Growth International Annual Report 2010

← All annual reports

FY2010 Annual Report · Growth International

Loading PDF…

ANNUAL REPORT 10/11
BUILDING ON A SOLID FOUNDATION

From Left to Right:

Bill Lambert
B oard of Directors Chairman and Director

Bill Maslechko
Governance Committee Chairman and Director

Gary Anderson
President, Chief Executive Officer and Director

Steve Sommerfeld
CA, Chief Financial Officer

John R. Brodie
FCA, Audit Committee Chairman and Director

David White
CA, Director

Ag Growth International
1301 Kenaston Blvd.
Winnipeg, MB R3P 2P2
Telephone: 204.489.1855
Fax: 204.488.6929
www.aggrowth.com

Investor Relations: Steve Sommerfeld
Telephone: 204.489.1855
Email: steve@aggrowth.com

Auditors: Ernst & Young LLP (Winnipeg)
Transfer Agent: Computershare Investor Services Inc.

Shares Listed: Toronto Stock Exchange
Stock Symbol: AFN

Ag Growth IPO: May 18, 2004 (Founded 1996)

Batco Manufacturing, Acquired: 1997 (Founded 1992)

Wheatheart Manufacturing, Acquired: 1998 (Founded 1973)

Westfield Industries, Acquired: 2000 (Founded 1950)

Edwards Group, Acquired: 2005 (Founded 1964)

Hi Roller Conveyors, Acquired: 2006 (Founded 1982)

Twister Pipe Ltd., Acquired: 2007 (Founded 1976)

Union Iron, Inc., Acquired: 2007 (Founded 1852)

Applegate Steel Inc., Acquired: 2008 (Founded 1955)

Mepu Oy, Acquired: 2010 (Founded 1952)

Franklin Enterprises, Acquired: 2010 (Founded 1979)

Tramco Inc., Acquired: 2010 (Founded 1967)

CEO
MESSAGE

On behalf of our Board of Directors, Management and Staff, we are pleased to present our 2010 Annual Report. Going
into 2010 our overall goals were to sustain the significant growth we had achieved in 2009 and to lay the groundwork
for the next stage of development in 2011 and beyond. On both counts we can claim success.

Our adjusted EBITDA is directly in line with 2009 despite significant
challenges. In 2009 we had enjoyed a record and very drawn out harvest
season in North America, as well as a stronger US dollar. In 2010 we had to
back fill for a somewhat smaller US harvest, one that came off much quicker
than 2009. We also experienced a market decline in Western Canada due to

unprecedented flooding, primarily in Saskatchewan. And of course we had to
back fill yet again for a strengthening CDN dollar. The offsets came largely
from our Commercial Divisions which benefited from growth internationally as
well as from strong domestic demand. Our long term strategies of catalogue
expansion and geographic diversification have certainly paid off.

SALES HISTORY

)
s
n
o

i
l
l
i

m
n
i
(
s
r
a

l
l

o
D
n
a
d
a
n
a
C

280

260

240

220

200

180

160

140

120

100

’04

’05

’06

’07

’08

’09

’10

Divisions owned at IPO

Divisions acquired after IPO

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

In 2010 we added some significant building blocks to our business:

1. TWISTER GREEnfIELD ExpAnSIOn

For years we have recognized the importance of larger storage bins as a
catalyst for new market development in emerging countries. After years
of looking for the right acquisition, we decided to take the organic route.
In rough terms we invested $20 million in plant and equipment. There
were multiple components to this project: new product design, new
plant construction, addition to the Nobleford plant, leaning up Lethbridge
production before moving, consolidation of Lethbridge and Nobleford
operations, procurement of all new production equipment, and development
of a human resource plan to manage the transition risk and downsizing of
the consolidated workforce, as well as the recruitment of new industry
experienced personnel. We accomplished all of this while delivering a record

year on the aeration side of the business and meeting our 2010 Division
EBITDA objective. Both building projects were successfully completed within
acceptable timelines and budget variances. Lean work cells were highly
successful. Transition to Nobleford has been virtually without employee
turnover. Recruitment of relevant expertise for the new bin plant has landed
several key individuals with extensive industry experience as well as third
party engineering firms specializing in the storage bin sector. And while the
production equipment will not be fully commissioned until early Q-2, the
end result will be well worth the wait. We expect detail work to continue
over the next few years as we move the operation to world class status.
In the meantime we would like to acknowledge the superb efforts of our
team in Nobleford for their exemplary execution of these initiatives. Well
done everyone.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

2. MEpu

On April 29th, 2010 we acquired Mepu, a Finnish manufacturer of mobile
and stationary grain dryers. The immediate impact on our bottom line has
been limited, primarily the result of last summer’s drought in Northern and
Eastern Europe. However, we remain optimistic about the strategic value of
the acquisition, both as a welcome addition to our AGI catalogue and as a
beachhead for market development in the region. We have made considerable
progress with our transition and integration plans to date, including the
establishment of interim warehousing facilities to house AGI product for
the region, and the development of a higher capacity mobile dryer to better
complement our AGI catalogue. We believe Mepu presents a strategic
opportunity to develop as an AGI regional business hub.

Location

founded

Acquired

Employees

facilities (sq. ft.)

Yläne and Pyhäranta, Finland

1952

April, 2010

79,000

products

Grain dryers, heaters, environmental

Acquisition price

CAD $11.9 million

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

3. fRAnkLI n

On October 1st, 2010 we acquired Franklin Enterprises of Winnipeg, Manitoba.
The acquisition improves our manufacturing capabilities and creates swing
plant opportunities in support of our other divisions. With considerable laser,
CNC and robotics capabilities, we expect this facility to provide a number
of intercompany manufacturing opportunities. On January 31st, 2011 we
announced plans to transfer fabrication and welding of our Wheatheart
livestock equipment to Franklin. This will allow us to limit Saskatoon
operations to assembly, warehousing and field support functions, thus
reducing overheads and minimizing our exposure to an often overheated
labour market.

Location

founded

Acquired

Winnipeg, MB, Canada

1979

October, 2010

Employees

117

facilities (sq. ft.)

100,000

products

Custom manufacturing

Acquisition price

CAD $9.2 million

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

4. TRAMcO

On December 20th, 2010 we acquired Tramco Inc. of Wichita Kansas, a highly
regarded manufacturer of robust handling equipment primarily used in the
food processing sector. Tramco provides us with an excellent platform for
entry into this sector of our industry. Just as importantly it adds considerable
strength to our international marketing prowess. Tramco’s brand reputation
rivals that of Hi Roller while their international contacts and global market
intelligence add considerable strength to our sales force.

Location

founded

Acquired

Kansas, USA and Hull, England

1967

December, 2010

Employees

Kansas – 112, England – 31

facilities (sq. ft.)

Kansas – 100,000, England – 21,000

products

Premier bulk material handling equipment primarily
for the grain and oilseed processing industry

Acquisition price

USD $20.7 million

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

Combined, these four strategic initiatives represent capital deployment
of nearly $60 million. With the exception of Tramco, the payback on the
investments will start off choppy as their full value is directly correlated to our
success in developing international markets. In 2010 we continued to place
a great deal of focus on developing these markets with a heavy emphasis on
Eastern Europe. The financial constraints that devastated emerging markets in
2009 showed only modest improvement during 2010.

Our biggest single success was the EFKO project in Russia, a two plus
kilometer long Hi Roller conveyor stretching out into the Black Sea. We
also generated further activity in Kazakhstan, where we sold Twister bins
complete with chef montage services. Considerable progress has been made
integrating Mepu into the International Sales catalogue and cross training AGI
and Mepu personnel. We are currently in the process of creating a beachhead
in Finland for the sales and service of our on-farm products. We will also
pursue further coordination of our commercial products business through
Tramco’s UK operations and Netherland sales office.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

In general, market trends remain favourable, execution of our strategies has
been effective and acquisitions have been disciplined. Several critical success
factors contribute to our competitive advantage. These include: the breadth
of our AGI catalogue, our specialized expertise/focused production at Division
levels, the breadth of our market geography, our production capacity in core
business units, multiple distribution channels, the strength of our balance
sheet and our entrepreneurial culture which we refuse to outgrow.

The global fundamentals that support our investments have been well
documented. They are also becoming more widely accepted and self evident
in the public markets. Two years after major food price related tensions
erupted in many parts of the world, supply and demand pressures are once
again among the principal root causes of geopolitical unrest in much of the
underdeveloped world. Food security is gaining greater prominence on the
world stage. There is an incredible need to improve the world’s food supply
chain and infrastructure. North America’s storage and handling practices offer
the best solutions. Financial constraints continue to challenge local players
in Emerging Markets. As multi-national players of the grain industry become
more vertically integrated and globally positioned, they will help drive the
infrastructure build. It is incumbent upon our International Sales team to
effectively penetrate the multiple entry points of these large corporations
to ensure that we take full advantage of our preferred status back in North
America. Subsidized interest rates in certain countries encourage support
of local manufacturing. North American competitors share our view of the
potential for a major global grain infrastructure build and are doing what they
can to participate. The end result is a very competitive landscape despite the
enormous potential size of market opportunities.

Meanwhile we can expect another record or near record US corn planting
this spring. Farms continue to consolidate, driving further demand for larger
equipment as well as technological improvements in a quest for optimal
efficiencies. In North America dealers also continue to consolidate. With
recent natural disasters in Australia affecting short term coke supply, steel
prices have spiked. At the time of this writing we anticipate prices should
normalize by the end of Q-2/early Q-3, but then again steel mills will try to
extend them for as long as possible.

All said, the tension between market opportunities and market constraints
will continue to drive our passion to create greater value for our customers
and in turn for our investors. Recently I had occasion to have dinner with a
business group from Ukraine. Our discussions were fueled by the excitement
of the potential for agriculture in their region, while at the same time
tempered by the economic realities of a still emerging market. When I asked
for a perspective on the timing of when economic conditions might improve,
one young man offered, “If not tomorrow, then maybe the day after.” It’s
a reminder that while we have to deliver results for today and build for
tomorrow, we should not lose sight of the real prize the day after tomorrow.
We will continue to hold our sights high.

We want to sincerely thank all of our investors for the support you have
shown us over the years and in particular these past few months as we adjust
to the loss of our dear friend and leader, Rob Stenson.

Sincerely,

Gary Anderson
President and CEO

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
1

“Our long-term
strategies of
catalogue expansion
and geographic
diversification have
certainly paid off.”

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

1
1

MANAGEMENT’S
DISCUSSION
AND ANALYSIS
March 14, 2011

Ag Growth International Inc. (“Ag Growth” or the “Company”) acquired its
predecessor, Ag Growth Income Fund (the “Fund”), on June 3, 2009 pursuant
to a statutory plan of arrangement under the Canada Business Corporations
Act. Pursuant to the arrangement, Ag Growth acquired all of the trust units
of the Fund in exchange for common shares of Ag Growth, and the Fund was
“converted” from an open-ended limited purpose trust to a publicly listed
corporation (the “Conversion”). See “Conversion to a Corporation”. Ag Growth
conducts business in the grain handling, storage and conditioning market.

This Management’s Discussion and Analysis (“MD&A”) should be read
in conjunction with the audited consolidated financial statements and
accompanying notes of Ag Growth for the year ended December 31, 2010.
Results are reported in Canadian dollars unless otherwise stated and have
been prepared in accordance with Canadian generally accepted accounting
principles. Throughout this MD&A references are made to “EBITDA”, “adjusted
EBITDA”, “gross margin”, “funds from operations” and “payout ratio”. A
description of these measures and their limitations are discussed below under
“Non-GAAP Measures”. See also “Risks and Uncertainties” in this MD&A
and in our most recently filed Annual Information Form, and “Forward-Looking
Statements” below.

Information in this MD&A reflects Ag Growth as a corporation on and
subsequent to June 3, 2009 and as the Fund prior thereto. All references
to “common shares” refer collectively to Ag Growth’s common shares on
and subsequent to June 3, 2009 and to the Fund’s trust units prior to the
Conversion. All references to “dividends” refer to dividends paid or payable
to holders of Ag Growth common shares on and subsequent to June 3, 2009
and to distributions paid or payable to Fund unitholders prior to Conversion. All
references to “shareholders” or “security holders” refer collectively to holders
of Ag Growth’s common shares on and subsequent to June 3, 2009 and to
Fund unitholders prior to the Conversion. References to the “Share Award
Incentive Plan” should be read as references to the “Unit Award Incentive
Plan” for all periods prior to the Conversion.

fORWARD-LOOkInG STATEMEnTS

This MD&A contains forward-looking statements that reflect our expectations
regarding the future growth, results of operations, performance, business
prospects, and opportunities of the Company. Forward-looking statements
may contain such words as “anticipate”, “believe”, “continue”, “could”,
“expects”, “intend”, “plans”, “will” or similar expressions suggesting future
conditions or events. In particular, the forward looking statements in this
MD&A include statements relating to the benefits of the Conversion, the
benefits of the acquisitions of Mepu Oy, Franklin Enterprises Ltd. and Tramco
Inc. (see “Acquisitions”), our business and strategy, including growth in sales
to developing markets, the impact of crop conditions in our market areas,
the impact of current economic conditions and macroeconomic trends on
the demand for our products, expectations regarding pricing for agricultural
commodities, our working capital and capital expenditure requirements,
capital resources and the payment of dividends. Such forward-looking
statements reflect our current beliefs and are based on information currently
available to us, including certain key expectations and assumptions concerning
anticipated financial performance, business prospects, strategies, product
pricing, regulatory developments, tax laws, the sufficiency of budgeted capital
expenditures in carrying out planned activities, foreign exchange rates and
the cost of materials, labour and services. Forward-looking statements involve
significant risks and uncertainties. A number of factors could cause actual
results to differ materially from results discussed in the forward-looking
statements, including changes in international, national and local business
conditions, crop yields, crop conditions, seasonality, industry cyclicality,
volatility of production costs, commodity prices, foreign exchange rates, and
competition. In addition, actual results may be materially impacted by the
pace of recovery from the recent global economic crisis, including the cost
and availability of capital. These risks and uncertainties are described under
“Risks and Uncertainties” in this MD&A and in our most recently filed Annual
Information Form. Although the forward-looking statements contained in
this MD&A are based on what we believe to be reasonable assumptions,
we cannot assure readers that actual results will be consistent with these
forward-looking statements and we undertake no obligation to update such
statements except as expressly required by law.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
1

OpERATInG RESuLTS

AcQuISITIOnS

Sales, EBITDA and Adjusted EBITDA for the year ended December 31, 2010
exceeded the record levels established in 2009 despite significant foreign
exchange headwinds. Continuing positive agricultural fundamentals in the U.S.
have resulted in strong demand for portable grain handling equipment and a
significant increase in sales of commercial equipment. Sales of commercial
grain handling equipment also increased internationally as strong agricultural
fundamentals were augmented by a large contract to deliver equipment to a
Russian port facility. Sales in Canada decreased compared to the prior year,
largely due to poor crop conditions that resulted from excessive moisture.

Sales for the year ended December 31, 2010 were $262.1 million (2009 –
$237.3 million). Excluding the results of companies acquired in 2010 (see
“Acquisitions”), sales were $247.5 million, a 4% increase over the record sales
in 2009. Sales in 2010 were negatively impacted by the stronger Canadian
dollar (see “Sales”). Had the foreign exchange rates experienced in 2009 been
in effect in 2010, sales in 2010, net of acquisitions, would have increased from
$247.5 million to $266.5 million, representing a significant increase of 12%
over the record sales of $237.3 million reported in 2009.

Gross margin as a percentage of sales for the year ended December 31, 2010,
excluding acquisitions, was 40% (2009 – 41%). Gross margin percentages in
2010 continued to benefit from manufacturing efficiencies realized through the
impact of lean manufacturing and the advantages of high production volumes.
Gross margin was negatively impacted by the stronger Canadian dollar and
the Company’s consolidated gross margin percentage decreased in part due to
changes in sales mix compared to the prior year.

Adjusted EBITDA (see “non-GAAP measures”) for the year ended December 31,
2010 was $59.5 million (2009 – $59.3 million). Results in 2010 were consistent
with management expectations as the Company was able to consolidate
the significant growth achieved in 2009. Adjusted EBITDA in 2010 benefited
from strong demand for commercial grain handling equipment and continued
operating efficiencies, partially offset by the negative impact of the stronger
Canadian dollar.

The inclusion of the assets, liabilities and operating results of the following
acquisitions significantly impacts comparisons to 2009.

Mepu Oy – Ag Growth acquired 100% of the outstanding shares of Mepu
Oy (“Mepu”), on April 29, 2010, for cash consideration of $11.3 million, plus
costs related to the acquisition of $0.6 million and the assumption of a
$1.0 million operating line. The acquisition was funded from cash on hand.
Mepu is a Finland based manufacturer of grain drying systems and other
agricultural equipment. The acquisition of Mepu provided the Company with
a complementary product line, distribution in a region where the company
previously had only limited representation and a corporate footprint near the
growth markets of Russia and Eastern Europe.

franklin Enterprises Ltd. – Effective October 1, 2010, the Company
acquired the assets of Franklin Enterprises Ltd., a custom manufacturer,
for cash consideration of $7.1 million, plus costs related to the acquisition
estimated to be $0.4 million and a working capital adjustment of $1.7 million.
The acquisition and related transaction costs were funded from cash on hand.
The Company acquired Franklin to enhance its manufacturing capabilities and
to increase production capacity in periods of high in-season demand.

Tramco Inc. – Ag Growth acquired 100% of the outstanding shares of
Tramco Inc. (“Tramco”), on December 20, 2010, for cash consideration of
$21.5 million, less a working capital adjustment of $1.4 million. Costs related
to the acquisition were $0.6 million. The acquisition was funded from cash on
hand. Tramco is a manufacturer of heavy duty chain conveyors and related
handling products, grain drying systems and other agricultural equipment.
Tramco is an industry leader with a premier brand name and strong market
share and as such provides the Company with an excellent entry point into a
new segment of the chain, the grain processing sector.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

1
3

OpERATInG RESuLTS

(thousands of dollars)

Sales

Cost of goods sold

Gross margin (1)

General and administration

Other expenses (2)

Stock based compensation

Accelerated vesting and death benefits (3)

Corporate conversion (4)

Gain on foreign exchange

Interest expense

Amortization

Earnings before tax

Current income taxes

Future income taxes

Net earnings for the period

Net earnings per share

Basic

Fully diluted

EBITDA (1)(6)

Adjusted EBITDA (1)(5)(6)

Year Ended December 31

2010

2009

$ 262,077

237,294

160,504

101,573

35,505

150

6,394

2,549

(8,428)

12,485

8,844

44,074

5,627

2,291

139,156

98,138

31,949

421

6,491

2,113

(1,403)

4,803

8,354

45,410

774

(667)

36,156

45,303

2.85

2.78

67,952

59,524

3.53

3.45

60,680

59,277

(1) See “non-GAAP Measures”.
(2) Research and development, capital taxes and other expense (income).
(3) Rob Stenson, Ag Growth’s founder and Chief Executive Officer, passed away on October 15, 2010. Upon his passing all previously unvested share based

compensation vested immediately and certain death benefits became payable to his estate.

(4) See “Conversion to a Corporation”.
(5) Excludes the loss (gain) on foreign exchange.
(6) Excludes Accelerated vesting and death benefits and Conversion costs.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

4
1

ASSETS AnD LIABILITIES

(thousands of dollars)

Total assets

Total liabilities

Dividends Declared

2010

391,563

$ 230,847

December 31

2009

387,850

211,051

The table below summarizes dividends and distributions declared to security
holders of Ag Growth and the Fund for the years ended December 31, 2010
and 2009. The Company’s dividend policy is described in the “Dividends”
section of this MD&A. The Company increased its annual dividend rate from
$2.04 per share to $2.40 per share in November 2010.

DIVIDEnDS

(thousands of dollars)

Trust units

Class B units (1)

Preferred shares

Common shares

Total

Year Ended December 31

2010

2009

10,726

116

26,854

15,465

26,854

26,316

(1) Prior to Conversion, there were 136,085 Class B Exchangeable units

outstanding in a subsidiary of the Fund that were exchangeable for Fund
Trust units at the option of the holder on a one-for-one basis at any time.

(2) See “Conversion to a Corporation”. The holder of the preferred shares
exercised the conversion option in 2009 and no preferred shares were
outstanding at December 31, 2009 and 2010.

Sales

Sales for the year ended December 31, 2010 were $262.1 million (2009 –
$237.3 million). Sales excluding acquisitions were $247.5 million, representing
an increase of 4% over the record sales levels reported in 2009.

A large proportion of Ag Growth’s sales are denominated in U.S. dollars and
as a result the rate of foreign exchange (“FX”) between the Canadian and U.S.
dollars is a significant factor when comparing financial results to the prior
year. The movement in the Company’s average FX rate to $1.04 in 2010 (2009 –
$1.15) resulted in lower sales for financial reporting purposes. To illustrate, in

2009 a $100,000 sale denominated in U.S. dollars would have been reported
as CAD $115,000, while the same sale would have been reported as CAD
$104,000 in 2010.

Had the foreign exchange rates experienced in 2009 been in effect in 2010,
reported sales in 2010, net of acquisitions, would have been approximately
$266.5 million, representing a significant increase of $29.2 million or 12% over
the record sales reported in 2009.

The increase in sales over 2009 was largely the result of the following:

• Sales to the U.S. market are denominated in U.S. dollars. In the year ended
December 31, 2010, sales in the U.S. (net of acquisitions) measured in
U.S. dollars increased 13% compared to 2009. The significant increase is
primarily the result of strong sales of commercial equipment as reduced
macro-economic concerns and positive agricultural fundamentals
stimulated demand. Sales of portable grain handling equipment decreased
compared to the prior year in part because the late and wet harvest that
benefited 2009 sales was not repeated in 2010. Management anticipates
demand in the U.S. will remain strong in 2011 due to positive agricultural
fundamentals including consecutive large harvests and higher than
historical commodity prices.

