair value was determined.
Foreign exchange gains or losses resulting from the settlement of such transactions and from the
translation as at a reporting date of assets and liabilities denominated in foreign currencies are reflected in
the Statement of Comprehensive Income. Translation gains or losses on securities included in the
investment portfolio of the Corporation are recognized in Finance income (loss) in the Statement of
Comprehensive Income and classified with the change in fair value of investments.
Foreign currency translation, foreign operations of Riverland Ag
Riverland Ag Corp. is a foreign operation and its functional currency is the U.S. dollar (“USD”). For the
preparation of these consolidated financial statements, all assets and liabilities are translated into the
presentation currency of Canadian dollars using the foreign exchange rate in effect as at the reporting date
with income statement accounts translated using the average exchange rate for the reporting or applicable
period. Translation adjustments arising from changes in exchange rates are reported as a component of
other comprehensive income and form part of the cumulative translation account in shareholders’ equity.
When a foreign operation is disposed of such that control, significant influence or joint control is lost, the
cumulative amount in the translation account related to that foreign operation is reclassified to profit or
loss as part of the profit or loss on disposal.
Revenue recognition, net sales and cost of sales
Riverland Ag follows a policy of recognizing sales revenue at the time of delivery of the product and
when all of the following have occurred: a sales agreement is in place, title and risk of loss have passed,
pricing is fixed or determinable, and collection is reasonably assured. Grain storage, rental and other
operating income are recorded as earned on an accrual basis. Freight costs and handling charges related to
sales are presented gross in Revenues and Cost of sales. Other direct and indirect costs associated with
inventory and storage, including payroll and benefits of elevator employees, depreciation of buildings,
silos and elevators, utilities and other similar costs are classified with Cost of sales.
Income and expenses are recorded on an accrual basis. Investment transactions are recognized on the trade
date. Dividend revenues are recognized on the ex-dividend date. Interest and other revenues are
recognized as earned. Realized gains and losses from the sale of investments are calculated using the
average cost method. The change over a reporting period of the difference between the fair value and the
cost of portfolio investments is recognized in Finance income (loss) in the Statement of Comprehensive
Income (Loss) as an unrealized increase (decrease) in fair value of investments.
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Finance income (loss)
Finance income (loss) pertains to revenues, gains and losses related to the investing activity of the
Corporation, and includes:
Interest revenues on interest-bearing securities and cash balances;
Dividend revenues, if any, from portfolio investments;
Realized gains (losses) on sale of portfolio investments;
Realized gains (losses) on currency-hedging transactions;
Realized and unrealized gains (losses) on foreign exchange; and
Unrealized increase (decrease) in fair value of investments.
Depending on the movements of equity and other markets, finance income and losses will vary for each
reporting period. Details of Finance income (loss) for the year are presented in Note 14(b) (Financial
Instruments).
Finance expenses
Finance expenses represent the aggregate of interest expense on borrowings and the amortization of
financing transaction costs.
Inventories
Inventories represent agricultural grain commodities owned by Riverland Ag, such as oats, spring wheat,
barley, corn, and soybeans. Inventories are stated primarily at fair value less costs to sell. Certain other
inventories stated at the lower of cost or market, with cost determined using the average cost method.
Fair value is primarily determined from market prices quoted on public commodity exchanges, adjusted
for expected freight costs to normal delivery points and a price premium or discount to cover local supply
and demand factors as estimated by management. Changes in the fair value less costs to sell inventories
of agricultural grain commodities are charged to operations as and when they occur, and such changes are
included as a component of cost of sales.
Assets held for sale
Assets are classified as held for sale when all of the following criteria are met:
it is unlikely that the disposal plan will be significantly modified or discontinued;
the property is available for immediate sale in its present condition;
actions required to complete the sale of the property have been initiated;
sale of the property is highly probable and management expects the completed sale will occur
management commits to a plan to sell a property;
within one year; and
market value.
the property is actively being marketed for sale at a price that is reasonable given its current
Upon designation as an asset held for sale, the Corporation records the carrying value of each property
held for sale at the lesser of its carrying value or its fair value less costs to sell, and depreciation is no
longer recognized.
10
CERES GLOBAL AG CORP. ANNUAL REPORT
61
11
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Indefinite-life intangible assets
Identifiable intangible assets with indefinite lives are not amortized and are tested annually for
impairment of value and whenever events or changes in circumstances indicate the carrying amount of the
assets may be impaired. Impairment of identifiable intangible assets with indefinite lives occurs when the
fair value of the asset is less than its carrying amount. If impaired, the asset’s carrying amount is reduced
to its fair value.
Riverland Ag holds indefinite-life exchange membership seats on the Minneapolis Grain Exchange,
which provide it with the right to process trades directly with that exchange.
Property, plant, and equipment
Property, plant, and equipment are stated at their fair value as at the date of the Acquisition, plus the cost
of property, plant and equipment acquired thereafter, less accumulated depreciation and accumulated
impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset and to bringing the
asset to a working condition for its intended use.
If parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Gains or losses related to the disposition of property, plant and equipment are recognized in the Statement
of Comprehensive Income as other income.
Depreciation is determined over the depreciable amount, being the cost of the asset or other amount
substituted for cost, less its residual value, if any. Depreciation is recognized in net income and is
calculated using the straight-line method over the estimated useful lives of the respective classes of assets
as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment,
15 – 31 years
7 – 15 years
computer software and other property, plant and equipment
7 years
Depreciation methods, useful lives of the assets and their residual values are reviewed at fiscal year-end
and adjusted if appropriate.
Riverland Ag reviews property, plant, and equipment for impairment at each reporting date to determine
whether there is any indication of impairment. If such were the case, the recoverable amount of the
asset(s) is estimated. The recoverable amount of an asset is the greater of its value in use (using present
value calculations based on a pre-tax discount rate reflecting current market assessments of the time value
of money and risks specific to the assets) and its fair value less costs to sell.
62
12
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Indefinite-life intangible assets
Repurchase obligations
Identifiable intangible assets with indefinite lives are not amortized and are tested annually for
impairment of value and whenever events or changes in circumstances indicate the carrying amount of the
assets may be impaired. Impairment of identifiable intangible assets with indefinite lives occurs when the
fair value of the asset is less than its carrying amount. If impaired, the asset’s carrying amount is reduced
to its fair value.
Riverland Ag periodically enters into sale/repurchase agreements, whereby it receives cash in exchange
for selling inventory to Macquarie Commodities (USA), Inc. (“MCUSA”) and agrees to repurchase the
inventory from MCUSA for a fixed price on a future date.
Riverland Ag recognizes these transactions as borrowings and commodity inventory in its accounts. No
sale or purchase is recognized in relation to these transactions.
Riverland Ag holds indefinite-life exchange membership seats on the Minneapolis Grain Exchange,
which provide it with the right to process trades directly with that exchange.
Income taxes
Property, plant, and equipment
Property, plant, and equipment are stated at their fair value as at the date of the Acquisition, plus the cost
of property, plant and equipment acquired thereafter, less accumulated depreciation and accumulated
impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset and to bringing the
asset to a working condition for its intended use.
If parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Gains or losses related to the disposition of property, plant and equipment are recognized in the Statement
of Comprehensive Income as other income.
Depreciation is determined over the depreciable amount, being the cost of the asset or other amount
substituted for cost, less its residual value, if any. Depreciation is recognized in net income and is
calculated using the straight-line method over the estimated useful lives of the respective classes of assets
as follows:
Buildings, silos/elevators, and improvements
Machinery and equipment
Furniture, fixtures, office equipment,
15 – 31 years
7 – 15 years
computer software and other property, plant and equipment
7 years
Riverland Ag reviews property, plant, and equipment for impairment at each reporting date to determine
whether there is any indication of impairment. If such were the case, the recoverable amount of the
asset(s) is estimated. The recoverable amount of an asset is the greater of its value in use (using present
value calculations based on a pre-tax discount rate reflecting current market assessments of the time value
of money and risks specific to the assets) and its fair value less costs to sell.
Income tax expense comprises current and deferred taxes. Current tax and deferred tax are recognized in
profit or loss, except to the extent that it relates to a business combination, or to items recognized directly
in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not
recognized for the following temporary differences: the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable profit or loss,
and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is
probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for
taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at
the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws
that have been enacted or substantively enacted as at the reporting date. Deferred tax assets and
liabilities are offset to the extent that they relate to income taxes levied on the same taxable entity
by the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences,
to the extent that it is probable that future taxable income will be available against which they can be
utilized. A valuation allowance is established, if necessary, to reduce any deferred tax asset to an
amount that is probable to be realized.
Depreciation methods, useful lives of the assets and their residual values are reviewed at fiscal year-end
and adjusted if appropriate.
Earnings (Loss) per Share
Earnings (Loss) per Share (“EPS”) is reported for basic and diluted net income (loss). Basic EPS is
calculated by dividing net income (loss) for the reporting period by the weighted-average number of
common Shares outstanding during the reporting period. Diluted EPS is calculated by adjusting net
income (loss) and the weighted-average number of common Shares outstanding for the effects, if any, of
all potentially dilutive common Shares, resulting from the exercise of Warrants or the redemption of
Deferred Share Units outstanding as at the end of a reporting period. The effect of the potential issuance
of common shares related to the redemption of Deferred Share Units on diluted EPS has not been
determined, as it is anti-dilutive in a period of loss.
12
CERES GLOBAL AG CORP. ANNUAL REPORT
63
13
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits, defined contribution plan
A defined contribution plan is a post-employment benefit plan, under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution pension plans are recognized as an
employee benefit expense in profit or loss in the periods during which services are rendered by
employees. Prepaid contributions are recognized as an asset to the extent the Corporation is entitled to a
cash refund or a reduction in future payments. Contributions to a defined contribution plan due more than
twelve months after the end of the period in which the employees render the service (if any) are
discounted to their present value. Riverland Ag has a defined contribution employee benefit plan in the
form of a qualified 401(k) profit sharing plan, as described in Note 20 (Employee Benefit Plan).
Share-based payments
Deferred Share Unit
The Corporation has established a Directors’ Deferred Share Unit Plan (the “DSU Plan”), which became
effective on March 10, 2014 and is an equity-settled share-based payment plan. Under the DSU Plan, a
director who is not an employee of the Corporation or any affiliate and who is a non-executive Chair of
the Board is an Eligible Director. Any Eligible Director may elect to receive some or all the Annual Cash
Remuneration amount (as defined in the DSU Plan) for that Director in the form of Deferred Share Units
(“DSUs”). DSUs are settled by the issuance of common shares on the Entitlement Date (as defined under
the DSU Plan), which is a date after the end of a director’s term of service with the Board.
As at the dates on which DSUs are calculated under the Plan, the Corporation recognizes as an expense
the amount of Directors’ fees for the portion of such fees represented by the fair value of the DSUs issued
to the Director, and increases shareholders’ equity by an equal amount. The Corporation revalues DSUs
as at each reporting period-end, based on the volume-weighted average trading price per common share
of the Corporation on the Toronto Stock Exchange during the immediately preceding five (5) trading
days. Revaluation adjustments are recognized as an increase or decrease in the expense for Directors’
fees during the reporting period, with a corresponding increase or decrease in shareholders’ equity.
Stock Options
Stock options are equity-settled share-based payment transactions. The Corporation follows the fair
value method to measure stock option awards it grants to certain officers, key employees and consultants
of the Corporation and its subsidiaries. The fair value of stock options on the date the options are granted
is determined by the Black Scholes option pricing model with assumptions for risk-free interest rate,
dividend yield, volatility of the expected market price of the Corporation’s common shares and an
expected life of the options. The number of stock option awards expected to vest are estimated using a
forfeiture rate based on historical experience and future expectations, as applicable. Compensation is
amortized to earnings over the vesting period of the related option. The Corporation uses graded or
accelerated amortization, which specifies that each vesting tranche must be accounted for as a separate
arrangement with a unique fair value measurement. Each vesting tranche is subsequently amortized
separately and in parallel from the grant date.
