2011 Annual Report
This year’s annual report is dedicated in memory of our founding CEO and friend, Rob Stenson.
Ag Growth International
Investor Relations: Steve Sommerfeld
Ag Growth IPO: May 18, 2004 (Founded 1996)
1301 Kenaston Blvd.
Telephone: 204.489.1855
Winnipeg, MB R3P 2P2
Email: steve@aggrowth.com
Batco Manufacturing, Acquired: 1997 (Founded 1992)
Wheatheart Manufacturing, Acquired: 1998 (Founded 1973)
Telephone: 204.489.1855
Auditors: Ernst & Young LLP (Winnipeg)
Fax: 204.488.6929
www.aggrowth.com
Transfer Agent: Computershare Investor Services Inc.
Shares Listed: Toronto Stock Exchange
Stock Symbol: AFN
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)
Airlanco Inc., Acquired: 2011 (Founded 2000)
From left to right: Bill Lambert, Board of Directors Chairman and Director; Bill Maslechko, Governance Committee Chairman and Director; Gary Anderson, President, Chief Executive Officer
and Director; Steve Sommerfeld, CA, Executive Vice President and Chief Financial Officer; John R. Brodie, FCA, Audit Committee Chairman and Director; David White, CA, Director
nOvEmbER 1996
In November 1996, Ag Growth International was incorporated
as a Junior Capital Pool on the Alberta Stock Exchange.
nOvEmbER 1997
In November 1997, Batco Manufacturing was acquired through
a reverse takeover by AGI. Batco was established in 1992.
may 1998
In May 1998, AGI acquired Wheatheart Manufacturing.
Wheatheart was established in 1973.
may 2000
Established in 1950, Westfield Industries was acquired by
AGI in May 2000. This was our transformational event.
may 2004
AGI launched an Initial Public Offering in May 2004 on
the Toronto Stock Exchange as an Income Trust.
CEO
MESSAGE
On behalf of our board of Directors and all of us at aGI, I am pleased
to provide you with ag Growth International’s 2011 annual Report.
This year’s report is special in a couple of ways. We want to recognize
our 15th anniversary since incorporation in november 1996, and we
want to pay tribute to our founding CEO and friend Rob Stenson who
passed away October 15th, 2010 at 44 years of age. In doing so,
we will draw upon a few stories and photos to accentuate the positives
that have been woven into the fabric of our culture. Hopefully it will
provide some additional perspective on 2011, a year of challenge that
ended on a better foot than it had started.
7
Sales in Q-4, 2011 were $67 million compared to $49.4 in
Q-4, 2010, while Adjusted EBITDA of $8.4 million in Q-4,
2011 exceeded Q-4, 2010 Adjusted EBITDA of $6.7 million
by 25%. Fiscal 2011 sales were $301 million up from
$262 million in fiscal 2010. Adjusted EBITDA however
did not track favourably at $53.3 million, down from
$59.7 million in fiscal 2010. The reasons have been well
documented throughout the year. Start-up challenges at
our Twister greenfield plant and an off year at our Mepu
division in Finland combined to negatively impact Adjusted
International sales activity in general remains very strong.
We continue to invest in sales, engineering and support resources
to build our global competencies.
EBITDA by $7.7 million compared to 2010 results. FX
resources toward production engineering and support,
We have also moved past Mepu’s challenges from 2011.
accounted for an additional negative impact of $5.8 million
while continuing the development and refinement of the
Sales in 2011 were sufficient to flush through carryover
on Adjusted EBITDA in 2011 compared to 2010. Our MD&A
new product designs. Order has been restored to both the
inventory in the marketplace, creating the expectation for
provides considerable clarity and detail for these and other
production floor and shipping. Exceptional commitment
a more positive 2012. This season we have been more
performance related events throughout the year.