• Total international sales in 2010 were $38.5 million and excluding

acquisitions were $27.4 million (2009 – $16.5 million), representing an
increase of 66% over the prior year. Sales to developing markets in 2010
were $16.6 million (2009 – $3.6 million). The increase over 2009 is largely
due to a contract to supply equipment to a port facility on the Black Sea
and increased sales to Kazakhstan. Although sales to developing markets
remain constrained by unfavourable credit conditions, the Company
continues to strengthen its international sales team and remains very
positive with respect to the outlook for these markets.

• Canadian sales, net of acquisitions, decreased 8% from 2009 due largely
to the poor agricultural conditions in western Canada that were caused
by excessive moisture. The poor conditions experienced in 2010 have
resulted in higher than normal inventory levels in the Company’s Canadian
distribution network which is expected to negatively impact demand in the
first half of fiscal 2011. Canadian sales represented 22% and 26% of the
Company’s total sales in 2010 and 2009, respectively.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

1
5

Gross Margin

Gross margin as a percentage of sales for the year ended December 31, 2010
was 39% (2009 – 41%). The decrease compared to 2009 is primarily the result
of the following:

• A stronger Canadian dollar negatively impacts the Company’s gross margin
percentage. Had the foreign exchange rates experienced in 2009 been
in effect in 2010, the Company’s gross margin percentage would have
increased to approximately 40%.

• Ag Growth made three acquisitions in 2010 and as expected the gross
margin percentages at the newly acquired divisions were lower than
Ag Growth’s historical consolidated percentage. The inclusion of
results from 2010 acquisitions resulted in a decrease to the Company’s
consolidated gross margin of approximately 0.7%.

• The Company’s consolidated gross margin percentage decreased from

2009 in part due to the sales mix amongst Ag Growth’s divisions compared
to the prior year.

• The negative impact of foreign exchange and sales mix was partially offset
by the continued benefits of high throughput and production efficiencies
that resulted from the implementation of lean manufacturing practices at
several of the Company’s divisions.

• Material input costs did not significantly impact the gross margin
percentage compared to 2009. The costs of steel and other inputs
increased significantly in the fourth quarter of 2010 and have continued
to increase in 2011. Accordingly, the increased costs may impact gross
margin percentages in 2011.

Gain on foreign Exchange

The Company’s gain on foreign exchange is primarily related to gains on its
foreign exchange contracts. In the year ended December 31, 2010, the gain on
these contracts was approximately $7.0 million (2009 – loss of $3.9 million).
The 2010 gains increased due to more favourable contract rates compared to
2009, and because the Canadian dollar was stronger at the date of maturity of
the 2010 contracts.

For financial statement reporting purposes, Ag Growth translates its U.S.
dollar denominated debt to Canadian dollars at the rate of exchange in
effect on the balance sheet date. The gain on translating U.S. dollar debt
into Canadian dollars for the year ended December 31, 2010 was $1.3 million
(2009 – $6.4 million).

The remainder of the gain on foreign exchange is primarily comprised of the
impact of translating U.S. dollar denominated working capital at Canadian
divisions to Canadian dollars at the balance sheet date, the impact of
translating self-sustaining U.S. based subsidiaries to Canadian dollars, and in
2009 an unrealized gain of $1.7 million on the Company’s call and put options
(see “Foreign exchange contracts”).

Expenses

Selling, general and administrative expenses for the year ended December 31,
2010 were $35.5 million or 13.5% of sales. Excluding acquisitions, selling,
general and administrative expenses were $33.4 million or 13.5% of sales
(2009 – $31.9 million and 13.4% of sales), representing an increase of
$1.5 million over 2009. The increase was primarily the result of the following:

• Salary expense increased $0.7 million due to wage adjustments,

performance based bonuses at certain divisions, and additions to the
Company’s management team.

• Sales and marketing expenses increased $0.6 million largely due to wage
adjustments, the expansion of the Company’s international sales team and
sales bonuses.

• Professional fees increased $0.4 million largely due to expenses related to
the Company’s conversion to International Financial Reporting Standards.

•

Insurance expense increased $0.3 million due to an increase in insured
values and increases in certain insurance coverage.

• Due to a stronger Canadian dollar expenses denominated in U.S. dollars
were translated to Canadian dollars at a lower rate. The impact of the
stronger Canadian dollar was to decrease these expenses by $1.1 million
compared to 2009.

• Commission expense decreased $0.5 million primarily as a result of a

change in sales mix compared to the prior year.

• A number of miscellaneous items with variances of $0.2 million or less

accounted for the remaining change.

Other significant items include the following:

• Calculation of the share award incentive plan (“SAIP”) expense is based
on the trading price of the Company’s common shares at the balance
sheet date and the vesting provisions of the SAIP. For the year ended
December 31, 2010, Ag Growth recorded an expense related to the SAIP of
$2.7 million (2009 – $3.8 million).

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

6
1

• Ag Growth’s long-term incentive plan (“LTIP”) provides for annual awards
based on a predetermined formula. The awards are expensed over the
term of the participant’s service period and as a result the expense in 2010
includes a component related to the LTIP awards from fiscal years 2007
– 2010. For the year ended December 31, 2010, Ag Growth recorded an
expense related to the LTIP of $3.6 million (2009 – $2.7 million).

EBITDA and net Earnings (see discussion of non-GAAP measures)

Adjusted EBITDA for the year ended December 31, 2010 was $59.5 million
(2009 – $59.3 million). The increase over 2009 is largely due to strong
demand for commercial equipment offset by the negative impact of the
stronger Canadian dollar. EBITDA for the year ended December 31, 2010 was
$68.0 million (2009 – $60.7 million). The increase in EBITDA over 2009 was
more significant than the increase in Adjusted EBITDA due to an increase in
the Company’s gain on foreign exchange.

The Company’s bank indebtedness as at December 31, 2010 was $nil (2009
– $nil) and its outstanding long-term debt including the current portion was
$25.2 million (2009 – $26.2 million), comprised of USD $25.0 million aggregate
principal amount of non-amortizing secured notes that bear interest at 6.80%
and mature October 29, 2016, net of deferred financing costs of $0.6 million,
an equipment loan of $0.3 million bearing interest at 2% that was assumed
as part of the Mepu transaction and $0.1 million of 0% GMAC financing. The
Company is also party to a credit facility with three Canadian chartered banks
that includes CAD $10.0 million and USD $2.0 million available for working
capital purposes, and provides for non-amortizing long-term debt of up to CAD
$38.0 million and USD $20.5 million. The facilities bear interest at rates of
prime plus 0.50 % to prime plus 1.50% based on performance calculations and
matures on October 29, 2012. See “Financial Instruments”.

Obligations under capital lease of $0.6 million include a number of equipment
leases and a forklift lease with interest rates ranging from 5.3% to 7.2 %. The
lease end dates are in 2011 and 2012.

Interest expense for the year ended December 31, 2010 was $12.5 million
(2009 – $4.8 million). Interest expense has increased as the Company raised
$115 million pursuant to a debenture offering on October 27, 2009 to fund
organic growth and acquisition opportunities. As a result, interest expense
related to the debentures is included in 2009 results only for the period from
issuance until December 31, 2009, while the related expense in 2010 is for
the entire fiscal year. At December 31, 2010 the Company has outstanding
$115 million aggregate principal amount of convertible unsecured subordinated
debentures (2009 – $115 million). The Debentures bear interest at an annual
rate of 7.0% and mature December 31, 2014. See “Capital Resources”.

Amortization of capital assets for the year ended December 31, 2010 was
$5.4 million (2009 – $5.4) and the amortization of intangibles in the year then
ended was $3.4 million (2009 – $3.0 million).

For the year ended December 31, 2010, the Company recorded current tax
expense of $5.6 million (2009 – $0.8 million). Current tax expense relates
to certain subsidiary corporations of Ag Growth, including its U.S. and
Finnish based divisions. Ag Growth converted from an income trust to a
taxable corporation on June 3, 2009 (see “Conversion to a Corporation”).
As at December 31, 2010, Ag Growth had net Canadian future tax assets of
approximately $45.7 million, comprised of $56.2 million of future tax assets
available to offset the impact of Canadian taxable income on a go-forward
basis less $10.5 million of future tax liabilities related to temporary
differences between accounting and tax values. The Company also has a
future tax liability of approximately $7.0 million related to timing differences
with its foreign subsidiaries. For the year ended December 31, 2010, the
Company reduced its Canadian tax liability to zero through the utilization of
approximately $6.7 million of its future tax assets.

For the year ended December 31, 2010, the Company recorded future tax
expense of $2.3 million (2009 – recovery of $0.7 million). The future tax
expense in 2010 relates to the utilization of future tax assets, net of future
tax recoveries related to the decrease in the deferred credit, plus a decrease
in future tax liabilities that related to the application of corporate tax rates
to reversals of temporary differences between the accounting and tax
treatment of depreciable assets, intangibles, reserves, deferred compensation
plans and deferred financing fees. The future tax recoveries in 2009 related
to a decrease in the provincial SIFT tax factor, the Fund’s conversion to a
corporation, the treatment of the Fund’s long-term incentive plan and unit
award incentive plan, net of an expense derived primarily from the utilization
of future tax assets.

For the year ended December 31, 2010, the Company reported net earnings
of $36.2 million (2009 – $45.3 million), basic net earnings per share of $2.85
(2009 – $3.53), and fully diluted net earnings per share of $2.78 (2009 – $3.45).
The decrease in net earnings and earnings per share compared to the prior
year is primarily due to the impact of interest expense in 2010 and an income
tax recovery in 2009. Ag Growth’s interest expense increased in 2010 as it
raised $115 million pursuant to a debenture offering in October 2009 to fund
future organic growth and acquisition opportunities. Non-cash future tax
recoveries of $2.3 million were recorded in the first six months of 2009 related
to the conversion to a corporation and to a change in effective tax rates.
These tax recoveries were not expected to reoccur in 2010.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

1
7

SELEcTED AnnuAL InfORMATIOn

(thousands of dollars, other than per share data)

Sales

EBITDA (1)

Adjusted EBITDA (1)

Net income

Earnings per share – basic

Earnings per share – fully diluted

Funds from operations (1)

Payout ratio (1)

Dividends declared per share (2)

Fund trust units

Class B units

Common shares

Total assets

Total long-term liabilities

2010

$ 262,077

67,952

59,524

36,156

2.85

2.78

54,030

50%

n/A

2.07

391,563

171,989

Twelve Months Ended December 31

2009

237,294

60,680

59,277

45,303

3.53

3.45

52,165

51%

0.85

1.19

387,850

174,024

2008

199,341

34,562

40,951

21,212

1.64

38,554

69%

2.07

N/A

228,464

65,216

(1) See “non-GAAP Measures”.
(2) Effective June 3, 2009, the Company converted from an open-ended limited purpose trust to a publicly listed corporation (see “Conversion to a Corporation”).

Accordingly, Fund trust units and Class B units received distributions for the first five months of 2009, and common shareholders of the publicly listed
corporation received dividends thereafter.

The following factors impact comparability between years in the table above:

• Sales, gain (loss) on foreign exchange, net earnings, and net earnings per
share are significantly impacted by the rate of exchange between the
Canadian and U.S. dollars.

• On June 3, 2009, the Company converted from an income trust to a

corporation. In conjunction with the conversion transaction all Trust Units
and Class B units of the Fund were exchanged for common shares of the
corporation (see “Conversion to a Corporation”).

• Total assets and long-term liabilities were impacted by financing activities
in 2009 as the Company issued $115 million face value of convertible
debentures, repaid its long-term debt, and issued new long-term debt.

• The inclusion of the assets, liabilities and operating results of the following

acquisitions significantly impacts comparisons in the table above:

• January 15, 2008 – Applegate
• April 29, 2010 – Mepu
• October 1, 2010 – Franklin
• December 20, 2010 – Tramco

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

8
1

QuARTERLY fInAncIAL InfORMATIOn

(thousands of dollars)

fiscal 2010

fiscal 2009

2010

Average Rate of fx

Sales

Gain (Loss) on fx

net Earnings (Loss)

1.05

1.03

1.05

1.02

1.04

51,639

72,358

83,112

54,968

2,180

779

2,961

2,508

6,425

12,443

15,410

1,878

262,077

8,428

36,156

Average Rate of fx

Sales

Gain (Loss) on fx

net Earnings (Loss)

2009

1.25

1.18

1.11

1.07

1.15

55,289

66,840

68,316

46,849

(2,028)

1,722

2,228

(519)

1,403

10,127

16,431

15,126

3,619

237,294

45,303

Diluted Earnings
per Share

0.48

0.90

1.13

0.15

2.78

Diluted Earnings
per Share

0.79

1.27

1.16

0.27

3.45

Interim period revenues and earnings historically reflect some seasonality.
The third quarter is typically the strongest primarily due to the timing of
construction of commercial projects and high in-season demand at the farm
level. Due to the seasonality of Ag Growth’s working capital movements, cash
provided by operations will typically be highest in the fourth quarter.

The following factors impact the comparison between periods in the
table above:

• Sales, gain (loss) on foreign exchange, net earnings, and net earnings per
share in all periods are significantly impacted by the rate of exchange
between the Canadian and U.S. dollars.

• Net earnings and earnings per share in the first and second quarters of
2009 benefited from non-recurring future income tax recoveries related
to Ag Growth’s conversion to a corporation and a change in effective
tax rates.

• Net earnings and earnings per share subsequent to October 27, 2009 are
impacted by interest expense related to the Debentures (see “Capital
Resources”).

• The acquisitions of Mepu and Tramco will have a minor effect on

seasonality as sales and EBITDA at these companies has historically been
weighted to the second and third quarters.

fOuRTH QuARTER

Sales and EBITDA in the fourth quarter of 2010 exceeded the record levels
achieved in 2009 as strong commercial grain handling sales and an increase in
sales of aeration equipment in Canada were partially offset by a decrease in
portable grain handling sales and the negative impact of foreign exchange.

Sales

Sales for the three months ended December 31, 2010 were $55.0 million (2009
– $46.8 million). Excluding acquisitions, sales in the fourth quarter of 2010
were $49.0 million, an increase of $2.2 million or 5% over 2009.

Compared to 2009, sales in the fourth quarter of 2010 were negatively
impacted by the stronger Canadian dollar. Had the foreign exchange rates
experienced in 2009 been in effect in 2010, reported sales in 2010, net of
acquisitions, would have been approximately $50.8 million, representing an
increase of $4.0 million or 9% over 2009.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

1
9

The increase in sales over the fourth quarter of 2009 is largely the result of
the following:

• Sales of commercial grain handling equipment increased significantly in

the fourth quarterly due largely to a contract to supply equipment to a port
facility on the Black Sea.

• Sales of portable grain handling equipment decreased compared to the

prior year as the late and wet harvest that benefited 2009 sales in the U.S.
was not repeated in 2010, and due to the negative impact of excessive
moisture in western Canada.

• Sales of aeration equipment in western Canada increased as demand

rose in response to a very late harvest that resulted from the excessive
moisture received earlier in the year.

Gross Margin

Gross margin as a percentage of sales for the three months ended
December 31, 2010 was 37%, and excluding acquisitions the gross margin in
the fourth quarter of 2010 was 39% (2009 – 39%). Gross margin percentages
in the fourth quarter of 2010 benefited from manufacturing efficiencies
realized through the impact of lean manufacturing and the advantages of high
production volumes, partially offset by the negative impact of the stronger
Canadian dollar.

Expenses

For the three months ended December 31, 2010, selling, general and
administrative expenses were $9.4 million or 17.1% of sales. Excluding
acquisitions, selling, general and administrative expenses were $8.2 million or
16.7% of sales (2009 – $7.6 million or 16.2%). The increase of $0.6 million over
2009 was primarily the result of the following:

• Commission expense increased $0.3 million compared to 2009 due to

sales mix.

• A number of miscellaneous items with variances of $0.2 million or less

accounted for the remaining change.

Other significant items include the following:

• Calculation of the SAIP expense is based on the trading price of the

Company’s common shares at the balance sheet date and the vesting
provisions of the plan. For the three months ended December 31, 2010,
Ag Growth recorded an expense related to the SAIP of $1.1 million
(2009 – $0.7 million).

• The LTIP awards are expensed over the term of the participant’s vesting
period and as a result the expense in 2010 also includes a component
related to awards from 2007, 2008 and 2009. For the three months ended
December 31, 2010, Ag Growth recorded an expense related to the LTIP of
$0.6 million (2009 – $0.6 million).

• Ag Growth recorded a gain on foreign exchange of $2.5 million in the
fourth quarter of 2010, compared to a loss of $0.5 million in the same
period in 2009. The 2010 gains increased due to more favourable contract
rates compared to 2009, and because the Canadian dollar was stronger at
the date of maturity of the 2010 contracts.

Adjusted EBITDA for the three months ended December 31, 2010 was
$9.4 million (2009 – $9.2 million). The increase is due primarily to increased
sales of commercial grain handling equipment and aeration equipment.
EBITDA for the three months ended December 31, 2010 was $12.0 million,
compared to $8.7 million in 2009. The increase in EBITDA is the result of
increased sales and a significant increase in the gain on foreign exchange.

For the three months ended December 31, 2010, the Company reported net
earnings of $1.9 million (2009 – $3.6 million), basic net earnings per share of
$0.15 (2009 – $0.28), and fully diluted net earnings per share of $0.15
(2009 – $0.27).

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
2

cASH fLOW AnD LIQuIDITY

The table below reconciles net earnings to cash provided by operations for the years ended December 31, 2010 and 2009:

(thousands of dollars)

Net earnings for the period

Add charges (deduct credits) to operations not requiring a current cash payment:

Amortization

Future income taxes

Translation loss (gain) on foreign exchange

Non-cash interest expense

Non-cash accelerated vesting and death benefits

Stock based compensation

Gain on sale of property, plant &equipment

Net change in non-cash working capital balances related to operations:

Accounts receivable

Inventory

Prepaid expenses and other assets

Accounts payable and accruals

Customer deposits

LTIP

Income taxes receivable

Cash provided by operations

Year Ended December 31

2010

2009

36,156

45,303

8,844

2,291

(1,129)

2,274

1,703

6,394

(307)

8,354

(667)

(8,029)

778

6,491

56,226

52,230

(7,979)

(2,516)

(5,373)

2,667

(2,866)

(64)

652

310

3,900

(671)

2,141

(3,775)

(20)

275

40,747

54,390

For the year ended December 31, 2010, cash provided by operations was
$40.7 million (2009 – $54.4 million). The decrease from 2009 is primarily
the result of extended accounts receivable terms offered by the Company,
primarily to offshore markets. The Company has accounts receivable
insurance for the majority of its offshore accounts receivable. Non-cash
working capital movements in 2011 are expected to approximate the patterns
experienced in 2009. Ag Growth’s working capital requirements in 2011 will
be impacted by sales demand as well as certain risk factors including foreign
exchange rates and fluctuations in input costs.

Working capital Requirements

Interim period working capital requirements typically reflect the seasonality
of the business. Ag Growth’s collections of accounts receivable are weighted
towards the third and fourth quarters. This collection pattern, combined
with historically high sales in the third quarter that result from seasonality,
typically lead to accounts receivable levels increasing throughout the year
and peaking in the third quarter. Inventory levels typically increase in the first
and second quarters and then begin to decline in the third or fourth quarter
as sales levels exceed production. As a result of these working capital

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

2
1

movements, historically, Ag Growth begins to draw on its operating lines in
the first or second quarter. The operating line balance typically peaks in the
second or third quarter and normally begins to decline later in the third quarter
as collections of accounts receivable increase. Ag Growth has typically fully
repaid its operating line balance by early in the fourth quarter.

Results in 2010 generally approximated historical patterns, however due to
proceeds received from its debenture offering (see “Convertible Debentures”)
the Company did not draw on its operating lines to the same extent as in
prior years. Results in 2011 are generally expected to approximate historical
patterns. Acquisitions completed in 2010 will have a minor effect on seasonal
working capital requirements in 2011 as sales and EBITDA at Mepu and
Tramco have historically been weighted to the second and third quarters.

capital Expenditures

Ag Growth had maintenance capital expenditures of $3.3 million in 2010,
representing 1.3% of sales (2009 – $2.2 million or 0.9% of sales). Maintenance
capital expenditures in 2010 relate primarily to purchases of manufacturing
equipment, trucks, trailers, and forklifts and were funded through cash
from operations. Maintenance capital expenditures in 2011 are expected
to approximate 2010 levels and are expected to be funded through cash
from operations.