64
14
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits, defined contribution plan
A defined contribution plan is a post-employment benefit plan, under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution pension plans are recognized as an
employee benefit expense in profit or loss in the periods during which services are rendered by
employees. Prepaid contributions are recognized as an asset to the extent the Corporation is entitled to a
cash refund or a reduction in future payments. Contributions to a defined contribution plan due more than
twelve months after the end of the period in which the employees render the service (if any) are
discounted to their present value. Riverland Ag has a defined contribution employee benefit plan in the
form of a qualified 401(k) profit sharing plan, as described in Note 20 (Employee Benefit Plan).
Share-based payments
Deferred Share Unit
The Corporation has established a Directors’ Deferred Share Unit Plan (the “DSU Plan”), which became
effective on March 10, 2014 and is an equity-settled share-based payment plan. Under the DSU Plan, a
director who is not an employee of the Corporation or any affiliate and who is a non-executive Chair of
the Board is an Eligible Director. Any Eligible Director may elect to receive some or all the Annual Cash
Remuneration amount (as defined in the DSU Plan) for that Director in the form of Deferred Share Units
(“DSUs”). DSUs are settled by the issuance of common shares on the Entitlement Date (as defined under
the DSU Plan), which is a date after the end of a director’s term of service with the Board.
As at the dates on which DSUs are calculated under the Plan, the Corporation recognizes as an expense
the amount of Directors’ fees for the portion of such fees represented by the fair value of the DSUs issued
to the Director, and increases shareholders’ equity by an equal amount. The Corporation revalues DSUs
as at each reporting period-end, based on the volume-weighted average trading price per common share
of the Corporation on the Toronto Stock Exchange during the immediately preceding five (5) trading
days. Revaluation adjustments are recognized as an increase or decrease in the expense for Directors’
fees during the reporting period, with a corresponding increase or decrease in shareholders’ equity.
Stock Options
Stock options are equity-settled share-based payment transactions. The Corporation follows the fair
value method to measure stock option awards it grants to certain officers, key employees and consultants
of the Corporation and its subsidiaries. The fair value of stock options on the date the options are granted
is determined by the Black Scholes option pricing model with assumptions for risk-free interest rate,
dividend yield, volatility of the expected market price of the Corporation’s common shares and an
expected life of the options. The number of stock option awards expected to vest are estimated using a
forfeiture rate based on historical experience and future expectations, as applicable. Compensation is
amortized to earnings over the vesting period of the related option. The Corporation uses graded or
accelerated amortization, which specifies that each vesting tranche must be accounted for as a separate
arrangement with a unique fair value measurement. Each vesting tranche is subsequently amortized
separately and in parallel from the grant date.
Share-based payments (continued)
Stock Appreciation Rights (“SARs”)
Stock Appreciation Rights (“SARs”) may be granted to officers, certain employees and consultants of the
Corporation on such terms and conditions determined by the Board of Directors (the “Board”). Stand-
Alone SARs are cash-settled share-based payment transactions and are measured at the fair value of the
liability as at the date the Stand-Alone SARs are granted. At the end of each reporting period, the
Corporation re-measures the fair value of the liability for such Stand-Alone SARs, and changes in fair
value of that liability is recognized in profit or loss for the period. Tandem SARs are granted with
options. Tandem SARs shall be settled by the payment or the delivery of cash or common shares, as may
be determined by the Board. Any portion of Tandem SARs to be settled for cash shall be measured using
the measurement standards described for Stand-Alone SARs. The portion, if any, of the Tandem SARs to
be settled by the issuance of common shares shall be measured using the measurement standards that
apply to stock options awards, as described in the preceding paragraph.
Option-pricing models require the use of highly subjective estimates and assumptions including the
expected share price volatility. Changes in the underlying assumptions can materially affect fair value
estimates. Therefore, existing models do not necessarily provide reliable measurement of the fair value of
the Corporation’s stock options.
Changes in accounting policies
Commencing April 1, 2013, the Corporation adopted IFRS 10 Consolidated Financial Statements, as well
as the consequential amendments to IAS 28 Investments in Associates and Joint Ventures. IFRS 10
provides a single model to be applied in the control analysis for all investees, and defines control as when
an investor has power over an investee and has the ability to use its power over the investee to affect the
amount of the investor’s returns. The effects of the adoption of IFRS 10 and the amendments to IAS 28
on the Corporation’s consolidated financial position and results of operations are not material.
Commencing April 1, 2013, the Corporation adopted IFRS 12 Disclosures of Interests in Other Entities,
which integrates all of the disclosure requirements for interests in subsidiaries, joint arrangements,
associates and unconsolidated structured entities into a single standard. The required disclosures provide
information to evaluate the nature of, and risks associated with, an entity’s interest in other entities, and
the effects of those interests on the entity’s financial statements. The effect of the adoption of IFRS 12
has resulted in certain additional disclosures in the Corporation’s annual consolidated financial statements
and such additional disclosures are presented in Note 9 (Investments in Associates).
14
CERES GLOBAL AG CORP. ANNUAL REPORT
65
15
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Changes in accounting policies (continued)
Commencing April 1, 2013, the Corporation adopted IFRS 13 Fair Value Measurement, which is
effective prospectively for annual periods beginning on or after January 1, 2013. IFRS 13 replaces the fair
value measurement guidance contained in individual IFRSs with a single source of fair value
measurement guidance. The standard also establishes a framework for measuring fair value and sets out
disclosure requirements for fair value measurements to provide information that enables financial
statement users to assess the methods and inputs used to develop fair value measurements and, for
recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the
measurements on profit or loss or other comprehensive income. The effect of the adoption of IFRS 13 has
resulted in certain additional disclosures in the Corporation’s annual consolidated financial statements, as
and where required.
Commencing April 1, 2013, the Corporation adopted the new disclosure requirements in IFRS 7 Financial
Instruments: Disclosures. The effective date for the amendments to IFRS 7 is for annual periods
beginning on or after January 1, 2013. These amendments are to be applied retrospectively. The
amendments to IFRS 7 contain new disclosure requirements for financial assets and liabilities that are
offset in the statement of financial position; or subject to master netting arrangements or similar
arrangements. The effect of the adoption of the new disclosure requirements in IFRS 7 is reflected in
Note 6 (Due from (to) Brokers).
Future changes in accounting standards
Effective for annual reporting periods beginning on or after January 1, 2015, the current standard for
financial instruments (IAS 39 Financial Instruments – Recognition and Measurement) will be replaced by
IFRS 9 Financial Instruments. The new standard will replace the current multiple classification and
measurement models for financial assets and liabilities with a single model having only two classification
categories: amortized cost and fair value. The Corporation is evaluating the effects related to the future
adoption of IFRS 9. The Corporation does not expect early adopting this new standard.
66
16
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Changes in accounting policies (continued)
Commencing April 1, 2013, the Corporation adopted IFRS 13 Fair Value Measurement, which is
effective prospectively for annual periods beginning on or after January 1, 2013. IFRS 13 replaces the fair
value measurement guidance contained in individual IFRSs with a single source of fair value
measurement guidance. The standard also establishes a framework for measuring fair value and sets out
disclosure requirements for fair value measurements to provide information that enables financial
statement users to assess the methods and inputs used to develop fair value measurements and, for
recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the
measurements on profit or loss or other comprehensive income. The effect of the adoption of IFRS 13 has
resulted in certain additional disclosures in the Corporation’s annual consolidated financial statements, as
and where required.
Commencing April 1, 2013, the Corporation adopted the new disclosure requirements in IFRS 7 Financial
Instruments: Disclosures. The effective date for the amendments to IFRS 7 is for annual periods
beginning on or after January 1, 2013. These amendments are to be applied retrospectively. The
amendments to IFRS 7 contain new disclosure requirements for financial assets and liabilities that are
offset in the statement of financial position; or subject to master netting arrangements or similar
arrangements. The effect of the adoption of the new disclosure requirements in IFRS 7 is reflected in
Note 6 (Due from (to) Brokers).
Future changes in accounting standards
Effective for annual reporting periods beginning on or after January 1, 2015, the current standard for
financial instruments (IAS 39 Financial Instruments – Recognition and Measurement) will be replaced by
IFRS 9 Financial Instruments. The new standard will replace the current multiple classification and
measurement models for financial assets and liabilities with a single model having only two classification
categories: amortized cost and fair value. The Corporation is evaluating the effects related to the future
adoption of IFRS 9. The Corporation does not expect early adopting this new standard.
4.
SUMMARY OF SIGNIFICANT ACCOUNTING
ASSUMPTIONS
JUDGMENTS, ESTIMATES AND
The timely preparation of financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities. The following summarizes the accounting judgments,
estimates and assumptions management considers significant:
Valuation of investments
Portfolio investments are held for trading, are measured and reported at fair value, and may include
securities not traded in an active market. The fair value of such securities is determined using valuation
techniques. Depending on various circumstances, the Corporation may use several methods and makes
assumptions based on market conditions existing at each reporting date. Valuation techniques may
include, without limitation, the use of comparable recent arm’s length transactions, discounted cash flow
analysis, option-pricing models and other valuation techniques commonly used by market participants.
Other judgments, estimates and assumptions
Accounts receivable, trade are stated after an evaluation as to their collectability, and when appropriate,
providing for an allowance for doubtful accounts.
Inventories consist of agricultural grain commodities owned by Riverland Ag, and are stated at fair value
less costs to sell. Estimates may be used in the determination of fair value, and changes in the fair value of
inventories of agricultural grain commodities are recognized in the Statement of Comprehensive Income
for the period, as a component of Cost of sales.
Depreciation of property, plant and equipment is based management’s estimates of the useful lives of the
assets and the residual value at the end of their useful lives.
Estimates are also used when determining the amount of impairment of assets, and the likelihood of
contingencies.
5. PORTFOLIO INVESTMENTS
Portfolio investments are classified as held for trading, and consist of equity securities.
Total fair value
Total cost
2014
2013
$
848,163
$
6,488,254
$
7,231,818
$
13,396,506
As at March 31, 2014, non-publicly traded equity securities, including equity securities of private
companies, represent 100 percent (March 31, 2013: 37.11 percent) of the fair value of the portfolio
investments. Fair value for securities in private companies has been determined using primarily the
market approach for recent and comparable transactions, adjusted by management to consider factors such
as illiquidity risk.
16
CERES GLOBAL AG CORP. ANNUAL REPORT
67
17
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
6.
DUE FROM (TO) BROKERS
Due from Brokers for Ceres’ portfolio investments represents amounts at the custodian brokers from
settled and unsettled trades.
Due from Brokers for Riverland Ag for commodity futures and options contracts represents margin
deposits and open trade equity maintained by a broker in connection with such contracts. Amounts due
from Brokers are offset by amounts due to the same Brokers, under the terms and conditions of
enforceable master netting arrangements in effect with all brokers, through which Riverland Ag executes
its transactions and for which Riverland Ag intends either to settle on a net basis, or to realize the asset
and settle the liability simultaneously.
As at March 31, 2014 and 2013, the amounts due from Brokers represent the following:
Due from Brokers
Margin deposits
Unrealized gains on future contracts and options,
at fair value (Note 14(d))
Due to Brokers
Unrealized losses on future contracts and options,
at fair value (Note 14(d))
7.
INVENTORIES
Inventories, at lower of cost or market
Inventories, at fair value (Note 14(d))
8.
ASSETS HELD FOR SALE
2014
2013
$
4,725,570
$
8,264,904
55,242
4,780,812
3,678,406
11,943,310
(160,805)
4,620,007
$
-
$
11,943,310
2014
2013
$
3,635,976
109,684,490
$
7,784,819
156,965,289
$
113,320,466
$
164,750,108
During the fourth quarter, Ceres committed to, and activated a plan for the immediate sale of its facilities
located at Manitowoc, Wisconsin and Savage, Minnesota. Management expects it is highly probable both
facilities will be sold in their present condition before April 1, 2015. On reclassification, Ceres revalued
the assets held for sale at the lesser of their carrying amount and fair value less costs to sell, and
recognized a loss on impairment of Manitowoc assets held for sale in the amount of $763,201, which is
presented separately in the statement of comprehensive loss for 2014. Fair value was determined using
the market approach and the respective expected selling prices of the assets held for sale (Note 24).