to discipline and diligence has been incorporated into
proactive with our steel procurement which will help
Our single biggest initiative in 2011 was working
through the start-up challenges at the Twister greenfield
plant. A year ago at the time of this writing, we were
enthusiastically awaiting the final commissioning of our
new production lines. New bin sales were being closed
and everyone anticipated that success was close at
hand. Unfortunately it wasn’t and we found it necessary
to temporarily stand down our international sales team
and regroup. Since then, we have directed substantial
the quoting process as a plethora of individual sizes and
protect margins in 2012. Recent progress in establishing
specifications are being quoted for the first time. We are
regional sales and distribution capabilities for the broader
extremely pleased and grateful for the extra effort and
AGI catalogue are gaining traction, as evidenced in both
teamwork demonstrated by everyone involved. One would
quoting activity and order backlogs. International sales
be hard pressed to find a better example of cooperation
activity in general remains very strong. We continue to
anywhere between sales, engineering, production and
invest in sales, engineering and support resources to
finance teams. As a result, we expect to take a much
build our global competencies. We started this initiative in
needed step forward in 2012.
late 2007 and since then our offshore sales have grown
from approximately 4% of total sales to 18%. Given early
apRIl 2005
In April 2005, AGI acquired Edwards Group from Lethbridge, Alberta.
Edwards Group was founded in 1964.
quoting and sales activity in 2012, we should expect
We received a number of compliments from the industry
in 2011 and for that we are all disappointed. But we also
further growth this year.
regarding the acquisition of Airlanco, a niche brand with
made substantial progress on a number of fronts. All said,
Over the past few weeks, I have attended two major
North American trade shows. I came away from both
shows feeling a sense of pride in our teams and in the
strength of our brands. The first show was the National
Farm Machinery Show in Louisville, Kentucky, which
houses over one million square feet of exhibitors serving
farmers throughout the USA. This is an event that all
stakeholders in agriculture should consider attending.
The entire farm industry is represented including our
Westfield, Batco, Wheatheart, Grain Guard, Applegate and
HSI brands. Farmers expressed continued optimism for
the year ahead, with preliminary intentions to plant plenty
of corn acres. The second show was part of the annual
GEAPS conference (Grain Elevator and Processing Society).
It offers an exceptional glimpse into the commercial
side of the grain business. This year it was hosted by
the Minneapolis chapter. Our Hi Roller, Union Iron Works,
Tramco and Airlanco divisions all displayed at this show.
a wonderful reputation. Last year while at the conference
I believe we have now made it through another one of
in Portland, we were inundated with positive comments
those tough periods in our development.
about our acquisition of Tramco as a powerful international
brand. It serves as a reminder that there are lots of
positives to take away from 2011. Yes, we took a step back
We couldn’t have done it without the unwavering support of our board,
the resolve of our team and the understanding of our shareholders.
We are extremely grateful to all. We look forward to delivering results
in the future that will make it all worthwhile.
9
StrOnG rOOtS
Whenever presented with the opportunity to tell someone
activities were often centered around making payroll,
Batco was a one-product wonder in a regional market,
about our company, I inevitably look for a chance to
with Art and Rob doing whatever it took to look after their
too small to be significant to most dealers and one bad
proclaim that “our roots are in Batco Manufacturing of
employees. When I joined in 1996, as General Manager,
weather event away from disaster. We needed to grow
Swift Current, Saskatchewan”. It was there that the seeds
there were about a dozen employees. I’m pleased to say
quickly, but that would require capital. One night in the fall
of Ag Growth took hold. Art Stenson started Batco in June
that Judy, Gerry, Brent, Joe, Garry and Clayton remain part
of 1996, Rob and I were scheming on how best to realize
1992, a modest venture to build two-wheel hand carts.
of the AGI family today.
Soon afterwards, Art turned his attention to grain handling.
His first belt conveyor prototype was designed in 1993. The
following summer, Art’s brother Rob offered to lend a hand
while home from university. Rob became so captivated
by the business that he returned the following year upon
completing his MBA. The brothers became 50/50 partners.
These were the days when sales, production and delivery
Our roots are in batco manufacturing of Swift Current, Saskatchewan.
September 1997 issue
of Profit Magazine –
Named one of Canada’s
top ten hottest start-ups
May 1997,
announcing
going public
on ASE
the potential we believed lay before us. I told him about
first came to appreciate Rob’s absolute refusal to give up
entities played was pivotal in our early development.
my brother- in-law’s recent involvement in Junior Capital
on a scent. By the end of the week, he had found a JCP
EDC remains a strategic partner with AGI to this day.