Ag Growth defines maintenance capital expenditures as cash outlays required
to maintain plant and equipment at current operating capacity and efficiency
levels. Non-maintenance capital expenditures encompass other investments,
including cash outlays required to increase operating capacity or improve
operating efficiency. Ag Growth had non-maintenance capital expenditures
in the year ended December 31, 2010 of $21.7 million (2009 – $2.6 million).
As expected, non-maintenance capital expenditures in 2010 have increased
significantly over 2009 and have been largely financed from the proceeds
of the Company’s October 2009 debenture offering (See “Convertible
Debentures”). Non-maintenance capital expenditures in 2011, excluding
approximately $3.5 million to complete the storage bin capacity project as
discussed below, are expected to return to 2009 levels and are expected to
be financed through cash from operations. The following capital expenditures
were classified as non-maintenance in 2010:

i. Grain storage bin capacity – the Company invested $15.9 million towards
a grain storage bin manufacturing facility and automated storage bin
production equipment. The investment is expected to allow the Company
to capitalize on international sales opportunities and to increase sales in
North America. The total project cost is estimated at $19.4 million and the
project is expected to be completed late in the first quarter of 2011, with
production beginning early in the second quarter.

ii. Consolidation of Edwards’ production facilities – Edwards operates out
of facilities in Lethbridge, AB and Nobleford, AB. In 2010, the Company
invested approximately $1.5 million to expand the existing facility in
Nobleford and transfer production from Lethbridge to the newly expanded
plant. Consolidation of the facilities is expected to result in lower
operating costs. The project was completed in the fourth quarter of 2010.

iii. Westfield facility expansion – Throughout most of 2010 Westfield’s

primary facility in Rosenort, MB was supported by a leased facility in
Winnipeg, MB. In 2010 the Company expanded the Rosenort facility and
transferred production from Winnipeg to the main plant in Rosenort. The
investment is expected to lower operating costs, improve the coordination
of production activities and provide Westfield with increased space to
perform research and development. The project was completed in 2010
with a total investment of $2.9 million.

iv. Manufacturing equipment – the Company invested $1.3 million to upgrade
certain equipment to allow for increased capacity, primarily at Westfield
and Hi Roller.

cash Balance

For the year ended December 31, 2010, the Company’s cash balance decreased
$74.1 million (2009 – increased $104.7 million). The decrease in the cash
balance in 2010 was largely due to acquisitions, the Company’s normal course
issuer bid and large non-maintenance capital expenditures. The significant
increase in cash in 2009 was largely related to the Company’s October 2009
convertible debenture offering. At December 31, 2010, the Company had a
cash balance of $35.0 million (2009 – $109.1 million).

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
2

cOnTRAcTuAL OBLIGATIOnS

(thousands of dollars)

Total

Debentures

Long-term debt

Capital leases

Operating leases

Total obligations

115,000

25,204

570

1,082

2011

128

432

742

2012

127

138

220

485

2013

2014

2015+

159

115,000

24,865

115,033

24,877

141,856

1,302

Debentures relate to the aggregate principal amount of debentures issued by
the Company in October 2009 (see “Convertible Debentures”). Long-term debt
at December 31, 2010 is comprised of USD $25.0 million aggregate principal
amount of secured notes issued through a note purchase and private shelf
agreement, net of deferred financing costs, and a $0.3 million equipment
loan assumed as part of the Mepu transaction. The remaining long-term debt
relates to GMAC financed vehicle loans. Capital lease obligations relate to
a number of leases for equipment and a forklift. The operating leases relate
primarily to vehicle, equipment, warehousing, and facility leases and were
entered into in the normal course of business.

On October 29, 2009, the Company also entered a credit facility with
three Canadian chartered banks that includes CAD $10.0 million and
USD $2.0 million available for working capital purposes, and provides
for non-amortizing long-term debt of up to CAD $38.0 million and USD
$20.5 million. No amounts were drawn under these facilities as at
December 31, 2010. The facilities bear interest at rates of prime plus 0.50 %
to prime plus 1.50% based on performance calculations and matures on
October 29, 2012. Ag Growth is subject to certain financial covenants,
including a maximum leverage ratio and a minimum debt service ratio, and is
in compliance with all financial covenants.

As at March 14, 2011, the Company had outstanding commitments of
$2.0 million in relation to capital expenditures for building and equipment.

cApITAL RESOuRcES

cash

The Company had a cash balance of $35.0 million as at December 31, 2010
(2009 – $109.1 million). The Company’s cash balance at December 31, 2009
included the majority of the net proceeds received from an October 2009
debenture offering (see “Convertible Debentures”). The debenture proceeds
were largely deployed in fiscal 2010.

Long-term Debt

On October 29, 2009, the Company authorized the issue and sale of USD
$25.0 million aggregate principal amount of secured notes through a note
purchase and private shelf agreement. The notes are non-amortizing and bear
interest at 6.80% and mature October 29, 2016. The agreement also provides
for a possible future issuance and sale of notes of up to an additional USD
$75.0 million aggregate principal amount, with maturity dates no longer than
ten years from the date of issuance. Ag Growth is subject to certain financial
covenants, including a maximum leverage ratio and a minimum debt service
ratio. The Company is in compliance with all financial covenants.

For the year ended December 31, 2010, the Company’s effective interest rate
on its U.S. dollar term debt was 4.2% (2009 – 4.2%, and after consideration of
the effect of interest rate swaps was 4.5%). For the year ended December 31,
2010, Ag Growth’s effective interest rate on its Canadian dollar term debt was
3.4% (2009 – 3.4%). See “Financial Instruments”.

Obligation under capital Leases

In conjunction with the Franklin acquisition the Company assumed a number
of capital leases for manufacturing equipment and a forklift. The leases bear
interest at rates ranging from 5.2% to 7.2% and mature in 2011 and 2012.

convertible Debentures

On October 27, 2009, the Company issued $100 million aggregate principal
amount of convertible unsecured subordinated debentures (the “Debentures”)
at a price of $1,000 per Debenture. The Debentures bear interest at an annual
rate of 7.0% payable semi-annually on June 30 and December 31 in each
year, commencing June 30, 2010. The maturity date of the Debentures is
December 31, 2014.

Ag Growth granted the underwriters an over-allotment option to purchase
up to 15% of the principal amount of the Debentures on the same terms and
conditions as the offering of the Debentures. The underwriters exercised the

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

2
3

over-allotment option in full on November 6, 2009, resulting in the issuance of
an additional $15 million principal amount of Debentures.

Including the over-allotment option, the net proceeds of the offering, after
payment of the underwriters’ fee of $4.6 million and expenses of the offering
of $0.5 million, were approximately $109.9 million. The net proceeds of the
offering will be used by Ag Growth for general corporate purposes and were
used to repay existing indebtedness of approximately USD $37.6 million and
CAD $11.9 million under the Company’s credit facility. In 2010, the Company
used proceeds from the Debentures to fund the acquisitions of Mepu, Franklin
and Tramco (see “Acquisitions”) and to finance the expansion of the Company’s
storage bin product line (See “capital expenditures”).

Each Debenture is convertible into common shares of the Company at the
option of the holder at any time on the earlier of the maturity date and the
date of redemption of the Debenture, at a conversion price of $44.98 per
common share being a conversion rate of approximately 22.2321 common
shares per $1,000 principal amount of Debentures. A total of 2,556,692
common shares are reserved for issue on conversion of the Debentures.

The Debentures are not redeemable before December 31, 2012. On and after
December 31, 2012 and prior to December 31, 2013, the Debentures may be
redeemed, in whole or in part, at the option of the Company at a price equal
to their principal amount plus accrued and unpaid interest, provided that the

cOMMOn SHARES

volume weighted average trading price of the common shares during the
20 consecutive trading days ending on the fifth trading day preceding the
date on which the notice of redemption is given is not less than 125% of the
conversion price. On and after December 31, 2013, the Debentures may be
redeemed, in whole or in part, at the option of the Company at a price equal to
their principal amount plus accrued and unpaid interest.

On redemption or at maturity, the Company may, at its option, subject to
regulatory approval and provided that no event of default has occurred, elect
to satisfy its obligation to pay the principal amount of the Debentures, in
whole or in part, by issuing and delivering for each $100 due that number
of freely tradeable common shares obtained by dividing $100 by 95% of the
volume weighted average trading price of the common shares on the Toronto
Stock Exchange (“TSX”) for the 20 consecutive trading days ending on the
fifth trading day preceding the date fixed for redemption or the maturity date,
as the case may be. Any accrued and unpaid interest thereon will be paid in
cash. The Company may also elect, subject to any required regulatory approval
and provided that no event of default has occurred, to satisfy all or part of
its obligation to pay interest on the Debentures by delivering sufficient freely
tradeable common shares to satisfy its interest obligation.

Ag Growth’s convertible debentures trade on the TSX under the symbol
AFN.DB.

The following common shares were issued and outstanding and participated pro rata in dividends during the periods indicated:

Outstanding at December 31, 2008

Conversion (2)

Common shares issued upon Conversion (2)(3)

Conversion of redeemable preferred shares (3)

Outstanding at December 31, 2009

Normal course issuer bid

Share award incentive plan issuance

December 31, 2010 and March 14, 2011

# fund Trust units

# class B units (1)

# common Shares

12,618,915

(12,618,915)

136,085

(136,085)

12,755,000

182,588

140,452

13,078,040

(674,600)

140,000

12,543,440

(1) Prior to Conversion, there were 136,085 Class B Exchangeable units outstanding in a subsidiary of the Fund that were exchangeable for Fund Trust units at the

option of the holder on a one-for-one basis at any time.

(2) See “Conversion to a Corporation”.
(3) Pursuant to the Plan of Arrangement, consideration included 182,588 common shares and four million preferred shares that were convertible into 140,452

common shares.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

4
2

On December 10, 2009, Ag Growth commenced a normal course issuer bid
for up to 1,272,423 common shares, representing 10% of the Company’s
public float at that time. In the year ended December 31, 2010, the Company
purchased 674,600 common shares for $23.4 million under the normal course
issuer bid. The normal course issuer bid was terminated on December 9, 2010.

The Company has issued $115 million aggregate principal amount of
convertible unsecured subordinated debentures. Ag Growth has reserved
2,556,692 common shares for issuance upon conversion of the Debentures.
See “Convertible Debentures”.

Ag Growth has granted 220,000 share awards under its share award incentive
plan. Effective January 1, 2010, a total of 73,333 awards vested and the
equivalent number of common shares were issued to the participants.
On October 15, 2010, an additional 66,667 share awards vested and the
equivalent number of common shares were issued to the participant. Of
the remaining 80,000 share awards outstanding at December 31, 2010,
40,000 vested on January 1, 2011 however no common shares were issued
as the participants were compensated in cash rather than common shares.
40,000 share awards remain outstanding on March 14, 2011 and subject
to vesting and payment of the exercise price, are each exercisable for one
common share.

funDS fROM OpERATIOnS

The administrator of the LTIP has acquired 249,308 common shares to satisfy
its obligations with respect to awards under the LTIP for fiscal 2007, 2008
and 2009. These common shares are not cancelled but rather are held by
the administrator until such time as they vest to the LTIP participants. As at
December 31, 2010, a total of 105,418 common shares related to the LTIP had
vested to the participants.

A total of 13,983 deferred grants of common shares are outstanding under the
Company’s Director’s Deferred Compensation Plan.

Ag Growth’s common shares trade on the TSX under the symbol AFN.

DIVIDEnDS

Ag Growth declared dividends to security holders of $26.9 million for the year
ended December 31, 2010 (2009 – $26.3 million). Ag Growth’s policy is to
pay monthly dividends. The Company’s Board of Directors reviews financial
performance and other factors when assessing dividend levels. An adjustment
to dividend levels may be made at such time as the Board determines an
adjustment to be in the best interest of the Company and its shareholders.

Funds from operations, defined under “non-GAAP measures” is the equivalent of EBITDA less interest expense, current cash taxes and maintenance capital
expenditures, plus the non-cash component of interest expense and stock based compensation and adjusted for the translation gain or loss on foreign exchange.
The objective of presenting this measure is to provide a measure of free cash flow. The definition excludes changes in working capital as they are necessary to
drive organic growth and have historically been financed by the Company’s operating facility (See “Capital Resources”). Funds from operations should not be
construed as an alternative to cash flows from operating, investing, and financing activities as a measure of the Company’s liquidity and cash flows.

(thousands of dollars)

EBITDA

Stock based compensation

Non-cash interest expense

Translation loss (gain) on foreign exchange

Interest expense

Current income tax

Maintenance capital expenditures

Funds from operations (2)

Year ended December 31

2010

2009

67,952

60,680

6,394

2,274

(1,129)

(12,485)

(5,627)

(3,349)

6,491

778

(8,029)

(4,803)

(774)

(2,178)

54,030

52,165

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

2
5

Funds from operations can be reconciled to cash provided by operating activities as follows:

(thousands of dollars)

Year ended December 31

Cash provided by operating activities

Change in non-cash working capital

Cash portion of accelerated vesting and death benefits

Conversion costs

Maintenance capital expenditures

Gain on sale of assets

Funds from operations (2)

Shares outstanding (3)

Dividends declared per share

Funds from operations per share (2)

Payout ratio (2)

2010

40,747

15,479

846

(3,349)

307

54,030

12,963,549

2.07

4.17

50%

2009

54,390

(2,160)

2,113

(2,178)

52,165

12,997,415

2.04

4.01

51%

(1) See “EBITDA and Net Earnings”.
(2) See “non-GAAP Measures”.
(3) Fully diluted weighted average, excluding the potential dilution of the convertible debentures as the calculation includes the interest expense related to the

convertible debentures.

The following table displays total funds from operations and total dividends declared since Ag Growth’s 2004 initial public offering:

funDS fROM OpERATIOnS

(in thousands of dollars)

Period Ended December 31, 2004

Year Ended December 31, 2005

Year Ended December 31, 2006

Year Ended December 31, 2007

Year Ended December 31, 2008

Year Ended December 30, 2009

Year Ended December 30, 2010

Cumulative since inception

Generated

Dividends Declared (1)

payout Ratio

9,887

22,676

21,974

25,553

38,554

52,165

54,030

9,109

18,918

18,858

19,585

26,701

26,307

26,854

224,839

146,332

92%

83%

86%

77%

69%

50%

65%

(1) Includes special distributions of the Fund of $1,329 in 2004, $3,368 in 2005, and $3,061 in 2008. Excludes $9 dividend paid to holders of preferred shares

in 2009.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

6
2

Dividends in a fiscal year are typically funded entirely through cash from
operations, although due to seasonality dividends may be funded on a
short-term basis by the Company’s operating lines. Dividends in 2010 were
funded through cash from operations and the Company expects dividends in
2011 will be funded through cash from operations.

Ag Growth’s Board of Directors reviews financial performance and other
factors when assessing dividend levels. An adjustment to dividend levels may
be made at such time as the Board determines an adjustment to be in the
best interest of the Company and its shareholders. The Company increased its
dividend from $2.04 per annum to $2.40 per annum in November 2010.

OuTLOOk

The primary demand drivers for portable grain handling equipment are volume
of grains grown, storage practices and commodity prices, and management
believes these factors will continue to be supportive of high levels of
demand in 2011. In addition, higher than historic U.S. farm net income and
strong commodity prices are expected to encourage high levels of corn and
soybean planting in 2011. After a successful but relatively early 2010 harvest,
management believes inventory levels throughout the Company’s U.S.
distribution network approximate historical averages, but generally are higher
than the exceptionally low levels of early 2010 which resulted from the very
late harvest of 2009. As a result, compared to the prior year, sales of portable
grain handling equipment in the U.S. may return to more traditional seasonal
patterns with a heavier weighting of sales in the third quarter.

Crop production in western Canada in 2010 was negatively impacted by
unprecedented moisture and as a result Canadian sales of portable grain
handling, storage and conditioning equipment in 2010, net of acquisitions,
decreased 8% compared to 2009. The poor conditions experienced in 2010
are expected to negatively impact the first and second quarters of 2011 due
to higher than normal inventory levels in the Company’s Canadian distribution
network. Sales in Canada in 2009 and 2010 represented 26% and 22% of the
Company’s total sales, respectively.

North American sales of commercial equipment increased in 2010 as reduced
macro-economic concerns and positive agricultural fundamentals stimulated
demand. The Company’s order backlog remains strong and based on current
conditions management anticipates continued high levels of domestic demand
in 2011. International commercial sales increased significantly in 2010 largely
as a result of a contract to supply equipment to a port facility on the Black
Sea. The Company continues to strengthen its international sales team and
remains very positive with respect to the outlook for developing markets,
however sales in 2011 will in part be contingent on a number of macro-
economic factors, including the availability of credit in developing markets.

On April 29, 2010, the Company acquired Mepu, a manufacturer of portable
and stationary grain drying systems based in Ylane, Finland. Sales and EBITDA
at Mepu in 2010 were negatively impacted by poor crop conditions in its
regional market. In the three fiscal years prior to acquisition, sales at Mepu
averaged approximately 14 million Euros, which equates to CAD $18.6 million
based on the December 31, 2010 exchange rate of $1.3319. Sales and EBITDA
at Mepu have historically been heavily weighted towards the second and
third quarters.

On October 1, 2010, the Company acquired custom manufacturer Franklin
to enhance Ag Growth’s manufacturing capabilities and to increase
production capacity in periods of high in-season demand. Franklin’s existing
custom manufacturing business is expected to generate monthly sales of
approximately $1 million and to roughly break-even on an EBITDA basis.

On December 20, 2010, the Company acquired Tramco, a manufacturer of
heavy duty chain conveyors and related handling products. As a result of the
timing of the acquisition the operations of Tramco had an insignificant effect
on Ag Growth’s results in 2010. Sales at Tramco averaged approximately U.S.
$30 million in the two fiscal years prior to acquisition.

In 2010 the Company initiated a project to increase its storage bin production
capacity and expand the breadth of its storage bin product offering. The
project is nearing completion and the new storage bin line is expected to
commence production early in the second quarter. The investment is expected
to allow the Company to capitalize on international sales opportunities and to
increase domestic sales. The magnitude of incremental sales realized in 2011
may be impacted by a number of factors including the agricultural environment
in western Canada and the availability of credit in developing markets.

The Company’s consolidated gross margin percentage is expected to
decrease slightly compared to 2010, primarily as a result of the impact of 2010
acquisitions and sales mix amongst the Company’s divisions. In addition, gross
margin percentages may be pressured by the rising cost of steel and other
material inputs. Although the Company honours the pricing on existing sales
orders it has historically been able to ultimately pass through the impact of
rising input costs through sales price increases. The impact of rising steel
costs has been partially mitigated through the use of steel contracts and the
ability of the Company’s commercial divisions to quote on projects based on
current input costs.

Ag Growth’s financial results are impacted by the rate of exchange between
the Canadian and U.S. dollars. A stronger Canadian dollar negatively impacts
sales and gross margin percentages compared to prior periods. The Company’s
average rate of exchange in 2010 was $1.04 (2009 – $1.15). The Canadian

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

2
7

dollar has strengthened subsequent to year-end and accordingly, based on
prevailing exchange rates, may have a negative impact when comparing 2011
financial results to those reported in 2010. In addition, based on prevailing
exchange rates, the Company expects its gain on foreign exchange to
decrease compared to the prior year.

accounted for as a continuity of interests of the Fund since there was no
change of control and since Ag Growth continues to operate the business
of the Fund. Ag Growth did not retain the business previously carried on
by Benachee. Costs incurred with respect to the Conversion in 2009 were
$2.1 million.

On balance, management anticipates continued strong domestic demand
will be complemented by increased sales and EBITDA from newly acquired
divisions and the expansion of the Company’s storage bin product offering.
Management remains enthusiastic with respect to long-term growth in
developing markets however demand in 2011 may be impacted by a number of
macro-economic factors, including the availability of credit. Consistent with
prior years, demand in 2011, particularly in the second half, will be influenced
by crop conditions.

MAnAGEMEnT

Rob Stenson, Ag Growth’s founder and Chief Executive Officer, passed away
on October 15, 2010. Gary Anderson, President and COO, was appointed Chief
Executive Officer on December 12, 2010.

cOnVERSIOn TO A cORpORATIOn

The Fund’s decision to convert to a corporation arose from the federal
government’s October 31, 2006 announcement and subsequent legislation
(the “SIFT legislation”) to impose additional income taxes on publicly traded
income trusts, including the Fund, effective January 1, 2011. In addition,
in order to qualify under new legislation for a tax-free conversion, it was
necessary to convert to a corporation before the end of 2013. Management
and the Fund’s Board of Trustees had been proactively assessing several
options available to provide long-term stability of distributions for unitholders
while mitigating the impact of the trust taxation legislated by the Federal
Government in June 2007. As the tax enhancement value related to the
income trust structure diminished, it was determined that the benefits of an
early conversion to a corporation outweighed the value of remaining under the
trust structure.

The Conversion was completed pursuant to a Plan of Arrangement that
was approved at a special meeting (the “Special Meeting”) of the Fund’s
unitholders and holders of exchangeable limited partnership units of
AGX Holdings Limited Partnership held on June 3, 2009. Under the Plan
of Arrangement, the Fund’s unitholders received one common share of
Benachee Resources Inc. (“Benachee”) in exchange for each Fund unit
and/or exchangeable unit held, resulting in the Fund unitholders becoming
shareholders of Benachee. Benachee then changed its name to “Ag Growth
International Inc.” and the existing trustees and management of the Fund
became the board and management of Ag Growth. The Conversion was

Pursuant to the Plan of Arrangement, Ag Growth also issued consideration
in the form of $5.0 million cash, an additional 182,588 common shares, and
stated value $4.0 million redeemable preferred shares which were convertible
into 140,452 common shares. On October 15, 2009, the holder exercised the
conversion option on the redeemable preferred shares.

Complete details of the terms of the Plan of Arrangement are set out in
the Arrangement Agreement and the Management Information Circular
for the Special Meeting that have been filed by Ag Growth on SEDAR
(www.sedar.com).

cRITIcAL AccOunTInG ESTIMATES

The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the period. By their nature, these estimates are subject to
a degree of uncertainty and are based on historical experience and trends
in the industry. Management reviews these estimates on an ongoing basis.
While management has applied judgment based on assumptions believed
to be reasonable in the circumstances, actual results can vary from these
assumptions. It is possible that materially different results would be reported
using different assumptions.

Ag Growth believes the accounting policies that are critical to its business
relate to the use of estimates regarding the recoverability of accounts
receivable and the valuation of inventory, intangibles, goodwill, convertible
debentures and future income taxes. Ag Growth’s accounting policies are
described in Note 2 to the audited financial statements for the year ended
December 31, 2010.