68
18
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
6.
DUE FROM (TO) BROKERS
8.
ASSETS HELD FOR SALE (continued)
Due from Brokers for Ceres’ portfolio investments represents amounts at the custodian brokers from
settled and unsettled trades.
The major classes of assets that were reclassified from property, plant and equipment to assets held for
sale are as follows:
Due from Brokers for Riverland Ag for commodity futures and options contracts represents margin
deposits and open trade equity maintained by a broker in connection with such contracts. Amounts due
from Brokers are offset by amounts due to the same Brokers, under the terms and conditions of
enforceable master netting arrangements in effect with all brokers, through which Riverland Ag executes
its transactions and for which Riverland Ag intends either to settle on a net basis, or to realize the asset
and settle the liability simultaneously.
As at March 31, 2014 and 2013, the amounts due from Brokers represent the following:
Due from Brokers
Margin deposits
Unrealized gains on future contracts and options,
at fair value (Note 14(d))
Due to Brokers
Unrealized losses on future contracts and options,
at fair value (Note 14(d))
7.
INVENTORIES
Inventories, at lower of cost or market
Inventories, at fair value (Note 14(d))
8.
ASSETS HELD FOR SALE
2014
2013
$
4,725,570
$
8,264,904
55,242
4,780,812
3,678,406
11,943,310
(160,805)
-
$
4,620,007
$
11,943,310
2014
2013
$
3,635,976
$
7,784,819
109,684,490
156,965,289
$
113,320,466
$
164,750,108
During the fourth quarter, Ceres committed to, and activated a plan for the immediate sale of its facilities
located at Manitowoc, Wisconsin and Savage, Minnesota. Management expects it is highly probable both
facilities will be sold in their present condition before April 1, 2015. On reclassification, Ceres revalued
the assets held for sale at the lesser of their carrying amount and fair value less costs to sell, and
recognized a loss on impairment of Manitowoc assets held for sale in the amount of $763,201, which is
presented separately in the statement of comprehensive loss for 2014. Fair value was determined using
the market approach and the respective expected selling prices of the assets held for sale (Note 24).
Land
Buildings and silos / elevators
Machinery and equipment
Furniture and fixtures, computers, office equipment and
other assets
Impairment loss on reclassification as assets held for sale
Foreign currency translation adjustment
9.
INVESTMENTS IN ASSOCIATES
Canterra Seeds Holdings, Ltd., common shares
Stewart Southern Railway Inc., common shares
Stewart Southern Railway Inc., loan receivable
Manitowoc
Savage
Totals
$
118,782
6,830,873
504,838
$
1,093,308
9,973,350
261,206
$
1,212,090
16,804,223
766,044
200,556
51,490
252,046
$
$
7,655,049
(763,201)
(37,747)
6,854,101
$
11,379,354
$
-
-
$
11,379,354
$
19,034,403
(763,201)
(37,747)
18,233,455
2014
2013
$
1,165,473
3,460,194
-
$
1,522,179
2,764,788
62,500
$
4,625,667
$
4,349,467
(a)
Investment in Canterra Seeds Holdings, Ltd. (“Canterra”)
Through its subsidiary Riverland Canada, Ceres holds a 25 percent equity interest in Canterra, a Canadian
company. Ceres also holds rights to a 25 percent voting position on Canterra’s Board of Directors.
Canterra purchases, produces, and distributes seed varieties and related technologies to its customers
throughout Western Canada and the Great Northern Plains and Pacific North West of the United States.
Major operating decisions of Canterra are made by its Board of Directors and Ceres does not have a
majority of the board seats. Due to these factors, Ceres does not control Canterra, and accounts for its
investment in Canterra using the equity method.
It is Ceres’ policy to record changes in Canterra’s equity on a quarterly lag. Therefore, for Ceres’ year
ended March 31, 2014, Ceres recorded its portion of Canterra’s change in equity for the twelve months
ended December 31, 2013.
18
CERES GLOBAL AG CORP. ANNUAL REPORT
69
19
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
9.
INVESTMENTS IN ASSOCIATES (continued)
(a)
Investment in Canterra Seeds Holdings, Ltd. (“Canterra”) (continued)
For the year ended March 31, 2014, Ceres’ consolidated statements of comprehensive loss includes
Ceres’ share of net loss of Canterra in the amount of $356,706 (2013: share of net income of $33,436).
(b)
Investment in Stewart Southern Railway Inc. (“SSR”)
Ceres holds a 25 percent equity interest in SSR, a Canadian company. Ceres also holds rights to a 25
percent voting position on SSR’s Board of Directors. SSR operates a 132-kilometre (82-mile) short-line
railway in southeastern Saskatchewan. Its Board of Directors makes major operating decisions of SSR, as
Ceres does not have a majority seat on the SSR board. Due to these factors, Ceres does not control SSR,
and accounts for its investment in SSR using the equity method.
For Ceres’ year-ended March 31, 2014, Ceres recorded its portion of SSR’s change in equity for the
twelve months ended March 31, 2014. The following table presents summarized financial information
for SSR (in thousands of Canadian dollars):
Revenues
Income from continuing operations
Net income
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2014
2013
$
$
$
10,532
3,311
3,311
$
$
$
$
4,922
10,603
2,255
20
$
$
$
9,198
4,650
4,650
3,248
$
8,089
$
$
878
$
-
For the year ended March 31, 2014, Ceres’ consolidated statements of comprehensive loss includes
Ceres’ share of net income of SSR in the amount of $820,406 (2013: $1,198,127).
During the year ended March 31, 2014, Ceres received a dividend from SSR of $125,000 (2013: $nil).
70
20
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
9.
INVESTMENTS IN ASSOCIATES (continued)
10. INVESTMENT PROPERTY (Note 23)
(a)
Investment in Canterra Seeds Holdings, Ltd. (“Canterra”) (continued)
For the year ended March 31, 2014, Ceres’ consolidated statements of comprehensive loss includes
Ceres’ share of net loss of Canterra in the amount of $356,706 (2013: share of net income of $33,436).
(b)
Investment in Stewart Southern Railway Inc. (“SSR”)
Ceres holds a 25 percent equity interest in SSR, a Canadian company. Ceres also holds rights to a 25
percent voting position on SSR’s Board of Directors. SSR operates a 132-kilometre (82-mile) short-line
railway in southeastern Saskatchewan. Its Board of Directors makes major operating decisions of SSR, as
Ceres does not have a majority seat on the SSR board. Due to these factors, Ceres does not control SSR,
and accounts for its investment in SSR using the equity method.
For Ceres’ year-ended March 31, 2014, Ceres recorded its portion of SSR’s change in equity for the
twelve months ended March 31, 2014. The following table presents summarized financial information
for SSR (in thousands of Canadian dollars):
Revenues
Net income
Income from continuing operations
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2014
2013
$
10,532
$
3,311
$
3,311
$
4,922
$
10,603
$
2,255
$
20
$
9,198
$
4,650
$
4,650
$
3,248
$
8,089
$
878
$
-
For the year ended March 31, 2014, Ceres’ consolidated statements of comprehensive loss includes
Ceres’ share of net income of SSR in the amount of $820,406 (2013: $1,198,127).
During the year ended March 31, 2014, Ceres received a dividend from SSR of $125,000 (2013: $nil).
Investment property is stated using the cost model. Investment property represents land located in
southeastern Saskatchewan, Canada, and is currently being developed, and is not otherwise utilized by
Ceres. On initial recognition, investment property is measured at cost, including directly attributable
expenditures that are capitalized on the basis it is probable that future economic benefits associated with
the expenditure related to the investment property will flow to Ceres and the cost of such expenditure can
be measured reliably.
As at March 31, 2014, management has determined that the investment property is in its construction
phase. On that basis, as at that date, management cannot reliably measure the fair value of the investment
property under construction; however, management expects the fair value of the investment property to be
reliably measureable at the completion of the construction phase. Under these circumstances, IAS 40
Investment Property requires Ceres to measure the investment property under construction at cost, until
either its fair value becomes reliably measureable or construction is complete.
For the years ended March 31, 2014 and 2013, changes to the investment property are as follows:
Cost, as at beginning of year
Investment property additions
Development and other construction costs capitalized
Foreign currency translation adjustments
Cost, as at end of year
$
2014
4,975,921
12,397
9,794,316
9,806,713
21,354
$ 14,803,988
$
2013
2,900,582
830,993
1,240,727
2,071,720
3,619
$ 4,975,921
20
CERES GLOBAL AG CORP. ANNUAL REPORT
71
21
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
11. PROPERTY, PLANT AND EQUIPMENT
March 31, 2014
Cost
Balances, April 1, 2013
Assets acquired
Disposals
Reclassification of assets held for sale
Foreign currency translation adjustments
Balances, March 31, 2014
Accumulated depreciation
Balances, April 1, 2013
Depreciation charged to operations
Disposals
Reclassification of assets held for sale
Foreign currency translation adjustments
Balances, March 31, 2014
Land
Buildings and
silos/elevators
Machinery &
equipment
Furniture, fixtures,
computers, office
equipment & other
assets
$
5,810,194
-
(61,622)
(1,212,090)
508,775
5,045,257
$
61,607,549
562,031
(1,478,177)
(19,251,988)
5,293,366
46,732,781
$
3,835,820
524,419
(119,005)
(951,023)
331,188
3,621,399
$
1,728,162
1,422,893
(56,909)
(395,622)
160,485
2,859,009
Totals
$
72,981,725
2,509,343
(1,715,713)
(21,810,724)
6,293,814
58,258,445
-
-
-
-
-
-
(5,727,015)
(2,364,350)
276,183
2,447,765
(595,299)
(5,962,716)
(532,506)
(336,452)
50,940
184,979
(56,164)
(689,203)
(714,222)
(298,937)
19,091
143,576
(68,952)
(919,444)
(6,973,743)
(2,999,739)
346,214
2,776,321
(720,415)
(7,571,362)
Net Book Values, March 31, 2014
$
5,045,257
$
40,770,065
$
2,932,196
$
1,939,565
$
50,687,083
March 31, 2013
Cost
Balances, April 1, 2012
Assets acquired
Disposals
Foreign currency translation adjustments
Balances, March 31, 2013
Accumulated depreciation
Balances, April 1, 2012
Depreciation charged to operations
Disposals
Foreign currency translation adjustments
Balances, March 31, 2013
$
5,796,412
100,065
(192,429)
106,146
5,810,194
$
62,883,609
665,041
(3,295,038)
1,353,937
61,607,549
$
3,380,918
577,010
(169,781)
47,673
3,835,820
$
1,664,782
109,942
(89,210)
42,648
1,728,162
$
73,725,721
1,452,058
(3,746,458)
1,550,404
72,981,725
-
-
-
-
-
(3,341,763)
(2,365,610)
320,348
(339,990)
(5,727,015)
(315,347)
(259,672)
34,910
7,603
(532,506)
(431,151)
(296,308)
38,236
(24,999)
(714,222)
(4,088,261)
(2,921,590)
393,494
(357,386)
(6,973,743)
72
22
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
11. PROPERTY, PLANT AND EQUIPMENT
12. BANK INDEBTEDNESS
Balances, April 1, 2013
$
5,810,194
$
61,607,549
$
3,835,820
$
1,728,162
$
72,981,725
Reclassification of assets held for sale
(1,212,090)
(19,251,988)
Buildings and
Machinery &
equipment & other
Land
silos/elevators
equipment
assets
Totals
Furniture, fixtures,
computers, office
562,031
(61,622)
(1,478,177)
508,775
5,045,257
5,293,366
46,732,781
(5,727,015)
(2,364,350)
276,183
2,447,765
(595,299)
(5,962,716)
524,419
(119,005)
(951,023)
331,188
3,621,399
(532,506)
(336,452)
50,940
184,979
(56,164)
(689,203)
1,422,893
2,509,343
(56,909)
(1,715,713)
(395,622)
(21,810,724)
160,485
2,859,009
6,293,814
58,258,445
(714,222)
(298,937)
19,091
143,576
(68,952)
(919,444)
(6,973,743)
(2,999,739)
346,214
2,776,321
(720,415)
(7,571,362)
Net Book Values, March 31, 2014
$
5,045,257
$
40,770,065
$
2,932,196
$
1,939,565
$
50,687,083
Balances, April 1, 2012
$
5,796,412
$
62,883,609
$
3,380,918
$
1,664,782
$
73,725,721
March 31, 2014
Cost
Assets acquired
Disposals
Foreign currency translation adjustments
Balances, March 31, 2014
Accumulated depreciation
Balances, April 1, 2013
Depreciation charged to operations
Disposals
Reclassification of assets held for sale
Foreign currency translation adjustments
Balances, March 31, 2014
March 31, 2013
Cost
Assets acquired
Disposals
Foreign currency translation adjustments
Balances, March 31, 2013
Accumulated depreciation
Balances, April 1, 2012
Depreciation charged to operations
Disposals
Foreign currency translation adjustments
Balances, March 31, 2013
100,065
(192,429)
106,146
5,810,194
665,041
(3,295,038)
1,353,937
61,607,549
(3,341,763)
(2,365,610)
320,348
(339,990)
(5,727,015)
577,010
(169,781)
47,673
3,835,820
(315,347)
(259,672)
34,910
7,603
(532,506)
109,942
(89,210)
42,648
1,728,162
(431,151)
(296,308)
38,236
(24,999)
(714,222)
1,452,058
(3,746,458)
1,550,404
72,981,725
(4,088,261)
(2,921,590)
393,494
(357,386)
(6,973,743)
-
-
-
-
-
-
-
-
-
-
-
-
On March 28, 2014, Riverland Ag entered into a syndicated uncommitted USD$120,000,000, 364-day
revolving credit agreement. Borrowings bear interest at LIBOR plus 2.875 percent, with interest
calculated and paid monthly. Amounts under the credit agreement that remain undrawn are not subject to
a commitment fee. The credit agreement is subject to borrowing base limitations. The credit facility is
secured by assets of Riverland Ag, including cash, inventory, investment property and Riverland’s Duluth
storage facility but excluding other property, plant and equipment. Obligations under this facility are
guaranteed by Ceres Canada Holding Corp., Ceres U.S. Holding Corp., and Riverland Canada.