Pools on the Alberta Stock Exchange. The light came on in
shell, controlled by Jack Lee, an oilman formerly from Swift
an instant – we would take the company public. Drafting
Current. On November 7, 1996 we were incorporated as
of the business plan didn’t take long. I still have the flip
Ultra Capital Inc. Early the following year, we completed
charts that flushed out our two-prong strategy of catalogue
a private placement subscribed by local investors to help
expansion and geographic diversification. The market
fund the construction of a much needed production facility.
was ready for a consolidator. Rob and I headed to Calgary
In early June, 1997, shortly after Steve Sommerfeld joined
in our one-ton delivery truck, barely able to contain our
us as CFO, we began trading on the ASE. Our early financial
enthusiasm. Two days of door knocking later, there were
partners included South West Credit Union, Business
no bites. I headed home to attend to work, but Rob stayed
Development Bank, SOCO (Saskatchewan Opportunities
on. He said he would catch a bus later. It was then that I
Corp), and Export Development Canada. The role these
Our first acquisition in May of 1998, was Wheatheart
Hydrostatic and Machine of Saskatoon. It was a friendly
deal, as the vendors were well known to the Stensons.
Again, after a lot of door knocking, we were able to raise
the required $8 million, including an equity investment
from Agri Food Equity Fund and $5.5 million term debt from
TD Bank. It was a fantastic acquisition, but the untimely
onset of the Asian economic flu made it impossible
for us to make our first loan payment six weeks later.
StrOnG rOOtS
The Stenson
brothers with
wives, Linda
and Sue
Fortunately we benefited from the experience of veteran
Goliath feat that took 15 months to complete. I swear Rob
team, led by Ron Braun, and they weren’t afraid of hard
lender and TD Bank Manager, Ian McNaughton. He told us
spent more time convincing the owners of Westfield to
work. Our cultures melded almost immediately and we
to simply service the interest monthly until the following
take him seriously than he did raising the capital. Not to
were on our way. Today Westfield remains the world
January. That we did and two years later TD Bank backed
say that raising money was easy. It was in the height of the
leader in grain augers and has almost tripled in sales and
us with $40 million term debt for the acquisition of
Dot Com craze and Ag wasn’t very sexy. In fact, few people
profitability since our acquisition 12 years ago. Our four
Westfield Industries, the world’s largest manufacturer
in those days, outside of Rob, championed the long-term
years with private equity gave us time to fully digest our
of grain augers. It was a deal of a lifetime and part of a
fundamentals of agriculture.
$113 milliuon transaction that saw us buy ourselves off
the public markets. We brought in Tricor Pacific Capital
of Vancouver as our private equity sponsor. Roynat and
McKenna Gale provided the mezzanine capital and a
vendor note sealed the deal. It may sound easy into today’s
world, but back then our sales were only $10 million and
our EBITDA approximated $2 million. It was a David and
The Westfield acquisition was truly a transformational
event. It gave us access to an extensive distribution
network and economies of scale that were generations in
transformational acquisition. We had learned the business
well and were confident in taking it to a new level. It was
time to get on with our original business plan and in 2004
we launched our IPO on the Toronto Stock Exchange.
the making. We were highly levered so we put our heads
Gaining access to public markets proved valuable to
down and worked hard, growing organically and paying
our strategy as a consolidator. In the nearly eight years
off the debt. Thankfully we had acquired an experienced
since we went public on the TSE, we have acquired three
At E&Y
Entrepreneur
of the Year
Awards, 2007
Mepu, AGI’s
first offshore
acquisition
companies in Canada, five in the USA and one offshore.
As we look back at our 15 years of development, we do so
we wouldn’t have made it without them or our financial
With the exception of the Edwards acquisition in April
with both pride and humility. We are proud of the business
partners. It has been a lot of work but also a lot of fun.
2005, our major initiatives have taken place in clusters,
we have grown from start-up, but even more proud of the
Together we have established strong roots capable of
followed by periods of digestion. In a period of roughly
team we have assembled along the way. We recognize
great endeavours. Thanks everyone.
twelve months ending January 2008, we acquired Hi Roller,
Twister, Union Iron Works and Applegate. We spent the
next two plus years integrating operations, introducing
lean manufacturing and developing offshore market
opportunities. In the next 17 months ending October
2011, we acquired Mepu, Franklin, Tramco and Airlanco.