Allowance for Doubtful Accounts

Due to the nature of Ag Growth’s business and the credit terms it provides
to its customers, estimates and judgments are inherent in the on-going
assessment of the recoverability of accounts receivable. Ag Growth
maintains an allowance for doubtful accounts to reflect expected credit
losses. A considerable amount of judgment is required to assess the ultimate
realization of accounts receivable and these judgments must be continuously

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

8
2

evaluated and updated. Ag Growth is not able to predict changes in the
financial conditions of its customers, and the Company’s judgment related to
the recoverability of accounts receivable may be materially impacted if the
financial condition of the Company’s customers deteriorates.

Valuation of Inventory

Assessments and judgments are inherent in the determination of the net
realizable value of inventories. The cost of inventories may not be fully
recoverable if they are slow moving, damaged, obsolete, or if the selling price
of the inventory is less than its cost. Ag Growth regularly reviews its inventory
quantities and reduces the cost attributed to inventory no longer deemed to
be fully recoverable. Judgment related to the determination of net realizable
value may be impacted by a number of factors including market conditions.

Goodwill and Intangible Assets

Assessments and judgments are inherent in the determination of the fair
value of goodwill and intangible assets. Goodwill and indefinite life intangible
assets are recorded at cost and finite life intangibles are recorded at cost
less accumulated amortization. Goodwill and intangible assets are tested for
impairment at least annually. Assessing goodwill and intangible assets for
impairment requires considerable judgment and is based in part on current
expectations regarding future performance. Changes in circumstances
including market conditions may materially impact the assessment of the fair
value of goodwill and intangible assets.

fInAncIAL InSTRuMEnTS

foreign exchange contracts

future Income Taxes

Future income taxes are calculated based on assumptions related to the future
interpretation of tax legislation, future income tax rates, and future operating
results, acquisitions and dispositions of assets and liabilities. Ag Growth
periodically reviews and adjusts its estimates and assumptions of income tax
assets and liabilities as circumstances warrant. A significant change in any of
the Company’s assumptions could materially affect Ag Growth’s estimate of
future tax assets and liabilities.

future Benefit of Tax-loss carryforwards

Ag Growth should only recognize the future benefit of tax-loss carryforwards
where it is more likely than not that sufficient future taxable income can be
generated in order to fully utilize such losses and deductions. We are required
to make significant estimates and assumptions regarding future revenues
and earnings, and our ability to implement certain tax planning strategies, in
order to assess the likelihood of utilizing such losses and deductions. These
estimates and assumptions are subject to significant uncertainty and if
changed could materially affect our assessment of the ability to fully realize
the benefit of the future income tax assets. Future tax asset balances would
be reduced and additional income tax expense recorded in the applicable
accounting period in the event that circumstances change and we, based on
revised estimates and assumptions, determined that it was no longer more
likely than not that those future tax assets would be fully realized.

Risk from foreign exchange arises as a result of variations in exchange rates between the Canadian and the U.S. dollar. Ag Growth has entered into foreign
exchange contracts with a Canadian chartered bank to partially hedge its foreign currency exposure on anticipated U.S. dollar sales transactions and the
collection of the related accounts receivable and as at December 31, 2010, had outstanding the following foreign exchange contracts:

Settlement Dates

January – November 2011

face Amount uSD (000s)

Average Rate cAD

cAD Amount (000s)

45,000

1.10

49,299

forward foreign Exchange contracts

At December 31, 2010, the fair value of the outstanding forward foreign
exchange contracts was a gain of $4.2 million. Consistent with prior periods,
the Company has elected to apply hedge accounting for these contracts and
the unrealized gain has been recognized in other comprehensive income for
the period ended December 31, 2010.

As at December 31, 2010, transaction and financing costs payable included
U.S. $10.0 million payable to the vendor of Tramco. To mitigate exposure
to fluctuating foreign exchange rates, the Company entered a foreign
exchange contract to buy $10.0 million U.S. dollars at a rate of $1.0012. As at
December 31, 2010, an unrealized loss of $66 was recorded on this contract
and the amount is included in the Company’s gain on foreign exchange.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

2
9

RISkS AnD uncERTAInTIES

foreign Exchange Risk

The risks and uncertainties described below are not the only risks and
uncertainties we face. Additional risks and uncertainties not currently known
to us or that we currently deem immaterial also may impair operations. If any
of the following risks actually occur, our business, results of operations and
financial condition, and the amount of cash available for dividends could be
materially adversely affected.

Industry cyclicality and General Economic conditions

The performance of the agricultural industry is cyclical, and to the extent
that the agricultural sector declines or experiences a downturn, this is likely
to have a negative impact on the grain handling, storage and conditioning
industry, and the business of Ag Growth. The agricultural sector has benefited
from the expansion of the ethanol industry, and to the extent the ethanol
industry declines or experiences a downturn, this is likely to have a negative
impact on the grain handling, storage and conditioning industry, and the
business of Ag Growth.

Future developments in the domestic and global economies may negatively
impact the demand for our products. Management cannot estimate the level
of growth or contraction of the economy as a whole or of the economy of any
particular region or market that we serve. Adverse changes in our financial
condition and results of operations may occur as a result of continuing
negative economic conditions, declines in stock markets, contraction of credit
availability or other factors affecting economic conditions generally.

Risk of Decreased crop Yields

Decreased crop yields due to poor weather conditions and other factors are
a significant risk affecting Ag Growth. Both reduced crop volumes and the
accompanying decline in farm incomes can negatively affect demand for grain
handling, storage and conditioning equipment.

potential Volatility of production costs

Various materials and components are purchased in connection with
Ag Growth’s manufacturing process, some or all of which may be subject to
wide price variation. Consistent with past and current practices within the
industry, Ag Growth seeks to manage its exposure to material and component
price volatility by planning and negotiating significant purchases on an annual
basis, and endeavours to pass through to customers, most, if not all, of the
price volatility. There can be no assurance that industry dynamics will allow
Ag Growth to continue to reduce its exposure to volatility of production costs
by passing through price increases to its customers.

Ag Growth generates a majority of its sales in U.S. dollars, but a materially
smaller proportion of its expenses are denominated in U.S. dollars. In
addition, Ag Growth may denominate its long-term borrowings in U.S. dollars.
Accordingly, fluctuations in the rate of exchange between the Canadian dollar
and the U.S. dollar may significantly impact the Company’s financial results.
Management has implemented a foreign currency hedging strategy and
has entered into a series of hedging arrangements to partially mitigate the
potential effect of fluctuating exchange rates. To the extent that Ag Growth
does not adequately hedge its foreign exchange risk, changes in the exchange
rate between the Canadian dollar and the U.S. dollar may have a material
adverse effect on Ag Growth’s results of operations, business, prospects and
financial condition.

Acquisition and Expansion Risk

Ag Growth may expand its operations by increasing the scope of operations
at existing facilities or by acquiring additional businesses, products or
technologies. There can be no assurance that the Company will be able to
identify, acquire, or profitably manage additional businesses, or successfully
integrate any acquired business, products, or technologies into the business,
or increase the scope of operations at existing facilities without substantial
expenses, delays or other operational or financial difficulties. The Company’s
ability to increase its scope of operations or acquire additional businesses
may be impacted by its cost of capital and access to credit. Acquisitions
and expansions may involve a number of special risks including diversion of
management’s attention, failure to retain key personnel, unanticipated events
or circumstances, and legal liabilities, some or all of which could have a
material adverse effect on Ag Growth’s performance. In addition, there can be
no assurance that an increase in the scope of operations at existing facilities
or that acquired businesses, products, or technologies will achieve anticipated
revenues and income. The failure of the Company to manage its acquisition
or expansion strategy successfully could have a material adverse effect on
Ag Growth’s results of operations and financial condition.

commodity prices, International Trade and political
uncertainty

Prices of commodities are influenced by a variety of unpredictable factors
that are beyond the control of Ag Growth, including weather, government
(Canadian, United States and other) farm programs and policies, and changes
in global demand or other economic factors. A decrease in commodity
prices could negatively impact the agricultural sector, and the business of

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
3

Ag Growth. New legislation or amendments to existing legislation, including
the Energy Independence and Security Act in the U.S., may ultimately impact
demand for the Company’s products. The world grain market is subject to
numerous risks and uncertainties, including risks and uncertainties related to
international trade and global political conditions.

competition

Ag Growth experiences competition in the markets in which it operates.
Certain of Ag Growth’s competitors may have greater financial and capital
resources than Ag Growth. Ag Growth could face increased competition from
newly formed or emerging entities, as well as from established entities that
choose to focus (or increase their existing focus) on Ag Growth’s primary
markets. As the grain handling, storage and conditioning equipment sector is
fragmented, there is also a risk that a larger, formidable competitor may be
created through a combination of one or more smaller competitors. Ag Growth
may also face potential competition from the emergence of new products
or technology.

Seasonality of Business

The seasonality of the demand for Ag Growth’s products results in lower
cash flow in the first three quarters of each calendar year and may impact
the ability of the Company to make cash dividends to Shareholders, or
the quantum of such dividends, if any. No assurance can be given that
Ag Growth’s credit facility will be sufficient to offset the seasonal variations
in Ag Growth’s cash flow.

Business Interruption

The operation of the manufacturing facilities of Ag Growth are subject to a
number of business interruption risks, including delays in obtaining production
materials, plant shutdowns, labour disruptions and weather conditions/
natural disasters. Ag Growth may suffer damages associated with such
events that it cannot insure against or which it may elect not to insure against
because of high premium costs or other reasons. For instance, Ag Growth’s
Rosenort facility is located in an area that was affected by widespread floods
experienced in Manitoba in 1997 and 2009, and insurance coverage for this
type of business interruption is limited. Ag Growth is not able to predict the
occurrence of business interruptions.

Litigation

In the ordinary course of its business, Ag Growth may be party to various
legal actions, the outcome of which cannot be predicted with certainty. One

category of potential legal actions is product liability claims. Farming is an
inherently dangerous occupation. Grain handling, storage and conditioning
equipment used on farms may result in product liability claims that require not
only proper insuring of risk, but management of the legal process as well.

Dependence on key personnel

Ag Growth’s future business, financial condition, and operating results depend
on the continued contributions of certain of Ag Growth’s executive officers
and other key management and personnel, certain of whom would be difficult
to replace.

Labour costs and Shortages and Labour Relations

The success of Ag Growth’s business depends on a large number of both
hourly and salaried employees. Changes in the general conditions of the
employment market could affect the ability of Ag Growth to hire or retain staff
at current wage levels. The occurrence of either of these events could have an
adverse effect on the Company’s results of operations. There is no assurance
that some or all of the employees of Ag Growth will not unionize in the future.
If successful, such an occurrence could increase labour costs and thereby have
an adverse affect on Ag Growth’s results of operations.

Distribution, Sales Representative and Supply contracts

Ag Growth typically does not enter into written agreements with its dealers,
distributors or suppliers. As a result, such parties may, without notice or
penalty, terminate their relationship with Ag Growth at any time. In addition,
even if such parties should decide to continue their relationship with
Ag Growth, there can be no guarantee that the consideration or other terms
of such contracts will continue on the same basis.

Availability of credit

Ag Growth’s credit facility expires October 29, 2012, and is renewable at the
option of the lenders. There can be no guarantee the Company will be able to
obtain alternate financing and no guarantee that future credit facilities will
have the same terms and conditions as the existing facility. This may have an
adverse effect on the Company, its ability to pay dividends and the market
value of its common shares. In addition, the business of the Company may
be adversely impacted in the event that the Company’s customer base does
not have access to sufficient financing. Sales related to the construction of
commercial grain handling facilities, sales to developing markets, and sales to
North American farmers may be impacted.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

3
1

Interest Rates

Income Tax Matters

Ag Growth’s term and operating credit facilities bear interest at rates that
are in part dependant on performance based financial ratios. The Company’s
cost of borrowing may be impacted to the extent that the ratio calculation
results in an increase in the performance based component of the interest
rate. To the extent that the Company has term and operating loans where the
fluctuations in the cost of borrowing are not mitigated by interest rate swaps,
the Company’s cost of borrowing may be impacted by fluctuations in market
interest rates.

uninsured and underinsured Losses

Ag Growth will use its discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on its assets and operations at a commercially reasonable
cost and on suitable terms. This may result in insurance coverage that, in
the event of a substantial loss, would not be sufficient to pay the full current
market value or current replacement cost of its assets or cover the cost of a
particular claim.

cash Dividends are not Guaranteed

Future dividend payments by Ag Growth and the level thereof is uncertain,
as Ag Growth’s dividend policy and the funds available for the payment of
dividends from time to time will be dependent upon, among other things,
operating cash flow generated by Ag Growth and its subsidiaries, financial
requirements for Ag Growth’s operations and the execution of its growth
strategy, fluctuations in working capital and the timing and amount of capital
expenditures, debt service requirements and other factors beyond the control
of Ag Growth.

Income tax provisions, including current and future income tax assets and
liabilities, and income tax filing positions require estimates and interpretations
of federal and provincial income tax rules and regulations, and judgments as
to their interpretation and application to Ag Growth’s specific situation. The
amount and timing of reversals of temporary differences will also depend on
Ag Growth’s future operating results, acquisitions and dispositions of assets
and liabilities. The business and operations of Ag Growth are complex and
Ag Growth has executed a number of significant financings, acquisitions,
reorganizations and business combinations over the course of its history
including the Conversion. The computation of income taxes payable as a result
of these transactions involves many complex factors as well as Ag Growth’s
interpretation of and compliance with relevant tax legislation and regulations.
While Ag Growth believes that its existing and proposed tax filing positions
are more likely than not to be sustained, there are a number of existing and
proposed tax filing positions including in respect of the Conversion that may
be the subject of review by taxation authorities. Therefore, it is possible
that additional taxes could be payable by Ag Growth and the ultimate value
of Ag Growth’s income tax assets and liabilities could change in the future
and that changes to these amounts could have a material effect on these
consolidated financial statements.

possible failure to Realize Anticipated Benefits of
the conversion

Achieving the anticipated benefits of the Conversion will depend in part on
Ag Growth’s ability to realize the anticipated growth opportunities from
reorganizing the Fund into a corporate structure. Management expects that
the corporate structure will allow Ag Growth to adopt similar policies with
respect to capital expenditures as were in place with the trust structure.
In addition, the Conversion is expected to simplify the operations of the
continuing entity. The realization of the anticipated benefits of the Conversion
will require the dedication of substantial management effort, time and
resources. There can be no assurance that management will be successful in
refocusing the continuing entity into a growth-oriented entity.

Ag Growth May Issue Additional common Shares Diluting
Existing Shareholders’ Interests

The Company is authorized to issue an unlimited number of common shares for
such consideration and on such terms and conditions as shall be established
by the Directors without the approval of any Shareholders, except as required
by the TSX. In addition, the Company may, at its option, satisfy its obligations
with respect to the interest payable on the Debentures and the repayment of
the face value of the Debentures through the issuance of common shares.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
3

Leverage, Restrictive covenants

The degree to which Ag Growth is leveraged could have important
consequences to the Shareholders, including: (i) the ability to obtain
additional financing for working capital, capital expenditures or acquisitions
in the future may be limited; (ii) a material portion of Ag Growth’s cash flow
from operations may need to be dedicated to payment of the principal of
and interest on indebtedness, thereby reducing funds available for future
operations and to pay dividends; (iii) certain of the borrowings under the
Company’s credit facility may be at variable rates of interest, which exposes
Ag Growth to the risk of increased interest rates; and (iv) Ag Growth may
be more vulnerable to economic downturns and be limited in its ability to
withstand competitive pressures. Ag Growth’s ability to make scheduled
payments of principal and interest on, or to refinance, its indebtedness will
depend on its future operating performance and cash flow, which are subject
to prevailing economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond its control.

The ability of Ag Growth to make dividends or make other payments or
advances will be subject to applicable laws and contractual restrictions
contained in the instruments governing its indebtedness, including the
Company’s credit facility and note purchase agreement. Ag Growth’s credit
facility and note purchase agreement contain restrictive covenants customary
for agreements of this nature, including covenants that limit the discretion
of management with respect to certain business matters. These covenants
place restrictions on, among other things, the ability of Ag Growth to incur
additional indebtedness, to pay dividends or make certain other payments
and to sell or otherwise dispose of material assets. In addition, the credit
facility and note purchase agreement contain a number of financial covenants
that will require Ag Growth to meet certain financial ratios and financial
tests. A failure to comply with these obligations could result in an event
of default which, if not cured or waived, could permit acceleration of the
relevant indebtedness and trigger financial penalties including a make-whole
provision in the note purchase agreement. If the indebtedness under the credit
facility and note purchase agreement were to be accelerated, there can be
no assurance that the assets of Ag Growth would be sufficient to repay in full
that indebtedness. There can also be no assurance that the credit facility or
any other credit facility will be able to be refinanced.

International Sales and Operations

A portion of Ag Growth’s sales are generated in overseas markets and
Ag Growth anticipates increasing its offshore sales and operations in
the future. Sales and operations outside of North America, particularly in
emerging markets, are subject to various risks, including: currency exchange

rate fluctuations; foreign economic conditions; trade barriers; competition
with domestic and international manufacturers and suppliers; exchange
controls; national and regional labour strikes; political risks and risks of
increases in duties; taxes and changes in tax laws; expropriation of property,
cancellation or modification of contract rights, unfavourable legal climate for
the collection of unpaid accounts; changes in laws and policies governing
operations of foreign-based companies, as well as risks of loss due to civil
strife and acts of war. There is no guarantee that one or more of these factors
will not materially adversely affect Ag Growth’s offshore sales and operations
in the future.

cHAnGES In AccOunTInG pOLIcIES AnD ESTIMATES

policies
EIc-175 “Revenue Arrangements with Multiple Deliverables”

In December 2009, the Canadian Institute of Chartered Accountants (“CICA”)
issued Emerging Issues Committee (“EIC”) 175 “Revenue Arrangements
with Multiple Deliverables”. EIC-175 is effective prospectively, for revenue
arrangements entered into or materially modified in fiscal years beginning on
or after January 1, 2011. Early adoption is also permitted and on January 1,
2010, the Company adopted EIC-175, which provides guidance on certain
aspects of the accounting for arrangements under which the Company will
perform multiple revenue-generating activities. Under the new guidance,
when vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method.

Estimates
foreign currency Translation

As at January 1, 2010, the Company determined that its foreign operations
Hansen Manufacturing Corp., Union Iron Works, Inc. and Applegate Livestock
Equipment, Inc. had more characteristics of self-sustaining foreign operations
than integrated foreign operations. Accordingly, the Company adopted the
current rate method of foreign currency translation for these self-sustaining
foreign operations. The Company has prospectively adopted the current rate
method of foreign currency translation in accordance with Section 1651 of
the CICA Handbook. The reporting currency of the foreign operations remains
as the Canadian dollar. Under the current rate method, assets and liabilities
are translated into Canadian dollars at the rate of exchange prevailing at the
balance sheet date and all income and expenses are translated at the monthly
rate of exchange. Unrealized foreign currency translation gains and losses
on the Company’s net investment in its self-sustaining foreign operations

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

3
3

are presented separately as a component of other comprehensive income.
As a result of the reclassification of foreign operations to self-sustaining, the
exchange amount attributable to the current rate translation of non-monetary
items as of the date of change is included as part of the foreign currency
translation component of accumulated other comprehensive income.

nEW AccOunTInG STAnDARDS

conversion to International financial Reporting Standards

In February 2008, the AcSB confirmed that IFRS will replace Canadian GAAP in
2011 for profit-oriented Canadian publicly accountable enterprises. Ag Growth
will be required to report its results in accordance with IFRS starting in 2011.
Under IFRS, the primary audience is capital markets and as a result there may
be significantly more disclosure required, particularly for quarterly reporting.
Further, while IFRS uses a conceptual framework similar to Canadian
GAAP, there may be significant differences in accounting policy that must
be addressed.

The Company formally commenced an IFRS conversion project in the third
quarter of 2008 and engaged the services of an external advisor with
IFRS expertise to work with management. Regular reporting is provided to
Ag Growth’s senior management and to the Audit Committee of the Board of
Directors. An assessment was initiated to examine the extent of the impact
that the conversion may have on financial reporting, business processes,
internal controls and information systems. The Company’s plan is directed
in particular at identifying the differences between IFRS and the Company’s
current accounting policies, as well as assessing the impact of various
accounting alternatives offered pursuant to IFRS.

Ag Growth expects that the adoption of IFRS will not have significant impact
on the Company’s operations or strategic decisions.

The adoption of IFRS on January 1, 2011 will require the restatement, for
comparative purposes, of the 2010 amounts reported by Ag Growth, including
the opening balance sheet as at January 1, 2010.

Since Ag Growth’s financial statements for the year ending December 31, 2011
must use the standards that are in effect on December 31, 2011, management
will continue to monitor new amendments to IFRS that may impact the
adoption of IFRS in 2011.

Management has not yet finalized the quantification of the impact on
Ag Growth’s 2010 financial statements. Ag Growth will draft IFRS compliant
financial statements and develop the corresponding accounting entries to
comply with the proposed IFRS accounting policies. The various accounting

policy choices and results remain subject to further review by management.
The IFRS implementation will continue into 2011 and will conclude with the
issuance of the first quarter financial statements of 2011. The draft IFRS
accounting policies and the IFRS 2010 comparative periods are still subject
to review by the Company’s external auditors and are therefore subjected
to change.