Prior to March 28, 2014, Riverland Ag had a syndicated committed revolving line of credit pursuant to an
agreement amended and restated on July 31, 2012. This credit agreement was secured by predominantly
all assets of Riverland Ag, including cash but excluding property, plant and equipment. Pursuant to this
credit agreement, borrowings were subject to interest at LIBOR plus 3.75 percent, with interest calculated
and paid monthly. This credit agreement was subject to certain commitment fees based on a graduated
scale depending on the amount of the credit facility that remained undrawn. Commitment fees were
payable quarterly in arrears on the average daily undrawn amount. The obligation was guaranteed by
Riverland Ag and by Ceres Canada Holding Corp., Ceres U.S. Holding Corp., and Riverland Canada.
The credit agreement was subject to borrowing base limitations.
As described in Note 22 (Management of capital), Riverland Ag`s credit facility has certain covenants
pertaining to the accounts of Riverland Ag. As at March 31, 2014 and 2013, Riverland Ag was in
compliance with all debt covenants.
As at March 31, 2014 and 2013, the carrying amount of bank indebtedness is summarized as follows:
2014
in USD
in CAD
2013
in USD
in CAD
Revolving line of credit
Unamortized financing costs
$
65,000,000
(100,000)
$
71,857,500
(110,550)
$
115,000,000
(504,071)
$
116,840,000
(512,136)
$
64,900,000
$
71,746,950
$
114,495,929
$
116,327,864
13. REPURCHASE OBLIGATIONS
As at March 31, 2014, Riverland Ag has open repurchase commitments under its product financing
arrangement with Macquarie Commodities (USA), Inc. (“MCUSA”) to repurchase 1,500,000 bushels of
certain grains. Under the product financing arrangement, Riverland Ag sold MCUSA grains under
contract and simultaneously entered into contracts to repurchase the grains during the first quarter of the
fiscal year ending March 31, 2015 (“FYE 2015”). Since Riverland Ag is obligated to repurchase these
commodities from MCUSA, it has not recognized these transactions as sales. As at March 31, 2014, the
Corporation continues to recognize the inventory owned by Riverland Ag in this regard on its
consolidated balance sheet and has recorded a liability of USD$14,419,792 (2013: USD$26,703,249) at
that date (CAD$15,941,080; 2013: CAD$27,130,501), plus accrued interest payable. As at March 31,
2014, the fixed interest rate on the open repurchase commitment is at 3.08 percent (2013: range from 3.99
percent to 4.05 percent).
22
CERES GLOBAL AG CORP. ANNUAL REPORT
73
23
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS
(a)
Fair value of financial instruments
The fair value of financial instruments closely approximates their carrying values.
Derivative assets and Derivative liabilities, which are held for trading and valued at fair value through
profit and loss, include the following:
2014
2013
Derivative assets
Unrealized gain on forward foreign exchange contracts
Unrealized gains on open cash contracts
$
-
2,965,891
2,965,891
$
$
10,701
2,301,181
2,311,882
$
Derivative liabilities
Unrealized losses on open cash contracts
$
(1,752,256)
$
(1,627,645)
(b) Finance loss
For the years ended March 31, 2014 and 2013, finance loss includes the following:
2014
2013
Interest and other revenues
Realized loss on sale of investments
Realized loss on currency-hedging transactions
Realized and unrealized gain on foreign exchange
Unrealized increase (decrease) in fair value of investments
(c) Management of financial instruments risks
$
$
4,059
(2,974,760)
(468,891)
6,857
513,896
(2,918,839)
20,726
(14,931)
(313,003)
12,915
(4,369,758)
(4,664,051)
$
$
In the normal course of business, the Corporation is exposed to various financial instruments risks,
including market risk (consisting of price risk, commodity risk, interest rate risk and currency risk), credit
risk, custodian and prime brokerage risks, and liquidity risk. The Corporation’s overall risk management
program seeks to minimize potentially adverse effects of those risks on the Corporation’s financial
performance. The Corporation may use derivative financial instruments to mitigate certain risk exposures.
The Corporation may invest in non-public and public issuers and assets.
74
24
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS
(a)
Fair value of financial instruments
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued)
(c) Management of financial instruments risks (continued)
The fair value of financial instruments closely approximates their carrying values.
Price risk
Derivative assets and Derivative liabilities, which are held for trading and valued at fair value through
profit and loss, include the following:
Derivative assets
Unrealized gain on forward foreign exchange contracts
Unrealized gains on open cash contracts
Derivative liabilities
Unrealized losses on open cash contracts
(b) Finance loss
Interest and other revenues
Realized loss on sale of investments
Realized loss on currency-hedging transactions
Realized and unrealized gain on foreign exchange
Unrealized increase (decrease) in fair value of investments
(c) Management of financial instruments risks
2014
2013
$
-
$
10,701
2,965,891
2,301,181
$
2,965,891
$
2,311,882
$
(1,752,256)
$
(1,627,645)
2014
2013
$
4,059
$
20,726
(2,974,760)
(468,891)
6,857
513,896
(14,931)
(313,003)
12,915
(4,369,758)
$
(2,918,839)
$
(4,664,051)
For the years ended March 31, 2014 and 2013, finance loss includes the following:
In the normal course of business, the Corporation is exposed to various financial instruments risks,
including market risk (consisting of price risk, commodity risk, interest rate risk and currency risk), credit
risk, custodian and prime brokerage risks, and liquidity risk. The Corporation’s overall risk management
program seeks to minimize potentially adverse effects of those risks on the Corporation’s financial
performance. The Corporation may use derivative financial instruments to mitigate certain risk exposures.
The Corporation may invest in non-public and public issuers and assets.
The Corporation trades in financial instruments and may take positions in traded, over-the-counter and
non-public instruments, which may include derivatives. Within defined limits, the Corporation may buy
or sell call or put options and financial futures or other derivatives.
All investments in securities present a risk of loss of capital. The maximum risk for financial instruments
owned by the Corporation is determined by the fair value thereof. The Corporation’s overall market
positions are monitored by management and are reviewed quarterly by the Board of Directors.
As at March 31, 2014, the Corporation has invested in equity securities of private companies. As at
March 31, 2013, the Corporation had invested in equity securities of companies whose securities are
actively traded on recognized public exchanges and in private companies. As at March 31, 2014, the
Corporation’s portfolio investments in private companies represents 0.36 percent of consolidated total
assets (March 31, 2013: 0.57 percent).
The Corporation manages market price risk through a diversification of the investment portfolio between
industry sub-sectors and by avoiding undue industry sub-sector, geographical or investee concentration.
As at March 31, 2014, 0.63 percent of shareholders’ equity is represented by portfolio investments in
private companies (March 31, 2013: 1.17 percent). As at March 31, 2014, no portion of shareholders’
equity is invested in equity instruments of publicly traded companies located in Canada and the United
States of America (March 31, 2013: 3.32 percent).
As at March 31, 2013, the Corporation’s market risk pertaining to portfolio investments was potentially
affected by two main components, being changes in actual market prices and changes in foreign exchange
rates. As at March 31, 2014, the Corporation’s portfolio investments are solely in private companies.
Therefore, market factors affecting the value of the portfolio investments are primarily changes in fair
value of the investments and the Corporation’s ability to liquidate the investments. As at March 31, 2014,
currency risk is no longer a significant risk issue, as the value of portfolio investments denominated in a
currency other than Canadian dollars is nominal.
24
CERES GLOBAL AG CORP. ANNUAL REPORT
75
25
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued)
(c) Management of financial instruments risks (continued)
Price risk (continued)
Notwithstanding the foregoing, the following is a summary of the effect on the results of operations of the
Corporation, if the bid or ask prices of each of the portfolio investments as at March 31, 2014 and 2013
had increased or decreased by 10 percent, with all other variables remaining constant:
Change in bid/ask prices of investments
2014
2013
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
10% increase in bid-ask prices
10% decrease in bid-ask prices
$
$
84,816
(84,816)
$
$
0.01
(0.01)
$
$
648,825
(648,825)
$
$
0.05
(0.05)
As at March 31, 2014, the potential increase or decrease in net income attributable to portfolio
investments classified as Level 3 is $84,816 (2013: $168,892).
Commodity risk
Commodity risk is the risk of financial loss resulting from changes in commodity prices. Commodity risk
is inherent in the nature of Riverland Ag’s business, as it enters into commitments involving a degree of
speculative risk. To reduce risk caused by commodity market fluctuations, Riverland Ag generally
follows a policy of using exchange-traded futures and options contracts to minimize its net position of
merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. It
would also use exchange-traded futures and options contracts as components of merchandising strategies
designed to enhance margins. The results of these strategies can be significantly influenced by factors
such as the volatility of the relationship between the value of exchange-traded commodities futures
contracts and the cash prices of the underlying commodities, and volatility of freight markets.