The following highlights a number of areas where IFRS differs from
Canadian GAAP:

first-Time Adoption of IfRS – IFRS 1 provides that when an entity
initially adopts IFRS it shall apply all of the standards retrospectively, and
the adjustments that arise from the retrospective conversion to IFRS from an
entity’s prior GAAP should be directly recognized in retained earnings. The
entity is required to explain the effects of the transition from its prior GAAP
by providing a reconciliation of its equity reported under the previous GAAP to
the equity balance in its opening statement of financial position under IFRS.
IFRS 1 also provides a number of optional exemptions to the full retrospective
application of IFRS on the opening statement of financial position. These
optional exemptions are intended to assist first-time adopters in restating
their opening statement of financial position in compliance with IFRS in a
cost effective manner. Ag Growth is currently considering the following
IFRS 1 exemptions:

•

IFRS 1 allows an entity to use fair value as deemed cost for all assets
under Property, Plant, & Equipment as well as intangible assets that meets
the recognition criteria under IAS 38 – Intangible Assets;

IFRS 1 permits the application of IFRS 3 on a prospective basis where an
entity can elect not to restate business combinations that occurred before
January 1, 2010; and

•

IFRS 1 provides an option to the entity to deem cumulative translation
difference on all foreign operations as zero at the date of the transition.

presentation of financial Statements – IFRS requires significantly more
extensive disclosure than existing Canadian GAAP. Disclosures under IFRS
generally contain more breadth and depth than those required under Canadian
GAAP and, therefore, will result in more extensive note references. Ag Growth
will continue to assess the level of presentation and disclosures required to its
consolidated financial statements.

Deferred Tax credit – Ag Growth recognized a deferred tax credit related
to acquired tax benefits in accordance with EIC 110 of Canadian GAAP as
a result of its conversion to a corporation in 2009. Deferred tax credits are

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

4
3

not generally recognized under IFRS as it is not consistent with the IFRS
conceptual framework. Management has determined an adjustment of
$47.9 million to remove the deferred credit and increase retained earnings on
the opening balance sheet (as at January 1, 2010).

Stock-based compensation – Ag Growth utilizes a number of stock-based
payment plans as part its overall compensation strategy. While there are
some similarities between IFRS and Canadian GAAP, there are a number of
valuation and disclosure differences that may have a financial statement
impact. The accounting treatments of its stock-based compensation plans
under IFRS are still subject to review by the Company’s external auditors and
are therefore subjected to change.

property, plant and Equipment – Assets under property, plant and
equipment can be measured using the historical cost model or the revaluation
model under IFRS while Canadian GAAP does not allow such revaluation
subsequent to the initial recognition. Ag Growth has determined that it will
continue to use the historical cost model to value assets under property, plant
and equipment.

Although both IFRS as well as Canadian GAAP require an entity to identify
the significant components of its assets under property, plant and equipment
in order for these components to be depreciated separately based on each
component’s useful life, the componentization concept under Canadian
GAAP has often not been applied to the same extent due to practicality and/
or materiality. The accounting treatments of the Company’s assets under
property, plant, and equipment are still subject to review by the Company’s
external auditors and are therefore subjected to change.

Business combination – Under IFRS 3R – Business Combinations, only
certain transaction costs directly related to debt or equity issuances are
eligible to be capitalized. All other transaction costs arising during a business
combination must be expensed as incurred as opposed to being capitalized
to the purchase price of the business combination as allowed under Canadian
GAAP. An exemption under IFRS 1 provides the entity with relief on the
restatement of business combinations prior to the transition date. Under
IFRS 3R – “Business Combinations”, the determination of the fair value of
share consideration differs from the determination under current Canadian
accounting standards. Any difference in the fair value calculation would
have a resulting impact on the carrying amount of net assets acquired and
any goodwill. Ag Growth plans to make the election under IFRS 1 in order
to be exempt from restating business combinations. Therefore there will
be no financial impact from the transaction costs that have been expensed

under Canadian GAAP prior to the transition date. However, Ag Growth
has also capitalized transaction costs under Canadian GAAP subsequent
to the transition date related to its three business acquisitions in 2010 (see
“Acquisitions”). The Company has determined that these transaction costs
(totalling $1.6 million) are required to be expensed under IFRS and therefore
adjustments will be made to reduce the net income reported in its 2010
Annual Financial Statements by $1.6 million.

provisions, contingent Liabilities and contingent Assets – IFRS
requires the recognition of a provision in instances where a liability is “more
likely than not” to exist, which can be dictated by the past and confirmed in
the future. As this is a lower threshold than GAAP, liabilities may increase as
provisions may be recorded earlier or where they may not have been recorded
at all. Ag Growth has continued to analyze the impact of this standard on its
financial statements and to date, has not identified any circumstances for
which a material impact is expected. Should any additional liabilities arise,
this would result in an increase in operating expenses, reducing net income.

Impairment of Assets – Canadian GAAP generally uses a two-step
approach to impairment testing: first comparing asset carrying values with
undiscounted future cash flows to determine whether impairment exists;
and then measuring any impairment by comparing asset carrying values with
discounted cash flows. IFRS uses a one-step approach for both testing and
measurement of impairment, with asset carrying values compared directly
with the higher of fair value less costs to sell and value in use (which uses
discounted future cash flows). This may potentially result in write downs
where the carrying value of assets were previously supported under Canadian
GAAP on an undiscounted cash flow basis, but could not be supported on a
discounted cash flow basis. Although Ag Growth currently does not anticipate
any write-down as a result of the adoption of IAS – 36 Impairment of Assets,
management will continue to assess whether or not impairment indicators are
present on a regular basis in order to determine whether an asset should be
tested for impairment based on criteria established in IAS 36.

The Company will continue to evaluate these and other key areas in the
coming quarters. Although most of the financial impact of the transition to
IFRS cannot be reasonably estimated at this time, there will likely be changes
in accounting policies and these may materially impact the Company’s
financial statements. The Company will continue to quantify the impact of any
potential changes, and will disclose its findings subsequent to the review of
its external auditors.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

3
5

DIScLOSuRE cOnTROLS AnD pROcEDuRES AnD InTERnAL
cOnTROL OVER fInAncIAL REpORTInG

Management is responsible for the design and operation of disclosure controls
and procedures and internal control over financial reporting and is required to
evaluate the effectiveness of these controls on an annual basis.

An effective system of disclosure controls and procedures and internal
control over financial reporting is highly dependent upon adequate policies
and procedures, human resources and information technology. All control
systems, no matter how well designed, have inherent limitations, including the
possibility of human error and the circumvention or overriding of the controls
or procedures. As a result, there is no certainty that our disclosure controls
and procedures or internal control over financial reporting will prevent all
errors or all fraud.

In addition, changes in business conditions or changes in the nature of the
Company’s operations may render existing controls inadequate or affect
the degree of compliance with policies and procedures. Accordingly, even
disclosure controls and procedures and internal control over financial reporting
determined to be effective can only provide reasonable assurance of achieving
their control objectives.

Disclosure controls and procedures

Disclosure controls and procedures are designed to: (a) provide reasonable
assurance that material information required to be disclosed by us is
accumulated and communicated to management to allow timely decisions
regarding required disclosure; and (b) ensure that information required to be
disclosed by us is recorded, processed, summarized, and reported within the
time periods specified in applicable securities legislation.

Except for the limitation on scope of design of disclosure controls and
procedures as noted below, our management, with the participation of the
Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures as of December 31,
2010. Based upon this evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and
procedures, as defined by National Instrument 52-109, Certification of
Disclosure in Issuers’ Annual and Interim Filings, are effective for the purposes
set out above.

Internal control over financial Reporting

Our management is responsible for designing, establishing and maintaining
an adequate system of internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes, in accordance with Canadian generally accepted
accounting principles (“Canadian GAAP”).

Except for the limitation on scope of the internal controls over financial
reporting as noted below, our management, with the participation of the Chief
Executive Officer and the Chief Financial Officer, has conducted an evaluation
of the effectiveness of our internal control over financial reporting using the
framework recommended by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) as at December 31, 2010. Based on that
evaluation, management concluded that our internal control over financial
reporting, as defined by National Instrument 52-109, Certification of Disclosure
in Issuers’ Annual and Interim Filings, is effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with Canadian GAAP.

changes in Internal control over financial Reporting

Under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, we have evaluated changes
in internal control over financial reporting that occurred during the fiscal
quarter ended December 31, 2010 and found no change that has materially
affected, or is reasonably likely to materially affect, internal control over
financial reporting.

The Company’s Board of Directors and Audit Committee reviewed and
approved the 2010 audited consolidated financial statements and this MD&A
prior to its release.

Limitation on scope of design

The Company acquired the shares of Mepu, the assets of Franklin and the
shares of Tramco in fiscal 2010 (see “Acquisitions”). Management has not fully
completed its review of internal controls over financial reporting for these
newly acquired operations. Since the acquisitions occurred within the 365
days of the reporting period, management has limited the scope of design,
and subsequent evaluation, of disclosure controls and procedures and internal
controls over financial reporting to exclude controls, policies and procedures of
the 2010 acquisitions, as permitted under Section 3.3 of National Instrument

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

6
3

52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings. For
the period covered by this MD&A, management has undertaken specific
procedures to satisfy itself with respect to the accuracy and completeness
of the acquired operations’ financial information. The following is the

summary financial information pertaining to the acquisitions that were
included in Ag Growth’s consolidated financial statements for the year ended
December 31, 2010:

(thousands of dollars)

Revenue

Net income

Current assets4

Non-current assets4

Current liabilities4

Non-current liabilities4

Mepu1

11,089

886

9,011

10,250

2,914

1,157

franklin2

Tramco3

3,261

(548)

2,909

8,335

1,660

136

184

(25)

8,497

22,839

4,769

4,210

1 Results from April 29, 2010 to December 31, 2010
2 Results from October 1, 2010 to December 31, 2010
3 Results from December 20, 2010 to December 31, 2010
4 Balance sheet as at December 31, 2010

nOn-GAAp MEASuRES

References to “EBITDA” are to earnings before interest, income taxes,
depreciation, amortization, accelerated vesting and death benefits and
Conversion costs. References to “Adjusted EBITDA” are to EBITDA before
the gain (loss) on foreign exchange. Management believes that, in addition
to net income or loss, EBITDA and Adjusted EBITDA are useful supplemental
measures in evaluating the Company’s performance. EBITDA and Adjusted
EBITDA are not financial measures recognized by GAAP and do not have
standardized meanings prescribed by GAAP. Management cautions investors
that EBITDA and Adjusted EBITDA should not replace net income or loss
as indicators of performance, or cash flows from operating, investing, and
financing activities as a measure of the Company’s liquidity and cash flows.
Ag Growth’s method of calculating EBITDA and Adjusted EBITDA may differ
from the methods used by other issuers.

References to “gross margin” are to sales less cost of goods sold.
Management believes that, in addition to net income or loss, gross margin
provides a useful supplemental measure in evaluating Ag Growth’s
performance. Gross margin is not a financial measure recognized by GAAP
and does not have a standardized meaning prescribed by GAAP. Management
cautions investors that gross margin should not replace net income or loss
as an indicator of performance, or cash flows from operating, investing, and
financing activities as a measure of the Company’s liquidity and cash flows.

Ag Growth’s method of calculating gross margin may differ from the methods
used by other issuers.

References to “funds from operations” are to cash flow from operating
activities before the net change in non-cash working capital balances related
to operations, less maintenance capital expenditures. Management believes
that, in addition to cash provided by (used in) operating activities, funds
from operations provide a useful supplemental measure in evaluating its
performance. Funds from operations is not a financial measure recognized
by GAAP and does not have a standardized meaning prescribed by GAAP.
The method of calculating funds from operations may differ from similar
computations as reported by similar entities. Management cautions investors
that funds from operations should not replace net income or loss as an
indicator of performance, or cash flows from operating, investing, and
financing activities as a measure of the Company’s liquidity and cash flows.

References to “payout ratio” are to dividends declared as a percentage of
funds from operations. Payout ratio is not a financial measure recognized by
GAAP and does not have a standardized meaning prescribed by GAAP. The
method of calculating the Company’s payout ratio may differ from similar
computations as reported by similar entities and, accordingly, may not be
comparable to the payout ratio as reported by such entities.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

3
7

ADDITIOnAL InfORMATIOn

Additional information relating to Ag Growth, including Ag Growth’s most
recent Annual Information Form, is available on SEDAR (www.sedar.com).

InVESTOR RELATIOnS

Steve Sommerfeld
1301 Kenaston Blvd., Winnipeg, MB R3P 2P2
Phone: (204) 489-1855
Email: steve@aggrowth.com

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

8
3

“In general, market
trends remain
favourable, execution
of our strategies has
been effective and
acquisitions have been
disciplined.”

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

3
9

FINANCIAL
STATEMENTS

InDEpEnDEnT AuDITORS’ REpORT
To the Shareholders of Ag Growth International Inc.

We have audited the accompanying consolidated financial statements of
Ag Growth International Inc., which comprise the consolidated balance
sheets as at December 31, 2010 and 2009 and the consolidated statements
of earnings and retained earnings (accumulated deficit), comprehensive
income, and cash flows for the years then ended, and 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 Canadian generally
accepted accounting principles, 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.

The procedures selected depend on the auditors’ 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,
the auditors 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.

Opinion

In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Ag Growth International Inc. as
at December 31, 2010 and 2009 and the results of its operations and its
cash flows for the years then ended in accordance with Canadian generally
accepted accounting principles.

An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the consolidated financial statements.

Winnipeg, Canada
March 11, 2011

Chartered Accountants

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
4

cOnSOLIDATED BALAncE SHEETS
(See Corporate Conversion – note 2)

ASSETS (notes 13 and 14)

current

Cash and cash equivalents

Cash held in trust (note 6)

Restricted cash (note 15)

Accounts receivable

Inventory (note 10)

Prepaid expenses and other assets (notes 6 and 35)

Income taxes recoverable

Derivative instruments (note 22)

Future income taxes (note 21)

Total current assets

Property, plant and equipment, net (note 11)

Goodwill (note 8)

Intangible assets, net (note 9)

Other investment (note 12)

Derivative instruments (note 22)

Future income taxes (note 21)

As at December 31

2010
$ (000s)

2009
$ (000s)

34,981

1,817

865

36,910

53,631

7,840

–

4,200

10,817

151,061

67,206

64,055

72,388

2,000

–

34,853

391,563

109,094

–

25,072

39,432

1,858

598

7,652

10,103

193,809

27,779

52,337

69,023

2,000

1,848

41,054

387,850

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

4
1

cOnSOLIDATED BALAncE SHEETS (continued)

LIABILITIES AnD SHAREHOLDERS’ EQuITY

current

Accounts payable and accrued liabilities (note 28)

Customer deposits

Dividends payable

Acquisition price, transaction and financing costs payable (notes 6 and 28)

Income taxes payable

Long-term incentive plan (note 24)

Current portion of deferred credit (note 21)

Current portion of long-term debt (note 14)

Current portion of obligations under capital leases (note 16)

Current portion of share award incentive plan (note 25)

Future income taxes (note 21)

Total current liabilities

Long-term debt (note 14)

Obligations under capital leases (note 16)

Convertible unsecured subordinated debentures (note 18)

Deferred credit (note 21)

Future income taxes (note 21)

Share award incentive plan (note 25)

Total liabilities

Commitments (note 27)

Shareholders’ equity (notes 17, 18 and 19)

Common shares (note 17)

Accumulated other comprehensive income (loss) (note 17)

Contributed surplus (note 17)

Retained earnings (accumulated deficit)

Total shareholders’ equity

See accompanying notes

On behalf of the Board of Directors:

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
4

As at December 31

2010
$ (000s)

2009
$ (000s)

24,565

6,573

2,509

11,994

1,870

8,302

128

432

2,003

426

58,858

24,518

138

105,140

34,018

6,602

1,573

230,847

151,376

(1,026)

11,121

(755)

160,716

391,563

13,930

8,340

2,224

1,028

–

2,184

9,305

–

37,027

25,403

–

103,107

38,601

1,047

5,866

211,051

157,279

5,590

8,653

5,277

176,799

387,850

Bill Lambert
Director

John R. Brodie, FCA
Director

cOnSOLIDATED STATEMEnTS Of EARnInGS AnD RETAInED EARnInGS (AccuMuLATED DEfIcIT)

(in $ 000s except per share amounts)

Years Ended December 31

Sales

Cost of goods sold

Gross margin

Expenses

Selling, general and administrative

Stock-based compensation (notes 24, 25 and 26)

Research and development

Other income

Gain on foreign exchange

Accelerated vesting and death benefits, net (note 35)

Corporate conversion (note 7)

Interest (note 31)

Amortization (note 31)

Earnings before income taxes

Provision for (recovery of) income taxes (note 21)

Current

Future

net earnings for the year

Retained earnings (accumulated deficit), beginning of year

Dividends to shareholders (note 34)

Common shares purchased in the market under normal course issuer bid (note 17)

Net earnings for the year

Retained earnings (accumulated deficit), end of year

net earnings per share – basic (note 32)

net earnings per share – diluted (note 32)

See accompanying notes

2010

262,077

160,504

101,573

35,505

6,394

1,444

(1,294)

(8,428)

2,549

–

12,485

8,844

57,499

44,074

5,627

2,291

7,918

36,156

5,277

(26,854)

(15,334)

36,156

(755)

$2.85

$2.78

2009

237,294

139,156

98,138

31,949

6,491

1,144

(723)

(1,403)

–

2,113

4,803

8,354

52,728

45,410

774

(667)

107

45,303

(13,710)

(26,316)

–

45,303

5,277

$3.53

$3.45

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

4
3

cOnSOLIDATED STATEMEnTS Of cOMpREHEnSIVE IncOME

Net earnings for the year

Other comprehensive income (loss)

Change in fair value of derivatives designated as cash flow hedges

Losses (gains) on derivatives designated as cash flow hedges recognized in net earnings in the current year

Unrealized loss on translation of self-sustaining operations

Income tax effect on items enumerated above

Other comprehensive income (loss) for the year

comprehensive income

See accompanying notes

Years Ended December 31

2010
$ (000s)

36,156

3,034

(6,692)

(3,972)

1,014

(6,616)

29,540

2009
$ (000s)

45,303

12,511

5,894

–

(2,255)

16,150

61,453

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

4
4

cOnSOLIDATED STATEMEnTS Of cASH fLOWS

Years Ended December 31

OpERATInG AcTIVITIES

Net earnings for the year

Add (deduct) items not affecting cash

Amortization

Future income taxes

Translation gain on foreign exchange

Non-cash component of interest expense

Non-cash component of accelerated vesting and death benefits

Stock-based compensation

Gain on sale of property, plant and equipment

Net change in non-cash working capital balances related to operations (note 33)

cash provided by operating activities

InVESTInG AcTIVITIES

Acquisition of property, plant and equipment

Acquisition of assets of Benachee Resources Inc. (note 7)

Acquisition of shares of Mepu Oy, net of cash acquired (note 6a)

Acquisition of assets of Franklin Enterprises Ltd. (note 6b)

Acquisition of shares of Tramco, Inc. (note 6c), net of cash acquired

Proceeds from sale of property, plant and equipment

Transaction and financing costs paid

cash used in investing activities

2010
$ (000s)

36,156

8,844

2,291

(1,129)

2,274

1,703

6,394

(307)

56,226

(15,479)

40,747

(25,021)

–

(12,952)

(9,212)

(10,910)

648

1,484

(55,963)

2009
$ (000s)

45,303

8,354

(667)

(8,029)

778

–

6,491

–

52,230

2,160

54,390

(4,771)

(5,000)

–

123

1,028

(8,620)

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

4
5

cOnSOLIDATED STATEMEnTS Of cASH fLOWS (continued)

Years Ended December 31

fInAncInG AcTIVITIES

Repayment of long-term debt

Repayment of obligations under capital leases

Dividends paid

Issuance of convertible unsecured subordinated debentures, net of issuance costs

Common share issuance costs

Issuance of long-term debt, net of expenses

Transfer to cash held in trust and restricted cash

Purchase of shares in the market under the long-term incentive plan

Purchase of shares in the market under the normal course issuer bid

cash provided by (used in) financing activities

net increase (decrease) in cash and cash equivalents during the year

Cash and cash equivalents, beginning of year

cash and cash equivalents, end of year

Supplemental cash flow information

Interest paid

Income taxes paid

See accompanying notes

2010
$ (000s)

(89)

(135)

(26,568)

–

(2,682)

(6,032)

(23,391)

(58,897)

(74,113)

109,094

34,981

11,694

5,063

2009
$ (000s)

(52,281)

–

(29,322)

109,936

(50)

30,936

–

(286)

–

58,933

104,703

4,391

109,094

2,813

353

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

6
4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 (in thousands of dollars, except where otherwise noted and per share data)

1. DEScRIpTIOn Of BuSInESS

3. SuMMARY Of SIGnIfIcAnT AccOunTInG pOLIcIES

Ag Growth International Inc. (“Ag Growth” or the “Company”) acquired all
of the trust units of its predecessor, Ag Growth Income Fund (the “Fund”)
in exchange for common shares of Ag Growth pursuant to an arrangement
completed under Section 192 of the Canada Business Corporations Act
effective June 3, 2009. Ag Growth subsequently reorganized its corporate
structure through a series of wind-ups and a corporate amalgamation (the
“Conversion”) (note 2). Ag Growth conducts business in the grain handling,
storage and conditioning market.

Included in these consolidated financial statements are the accounts of
Ag Growth and its predecessor, the Fund, (collectively hereinafter referred
to as “Ag Growth” or the “Company”) and all of its subsidiary limited
partnerships and incorporated companies.

2. cORpORATE cOnVERSIOn

The Conversion was completed pursuant to a Plan of Arrangement with,
among others, Ag Growth (then known as Benachee Resources Inc.
(“Benachee”) (note 7). As a result of the Conversion, holders of Fund trust
units and Class B exchangeable units of a subsidiary of the Fund received one
common share of Benachee in exchange for every unit held on the effective
date of the Conversion, and Benachee changed its name to Ag Growth
International Inc.

The Conversion was accounted for as a continuity of interests of the Fund
since there was no change of control and since Ag Growth continues to
operate the business of the Fund. These consolidated financial statements
reflect Ag Growth as a corporation on and subsequent to June 3, 2009 and
as Ag Growth Income Fund prior thereto. All references to “common shares”
refer collectively to Ag Growth’s common shares on and subsequent to June 3,
2009 and to Fund units prior to the Conversion. All references to “dividends”
refer to dividends paid or payable to holders of Ag Growth common shares on
and subsequent to June 3, 2009 and to distributions paid or payable to Fund
unitholders prior to the Conversion. All references to “shareholders” refer
collectively to holders of Ag Growth’s common shares on and subsequent to
June 3, 2009 and to Fund unitholders prior to the Conversion. References to
the “Share Award Incentive Plan” should be read as references to the “Unit
Award Incentive Plan” for all periods prior to the Conversion.

The significant accounting policies are summarized below:

principles of consolidation

The consolidated financial statements include the accounts of Ag Growth
and its wholly-owned subsidiaries, Ag Growth Industries Partnership,
AGX Holdings Inc., Ag Growth Holdings Corp., Westfield Distributing Ltd.,
Westfield Distributing (North Dakota) Inc., Hansen Manufacturing Corp.
(“Hansen”), Union Iron, Inc. (“Union Iron”), Applegate Trucking Inc., Applegate
Livestock Equipment, Inc. (“Applegate”), Tramco, Inc. (“Tramco”), Tramco
Europe Ltd., Euro-Tramco B.V., Ag Growth Suomi Oy and Mepu Oy (“Mepu”)
on consolidation. All material intercompany balances and transactions have
been eliminated.

As at December 31, 2009, as a result of an internal reorganization which
comprised of a series of wind-ups and a corporate amalgamation, the
consolidated balance sheets include the accounts of Ag Growth and
its wholly-owned subsidiaries AGX Holdings Inc., Ag Growth Industries
Partnership, Westfield Distributing (North Dakota) Inc., Hansen, Union Iron,
Applegate and Applegate Trucking Inc.

cash and cash Equivalents

Cash and cash equivalents consist of cash and highly liquid money market
funds and term deposits with maturities of less than three months.

Inventory

Inventory is comprised of raw materials and finished goods. Ag Growth values
inventory at the lower of cost and net realizable value. The cost of finished
goods includes direct costs and an allocation of fixed manufacturing overhead.
Cost is determined on a first-in, first-out basis. Net realizable value for finished
goods and raw materials is generally considered to be the selling price in
the ordinary course of business less the estimated costs of completion and
estimated costs to make the sale. A review of inventory is performed at each
quarter end to determine if a write-down or reversal of previously recorded
write-downs in carrying value is required. The write-down and/or reversal of
write-down is recorded in cost of goods sold as recognized.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

4
7

property, plant and Equipment

Property, plant and equipment are recorded at cost, net of accumulated
amortization. Amortization is provided over the estimated useful lives of the
assets on a declining balance basis using the following annual rates:

Buildings

Furniture and fixtures

Automotive equipment

Computer equipment

Manufacturing equipment

Equipment under capital leases

4% – 7%

20% – 25%

25% – 30%

30%

Leasehold improvements are amortized over the term of the lease.

Other Investment

The Company accounts for long-term investments where it has the ability
to exercise significant influence using the equity method of accounting. In
situations where the Company does not exercise significant influence over
a long-term investee that is not quoted for trading in an active market, the
investments are recorded at cost. In the event there is a loss in value that is
other than temporary in nature, the investment will be written down to its
estimated fair value and the Company will recognize a loss in its consolidated
statement of earnings.

Goodwill

Goodwill represents the amounts paid to acquire Ag Growth, the Edwards
Group, Applegate, Union Iron, Twister Pipe Ltd. Hansen, Mepu (note 6a),
Franklin Enterprises Ltd. (“Franklin”) (note 6b) and Tramco (note 6c) in excess
of the estimated fair value of the net identifiable assets acquired. Goodwill
is not subject to amortization. Goodwill is tested for impairment annually or
when an event or change in circumstances indicate the carrying value may not
be recoverable by comparing the estimated fair value of its reporting unit to
its carrying value. The carrying value of goodwill is written down to estimated
fair value if the carrying value of the reporting unit’s goodwill exceeds its
estimated fair value.

Intangible Assets

Intangible assets are comprised of brand names, which are considered to
have an indefinite life, distribution networks, which are being amortized over
8, 10 and 25 years on a straight-line basis, patents which are being amortized
over their remaining lives of eight years, inventory order backlog which is

being amortized over a period of six months and proprietary software which
is being amortized over eight years. Indefinite life intangible assets are tested
for impairment annually or when an event or change in circumstances indicate
the carrying value may not be recoverable by comparing their estimated
fair values to their carrying values. The carrying value of an indefinite life
intangible asset is written down to its estimated fair value if its carrying value
exceeds its estimated fair value.

Impairment of property, plant and Equipment and finite Life
Intangible Assets

Impairment of property, plant and equipment and finite life intangible assets is
assessed when an event or change in circumstances causes the carrying value
of the asset to exceed the total undiscounted cash flows expected from its
use and eventual disposition. The impairment loss is measured by deducting
the estimated fair value of the asset from its carrying value.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under
this method, current income taxes are recognized for the estimated income
taxes payable for the current year. Future income tax assets and liabilities are
recognized for temporary differences between the tax and accounting bases
of assets and liabilities as well as for the benefit of losses available to be
carried forward to future years for tax purposes that are more likely than not
to be realized. They are measured using enacted and substantively enacted
tax rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered in income.

In June 2007, the Government of Canada enacted new legislation imposing
additional income taxes upon publicly traded income trusts (specified
investment flow-through “SIFT” entities), including Ag Growth, effective
January 1, 2011. Prior to June 2007, Ag Growth estimated the future income
taxes on certain temporary differences between amounts recorded on its
consolidated balance sheets for book and tax purposes at a nil effective tax
rate. Under the legislation for periods prior to the Conversion, Ag Growth
estimated the effective tax rates on the post 2010 reversal of these temporary
differences to be 29.5% in 2011 and 28% thereafter. Temporary differences
reversing before 2011 will still give rise to nil future income taxes. Subsequent
to the Conversion, Ag Growth is no longer an income trust and, accordingly, is
required to estimate its future income taxes on the reversals of all temporary
differences, including those reversing before 2011. As a result, an additional
future income tax recovery of $1,598 (note 21) was recorded as of the
effective date of the Conversion.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

8
4

foreign currency Translation

Ag Growth follows the current rate method of accounting for the translation
of its self-sustaining foreign subsidiaries and foreign currency transactions.
Assets and liabilities denominated in foreign currencies are translated into
Canadian dollars at the exchange rates in effect at the consolidated balance
sheet dates. Revenue and expenses denominated in foreign currencies are
translated into Canadian dollars at the monthly rate of exchange. Unrealized
foreign currency translation, gains and losses on the Company’s net
investment in its self-sustaining foreign operations are presented separately
as a component of comprehensive income.

Revenue Recognition

Ag Growth recognizes revenue at the time product is shipped, free on board
shipping point, title passes and there is evidence a sales arrangement exists,
the sales price is fixed and determinable and collectibility is reasonably
assured. A provision is made at the time revenue is recognized for estimated
product returns and warranties based on historical experience. Customer
deposits are recorded as a current liability when cash is received from
the customer and recognized as revenue at the time product is shipped as
noted above.

Revenue Recognition for Arrangement with Multiple
Deliverables

The Company enters into revenue arrangements that may consist of
multiple deliverables of grain handling, storage and conditioning equipment,
installation advisory services, and commissioning services. Each deliverable
within a multiple deliverable revenue arrangement is accounted for as a
separate unit of accounting if both of the following criteria are met:

(a) the delivered item has value to the customer on a standalone basis, and

(b) if the arrangement includes a general right of return relative to the

delivered element, and delivery or performance of the undelivered item is
considered probable and substantially in the control of the Company.

For multiple delivery arrangements, the Company’s customers typically
purchase a combination of grain handling, storage and conditioning equipment.
In addition, the Company’s customers would normally request assistance on
equipment installation as well as commissioning. Since each piece of grain
handling, storage or conditioning equipment has a value to the customer on
a standalone basis, each piece of equipment is considered as a separate unit
of accounting. In addition, the Company’s customer would typically request
services related to installation advisory services as well as commissioning.

Since an external third party can also provide these services, each of these
services is also considered as a separate unit of accounting. The Company has
used external third parties to assist with these services. Revenue recognition
for sales of grain handling, storage and conditioning equipment under multiple
delivery arrangements is the same as other products as noted above. For
services such as equipment installation advisory and commissioning, revenue
is recognized when each service is completed in accordance with the terms
and conditions of the multiple delivery arrangement.

Research and Development

Research expenses are charged to earnings in the period they are incurred.
Development expenses are charged to earnings unless management believes
the costs meet generally accepted criteria for deferral and amortization.

Investment Tax credits

Federal and provincial investment tax credits are accounted for as a reduction
of the cost of the related assets or expenditures in the year in which the
credits are earned and when there is reasonable assurance that the credits
can be used to recover taxes.

Leases

Leases are classified as either capital or operating. Leases which transfer
substantially all the benefits and risks of ownership of the property to
Ag Growth are accounted for as capital leases. Obligations under capital
leases reflect the present value of future lease payments, discounted at the
appropriate interest rate. All other leases are accounted for as operating
leases whereby rental payments are expensed as incurred.

net Earnings per Share

Net earnings per share is based on the consolidated net earnings for the year
divided by the weighted average number of shares outstanding during the
year. Diluted earnings per share is computed in accordance with the treasury
stock method and based on the weighted average number of shares and
dilutive share equivalents.

Long-term Incentive plan

Under the terms of the long-term incentive plan (“LTIP”), as described
in note 24, Ag Growth establishes an amount to be allocated to eligible
participants based on 10% to 20% of distributable cash in excess of an
established threshold. The cost is charged against earnings over the service
period of the award. The liability is recorded over the service period of the
award and is reclassified to contributed surplus at such time the shares are

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

4
9

purchased. The LTIP provides for immediate vesting in the event of retirement,
death, termination without cause or in the event the participant becomes
disabled. When the award vests and shares are released, the contributed
surplus is credited to common shares.

Share Award Incentive plan

Ag Growth has a share award incentive plan (the “SAIP”) as described in
note 25. The SAIP will be recognized as a direct award of shares, resulting in
an expense to be charged against earnings over the period of time to which
the award vests. The SAIP provides for immediate vesting in the event of
retirement, death, termination without cause or in the event the participant
becomes disabled. The expense and related liability are based on the market
price of Ag Growth’s shares at the end of the year and, as such, could increase
or decrease from one period to the next in relation to the market price.

Directors’ Deferred compensation plan

As described in note 26, the Directors of Ag Growth participate in the
Directors’ Deferred Compensation Plan whereby they are required to receive
a minimum of 20% of their remuneration in the form of common shares that
vest over a period of three years. The cost is charged against earnings over
the period of time to which the award vests, and a corresponding amount
is recorded to contributed surplus. When the award vests and shares are
released, the related contributed surplus is credited to common shares.

• Accounts payable and accrued liabilities, dividends payable, and

acquisition price, transaction and financing costs payable are classified as
“other financial liabilities” and are measured at their fair value upon initial
measurement. Subsequent measurements are recorded at amortized cost
using the effective interest rate method.

• Long-term debt is classified as an “other financial liability” and is initially
measured at fair value. Subsequent measurements are recorded at
amortized cost using the effective interest rate method. Financing costs
are netted against the carrying value of the related debt and amortized to
interest expense using the effective interest rate method.

• Derivative financial instruments are measured at fair value, even when
they are part of a hedging relationship. All changes in fair value are
recorded in earnings unless cash flow hedge accounting is used, in which
case the effective portion of the changes in fair value is recorded in other
comprehensive income (loss) until the hedged item is settled, at which
time gains or losses are recorded in net earnings.

Transaction costs that are directly attributable to the acquisition or issue
of financial instruments that are classified as held-to-maturity, loans and
receivables, or other financial liabilities are included in the initial carrying
value of such instruments and amortized using the effective interest
rate method.

convertible unsecured Subordinated Debentures

The carrying value of convertible unsecured subordinated debentures is being
accreted to its maturity value through charges to income over the term of the
debentures based on the effective interest rate method.

Fair value is based on quoted market prices when available. However, when
financial instruments lack an available trading market, fair value is determined
using management’s estimates and is calculated using market factors with
similar characteristics and risk profiles.

financial Instruments, Hedges and comprehensive Income

Hedges

Recognition and Measurement

Ag Growth has made the following classifications:

• Cash and cash equivalents are classified as “assets held for trading” and
are measured at fair value. Gains and losses resulting from the periodic
revaluation are recorded in net earnings.

• Accounts receivable are classified as “loans and receivables” and
are recorded at fair value upon initial measurement. Subsequent
measurements are recorded at amortized cost using the effective interest
rate method.

Ag Growth elected to apply hedge accounting for certain of its foreign
exchange forward contracts and interest rate swaps. The foreign exchange
forward contracts and interest rate swaps are designated as cash flow
hedges. They are measured at fair value at the end of each period and
the effective portion of the gain or loss resulting from remeasurement is
recognized in other comprehensive income (loss) and ineffectiveness is
recognized in net earnings. Gains and losses on derivatives are reclassified
immediately to net earnings when the hedged item is sold or early terminated,
or the hedged anticipated transaction is probable of not occurring.
Accumulated gains or losses in other comprehensive income (loss) related
to the foreign exchange forward contracts and interest rate swaps are
subsequently recognized in net earnings when the hedged item affects net

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
5

earnings. When hedge accounting is discontinued, the accumulated gain or
loss in other comprehensive income (loss) is deferred and recognized when the
gain or loss on the item hedged is recognized, unless the hedged item is no
longer probable of occurring, then, the accumulated gain or loss is recognized
in current net earnings immediately.

comprehensive Income

Comprehensive income is comprised of net earnings and other comprehensive
income (loss). Other comprehensive income (loss) includes changes in the
fair value of derivative instruments designated as cash flow hedges, all
net of applicable income taxes, and unrealized loss on translation of self-
sustaining operations.

Employee Benefit plans

Ag Growth contributes to group retirement savings plans subject to maximum
limits per employee. Ag Growth accounts for such defined contributions as an
expense in the period in which the contributions are required to be made. The
expense recorded in 2010 was $1,102 (2009 – $1,038).

use of Estimates

The preparation of financial statements in accordance with Canadian generally
accepted accounting principles (“GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the consolidated balance sheet
dates and the reported amounts of revenue and expenses during the reporting
periods. Key areas where management has made complex or subjective
judgments, as a result of matters that are inherently uncertain, include among
others, the fair value of certain assets including indefinite life intangible
assets, goodwill, convertible unsecured subordinated debentures, assessment
of foreign exchange unit of measure, valuation of accounts receivable,
inventory, income taxes, derivatives, stock-based compensation, and the
estimated useful life of long-lived assets. By their nature, these estimates
are subject to measurement uncertainty and may impact the consolidated
financial statements of Ag Growth in future periods. Actual results could differ
from these estimates.

4. cHAnGES In AccOunTInG pOLIcIES AnD ESTIMATES

policies

EIc-175, “Revenue Arrangements with Multiple Deliverables”

In December 2009, the Canadian Institute of Chartered Accountants (“CICA”)
issued Emerging Issues Committee (“EIC”), 175 “Revenue Arrangements
with Multiple Deliverables”. EIC-175 is effective prospectively, for revenue

arrangements entered into or materially modified in fiscal years beginning on
or after January 1, 2011. Early adoption is also permitted and on January 1,
2010, the Company adopted EIC-175, which provides guidance on certain
aspects of the accounting for arrangements under which the Company will
perform multiple revenue-generating activities. Under the new guidance,
when vendor specific objective evidence or third party evidence for
deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The adoption of this
standard has had no material impact on the Company’s financial position or
results of operations.

Estimates

foreign currency Translation

As at January 1, 2010, the Company determined that its foreign operations
Hansen, Union Iron and Applegate had more characteristics of self-sustaining
foreign operations than integrated foreign operations. Accordingly, the
Company adopted the current rate method of foreign currency translation
for these self-sustaining foreign operations. The Company has prospectively
adopted the current rate method of foreign currency translation in accordance
with Section 1651 of the CICA Handbook. The reporting currency of the foreign
operations remains as the Canadian dollar. Under the current rate method,
assets and liabilities are translated into Canadian dollars at the rate of
exchange prevailing at the consolidated balance sheet date and all income and
expenses are translated at the monthly rate of exchange. Unrealized foreign
currency translation gains and losses on the Company’s net investment in its
self-sustaining foreign operations are presented separately as a component
of other comprehensive income (loss). As a result of the reclassification of
foreign operations to self-sustaining, the exchange amount attributable to
the current rate translation of non-monetary items as of the date of change is
included as part of the foreign currency translation component of accumulated
other comprehensive income (loss).

5. REcEnT AccOunTInG pROnOuncEMEnTS

In January 2009, the CICA issued the new Handbook Section 1582, “Business
Combinations” effective for fiscal years beginning on or after January 1, 2011.
Earlier adoption of Section 1582 is permitted. This pronouncement further
aligns Canadian GAAP with U.S. GAAP and International Financial Reporting
Standards (“IFRS”) and changes the accounting for business combinations in
a number of areas. It establishes principles and requirements governing how
an acquiring company recognizes and measures in its financial statements
identifiable assets acquired, liabilities assumed, any non-controlling interest

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

5
1

in the acquiree, and goodwill acquired. The section also establishes disclosure
requirements that will enable users of the acquiring company’s financial
statements to evaluate the nature and financial effects of its business
combinations. Ag Growth is considering the impact of the adoption of this
pronouncement on its consolidated financial statements in fiscal 2011 in
connection with its conversion to IFRS.

In January 2009, the CICA issued the new Handbook Section 1601,
“Consolidated Financial Statements”, and Section 1602, “Non-Controlling
Interests”, effective for fiscal years beginning on or after January 1,
2011. Earlier adoption of these recommendations is permitted. These
pronouncements further align Canadian GAAP with U.S. GAAP and
IFRS. Sections 1601 and 1602 change the accounting and reporting of
ownership interests in subsidiaries held by parties other than the parent.
Non-controlling interests are to be presented in the consolidated statements
of cash flows within equity but separate from the parent’s equity. The
amount of consolidated net income attributable to the parent and to
the non-controlling interest is to be clearly identified and presented on
the face of the consolidated statements of earnings. In addition, these
pronouncements establish standards for a change in a parent’s ownership
interest in a subsidiary and the valuation of retained non-controlling equity
investments when a subsidiary is deconsolidated. They also establish
reporting requirements for providing sufficient disclosures that clearly identify
and distinguish between the interests of the parent and the interests of the
non-controlling owners. Ag Growth is currently considering the impact of the
adoption of these pronouncements on its consolidated financial statements in
fiscal 2011 in connection with its conversion to IFRS.

6. AcQuISITIOnS

(a) Mepu Oy

Effective April 29, 2010, the Company acquired 100% of the outstanding
shares of Mepu, a manufacturer of grain drying systems, for cash
consideration of $11,917, which includes transaction costs of $643.

The acquisition has been accounted for by the purchase method with the
results of Mepu’s operations included in the Company’s net earnings from the
date of acquisition. The Company classified Mepu as a self-sustaining foreign
operation. The assets and liabilities of Mepu have been recorded in the
consolidated financial statements at their fair values as follows:

Accounts receivable

Inventory

Prepaid expenses and other

Future income tax asset

Property, plant and equipment

Intangible assets – distribution network

Intangible assets – brand name

Intangible assets – order backlog

Goodwill

Bank indebtedness

Long-term debt

Accounts payable and accrued liabilities

Customer deposits

Future income tax liability

1,208

4,465

396

330

4,084

1,562

743

363

4,257

(1,035)

(382)

(2,752)

(134)

(1,188)

11,917

During the year, the Company finalized the working capital adjustment and
the purchase price allocation, resulting in a decrease in property, plant and
equipment of $1,198, an increase in goodwill of $678, an increase in the
distribution network intangible of $192 and a decrease in future income tax
liability of $334 from the period previously reported. Goodwill at the time of
the transaction is not deductible for tax purposes.

As at December 31, 2010, the Company had cash held in trust of $572 relating
to the acquisition of Mepu.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
5

(b) franklin Enterprises Ltd.

Effective October 1, 2010, the Company acquired substantially all of the
operating assets of Franklin, a custom manufacturer, for cash consideration of
$9,212, which includes transaction costs of $356.

Accounts receivable

Inventory

Prepaid expenses and other

Future income tax asset

Property, plant and equipment

Intangible assets – distribution network

Intangible assets – brand name

Intangible assets – software

Intangible assets – order backlog

Goodwill

Accounts payable and accrued liabilities

Customer deposits

Income taxes payable

Future income tax liability

Consideration

Cash

Acquisition price payable

Transaction costs payable

Working capital adjustment receivable

The acquisition has been accounted for by the purchase method with the
results of Franklin’s operations included in the Company’s net earnings from
the date of acquisition. The assets and liabilities of Franklin have been
recorded in the consolidated financial statements at their estimated fair
values as follows:

Inventory

Prepaid expenses and other

Property, plant and equipment

Goodwill

Obligations under capital leases

Accounts payable and accrued liabilities

1,557

8,171

424

(707)

(241)

9,212

The allocation of the purchase price to acquired assets and liabilities is
preliminary, utilizing information available at the time the consolidated
financial statements were prepared and the final allocation of the purchase
price may change when more information becomes available.

As at December 31, 2010, the Company had cash held in trust of $250 relating
to the acquisition of Franklin.

Effective December 20, 2010, the Company acquired 100% of the outstanding
shares of Tramco, a manufacturer of chain conveyors, for cash consideration
of $20,679, which includes transaction costs of $570.