Notwithstanding these factors, the following is a summary of the effect on the results of operations of the
Corporation, if the fair value of each of the open cash contracts as at March 31, 2014 and 2013 had
increased or decreased by 5 percent, with all other variables remaining constant:
Change in bid/ask prices of commodities
2014
2013
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
5% increase in bid-ask prices
5% decrease in bid-ask prices
$
$
21,599
(21,599)
$
$
0.002
(0.002)
$
$
1,658,491
(1,658,491)
$
$
0.115
(0.115)
26
76
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued)
14. FINANCIAL INSTRUMENTS (continued)
(c) Management of financial instruments risks (continued)
(c) Management of financial instruments risks (continued)
Price risk (continued)
Notwithstanding the foregoing, the following is a summary of the effect on the results of operations of the
Corporation, if the bid or ask prices of each of the portfolio investments as at March 31, 2014 and 2013
had increased or decreased by 10 percent, with all other variables remaining constant:
2014
2013
Increase
Increase
Increase
(decrease)
Increase
(decrease)
(decrease)
in earnings
(decrease)
in earnings
Change in bid/ask prices of investments
in net income
per share
in net income
per share
10% increase in bid-ask prices
10% decrease in bid-ask prices
$
84,816
$
0.01
$
648,825
$
0.05
$
(84,816)
$
(0.01)
$
(648,825)
$
(0.05)
As at March 31, 2014, the potential increase or decrease in net income attributable to portfolio
investments classified as Level 3 is $84,816 (2013: $168,892).
Commodity risk
Commodity risk is the risk of financial loss resulting from changes in commodity prices. Commodity risk
is inherent in the nature of Riverland Ag’s business, as it enters into commitments involving a degree of
speculative risk. To reduce risk caused by commodity market fluctuations, Riverland Ag generally
follows a policy of using exchange-traded futures and options contracts to minimize its net position of
merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. It
would also use exchange-traded futures and options contracts as components of merchandising strategies
designed to enhance margins. The results of these strategies can be significantly influenced by factors
such as the volatility of the relationship between the value of exchange-traded commodities futures
contracts and the cash prices of the underlying commodities, and volatility of freight markets.
Notwithstanding these factors, the following is a summary of the effect on the results of operations of the
Corporation, if the fair value of each of the open cash contracts as at March 31, 2014 and 2013 had
increased or decreased by 5 percent, with all other variables remaining constant:
2014
2013
Increase
Increase
Increase
(decrease)
Increase
(decrease)
(decrease)
in earnings
(decrease)
in earnings
Change in bid/ask prices of commodities
in net income
per share
in net income
per share
5% increase in bid-ask prices
5% decrease in bid-ask prices
$
21,599
$
0.002
$
1,658,491
$
0.115
$
(21,599)
$
(0.002)
$
(1,658,491)
$
(0.115)
Interest rate risk
As at March 31, 2014 and 2013, Ceres has no long or short portfolio positions in any interest-bearing
securities.
As at March 31, 2014 and 2013, except for cash on deposit, the amounts of which vary from time-to-time
and on which the Corporation earns interest at nominal variable interest rates, the Corporation had no
other variable rate interest-bearing securities. As at those dates, a notional increase or decrease in interest
rates applicable to cash on deposit would not have materially affected interest revenue and the results of
operations. Therefore, as at March 31, 2014 and 2013, the Corporation was not directly exposed to any
significant degree to cash flow interest rate risk due to changes in prevailing market interest rates.
As disclosed in Note 12 (Bank indebtedness), as at March 31, 2014, Riverland Ag’s revolving credit
facility bears interest at an annual rate of LIBOR plus 2.875 percent (March 31, 2013: LIBOR plus 3.75
percent). As at March 31, 2014 and 2013, management has determined the effect on the future results of
operations of the Corporation, if the variable interest rate component applicable on those dates on the
revolving credit facility were to increase by 25 basis points (“25 bps”) as at those dates respectively,
using the balance of the revolving credit facility payable as at those dates, using the number of shares
then issued and outstanding, and with all other variables remaining constant. On that basis, the potential
effects on the future result of operations would be as follows:
Change in interest rate on revolving facility
2014
2013
Increase
in net
Increase
in loss
loss per share
Increase
in net
loss
Increase
in loss
per share
25 bps increase in annual interest rate
$
(179,644)
$
(0.01)
$
(292,100)
$
(0.02)
Riverland Ag is not subject to cash flow interest rate risk concerning the repurchase obligations, as this
liability bears interest at a fixed rate.
Credit risk
Credit risk is the risk a counterparty would be unable to pay amounts due to the Corporation in
accordance with the terms and conditions of the debt instruments. As at March 31, 2014 and 2013, the
Corporation is subject to credit risk concerning cash, amounts due from brokers, trade accounts
receivable, and to the extent that certain forward foreign exchange contracts on hand and open cash
contracts for grain commodities as at those dates gave rise to unrealized gains thereon. The maximum
exposure to credit risk on those assets is limited to the carrying value of those assets.
26
CERES GLOBAL AG CORP. ANNUAL REPORT
77
27
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued)
(c) Management of financial instruments risks (continued)
Credit risk (continued)
The Corporation mitigates the credit risk concerning forward foreign exchange contracts by entering into
such contracts with financially stable and credit-worthy counter-parties. Credit risk arising from the
amounts due from broker is described below (Custody and prime brokerage risks). Ceres management
assesses credit risk of debt securities, if any, on an on-going basis.
Riverland Ag uses various grain contracts as part of its overall grain merchandising strategies.
Performance on these contracts is dependent on delivery of the grain or a customer buy-out. There is
counter-party risk associated with non-performance, which may have the potential of creating losses for
the Corporation. The Corporation’s management has assessed the counter-party risk and believes that
insignificant losses, if any, would result from non-performance.
Riverland Ag regularly evaluates its credit risk concerning its trade accounts receivable to the extent that
such receivables may be concentrated in certain industries or with significant customers. Riverland
minimizes this risk by having a diverse customer base and established credit policies. The aging of
Riverland Ag’s trade accounts receivable are substantially current. Based on its review and assessment of
its trade accounts receivable, management of Riverland Ag has determined that as at March 31, 2014 and
2013, no allowance for doubtful accounts is warranted, and management is confident in its ability to
collect outstanding trade accounts receivable.
Custody and prime brokerage risk
There are risks involved with dealing with a custodian or broker who settle trades. In certain
circumstances, the securities or other assets deposited with the custodian or broker may be exposed to
credit risk with respect to those parties. In addition, there may be practical or timing problems associated
with enforcing the Corporation’s rights to its assets, in the case of the insolvency of any such party.
Notwithstanding the foregoing, management has evaluated the risk of loss related to the custodian or
brokers and has determined this risk to be insignificant.
78
28
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued)
(c) Management of financial instruments risks (continued)
Liquidity risk
As at March 31, 2014 and 2013, the following are the contractual maturities of financial liabilities,
including interest payments:
2014
Carrying
amount
Contractual
cash flows
1 year
2 years
5 years
5 years
3 to
More than
Bank indebtedness
$
71,746,950
$
71,857,500
$
71,857,500
$
-
$
-
$
-
Accounts payable and accrued liabilities
Repurchase obligations
Derivatives
Provision for future payment to Front Street Capital
7,567,634
15,941,080
1,752,256
970,000
7,567,634
15,941,080
1,752,256
970,000
7,567,634
15,941,080
1,752,256
970,000
-
-
-
-
-
-
-
-
-
-
-
-
$
97,977,920
$
98,088,470
$
98,088,470
$
-
$
-
$
-
2013
Carrying
amount
Contractual
cash flows
1 year
2 years
3 to
5 years
More than
5 years
Bank indebtedness
$
116,327,864
$
116,840,000
$
116,840,000
$
-
$
-
$
-
Accounts payable and accrued liabilities
Repurchase obligations
Derivatives
Income taxes payable
Management fees payable
Due to Manager
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
5,296,033
27,130,501
1,627,645
260,539
250,763
268,565
-
-
-
-
-
-
-
-
-
-
-
-
$
151,161,910
$
151,674,046
$
151,674,046
$
-
$
-
$
-
Future expected operational cash flows and sufficient assets are available to fund the settlement of these
obligations in the normal course of business. In addition, the following factors allow for the substantial
mitigation of liquidity risk: the prompt settlement of amounts due from brokers, the active management of
trade accounts receivable and the lack of concentration risk related thereto. The Corporation’s cash flow
management activities and the continued likelihood of its operations further minimize liquidity risk.
CERES GLOBAL AG CORP. ANNUAL REPORT
79
29
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued):
(c) Management of financial instruments risks (continued)
Currency risk
In the normal course of business, Ceres may hold assets or have liabilities denominated in currencies
other than Canadian dollars (its presentation and functional currency, and referred to in this section as
“CAD”). Therefore, Ceres is exposed to currency risk, as the value of any assets or liabilities
denominated in currencies other than CAD will vary due to changes in foreign exchange rates.
As at March 31, 2014 and 2013, the following is a summary, at fair value, of Ceres’ exposure to currency
risks:
2014
2013
Net asset
exposure*
5,175,147
816
Net forward
contracts (to sell
foreign currency)
$
-
$
-
Currency
U.S. dollars
Australian dollars
*Exposure excludes the effect of forward foreign exchange contracts.
$
$
Net asset
exposure*
537,484
809
$
$
Net forward
contracts (to sell
foreign currency)
30,000,000
$
$
-
As at March 31, 2014, Ceres had no commitment to any forward foreign exchange contract. As at March
31, 2013, Ceres was committed to a forward foreign exchange contract executed on March 27, 2013 and
due April 30, 2013, in the amount noted in the preceding table.
The following is a summary of the effect on Ceres’ results of operations if the CAD had become 5
percent stronger or weaker against each of the other currencies as at March 31, 2014 and 2013, with all
other variables remaining constant, related to assets and liabilities denominated in foreign currencies and
to the forward foreign exchange contracts:
Change in foreign exchange rate
2014
2013
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
Increase
(decrease)
in net income
Increase
(decrease)
in earnings
per share
CAD 5% stronger
CAD 5% weaker
$
$
(272,537)
301,225
$
$
(0.02)
0.02
$
$
1,498,554
(1,495,812)
$
$
0.10
(0.10)
Currency risk related to the accounts of Ceres’ foreign subsidiary, Riverland Ag Corp., relates primarily to
the translation of its accounts into CAD for the purposes of the consolidated financial reporting of Ceres.
Adjustments related to the translation of foreign currency accounts of a foreign operation are included as
other comprehensive income (loss) and have no effect on the determination of net income for the reporting
period. Consequently, no currency risk sensitivity analysis concerning Riverland Ag Corp. has been
presented.
80
30
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued):
(c) Management of financial instruments risks (continued)
Currency risk
In the normal course of business, Ceres may hold assets or have liabilities denominated in currencies
other than Canadian dollars (its presentation and functional currency, and referred to in this section as
“CAD”). Therefore, Ceres is exposed to currency risk, as the value of any assets or liabilities
denominated in currencies other than CAD will vary due to changes in foreign exchange rates.
As at March 31, 2014 and 2013, the following is a summary, at fair value, of Ceres’ exposure to currency
risks:
2014
Net forward
2013
Net forward
Currency
U.S. dollars
Net asset
contracts (to sell
exposure*
foreign currency)
Net asset
contracts (to sell
exposure*
foreign currency)
$
5,175,147
$
-
$
537,484
$
30,000,000
Australian dollars
$
816
$
-
$
809
$
-
*Exposure excludes the effect of forward foreign exchange contracts.
As at March 31, 2014, Ceres had no commitment to any forward foreign exchange contract. As at March
31, 2013, Ceres was committed to a forward foreign exchange contract executed on March 27, 2013 and
due April 30, 2013, in the amount noted in the preceding table.
The following is a summary of the effect on Ceres’ results of operations if the CAD had become 5
percent stronger or weaker against each of the other currencies as at March 31, 2014 and 2013, with all
other variables remaining constant, related to assets and liabilities denominated in foreign currencies and
to the forward foreign exchange contracts:
Change in foreign exchange rate
in net income
per share
in net income
per share
CAD 5% stronger
CAD 5% weaker
$
(272,537)
$
(0.02)
$
1,498,554
$
0.10
$
301,225
$
0.02
$
(1,495,812)
$
(0.10)
Currency risk related to the accounts of Ceres’ foreign subsidiary, Riverland Ag Corp., relates primarily to
the translation of its accounts into CAD for the purposes of the consolidated financial reporting of Ceres.