The acquisition has been accounted for by the purchase method with the
results of Tramco’s operations included in the Company’s net earnings from
the date of acquisition. The Company classified Tramco as a self-sustaining
foreign operation. The assets and liabilities of Tramco have been recorded in
the consolidated financial statements at their estimated fair values as follows:

2,591

5,613

208

340

8,495

1,701

2,361

1,118

315

8,020

(4,423)

(967)

(143)

(4,550)

20,679

10,910

10,941

231

(1,403)

20,679

The allocation of the purchase price to acquired assets and liabilities and
the calculation of the working capital adjustment are preliminary, utilizing
information available at the time the consolidated financial statements were
prepared. The final allocation of the purchase price and the working capital
adjustment may change when more information becomes available. Included
in prepaid expenses and other assets in the consolidated balance sheet as at
December 31, 2010, is $1,403 related to the working capital adjustment owing
from the vendor. Goodwill at the time of the transaction is not deductible for
tax purposes.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

5
3

At the request of the vendor, the purchase price was paid in two installments.
The second installment of $9,946 was paid on January 5, 2011 and as at
December 31, 2010 is included in acquisition price and transaction costs
payable. As at December 31, 2010, the Company had cash held in trust of $995
relating to the acquisition of Tramco.

7. pLAn Of ARRAnGEMEnT

The Conversion was completed effective June 3, 2009 pursuant to a Plan
of Arrangement with, among others, Benachee. As a result of the Plan of
Arrangement, holders of Fund trust units and Class B exchangeable units
of the Fund received one common share of Benachee in exchange for every
unit held on the effective date of the Conversion, and Benachee changed its
name to Ag Growth International Inc. Pursuant to the Plan of Arrangement,
consideration in the form of $5.0 million cash, 182,588 common shares at
an estimated fair value of $24.65 per share and par value $4.0 million of
redeemable preferred shares, convertible into 140,452 common shares,
was issued to the parent corporation of Benachee, a participant in the Plan
of Arrangement. Immediately prior to June 3, 2009, Benachee transferred
substantially all of its assets and all of its liabilities to a related company.
Ag Growth recorded its acquisition of Benachee as an acquisition of assets.

Total consideration is comprised of:

Cash

Common shares

Redeemable preferred shares (note 19)

Total consideration

8. GOODWILL

Balance, December 31, 2008 and 2009

Effect of foreign currency exchange rate changes (note 4)

Acquisition of Mepu Oy (note 6a)

Acquisition of Franklin Enterprises Ltd. (note 6b)

Acquisition of Tramco, Inc. (note 6c)

Balance, December 31, 2010

The Conversion was accounted for as a continuity of interests of the Fund
since there was no change of control and since Ag Growth continues to
operate the business of the Fund. Transaction costs related to the Conversion
of $2.1 million have been expensed in the year ended December 31, 2009.

On June 3, 2009, the effective date of the Plan of Arrangement, the following
Benachee assets and liabilities have been recorded in the consolidated
financial statements:

9. InTAnGIBLE ASSETS

Balance, December 31, 2008

Amortization (note 31)

Balance, December 31, 2009

Amortization (note 31)

Future income tax asset

Deferred credit (note 21)

Total consideration

69,800

56,300

13,500

Effect of foreign currency exchange rate changes (note 4)

Acquisition of Mepu Oy (note 6a)

Acquisition of Tramco, Inc. (note 6c)

Balance, December 31, 2010

5,000

4,500

4,000

13,500

52,337

(983)

4,257

424

8,020

64,055

71,989

(2,966)

69,023

(3,417)

(1,381)

2,668

5,495

72,388

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

4
5

Distribution networks

Brand names

Patents

Software

Order backlog

Effect of foreign currency
exchange rate changes

10. InVEnTORY

Raw materials

Finished goods

2010

Accumulated
amortization
$

14,851

–

621

–

363

–

15,835

net book
value
$

38,526

33,142

668

1,118

315

(1,381)

72,388

cost
$

53,377

33,142

1,289

1,118

678

(1,381)

88,223

2009

Accumulated
amortization
$

11,889

–

529

–

net book
value
$

38,225

30,038

760

–

cost
$

50,114

30,038

1,289

–

81,441

12,418

69,023

2010
$

29,516

24,115

53,631

2009
$

21,580

17,852

39,432

During the year, inventories of $160,504 (2009 – $139,156) were expensed
through cost of goods sold. Inventory is recorded at the lower of cost and
net realizable value. There were no write-downs of finished goods and no
reversals of write-downs included in cost of goods sold during the year.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

5
5

11. pROpERTY, pLAnT AnD EQuIpMEnT

Land

Buildings

Leasehold improvements

Furniture and fixtures

Automotive equipment

Computer equipment

Manufacturing equipment

Construction in progress

Equipment under capital lease

2010

Accumulated
amortization
$

net book
value
$

–

2,496

431

490

2,780

1,162

16,037

–

23,462

5,138

25,236

537

2,339

744

14,821

17,589

799

67,206

cost
$

5,138

27,732

434

1,027

5,119

1,906

30,858

17,589

865

90,668

2009

Accumulated
amortization
$

net book
value
$

–

1,762

422

390

2,192

907

13,026

–

2,504

12,796

547

1,651

504

9,772

–

cost
$

2,504

14,558

427

937

3,843

1,411

22,798

–

46,478

18,699

27,779

Construction-in-progress is comprised primarily of building and equipment the
cost of which has not been amortized as the assets were not placed in use as
of December 31, 2010.

12. OTHER InVESTMEnT

On December 22, 2009, the Company purchased two million common shares at
$1.00 per share in the private company One Earth Farms Corp. (“One Earth”), a
Canadian corporate farming organization. In conjunction with the Company’s
investment, One Earth provided Ag Growth with a non-refundable deposit
of $2,000 for future purchases of grain handling, storage and conditioning
equipment. As the purchase and the deposit were conditional upon each
other the transaction has been recorded as a non-monetary exchange. The
exchange of non-monetary assets was recorded at $2,000 representing the
fair value of the common shares at the time of issuance based on the share
price paid by other third parties at that time. The Company’s investment
represents approximately 4.4% of the outstanding shares of One Earth.

13. BAnk InDEBTEDnESS

Ag Growth has operating facilities of Cdn. $10 million and U.S. $2.0 million.
The facilities bear interest at a rate of prime plus 0.5% to prime plus 1.5% per
annum based on performance calculations. The effective interest rate during
the year ended December 31, 2010 on Ag Growth’s Canadian dollar term debt
was 3.1% (2009 – 3.4%), and on its U.S. dollar term debt was 3.8% (2009 –
4.2%). As at December 31, 2010 and 2009, there were no amounts outstanding
under these facilities. The facilities mature October 29, 2012.

Ag Growth assumed a U.S. $2.0 million operating facility from Tramco upon
its December 20, 2010 acquisition. The facility bears interest at 4.75% and no
amount was outstanding at December 31, 2010. The facility was terminated by
Ag Growth subsequent to December 31, 2010.

Collateral for the operating facilities rank pari passu with the Series A secured
notes (note 14) and include a general security agreement over all assets, first
position collateral mortgages on land and buildings and assignments of rents
and leases and security agreements for patents and trademarks.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

6
5

14. LOnG-TERM DEBT

Series A secured notes

Nordea equipment loan

GMAC loans

Less current portion

Less deferred financing costs

2010
$

24,865

308

25,204

128

558

24,518

2009
$

26,165

–

26,212

793

25,403

The Series A secured notes were issued on October 29, 2009. The
non-amortizing notes bear interest at 6.8%, payable quarterly, and mature
October 29, 2016.

Term loans bear interest at rates of prime plus 0.5% to prime plus 1.5%
based on performance calculations. There were no term loans outstanding at
December 31, 2010 (2009 – nil). The effective interest rate on Canadian dollar
term loans in 2009 was 3.4% and on U.S. dollar term loans was 4.2%. During
2009, the Company settled interest rate swap contracts of U.S. $26,500
that were used to fix a portion of its U.S. dollar denominated debt, and the
effective interest rate on the U.S. term loans after consideration of the
interest rate swaps was 4.5%. Ag Growth’s credit facility provides for term
loans of up to Cdn. $38,000 and U.S. $20,500, and matures October 29, 2012.

2011

2012

Principal repayments due within the next five fiscal years and thereafter are
as follows:

2011

2012

2013

2014

2015 and thereafter

128

127

–

24,865

25,204

15. RESTRIcTED cASH

Restricted cash consists of funds advanced to Ag Growth as collateral for a
receivable from an end user of Ag Growth products. The funds will be repaid
when the related receivable is collected in 2011.

16. OBLIGATIOnS unDER cApITAL LEASES

The Company has a number of capital leases for manufacturing equipment and
a forklift that mature in 2011 and 2012. Future minimum payments, by year and
in the aggregate, under capital leases are as follows:

The Nordea equipment loan is denominated in Euros, bears interest at 2% and
matures in 2013. The equipment financed is pledged as collateral.

Less amount representing interest (average rate of 6.5%)

GMAC loans bear interest at 0% and mature in 2011 and 2014. The vehicles
financed are pledged as collateral.

Less current portion

452

142

594

570

432

138

The Series A secured notes are denominated in U.S. dollars. Collateral for the
Series A secured notes and term loans rank pari passu and include a general
security agreement over all assets, first position collateral mortgages on land
and buildings, assignments of rents and leases and security agreements for
patents and trademarks.

The leased equipment is pledged as collateral. Interest expense related to
obligations under capital leases was $8 for the year ended December 31, 2010
(2009 – nil).

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

5
7

17. SHAREHOLDERS’ EQuITY

(a) common Shares

Authorized – Unlimited number of voting common shares without par value

Issued – 12,399,550 common shares

Balance, December 31, 2008

Purchase of units under LTIP (note 24)

Settlement of LTIP obligation (note 24)

Balance prior to Conversion

Conversion

Issuance of common shares pursuant to Plan of Arrangement

Preferred shares conversion to common shares (note 19)

Issuance costs

Balance, December 31, 2009

Purchase of common shares under LTIP (note 24)

Purchase of common shares under normal course issuer bid

Settlement of LTIP obligation – vested shares (note 24)

Settlement of SAIP obligation (note 25)

Balance, December 31, 2010

fund Trust units
$

class B units
$

Total fund Trust
and class B units
$

common shares
$

(notes 2 and 7)

146,894

(286)

723

147,331

(147,331)

–

1,361

148,255

–

1,361

(1,361)

(286)

723

148,692

(148,692)

–

148,692

4,500

4,137

(50)

157,279

(6,032)

(8,057)

2,737

5,449

151,376

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

8
5

fund Trust units
#

class B units
#

common shares
#

12,548,515

136,085

(11,008)

23,467

12,560,974

(12,560,974)

–

136,085

(136,085)

–

(notes 2 and 7)

–

12,697,059

182,588

140,452

13,020,099

(167,900)

(674,600)

81,951

140,000

12,399,550

(b) contributed Surplus

Balance, December 31, 2008

Settlement of LTIP obligation – vested shares

Equity settled director compensation (note 26)

Settlement of LTIP obligation – shares purchased under LTIP

(note 24)

Equity component of convertible unsecured subordinated

debentures (note 18)

Balance, December 31, 2009

Equity settled director compensation (note 26)

Settlement of LTIP obligation – vested shares (note 24)

Exercise price on vested SAIP awards

Settlement of LTIP obligation – shares purchased under LTIP

Balance, December 31, 2010

1,551

(723)

632

7,146

8,653

117

(2,263)

4,596

11,121

Balance, December 31, 2008

Purchase of units under LTIP

Settlement of LTIP obligation

Balance prior to Conversion

Conversion

Issuance of common shares pursuant to Plan of Arrangement

Preferred shares conversion to common shares (note 19)

Balance, December 31, 2009

Purchase of common shares under LTIP (note 24)

Purchase of common shares under normal course issuer bid

Settlement of LTIP obligation – vested shares (note 24)

Settlement of SAIP obligation (note 25)

Balance, December 31, 2010

Prior to the Conversion, there were 136,085 Class B exchangeable units
outstanding in a subsidiary of the Fund that were exchangeable for Fund
Trust units at the option of the holder on a one-for-one basis at any time. In
conjunction with the Conversion, these Class B units were exchanged for
common shares of Ag Growth.

The 12,399,550 common shares at December 31, 2010 are net of 143,890
common shares with a stated value of $5,027 that are being held by the
Company under the terms of the LTIP until vesting conditions are met.

Issuance of common Shares

In conjunction with the Conversion, Ag Growth issued 182,588 common
shares from treasury to the sole shareholder of Benachee. The fair value of
the common shares of $24.65 per common share was based on the average
trading price of the Fund’s Trust units on the two days before and the two days
after April 19, 2009, the date the Fund’s Trustees approved and announced the
terms of the transaction.

normal course Issuer Bid

On December 10, 2009, Ag Growth commenced a normal course issuer bid for
up to 1,272,423 common shares, representing 10% of the Company’s public
float at that time. The normal course issuer bid terminated on December 9,
2010. During the year, Ag Growth purchased and cancelled 674,600 common
shares under the normal course issuer bid for $23,391.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

5
9

Balance, December 31, 2008

Other comprehensive income in year

Balance, December 31, 2009

Other comprehensive loss for year

Balance, December 31, 2010

(10,560)

16,150

5,590

(6,616)

(1,026)

18. cOnVERTIBLE unSEcuRED SuBORDInATED DEBEnTuRES

Principal amount

Equity component

Accretion

Financing fees, net of amortization

convertible unsecured subordinated debentures

2010
$

115,000

(7,475)

1,438

(3,823)

105,140

2009
$

115,000

(7,475)

185

(4,603)

103,107

On October 27, 2009, the Company issued convertible unsecured subordinated
debentures in the aggregate principal amount of $100 million, and on
November 6, 2009 the underwriters exercised in full their over-allotment
option and the Company issued an additional $15 million of debentures
(the “Debentures”). The net proceeds of the offering, after payment of the
underwriters’ fee of $4.6 million and expenses of the offering of $0.5 million,
were approximately $109.9 million. The Debentures were issued at a price
of $1,000 per Debenture and bear interest at an annual rate of 7.0% payable
semi-annually on June 30 and December 31 in each year commencing June 30,
2010. The maturity date of the Debentures is December 31, 2014.

Each Debenture is convertible into common shares of the Company at the
option of the holder at any time on the earlier of the maturity date and the
date of redemption of the Debenture, at a conversion price of $44.98 per
common share being a conversion rate of approximately 22.2321 common
shares per $1,000 principal amount of Debentures. Ag Growth has reserved
2,556,692 common shares for issuance upon conversion of the Debentures.

20 consecutive trading days ending on the fifth trading day preceding the
date on which the notice of redemption is given is not less than 125% of the
conversion price. On and after December 31, 2013, the Debentures may be
redeemed, in whole or in part, at the option of the Company at a price equal to
their principal amount plus accrued and unpaid interest.

On redemption or at maturity, the Company may, at its option, elect to satisfy
its obligation to pay the principal amount of the Debentures by issuing
and delivering common shares. The Company may also elect to satisfy its
obligations to pay interest on the Debentures by delivering common shares.
The Company does not expect to exercise the option to satisfy its obligations
to pay interest by delivering common shares and as a result the potentially
dilutive impact has been excluded from the calculation of fully diluted earnings
per share (note 32). The number of any shares issued will be determined based
on market prices at the time of issuance.

The Company presents and discloses its financial instruments in accordance
with the substance of its contractual arrangement. Accordingly, upon issuance
of the Debentures, the Company recorded a liability of $107,525, less related
offering costs of $4,735. The liability component has been accreted using
the effective interest rate method, and in the year ended December 31, 2010
the Company recorded accretion of $1,253 (2009 – $185), non-cash interest
expense of $780 (2009 – $132), and interest expense on the 7% coupon of

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
6

$8,050 (2009 – $1,456). The estimated fair value of the holder’s option to
convert Debentures to common shares in the amount of $7,475 has been
separated from the fair value of the liability and is included in shareholders’
equity, net of its pro rata share of financing costs of $329.

Ag Growth’s optimal capital structure targets to maintain its net debt to
EBITDA ratio at levels below 2.5, after taking into consideration the impacts
of industry cyclicality and acquisitions. The table below calculates the ratio
based on the EBITDA achieved in the previous 12 months:

19. REDEEMABLE pREfERRED SHARES

Pursuant to the Plan of Arrangement completed on June 3, 2009, Ag Growth
issued 4,000,000 redeemable preferred shares with a stated value of $1.00
per share. The preferred shares were entitled to receive fixed cumulative
preferential cash dividends, as and when declared by the Board of Directors,
out of monies properly applicable to the payment of dividends at a rate
of $0.05 per share per annum. Each redeemable preferred share was also
convertible at the holder’s option into 0.035113 of a common share, and
effective October 15, 2009, the redeemable preferred shares were converted
to 140,452 common shares.

The Company presents and discloses its financial instruments in accordance
with the substance of its contractual arrangement. Accordingly, on the
effective date of the Conversion, $3.6 million of the Company’s redeemable
preferred shares were classified as a liability since the Company was
obligated to pay cash to redeem these preferred shares. The liability
component was accreted using the effective interest rate method until
October 15, 2009 when the liability was settled for common shares, and in the
year ended December 31, 2009, the Company recorded accretion of $137 and
related interest expense of $58. The estimated fair value of the holder’s option
to convert the Class A preferred shares to common shares in the amount of
$400 was separated from the fair value of the liability and was recorded to
contributed surplus. Upon conversion to common shares, the accreted value of
the preferred share liability of $3,737 and the equity component of preferred
shares of $400 were transferred to common shares.

20. cApITAL STRucTuRE

Net debt

EBITDA

Ratio

2010
$

94,677

67,952

2009
$

19,416

60,680

1.39 times

0.32 times

Ag Growth’s optimal capital structure targets to maintain its net debt to
shareholders’ equity ratio at levels below 1.0, after taking into consideration
the impacts of industry cyclicality and acquisitions:

Net debt

Shareholders’ equity

Ratio

2010
$

94,677

160,716

2009
$

19,416

176,799

0.59 times

0.11 times

Ag Growth is subject to certain financial covenants in its credit facility
agreement which must be maintained to avoid acceleration of the termination
of the agreement. Ag Growth is in compliance with all financial covenants.

21. IncOME TAxES

The components of income tax expense are as follows:

Ag Growth’s capital structure is comprised of shareholders’ equity and
long-term debt. Ag Growth’s objectives when managing its capital structure
are to maintain and preserve Ag Growth’s access to capital markets, continue
its ability to meet its financial obligations, including the payment of dividends,
and finance organic growth and acquisitions.

Current

Future

provision for income taxes

2010
$

5,627

2,291

7,918

2009
$

774

(667)

107

Ag Growth monitors its capital structure using non-GAAP financial metrics
including net debt to earnings before interest, taxes, depreciation and
amortization (“EBITDA”) and accelerated vesting and death benefits and
corporate conversion costs for the immediately preceding 12-month period and
net debt to shareholders’ equity. Ag Growth defines net debt as long-term debt
plus the liability component of Debentures, less cash and cash equivalents.

The provision for income taxes varies from the amount that would be expected
if computed by applying the Canadian federal and provincial statutory income
tax rates to earnings before income taxes as shown in the following table:

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

6
1

Earnings before income taxes and other comprehensive income

Earnings subject to tax in the hands of unitholders/limited partners (note 2)

corporate income subject to tax

Tax at statutory rate of 29.54% (2009 – 30.71%)

Charge against deferred credit

Establishment of future tax due to conversion to a corporation

Tax rate changes

Foreign rate differential

Permanent differences and other

Corporate income tax provision

provision for income taxes

Ag Growth’s future income tax asset and liability are comprised of the following components:

Future tax asset – U.S. operations

Future tax asset related to other temporary differences

Future tax liability related to derivatives included in other comprehensive income

Future tax asset related to property, plant and equipment, tangible assets, non-capital losses, exploration and

development expenses, and investment tax credits

future tax asset – current

Future tax liability related to derivatives included in other comprehensive income

Future tax asset related to property, plant and equipment, intangible assets, non-capital losses, exploration and

development expenses, and investment tax credits

Valuation allowance – Canadian non-capital losses and exploration and development expenses

Future tax asset related to other temporary differences

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
6

future tax asset – long-term

Future tax liability – Finnish operations

Future tax liability – U.S. operations

future tax liability – current

Future tax liability – U.S. operations

Future tax liability – Finnish operations

future tax liability – long-term

net total

2010
$

44,074

–

44,074

13,019

(5,586)

–

(516)

1,252

(251)

7,918

2010
$

340

1,380

(1,196)

10,293

10,817

(45)

51,905

(18,437)

1,430

34,853

(94)

(332)

(426)

(5,735)

(867)

(6,602)

38,642

2009
$

45,410

(10,843)

34,567

10,616

(8,394)

(1,598)

399

180

(1,096)

107

2009
$

–

(1,765)

11,868

10,103

(490)

57,938

(18,437)

2,043

41,054

–

(1,047)

–

(1,047)

50,110

Ag Growth has available to carry forward the following as at December 31, 2010 and 2009:

Canadian non-capital losses

Canadian federal and provincial investment tax credits

Canadian exploration and development expenses

As at December 31, 2010, the non-capital loss carryforwards available to
reduce future years’ taxable income expire in 2027. The Canadian federal and
provincial investment tax credits have an expiry period ranging from 2025 to
2029. The Canadian exploration and development expenses may be carried
forward indefinitely.

Included in the $4,711 Canadian federal and provincial investment tax credits
is $4,229 of investment tax credits related to assets acquired under the
plan of arrangement. The remainder relate to manufacturing and processing
tax credits.