Adjustments related to the translation of foreign currency accounts of a foreign operation are included as
other comprehensive income (loss) and have no effect on the determination of net income for the reporting
period. Consequently, no currency risk sensitivity analysis concerning Riverland Ag Corp. has been
presented.
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued):
(d) Fair value measurements
The following is a summary of the classification of assets and liabilities carried at fair value, using the
hierarchy of inputs described in Note 3 (Summary of significant accounting policies – fair value
measurements):
March 31, 2014
Level 1
Level 2
Level 3
Total
Portfolio investments
Due from Broker, unrealized
gains on futures and
options (Note 6)
Derivative assets
Inventories, grains (Note 7)
Due to Broker, unrealized
losses on futures and
options (Note 6)
Derivative liabilities
Provision for future payments
to Front Street Capital
$ - $ - $ 848,163 $ 848,163
55,242
-
-
-
2,965,891
109,684,490
- 55,242
- 2,965,891
- 109,684,490
(160,805) -
(1,752,256)
-
- (160,805)
- (1,752,256)
-
- (970,000)
$ (105,563) $ 109,928,125 $ 848,163 $ 110,670,725
(970,000)
During the year ended March 31, 2014, portfolio investments having a fair value of $718,685 were
transferred from Level 2 to Level 1. This transfer occurred when restricted shares acquired by the
Corporation were converted into unrestricted common shares (in the normal course of business and
following a hold period).
The following is a reconciliation of the changes in the equities, long, measured at fair value using
unobservable inputs (Level 3), for the year ended March 31, 2014:
2014
2013
Increase
Increase
Increase
(decrease)
Increase
(decrease)
(decrease)
in earnings
(decrease)
in earnings
Balance, April 1, 2013
Transfer from Level 3 to Level 2
Net purchase
Decrease in fair value of Level 3 portfolio investments
$ 1,688,919
-
-
(840,756)
848,163
$
The decrease in fair value of Level 3 portfolio investments of $840,756 (2013: decrease of $1,622,083) is
included in the determination of net loss for the year and is a component of Finance loss in the Unrealized
increase (decrease) in fair value of investments, as reported in Note 14(b).
30
CERES GLOBAL AG CORP. ANNUAL REPORT
81
31
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued):
(d) Fair value measurements (continued)
March 31, 2013
Level 1
Level 2
Level 3
Total
Portfolio investments
Due from Broker, unrealized
gains on futures and
options (Note 6)
Derivative assets
Inventories, grains (Note 7)
Derivative liabilities
$ 4,080,650 $ 718,685 $ 1,688,919 $ 6,488,254
3,678,406
-
-
-
-
2,311,882
156,965,289
(1,627,645)
- 3,678,406
- 2,311,882
- 156,965,289
- (1,627,645)
$ 7,759,056 $ 158,368,211 $ 1,688,919 $ 167,816,186
During the year ended March 31, 2013, there was a transfer from Level 3 to Level 2 for $1,000,025. This
transfer reflects the initial public offering of a private company, the investment in which had been
previously classified in Level 3, but for which the trading in those shares is restricted as at March 31,
2013.
The following is a reconciliation of the changes in the equities, long, measured at fair value using
unobservable inputs (Level 3), for the year ended March 31, 2013:
Balance, April 1, 2012
Transfer from Level 3 to Level 2
Net purchase
Decrease in fair value of Level 3 portfolio investments
$ 3,861,027
(1,000,025)
450,000
(1,622,083)
1,688,919
$
15. SHARE CAPITAL AND WARRANTS
(a) Authorized
Unlimited number of voting, participating Common Shares, without par value.
(b) Normal Course Issuer Bids
2013-2014 Normal Course Issuer Bid
On July 9, 2013, Ceres announced a normal course issuer bid (“the 2013-2014 NCIB”) commencing on
July 11, 2013. The purpose of the 2013-2014 NCIB is to provide Ceres with a mechanism to decrease the
potential spread between the net asset value per Share and the market price of the Shares. The 2013-2014
NCIB will conclude on the earlier of the date on which purchases under the bid have been completed and
July 10, 2014. Using the facilities of the TSX and in accordance with its rules and policies, Ceres
intended to purchase up to 946,963 of its common Shares, representing approximately 10 percent of its
unrestricted public float as at July 5, 2013. Ceres may purchase up to a daily maximum of 2,855 Shares,
except for purchases made in accordance with the “block purchase” exception under applicable TSX rules
and policies. The Shares may be purchased for cancellation via the TSX and may be purchased when the
net asset value per Share exceeds its trading price.
82
32
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
14. FINANCIAL INSTRUMENTS (continued):
(d) Fair value measurements (continued)
March 31, 2013
Level 1
Level 2
Level 3
Total
Portfolio investments
$ 4,080,650 $ 718,685 $ 1,688,919 $ 6,488,254
Due from Broker, unrealized
gains on futures and
options (Note 6)
Derivative assets
3,678,406
-
- 3,678,406
-
2,311,882
- 2,311,882
Inventories, grains (Note 7)
Derivative liabilities
-
-
156,965,289
(1,627,645)
- 156,965,289
- (1,627,645)
$ 7,759,056 $ 158,368,211 $ 1,688,919 $ 167,816,186
During the year ended March 31, 2013, there was a transfer from Level 3 to Level 2 for $1,000,025. This
transfer reflects the initial public offering of a private company, the investment in which had been
previously classified in Level 3, but for which the trading in those shares is restricted as at March 31,
2013.
The following is a reconciliation of the changes in the equities, long, measured at fair value using
unobservable inputs (Level 3), for the year ended March 31, 2013:
Balance, April 1, 2012
Transfer from Level 3 to Level 2
Net purchase
Decrease in fair value of Level 3 portfolio investments
$ 3,861,027
(1,000,025)
450,000
(1,622,083)
$
1,688,919
15. SHARE CAPITAL AND WARRANTS
(a) Authorized
(b) Normal Course Issuer Bids
2013-2014 Normal Course Issuer Bid
Unlimited number of voting, participating Common Shares, without par value.
On July 9, 2013, Ceres announced a normal course issuer bid (“the 2013-2014 NCIB”) commencing on
July 11, 2013. The purpose of the 2013-2014 NCIB is to provide Ceres with a mechanism to decrease the
potential spread between the net asset value per Share and the market price of the Shares. The 2013-2014
NCIB will conclude on the earlier of the date on which purchases under the bid have been completed and
July 10, 2014. Using the facilities of the TSX and in accordance with its rules and policies, Ceres
intended to purchase up to 946,963 of its common Shares, representing approximately 10 percent of its
unrestricted public float as at July 5, 2013. Ceres may purchase up to a daily maximum of 2,855 Shares,
except for purchases made in accordance with the “block purchase” exception under applicable TSX rules
and policies. The Shares may be purchased for cancellation via the TSX and may be purchased when the
net asset value per Share exceeds its trading price.
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
15. SHARE CAPITAL AND WARRANTS (continued)
(b) Normal Course Issuer Bids (continued)
2013-2014 Normal Course Issuer Bid (continued)
For the period from July 11, 2013 to October 15, 2013, Ceres purchased 126,020 Shares under the 2013-
2014 NCIB for an aggregate consideration of $964,424. The stated capital value of these repurchased
Shares was $1,198,882. The excess of the stated capital value of the repurchased Shares over the cost
thereof, being $234,458, was allocated to Retained Earnings in the year ended March 31, 2014. The
Corporation made no purchases under the 2013-2014 NCIB after October 15, 2013.
2011-2012 Normal Course Issuer Bid
On October 13, 2011, Ceres announced a normal course issuer bid (“2011-2012 NCIB”) commencing on
October 17, 2011. The purpose of the 2011-2012 NCIB is to provide Ceres with a mechanism to decrease
the potential spread between the net asset value per Share and the market price of the Shares. The 2011-
2012 NCIB will conclude on the earlier of the date on which purchases under the bid have been
completed and October 16, 2012. Using the facilities of the TSX and in accordance with its rules and
policies, Ceres intended to purchase up to 1,184,334 of its common Shares, representing approximately
10 percent of its unrestricted public float as at October 11, 2011. Ceres may purchase up to a daily
maximum of 3,726 Shares, except for purchases made in accordance with the “block purchase” exception
under applicable TSX rules and policies. The Shares may be purchased for cancellation via the TSX and
may be purchased when the net asset value per Share exceeds its trading price.
For the period from April 1, 2012 to October 16, 2012, Ceres purchased 246,600 Shares under the 2011-
2012 NCIB for an aggregate consideration of $1,531,991. The stated capital value of these repurchased
Shares was $2,379,158. The excess of the stated capital value of the repurchased Shares over the cost
thereof, being $847,167, was allocated to Retained Earnings in the year ended March 31, 2013.
(c) Expiry of Common Share Purchase Warrants
On June 11, 2013, the Common Share Purchase Warrants (collectively the “Warrants”) that were issued
on June 11, 2010 to the vendors of Riverland Ag, expired and were cancelled. The Corporation allocated
the aggregate stated capital value of the Warrants of $202,384 to Contributed Surplus.
(d)
Stock Options and Stock Appreciation Rights
On March 10, 2014, the Board approved the Ceres Global Ag Corp. Stock Option Plan (the “Options
Plan”). The Options Plan is available to certain officers, key employees and consultants of the
Corporation and its subsidiaries. The purpose of the Options Plan is to attract, retain and motivate these
parties by providing them with the opportunity, through options, to acquire a proprietary interest in the
Corporation and to benefit from its growth.
The Options Plan is administered by the Board, which shall determine (among other things) those
officers, key employees and consultants who may be granted awards as Participants and the terms and
conditions of any award to any such Participant. The Exercise Price of the options shall be fixed by the
Board and shall be no less than 100 percent of the Market Price on the effective date of the award of the
32
CERES GLOBAL AG CORP. ANNUAL REPORT
83
33
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
15. SHARE CAPITAL AND WARRANTS (continued)
(d)
Stock Options and Stock Appreciation Rights (continued)
options, which may be granted for a term not exceeding ten (10) years. The maximum number of
common shares reserved for issuance upon the exercise of options cannot exceed 10% of the total number
of common shares issued and outstanding less the number of common shares reserved for issuance under
the Corporation’s Directors Deferred Share Unit Plan (Note 16). Restrictions exist as to the number of
options that may be granted to Insiders within any one-year period, and as to the number of, and the
aggregate fair market value of, the common shares underlying the options that may be granted to any one
Participant.
The Options Plan also provides for the Board to grant Stock Appreciation Rights (“SARs”) to certain
officers, key employees and consultants of the Corporation. Stand-Alone SARs granted under the Plan
shall become vested at such times, in such installments and subject to the terms and conditions of the
Options Plan (including satisfaction of Performance Criteria and/or continued employment) as may be
determined by the Board. The Base Price for each common share subject to a Stand-Alone SAR shall not
be less that 100 percent of the Market Price of a common share on the Effective Date of the award of
such Stand-Alone SAR. Tandem SARs may be granted at or after the Effective Date of the related award
of options, and each Tandem SAR shall be subject to the same terms and conditions and denominated in
the same currency as the option to which it relates and the additional terms and conditions under the
Options Plan. Tandem SARs may be exercised only if and to the extent the options related thereto are
then vested and exercisable. On exercise of a Tandem SAR, the related option shall be cancelled and the
Participant shall be entitled to an amount in settlement of such Tandem SAR calculated and in such form
as provided by the Options Plan.
As at March 31, 2014, no stock options or SARs had been awarded.
(e)
Issued and outstanding as at March 31, 2014 and 2013
The following is a summary of the changes in the Common Shares and Warrants during the years ended
March 31, 2014 (“FYE 2014”) and 2013 (“FYE 2013”):
Balances, April 1, 2012
Changes in FYE 2013
Repurchases under normal course issuer bid
Common shares
$
#
Warrants
#
$
14,581,299
$
140,678,062
150,000
$
202,384
(246,600)
(2,379,158)
-
-
Balances, March 31, 2013
14,334,699
$
138,298,904
150,000
$
202,384
Balances, April 1, 2013
Changes in FYE 2014
Expiry of Warrants, June 11, 2013
Repurchases under normal course issuer bid
14,334,699
138,298,904
150,000
202,384
-
(126,020)
-
(1,198,882)
(150,000)
-
(202,384)
-
Balances, March 31, 2014
14,208,679
$
137,100,022
-
$
-
84
34
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
15. SHARE CAPITAL AND WARRANTS (continued)
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
(d)
Stock Options and Stock Appreciation Rights (continued)
16. DEFERRED SHARE UNIT PLAN
options, which may be granted for a term not exceeding ten (10) years. The maximum number of
common shares reserved for issuance upon the exercise of options cannot exceed 10% of the total number
of common shares issued and outstanding less the number of common shares reserved for issuance under
the Corporation’s Directors Deferred Share Unit Plan (Note 16). Restrictions exist as to the number of
options that may be granted to Insiders within any one-year period, and as to the number of, and the
aggregate fair market value of, the common shares underlying the options that may be granted to any one
Participant.
The Options Plan also provides for the Board to grant Stock Appreciation Rights (“SARs”) to certain
officers, key employees and consultants of the Corporation. Stand-Alone SARs granted under the Plan
shall become vested at such times, in such installments and subject to the terms and conditions of the
Options Plan (including satisfaction of Performance Criteria and/or continued employment) as may be
determined by the Board. The Base Price for each common share subject to a Stand-Alone SAR shall not
be less that 100 percent of the Market Price of a common share on the Effective Date of the award of
such Stand-Alone SAR. Tandem SARs may be granted at or after the Effective Date of the related award
of options, and each Tandem SAR shall be subject to the same terms and conditions and denominated in
the same currency as the option to which it relates and the additional terms and conditions under the
Options Plan. Tandem SARs may be exercised only if and to the extent the options related thereto are
then vested and exercisable. On exercise of a Tandem SAR, the related option shall be cancelled and the
Participant shall be entitled to an amount in settlement of such Tandem SAR calculated and in such form
as provided by the Options Plan.
As at March 31, 2014, no stock options or SARs had been awarded.
(e)
Issued and outstanding as at March 31, 2014 and 2013
The following is a summary of the changes in the Common Shares and Warrants during the years ended
March 31, 2014 (“FYE 2014”) and 2013 (“FYE 2013”):
Repurchases under normal course issuer bid
(246,600)
(2,379,158)
Balances, April 1, 2012
Changes in FYE 2013
Balances, March 31, 2013
Balances, April 1, 2013
Changes in FYE 2014
Expiry of Warrants, June 11, 2013
-
-
(150,000)
(202,384)
Repurchases under normal course issuer bid
(126,020)
(1,198,882)
Balances, March 31, 2014
14,208,679
$
137,100,022
$
-
Common shares
#
$
Warrants
#
$
14,581,299
$
140,678,062
150,000
$
202,384
14,334,699
$
138,298,904
150,000
$
202,384
14,334,699
138,298,904
150,000
202,384
-
-
-
-
-
34
Effective January 1, 2014, Ceres has a Directors’ Deferred Share Unit Plan, whereby deferred share units
(“DSU”) are issued to Eligible Directors, in lieu of cash, for a portion of Directors’ fees otherwise payable
to Directors. The Fair Market Value of the DSUs on the date such units are calculated and issued
represents the volume-weighted average trading price of Ceres’ common shares for the five trading days
immediately preceding the date of issuance of the DSUs. Each DSU entitles the director to receive
payment after the end of the director’s term in the form of common shares of the Corporation. Under the
plan, the aggregate number of common shares issuable by Ceres under this Plan is limited to 450,000
common shares. Certain insider restrictions and annual dollar limits per Eligible Director exist.
Dividends, if any, otherwise payable on the common shares represented by the DSUs are converted into
additional DSUs based on the Fair Market Value as of the date on which any such dividends would be
paid. The Plan also provides for the Board to award additional DSUs (referred to in the Plan agreement as
“Matching DSUs”) to an Eligible Director who has elected to receive DSUs pertaining to his/her Annual
Cash Remuneration amount (as defined by the Plan).
The Corporation intends to settle all DSUs with shares through the issuance of treasury shares.
Compensation expense is included as part of Directors’ fees classified with general and administrative
expenses, and is recognized in the accounts as and when services are rendered to the Corporation. DSUs
outstanding as at a reporting period-end are revalued at the fair market value as at that period and changes
in the fair market value are recognized to Directors’ fees in the period in which the changes occur.
The following is a summary of the changes in the number of DSUs issued and outstanding for the year
ended March 31, 2014.
2014
2013
number of units Weighted fair value number of units Weighted fair value
Balance, beginning of year
Units issued
-
8,912.73
$
-
$
7.01
Balance, end of year
8,912.73
$
7.01
-
-
-
$
-
$
-
$
-
CERES GLOBAL AG CORP. ANNUAL REPORT
85
35
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
17. MANAGEMENT FEES AND OTHER EXPENSES
(a) Management fees and other fees
The following table presents management fee expense charged to the accounts of the Corporation for the
years ended March 31, 2014 and 2013:
Management fees and related HST
Management transition payment
Provision for future payments to Front Street Capital
2014
2013
$
1,327,357
5,000,000
970,000
$
3,135,745
-
-
$
7,297,357
$
3,135,745
As at March 31, 2014 and 2013, current liabilities include management fees payable and the provision for
future payments to Front Street Capital, as follows:
2014
2013
Management fees payable and related HST
Provision for future payments to Front Street Capital
$
-
970,000
970,000
$
$
$
250,763
-
250,763
On August 23, 2013, Ceres announced it entered into a Management Transition Agreement (the
“Transition Agreement”) with Front Street Capital (the “Manager”), which provided, among other things,
for the early termination of the Management Agreement. The Transition Agreement was approved by the
shareholders at the annual and special meeting held on September 27, 2013. The Transition Agreement
provides for the following:
The Management Agreement shall be terminated effective November 30, 2013;
Monthly management fee payments to the Manager will end September 30, 2013;
On October 1, 2013, Ceres will pay the Manager $5 million plus HST of $650,000;
The Manager will be paid an additional $1 million if the five-day volume-weighted average
price of Ceres’ common shares (the “5-day VWAP”) reaches $10 within five years, and a
further $1 million if the 5-day VWAP reaches $11 at any time during that 5-year period;
The additional payments will become payable immediately if, prior to the fifth anniversary
of the date of the Transition Agreement, there occurs either a change in control or a going
private transaction for a price in excess of $7.85 per share;
Ceres shall deposit into an escrow fund five percent of any gross sale proceeds in excess of
net book value and direct transaction costs from the sale of any of Ceres’ assets, to a
maximum amount of $1 million, and such escrow fund amount shall be paid to the
Manager if the 5-day VWAP does not reach $10 within five years;
86
36
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
17. MANAGEMENT FEES AND OTHER EXPENSES (continued)
17. MANAGEMENT FEES AND OTHER EXPENSES
(a) Management fees and other fees (continued)
(a) Management fees and other fees
years ended March 31, 2014 and 2013:
The following table presents management fee expense charged to the accounts of the Corporation for the
Management fees and related HST
Management transition payment
Provision for future payments to Front Street Capital
2014
2013
$
1,327,357
$
3,135,745
5,000,000
970,000
-
-
$
7,297,357
$
3,135,745
2014
2013
$
-
$
250,763
970,000
-
$
970,000
$
250,763
As at March 31, 2014 and 2013, current liabilities include management fees payable and the provision for
future payments to Front Street Capital, as follows:
Management fees payable and related HST
Provision for future payments to Front Street Capital
On August 23, 2013, Ceres announced it entered into a Management Transition Agreement (the
“Transition Agreement”) with Front Street Capital (the “Manager”), which provided, among other things,
for the early termination of the Management Agreement. The Transition Agreement was approved by the
shareholders at the annual and special meeting held on September 27, 2013. The Transition Agreement
provides for the following:
The Management Agreement shall be terminated effective November 30, 2013;
Monthly management fee payments to the Manager will end September 30, 2013;
On October 1, 2013, Ceres will pay the Manager $5 million plus HST of $650,000;
The Manager will be paid an additional $1 million if the five-day volume-weighted average
price of Ceres’ common shares (the “5-day VWAP”) reaches $10 within five years, and a
further $1 million if the 5-day VWAP reaches $11 at any time during that 5-year period;
The additional payments will become payable immediately if, prior to the fifth anniversary
of the date of the Transition Agreement, there occurs either a change in control or a going
private transaction for a price in excess of $7.85 per share;
Ceres shall deposit into an escrow fund five percent of any gross sale proceeds in excess of
net book value and direct transaction costs from the sale of any of Ceres’ assets, to a
maximum amount of $1 million, and such escrow fund amount shall be paid to the
Manager if the 5-day VWAP does not reach $10 within five years;
Until November 30, 2013, or such earlier date as Ceres may determine, the Manager will
continue to provide existing services and support to the Corporation, including the services
of the Chief Financial Officer and the Chief Transaction Officer with no additional
management fee payable to the Manager after September 30, 2013; and
Ceres will continue to be responsible for all other third-party costs and out-of-pocket costs
consistent with past practice.
As at March 31, 2014, management has determined the fair value of the potential additional payments
provided for under the Transition Agreement is $970,000, and a provision for this amount is reported
separately in current liabilities as at that date. The fair value of each additional payment was determined
using the binomial options pricing model, with a remaining term to September 30, 2018, using volatility
of 35 percent and a risk-free interest rate of 1.71 percent. Management recalculates the fair value of such
potential additional payments as at each quarter-end and adjusts the provision recognized in the accounts
in the quarter such adjustment would be necessary.
The Corporation negotiated an agreement with the Manager, whereby the Manager continued to provide
the management services of the Chief Financial Officer (the “CFO”) from December 1, 2013 to March 31,
2014 (the “Term”). The monthly fee for this arrangement was $25,000 plus HST.
(b) Other expenses
The Corporation is responsible for paying fees and expenses incurred in its operations and administration,
except fees and expenses to be borne by the Manager as set out in the Management Agreement. In
addition to the Management Fees payable to the Manager, Ceres shall reimburse the Manager for all
expenses it incurs related to its duties (including payments to third parties in that regard) to the extent
such expenses were incurred for and on behalf of Ceres. As at March 31, 2014, the amount due to the
Manager was $nil (2013: $268,565).
36
CERES GLOBAL AG CORP. ANNUAL REPORT
87
37
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
18.
INCOME TAXES
18.
INCOME TAXES (continued)
(a) Reconciliation of statutory tax provision to the effective tax provision
The components of the provision for income taxes are as follows:
As the Corporation operates in several tax jurisdictions, its income is subject to taxation at
various rates.