The Company recorded a deferred credit relating to the difference between
the future income tax asset and the amount of the consideration paid pursuant
to the Plan of Arrangement. The credit is being amortized to income in
proportion to the reversal of the future tax asset. As at December 31, 2010,
the balance of the deferred credit is $42,320.

2010
$

86,356

4,711

95,269

2009
$

103,096

4,711

103,269

of Ag Growth’s income tax assets and liabilities could change in the future
and that changes to these amounts could have a material effect on these
consolidated financial statements.

22. fInAncIAL InSTRuMEnTS AnD fInAncIAL

RISk fAcTORS

Ag Growth has the following financial instruments: cash and cash equivalents,
cash held in trust, accounts receivable, accounts payable and accrued
liabilities, acquisition price, transaction and financing costs payable, long-term
debt, convertible unsecured subordinated debentures, interest rate swap
arrangements and foreign exchange forward contracts.

Ag Growth is exposed to financial risks arising from its financial assets and
liabilities. Ag Growth’s objectives in managing these risks are to protect from
volatility in net earnings and to minimize exposure from fluctuations in market
rates. The financial risks include foreign exchange risk, interest rate risk, credit
risk and liquidity risk as follows:

(a) foreign Exchange Risk

Ag Growth operates primarily in North America and as a result fluctuations
in the rate of exchange between the U.S. and Canadian dollar can have a
significant effect on its cash flows and reported results. To mitigate exposure
to the fluctuating rate of exchange, Ag Growth enters into foreign exchange
forward contracts and denominates a portion of its debt in U.S. dollars. As
at December 31, 2010, Ag Growth’s U.S. dollar denominated debt totalled
U.S. $25.0 million and the Company has entered into the following foreign
exchange forward contracts to sell U.S. dollars in order to hedge its foreign
exchange risk:

Settlement dates

January – December 2011

face value
u.S. $

45,000

Average rate
cdn. $

1.10

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

6
3

As at December 31, 2010, acquisition price, transaction and financing costs
payable included U.S. $10.0 million payable to the vendor of Tramco (note 6c).
To mitigate exposure to fluctuating foreign exchange rates, the Company
entered into a foreign exchange contract to buy U.S. $10.0 million dollars at
a rate of $1.0012. As at December 31, 2010, an unrealized loss of $66 was
recorded on this contract and the amount is included in the Company’s gain on
foreign exchange.

Ag Growth’s sales denominated in U.S. dollars for the year ended
December 31, 2010 were U.S. $162.3 million, and the total of its cost of goods
sold and its selling, general and administrative expenses denominated in that
currency were U.S. $79.4 million. Accordingly, a 10% increase or decrease
in the value of the U.S. dollar relative to its Canadian counterpart would
result in a $16.2 million increase or decrease in sales and a total increase or
decrease of $7.9 million in its cost of goods sold and its selling, general and
administrative expenses. In relation to Ag Growth’s foreign exchange hedging
contracts, a 10% increase or decrease in the value of the U.S. dollar relative
to its Canadian counterpart would result in an increase or decrease in the
foreign exchange gain of $6.2 million and an increase or decrease to other
comprehensive income of $4.5 million.

(b) Interest Rate Risk

Ag Growth has historically been subject to risks associated with fluctuating
interest rates on its long-term debt and to manage this risk entered into
interest rate swap transactions with a Canadian chartered bank. Ag Growth’s
long-term debt and convertible unsecured subordinated debentures
outstanding at December 31, 2010 are at a fixed rate of interest and there
were no interest rate swap transactions outstanding.

Credit risk is the risk that a customer will fail to perform an obligation or
fail to pay amounts due causing a financial loss. A substantial portion of
Ag Growth’s accounts receivable is with customers in the agriculture industry
and is subject to normal industry credit risks. This credit exposure is mitigated
through the use of credit practices that limit transactions according to the

customer’s credit quality and due to the accounts receivable being spread over
a large number of customers. Ag Growth establishes a reasonable allowance
for non-collectible amounts with this allowance netted against the accounts
receivable on the consolidated balance sheets. Ag Growth does not hold
collateral as security for these balances.

Ag Growth does not believe it has significant concentration risk. The
maximum credit risk exposure associated with accounts receivable is the total
carrying value.

As is typical in the agriculture sector, Ag Growth may offer extended terms on
its accounts receivable to match the cash flow cycle of its customer. The table
below sets out the details of the accounts receivable balances outstanding
as at December 31, 2010, based on the status of the receivable in relation to
when the receivable is due and payable:

Neither impaired nor past due

Not impaired and past the due date as follows:

Within 30 days

31 to 60 days

61 to 90 days

Over 90 days

Allowance for doubtful accounts

Total accounts receivable

16,036

7,231

7,044

3,295

3,788

(484)

36,910

There were no accounts receivable deemed uncollectible. In the event
that an amount is deemed uncollectible, the credit loss is charged against
the allowance.

The following table represents a summary of the movement of the allowance
for doubtful accounts:

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

4
6

Balance, beginning of year

Acquisition of Mepu

Acquisition of Tramco

Allowance for doubtful accounts

Recovery (write-off) of specific accounts receivable

Balance, end of year

2010
$

499

196

(284)

484

2009
$

528

–

220

(249)

499

(d) Liquidity Risk

Liquidity risk is the risk Ag Growth will encounter difficulties in meeting its financial liability obligations. Ag Growth manages its liquidity risk through cash
and debt management. In managing liquidity risk, Ag Growth has access to committed short and long-term debt facilities as well as to equity markets, the
availability of which is dependent on market conditions. Ag Growth believes it has sufficient funding through the use of these facilities to meet foreseeable
borrowing requirements.

The following are the contractual maturities of non-derivative financial liabilities as at December 31, 2010:

Accounts payable and accrued liabilities

Long-term debt, including current portion and deferred

financing costs

Obligations under capital leases, including current portion

Dividends payable

Convertible unsecured subordinated debentures

Acquisition price, transaction and financing costs payable

carrying
amount
$

contractual
cash flows
$

24,565

25,204

570

2,509

105,140

11,994

169,982

24,565

25,204

594

2,509

115,000

11,994

179,866

0 – 6
months
$

24,565

226

2,509

–

11,994

39,358

–

226

–

290

6 – 12
months
$

12 – 24
months
$

After 24
months
$

–

24,949

–

115,000

–

127

142

–

269

139,949

fair Value

Section 3862, “Financial Instruments – Disclosures”, establishes a fair value
hierarchy which requires the Company to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair
value. The Company primarily applies the market approach for recurring fair
value measurements. The Section describes three levels of inputs that may be
used to measure fair value:

Level 1 – Unadjusted quoted prices in active markets for identical assets
or liabilities. An active market for the asset or liability in a market in which
transactions for the asset or liability occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.

Level 2 – Observable inputs other than level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities.

The following table presents information about the Company’s assets and
liabilities measured at fair value on a recurring basis as at December 31, 2010
and indicates the fair value hierarchy of the valuation techniques used to
determine such fair value.

Assets

Cash and cash equivalents

Cash held in trust

Derivative financial instruments

Restricted cash

Level 1
$

34,981

1,817

–

865

Level 2
$

Level 3
$

–

4,200

–

Total
$

34,981

1,817

4,200

865

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

6
5

The fair value of a financial instrument on initial recognition is normally the
transaction price, which is the value of the consideration given or received.

As at December 31, 2010, the carrying value of cash and cash equivalents,
cash held in trust, accounts receivable, accounts payable and accrued
liabilities, acquisition price, transaction and financing costs payable and
dividends payable approximates their fair value due to the relatively short
period to maturity. Long-term debt in the form of term loans with a variable
interest rate are carried at amortized cost, which approximates fair value.
Derivatives are valued based on market quotations. However, when financial
instruments lack an available trading market, fair value is determined using
management’s estimates and is calculated using market factors with similar
characteristics and risk profiles. The fair value of the Company’s other
investment is not determinable. As at December 31, 2010, the fair value and
carrying value of the foreign exchange forward contracts was an unrealized
gain of $4,200 (2009 – $9,500). For the year ended December 31, 2010,

23. SEGMEnTED DIScLOSuRE

a gain of $75 (2009 – nil) arising from hedge ineffectiveness was recorded
through net earnings in foreign exchange (gain) loss. As at December 31,
2010, the fair value of the Series A notes was approximately $28,171. The
estimated fair value of the Series A secured notes has been determined
based on discounting future cash flows using current rates for similar financial
instruments subject to similar risks and maturities.

As at the issuance date, the fair value of the liability component of the
debentures was estimated by discounting future payments of interest and
principal over the period to their maturity date of December 31, 2014. As at
December 31, 2010, the fair value of the liability component of the debentures
using the same valuation technique was approximately $116,231.

Over the next 12 months, Ag Growth expects to realize an estimated
$4,200 million in net gains presently reported in accumulated other
comprehensive income (loss) as unrealized gains as at December 31, 2010.

Ag Growth operates in one business segment related to the manufacturing and distributing of grain handling, storage and conditioning equipment. Geographic
information about Ag Growth’s revenues is based on the product shipment destination. Assets are based on their physical location as at the year end:

Canada

United States

International

Sales as at December 31

property, plant and equipment,
goodwill and intangible assets as at
December 31

2010
$

57,971

167,299

36,807

262,077

2009
$

61,246

159,533

16,515

237,294

2010
$

131,826

61,375

10,448

203,649

2009
$

106,313

42,826

–

149,139

24. LOnG-TERM IncEnTIVE pLAn

Pursuant to the LTIP, the Company establishes the amount to be allocated to
eligible participants based upon the amount by which distributable cash, as
defined in the LTIP, exceeds a predetermined threshold. The amount owing to
participants is recorded as a long-term incentive plan liability with the offset
recorded to net earnings. At such time that the common shares are purchased
the liability is reclassified to contributed surplus under shareholders’ equity.
In 2010, the administrator purchased 167,900 common shares in the market
for $6,032 to satisfy its obligation related to fiscal 2009 (note 17a). During the

year ended December 31, 2010, $4,596 (2009 – $632) was reclassified from
the long-term incentive plan liability to contributed surplus (note 17b).

The common shares awarded vest over a three-year period commencing
one year after the fiscal year of the award. The LTIP provides for immediate
vesting in the event of retirement, death, termination without cause or in
the event the participant becomes disabled. During the year, 81,951 LTIP
common shares vested to participants at which time $2,263 (note 17a and
b) was reclassified from contributed surplus to shareholders’ equity. As at

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

6
6

December 31, 2010, an aggregate of 105,418 LTIP common shares have
vested to the participants. Cash dividends paid on common shares held by
the administrator are payable to participants in the plan. The expense related
to the LTIP is recorded in relation to the service period and accordingly, the
total award will be expensed over a four-year period with 36% in the initial
fiscal year and 36%, 20% and 8% in the next three fiscal years, respectively,
subsequent to the current year. For the year ended December 31, 2010,
Ag Growth has recorded an expense with respect to the LTIP of $3,570
(2009 – $2,650). The amount to be expensed in future periods with respect to
the LTIP for fiscal years 2007, 2008, 2009 and 2010 is $2,904.

25. SHARE AWARD IncEnTIVE pLAn

The Company has a share award incentive plan which authorizes the Directors
to grant awards (“Share Awards”) to employees or officers of Ag Growth or
any affiliates of the Company or consultants or other service providers to the
Company and its affiliates (“Service Providers”). Share Awards may not be
granted to non-management Directors.

Under the terms of the Share Award Incentive Plan, any Service Provider may
be granted Share Awards. Each Share Award will entitle the holder to be
issued the number of common shares designated in the Share Award, upon
payment of an exercise price of $0.10 per common share and the common
shares will vest and may be issued as to one third on each of January 1, 2010,
January 1, 2011 and January 1, 2012 or such earlier or later dates as may be
determined by the Directors. In lieu of receiving common shares, the holder,
with the consent of Ag Growth, may elect to be paid cash for the market value
of the common shares in excess of the exercise price of the common shares.
The Share Award Plan provides for immediate vesting of the Share Awards in
the event of retirement, death, termination without cause or in the event the
Service Provider becomes disabled.

The shareholders reserved for issuance 220,000 common shares, subject to
adjustment in lieu of dividends, if applicable, and no additional awards may
be granted without shareholder approval. The aggregate number of Share
Awards granted to any single Service Provider shall not exceed 5% of the
issued and outstanding common shares of Ag Growth.

In addition:

(a) The number of common shares issuable to insiders at any time, under all
security based compensation arrangements of the Company, shall not
exceed 10% of the issued and common shares of Ag Growth; and

(b) The number of common shares issued to insiders, within any one-year
period, under all security based compensation arrangements of the
Company, shall not exceed 10% of the issued and outstanding common
shares of Ag Growth.

As at December 31, 2010, 220,000 Share Awards have been granted and
80,000 remain outstanding. During the year, 73,333 (2009 – nil) share awards
vested and were exercised, at which time common shares of the Company
were issued for $2,586 (note 17a). On October 15, 2010, the Company
announced the passing of its Chief Executive Officer. Upon his passing 66,667
share awards vested and were exercised, at which time common shares of
the Company were issued for $2,863 (note 17a), of which $2,411 had been
expensed to October 15, 2010 and included in the SAIP liability. For the year
ended December 31, 2010, Ag Growth recorded an expense of $2,707 for the
Share Awards (2009 – $3,794).

26. DIREcTORS’ DEfERRED cOMpEnSATIOn pLAn

On May 8, 2008, the shareholders of Ag Growth approved the adoption by the
Company of the Directors’ Deferred Compensation Plan (the “Plan”), which
provides that a minimum of 20% of the remuneration of non-management
Directors be payable in common shares of the Company. The principal purpose
of the Plan is to encourage non-management Director ownership of common
shares. A Director will not be entitled to receive the common shares granted
for three years from the date of grant or until the Director ceases to be a
Director, whichever is earlier. Director remuneration under the Plan will be
expensed over the three-year vesting period of the share grants. For the year
ended December 31, 2010, Ag Growth recorded an expense of $117 (2009 –
$47) for the share grants, and a corresponding amount has been recorded to
contributed surplus.

The price to be used for determining the number of common shares to be
granted will be the weighted average trading price of common shares for the
10 trading days preceding the Company’s financial quarter. The total number of
common shares issuable pursuant to the Plan shall not exceed 35,000, subject
to adjustment in lieu of dividends, if applicable. Mandatory participation in
the Plan commenced January 1, 2009. For the year ended December 31, 2010,
5,564 common shares were granted under the plan and as at December 31,
2010, a total of 13,983 common shares had been granted under the Plan and
no common shares had been issued.

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

6
7

27. cOMMITMEnTS

Ag Growth has entered into various operating leases for office and
manufacturing equipment, warehouse facilities and vehicles. Future minimum
annual lease payments required in aggregate are as follows:

2011

2012

2013

2014

2015

742

220

1,082

The Company has entered into commitments of $2.0 million in relation to
building and equipment which will be incurred throughout 2011.

As at December 31, 2010, the Company has outstanding letters of credit in the
amount of $642 (2009 – nil).

28. RELATED pARTY TRAnSAcTIOn

Burnet, Duckworth & Palmer LLP provides legal services to the Company
and a Director of Ag Growth is a partner of Burnet, Duckworth & Palmer LLP.
The total cost of these legal services related to a shareholders’ rights plan
and general matters was $0.1 million during the year ended December 31,
2010 (2009 – $0.9 million) and are included in accounts payable and accrued
liabilities. These transactions are measured at the exchange amount and were
incurred during the normal course of business on similar terms and conditions
to those entered into with unrelated parties.

29. STOck OpTIOn pLAn

On June 3, 2009, the shareholders of Ag Growth approved a stock option plan
(the “Option Plan”) under which options may be granted to officers, employees
and other eligible service providers in order to provide an opportunity for
these individuals to increase their proprietary interest in Ag Growth’s
long-term success.

The Company’s Board of Directors or a Committee thereof shall administer the
Option Plan and designate the individuals to whom options may be granted
and the number of common shares to be optioned to each. The maximum
number of common shares issuable on exercise of outstanding options at any

time may not exceed 7.5% of the aggregate number of issued and outstanding
common shares, less the number of common shares issuable pursuant to
all other security based compensation agreements. The number of common
shares reserved for issuance to any one individual may not exceed 5% of the
issued and outstanding common shares.

Options will vest and be exercisable as to one-third of the total number of
common shares subject to the options on each of the first, second and third
anniversaries of the date of the grant. The exercise price of the options shall
be fixed by the Board of Directors or a Committee thereof on the date of the
grant and may not be less than the market price of the common shares on the
date of the grant. The options must be exercised within five years of the date
of the grant.

As at December 31, 2010, a total of 970,319 options are available for grant. No
options have been granted as at December 31, 2010.

30. SHAREHOLDER pROTEcTIOn RIGHTS pLAn

On December 20, 2010, the Company’s Board of Directors adopted a
Shareholders’ Protection Rights Plan (the “Rights Plan”). Specifically, the
Board has implemented the Rights Plan by authorizing the issuance of one
right (a “Right”) in respect of each common share (the “Common Shares”) of
the Company outstanding at the close of business on December 20, 2010 (the
“Record Time”). In addition, the Board of Directors authorized the issuance of
one Right in respect of each additional Common Share issued from treasury
after the Record Time.

If a person, or a group acting jointly or in concert, acquires (other than
pursuant to an exemption available under the Rights Plan) beneficial ownership
of 20 percent or more of the Common Shares, Rights (other than those held by
such acquiring person which will become void) will separate from the Common
Shares and permit the holder thereof to purchase that number of Common
Shares having an aggregate market price (as determined in accordance
with the Rights Plan) on the date of consummation or occurrence of such
acquisition of Common Shares equal to four times the exercise price of the
Rights for an amount in cash equal to the exercise price. The exercise price of
the Rights pursuant to the Rights Plan is $150.00 per Right.

The Rights Plan is subject to approval of the Toronto Stock Exchange, and
requires approval by the Company’s shareholders within six months of the
Rights Plan’s effective date. The Company will be seeking shareholder
approval at its 2011 Annual Meeting.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

8
6

31. SuppLEMEnTAL ExpEnSE InfORMATIOn

(a) Interest Expense

Interest on short-term debt

Interest on long-term debt

Interest on redeemable preferred shares

Interest, including non-cash interest, on convertible unsecured subordinated debentures

(b) Amortization

Amortization of property, plant and equipment

Amortization of intangible assets

32. nET EARnInGS pER SHARE

Net earnings available to common shareholders

Add back: interest on convertible unsecured subordinated debentures

Numerator for diluted earnings per share

Basic weighted average number of shares

Dilutive effect of convertible unsecured subordinated debentures

Dilutive effect of directors’ deferred compensation plan

Dilutive effect of share award incentive plan

Dilutive effect of long-term incentive plan

Diluted weighted average number of shares

Basic earnings per share

Diluted earnings per share

2010
$

2,345

–

10,083

12,485

2010
$

5,427

3,417

8,844

2010
$

36,156

6,971

43,127

12,675,342

2,556,692

10,593

135,177

142,437

2009
$

116

2,719

195

1,773

4,803

2009
$

5,388

2,966

8,354

2009
$

45,303

1,137

46,440

12,835,166

462,306

6,700

155,549

–

15,520,241

13,459,721

$2.85

$2.78

$3.53

$3.45

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

6
9

33. nET cHAnGE In nOn-cASH WORkInG cApITAL BALAncES RELATED TO OpERATIOnS

The net change in non-cash working capital balances related to operations consists of the following:

Decrease (increase) in current assets

Accounts receivable

Inventory

Prepaid expenses and other assets

Income taxes recoverable

Increase (decrease) in current liabilities

Accounts payable and accrued liabilities

Customer deposits

Income taxes payable

Long-term incentive plan

2010
$

(7,979)

(2,516)

(5,373)

596

(15,272)

2,667

(2,866)

(64)

(207)

(15,479)

2009
$

310

3,900

(671)

275

3,814

2,141

(3,775)

–

(20)

(1,654)

2,160

34. DIVIDEnDS

35. AccELERATED VESTInG AnD DEATH BEnEfITS

Ag Growth’s current dividend policy is to pay cash dividends on or about the
30th of each month to shareholders of record on the last business day of the
previous month. For the year ended December 31, 2010, Ag Growth declared
dividends to public security holders of $26,854, which equated to $2.12 basic
weighted average per share (2009 – $26,307 and $2.05 basic weighted
average per share), and dividends of $9 were declared to holders of the
preferred shares in 2009.

On October 15, 2010, Ag Growth announced the passing of its Chief Executive
Officer. Upon his passing all previously unvested share based compensation
vested immediately, certain death benefits became payable to his estate and
the Company became entitled to proceeds of $3,000,000 related to a keyman
insurance policy. The $3,000,000 of insurance proceeds have offset the
accelerated vesting and death benefit expenses and are included in prepaid
and other assets.

36. cOMpARATIVE fIGuRES

Certain of the comparative figures have been reclassified to conform to the
current year’s presentation.

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

0
7

NOTES

A
N
N
U
A
L
R
E
P
O
R
T
’
1
0

7
1

NOTES

0
1
’
T
R
O
P
E
R
L
A
U
N
N
A

2
7

Officers
Gary Anderson, President, Chief Executive Officer and Director
Steve Sommerfeld, CA, Chief Financial Officer
Dan Donner, Vice President Sales and Marketing
Paul Franzmann, CA, Vice President Corporate Development, Southern Business Group
Doug Weinbender, Vice President Operations, Western Business Group
Ron Braun, Vice President and General Manager, Westfield Industries
Eric Lister, Q.C., Counsel

Directors
Gary Anderson
John R. Brodie, FCA, Audit Committee Chairman
Bill Lambert, Board of Directors Chairman
Bill Maslechko, Governance Committee Chairman
David White, CA

Additional information relating to the Company, including all public filings,
is available on SEDAR (www.sedar.com).