Canada
The provision for income taxes differs from the amount that would have resulted from applying
the Canadian statutory income tax rates to income before income taxes for the following reasons:
Loss before income taxes and share of net income in
investments in associates:
Canada
United States of America
2014
2013
United States of America - Federal
$ (15,512,509) $ (9,581,994)
(5,543,796) (5,705,965)
$ (21,056,305) $ (15,287,959)
United States of America - State
Combined statutory Canadian federal and Ontario corporate
income tax rate
Provision for income taxes recoverable using statutory rate
26.50%
$ (5,579,917)
26.50%
$ (4,051,309)
Adjusted for the income tax effects of:
Difference in tax rates applicable to subsidiaries
U.S. State taxes, net of U.S. federal benefit
Intercompany dividend eliminated on consolidation
Non-deductible portion of capital losses
Non-deductible portion of unrealized losses on investments
(non-taxable portion of unrealized gains on investments)
Changes in unrecognized temporary difference on deferred
income tax assets of Ceres and Riverland Ag
Other
(694,637)
(527,158)
(1,360,853)
455,375
(714,957)
(494,361)
(1,293,554)
41,714
(68,091)
578,993
6,540,780
(88,127)
4,257,289
3,024,063
338,141
1,480,039
Income taxes recovered
$ (1,322,628)
$ (2,571,270)
Current
Deferred
Current
Deferred
Current
Deferred
$
(135,488)
$
2014
50,736
(84,752)
(1,247,356)
(1,247,356)
-
-
9,480
9,480
2013
57,340
136,980
194,320
12,769
(2,422,145)
(2,409,376)
1,889
(358,103)
(356,214)
Income taxes recovered
$
(1,322,628)
$
(2,571,270)
(b) Deferred income tax liability
tax liability are as follows:
Deferred income tax assets
The tax effects of temporary differences that give rise to significant elements of the net deferred income
2014
2013
Non-capital and net operating losses carried-forward
$ 27,172,420
$ 18,306,069
Allowable capital losses carried forward
Deductible portion of unrealized depreciation of investments
1,247,392
981,910
Other temporary deductible differences, net of
temporary taxable differences
Deferred income tax asset, before unrecognized deferred assets
Unrecognized deferred assets
Net deferred income tax asset
3,164,616
32,566,338
(17,305,317)
15,261,021
858,595
983,368
3,924,290
24,072,322
(10,284,256)
13,788,066
Deferred income tax liability, property, plant and equipment
(15,417,555)
(13,995,338)
Net deferred income tax liability
$ (156,534)
$ (207,272)
88
38
39
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
18.
INCOME TAXES (continued)
The components of the provision for income taxes are as follows:
Canada
Current
Deferred
United States of America - Federal
Current
Deferred
United States of America - State
Current
Deferred
$
2014
(135,488)
50,736
(84,752)
$
2013
57,340
136,980
194,320
(1,247,356)
-
(1,247,356)
9,480
-
9,480
12,769
(2,422,145)
(2,409,376)
1,889
(358,103)
(356,214)
Income taxes recovered
$
(1,322,628)
$
(2,571,270)
(b) Deferred income tax liability
The tax effects of temporary differences that give rise to significant elements of the net deferred income
tax liability are as follows:
Deferred income tax assets
Non-capital and net operating losses carried-forward
Allowable capital losses carried forward
Deductible portion of unrealized depreciation of investments
Other temporary deductible differences, net of
temporary taxable differences
Deferred income tax asset, before unrecognized deferred assets
Unrecognized deferred assets
Net deferred income tax asset
2014
2013
$ 27,172,420
1,247,392
981,910
$ 18,306,069
858,595
983,368
3,164,616
32,566,338
(17,305,317)
15,261,021
3,924,290
24,072,322
(10,284,256)
13,788,066
Deferred income tax liability, property, plant and equipment
(15,417,555)
(13,995,338)
Net deferred income tax liability
$ (156,534)
$ (207,272)
CERES GLOBAL AG CORP. ANNUAL REPORT
89
39
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
18.
INCOME TAXES (continued)
(c) Tax losses carried forward
(i)
Ceres
As at March 31, 2014, Ceres has accumulated non-capital losses in the amount of $38,047,399. The non-
capital losses are being carried forward and, unless utilized, will expire in the following taxation years:
Year of expiry
2028
2029
2030
2031
2032
2033
2034
Amount
$ 591,209
2,064
6,387,927
5,943,058
7,313,866
6,347,141
11,462,134
$38,047,399
As at March 31, 2014, Ceres has accumulated capital losses totaling $9,414,282, which are available
indefinitely to be applied against capital gains in future taxation years. The potential income tax benefit
of the capital losses has not been recognized in the financial statements.
(ii)
Riverland Ag
As at March 31, 2014, Riverland Ag has accumulated net operating losses in the amounts noted below in
USD, for federal and state income tax purposes. These net operating losses are being carried forward
and, unless utilized, will expire in the following taxation years:
Year of expiry
2031
2032
2033
2034
Federal
$11,251,698
6,772,840
7,764,470
13,225,377
$39,014,385
State
$14,327,160
6,772,840
7,764,470
13,225,377
$42,089,847
90
40
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
18.
INCOME TAXES (continued)
(c) Tax losses carried forward
(i)
Ceres
As at March 31, 2014, Ceres has accumulated non-capital losses in the amount of $38,047,399. The non-
capital losses are being carried forward and, unless utilized, will expire in the following taxation years:
Year of expiry
2028
2029
2030
2031
2032
2033
2034
Amount
$ 591,209
2,064
6,387,927
5,943,058
7,313,866
6,347,141
11,462,134
$38,047,399
As at March 31, 2014, Ceres has accumulated capital losses totaling $9,414,282, which are available
indefinitely to be applied against capital gains in future taxation years. The potential income tax benefit
of the capital losses has not been recognized in the financial statements.
(ii)
Riverland Ag
As at March 31, 2014, Riverland Ag has accumulated net operating losses in the amounts noted below in
USD, for federal and state income tax purposes. These net operating losses are being carried forward
and, unless utilized, will expire in the following taxation years:
Year of expiry
2031
2032
2033
2034
Federal
$11,251,698
6,772,840
7,764,470
13,225,377
$39,014,385
State
$14,327,160
6,772,840
7,764,470
13,225,377
$42,089,847
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
19. RELATED PARTY TRANSACTIONS
(a) Management fees and other fees
Terms and conditions pertinent to management fees and other fees, and the amounts charged to operations
related thereto, have been reported in Note 17(a) (Management fees and other expenses – management
fees and other fees).
(b) Key management personnel
The Corporation has defined key management personnel as senior executive officers, as well as the
members of the Board of Directors, as they collectively have the authority and responsibility for planning,
directing and controlling the activities of the Corporation and its subsidiaries. The following table
summarizes total compensation expense for key management personnel for the years ended March 31,
2014 and 2013.
Salaries, senior executive officers
Benefits, senior executive officers
Directors' fees
20. EMPLOYEE BENEFIT PLAN
2014
2013
$
1,188,149
34,859
445,551
$
735,956
63,947
157,750
$
1,668,559
$
957,653
On January 1, 2009, Riverland Ag established a qualified 401(k) profit-sharing plan in the United States
of America that covers all of its employees reaching 21 years of age and who have completed two months
of service. Riverland Ag employees are permitted to make voluntary contributions under a 401(k)
arrangement and Riverland Ag contributes a fully vested safe harbor non-elective matching contribution
of 3.00 percent of participants’ eligible wages. For the year ended March 31, 2014, Riverland Ag’s
contribution was $164,330 (2013: $177,600).
40
CERES GLOBAL AG CORP. ANNUAL REPORT
91
41
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
23. CONTINGENT LIABILITY
During the quarter ended March 31, 2014, Ceres terminated its arrangements and ongoing discussions
with a potential development partner with respect to the development and construction of a grain facility
at the Northgate Commodities Logistics Centre (“NCLC”). The termination of discussions with the
potential partner may have implications for any amounts to be collected from the potential partner and
amounts previously paid to Ceres by the potential partner in respect to its portion of NCLC site
preparation costs under the Cost-Sharing Agreement. The recovery and/or reimbursement of such
amounts, if any, will be subject to negotiations with the potential partner.
On June 12, 2014, the potential partner initiated an action against the Corporation for injunctive relief and
unspecified damages relating to the development and construction of a grain facility at the Corporation’s
NCLC. At the preparation of these consolidated financial statements, the Corporation is reviewing the
compliant and intends to vigorously defend against this action.
24. SUBSEQUENT EVENT
On May 23, 2014, the Corporation, through Riverland Ag, closed the sale of Manitowoc grain storage
facility. The gross proceeds from the sale were USD$6.2 million. At March 31, 2014, the net book value
relating to Manitowoc was been written down to an amount equal to the gross proceeds from the sale, as
a result, there is no impact on the Statement of Comprehensive Loss. Pursuant to the purchase and sales
agreement, Riverland Ag will lease back from the purchaser one million bushels of storage capacity at the
Manitowoc grain facility for a three-year term.
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
21. CHANGES IN NON-CASH WORKING CAPITAL ACCOUNTS
Decrease (increase) in due from Broker, commodity futures contracts
Increase in net derivative assets
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
Increase in GST - HST recoverable
Decrease in prepaid expenses and sundry assets
Increase in accounts payable and accrued liabilities
Decrease in management fees payable
Increase in provision for future payment to Front Street Capital
(Decrease) increase in due to Manager
2014
2013
$
7,980,680
(458,109)
7,262,978
62,834,829
(1,528,175)
97,116
2,390,223
(250,763)
970,000
(268,565)
$ 79,030,214
$
(9,297,603)
(626,030)
(3,365,006)
(2,951,302)
-
716,601
2,018,801
(16,460)
-
213,565
$ (13,307,434)
22. MANAGEMENT OF CAPITAL
Ceres considers financial instruments in the form of Common Shares and Warrants (net of share issue
costs) to represent capital. In managing this capital, the objectives of the Corporation are:
to safeguard the Corporation’s ability to continue as a going concern, be flexible and take
advantage of business opportunities that are connected to its core business;
to provide an appropriate return to shareholders and other stakeholders;
to use active management strategies related to its development of its core business, which are
intended to enhance the returns of the Corporation and concurrently minimize risk and reduce the
risk of loss of capital, through global exposure to agricultural assets involved in the supply and
demand chains of the agricultural sector and sector-influenced industries;
Riverland Ag, the operating subsidiary of Ceres, has capital requirements imposed by its lenders. As at
March 31, 2014, Riverland Ag is required to comply with the following primary financial covenants and
ratios concerning the revolving credit facility (Note 12, Bank indebtedness), including the maintenance
of:
(a)
the ratio of “consolidated debt” to “consolidated tangible net worth” (as defined by the
agreement) of not more than 4.0 to 1.0;
(b) consolidated working capital of not less than USD$30 million; and
(c) consolidated tangible net worth of not less than USD$90 million.
As at March 31, 2014 and 2013, Riverland Ag complies with the debt covenants for the revolving credit
facility.
92
42
43
CERES GLOBAL AG CORP.
Notes to the Consolidated Financial Statements
March 31, 2014 and 2013
23. CONTINGENT LIABILITY
During the quarter ended March 31, 2014, Ceres terminated its arrangements and ongoing discussions
with a potential development partner with respect to the development and construction of a grain facility
at the Northgate Commodities Logistics Centre (“NCLC”). The termination of discussions with the
potential partner may have implications for any amounts to be collected from the potential partner and
amounts previously paid to Ceres by the potential partner in respect to its portion of NCLC site
preparation costs under the Cost-Sharing Agreement. The recovery and/or reimbursement of such
amounts, if any, will be subject to negotiations with the potential partner.
On June 12, 2014, the potential partner initiated an action against the Corporation for injunctive relief and
unspecified damages relating to the development and construction of a grain facility at the Corporation’s
NCLC. At the preparation of these consolidated financial statements, the Corporation is reviewing the
compliant and intends to vigorously defend against this action.
24. SUBSEQUENT EVENT
On May 23, 2014, the Corporation, through Riverland Ag, closed the sale of Manitowoc grain storage
facility. The gross proceeds from the sale were USD$6.2 million. At March 31, 2014, the net book value
relating to Manitowoc was been written down to an amount equal to the gross proceeds from the sale, as
a result, there is no impact on the Statement of Comprehensive Loss. Pursuant to the purchase and sales
agreement, Riverland Ag will lease back from the purchaser one million bushels of storage capacity at the
Manitowoc grain facility for a three-year term.
CERES GLOBAL AG CORP. ANNUAL REPORT
93
43
Ceres Global Ag Corp
1920 Yonge Street Suite 200
Toronto, Ontario
Canada M4S 3E2
ceresglobalagcorp.com
Management
Pat Bracken
President & CEO
Amy Stephenson
CFO
Kevin Cao
Controller
Directors
Harvey T. Joel
Jacob P. Mercer
Gary W. Mize
Douglas E. Speers
James T. Vanasek
Harold M. Wolkin
CERES GLOBAL AG CORP. ANNUAL REPORT
13