During this period, we also expanded our Westfield and
Edwards facilities, consolidated Lethbridge/Nobleford and
Wheatheart/Franklin and launched the Twister greenfield
storage bin facility in Alberta.
as we look back at our 15 years of development, we do so
with both pride and humility.
thE WAkE At
triplE B’S
It was our local watering hole. Within walking distance of
our first AGI office. A family owned business consisting of
a pub, eatery and pool hall. The large horseshoe-shaped
bar near the entrance had been handcrafted by the owner.
Fifteen pool tables were spread out across a vast open
room adorned with murals of classic musicians. Tonight
it was closed to the public. A table had been placed near
the entrance for donations to the Victoria General Hospital.
The owners of Triple B’s had been more than happy to
accommodate Rob’s request to use their facility for his
wake. Why wouldn’t they? Rob was a friend. Hundreds of
fellow friends and family had been at the Faith Lutheran
Church service earlier in the afternoon. It had been a tough
day for all of us and now it was time to kick back and
reminisce. People streamed in way beyond expectations,
but there was plenty of food and drinks for all.
Family values
Fighting instincts
Beautiful family
Cheers
The service had gone off without a hitch, except for some
that became a lifelong passion. A picture of Rob decaling
wanted to share their stories of an exceptional man whom
temporary technical problems with the slide show. And even
a truck for his first business venture at age 19, a paving
they had grown to know and love. There were people from
that seemed appropriate. It was perhaps Rob’s parting bit
company with friend and partner Eddie Slusar. Lots of
all walks of life and from all across our country. Late into
of humour. He had always been jinxed with technology. He
pictures of winter vacations. In the paving business, there
the night when the last of us left, we did a tally of the funds
claimed that his mere presence near a photocopier would
were no summer holidays, good training for his future career
raised. Over $80,000 had been donated for the purpose
cause it to jam. This was a man whose sunroof randomly
in agriculture. There were pictures of his university days
of purchasing special air cushioned beds for the hospital.
opened on his vehicle, usually when it was raining. In the
when he first set out on his new path. Photos of the family
Rob had benefitted from such a bed, and it was his request
end, the slide show worked…and it was worth the wait. We
business that developed into a successful public company.
that we help buy some more so that others could rest in
brought it with us to the wake that evening, wanting to keep
as much of Rob with us as we could. We played it over and
over again. He had packed a lot of living into his 44 years
and two months. The photos were evidence of that.
The music accompanying the slides was set to Eric
Clapton’s Tears In Heaven, Norah Jones’ Don’t Know Why,
comfort. The exceptional generosity was a fitting end to a
special evening, Rob’s Wake at Triple B’s.
and Ray Charles’s Georgia On My Mind. Music had been
Sincerely,
such a huge part of Rob’s life. Throughout the evening, the
The slides spanned the length of three songs. They
sound system carried many of Rob’s favourite tunes above
were mostly of family. Rob’s, Sue’s, theirs…leaving no
the steadily increasing roar of the crowd…Robert Johnson,
doubt about Rob’s priorities. As successful and driven an
Lightning Hopkins, JJ Cale, The Travelling Wilburies and
entrepreneur as Rob was, his finest hours were family
his all-time favourite, Stevie Ray Vaughn. The evening had
times. There were photos of a young boy reading, a pursuit
a special buzz to it. No one wanted to leave. Everyone
Gary Anderson
President and CEO
MAnAGEMEnt’S DiSCUSSiOn
AnD AnAlYSiS March 14, 2012
This Management’s Discussion and Analysis (“MD&A”)
This MD&A contains forward-looking statements. Please
These three items negatively impacted adjusted EBITDA by
should be read in conjunction with the audited consolidated
refer to the cautionary language under the heading “Risks
approximately $13.5 million compared to the prior year.
financial statements and accompanying notes of Ag
and Uncertainties” and “Forward-Looking Statements”
Growth International Inc. (“Ag Growth”, the “Company”,
in this MD&A and in our most recently filed Annual
“we”, “our” or “us”) for the year ended December 31,
Information Form.
2011. Results are reported in Canadian dollars unless
otherwise stated.
SUMMArY OF rESUltS
Ag Growth achieved record sales for the year ended
Net profit and diluted profit per share for the year ended
December 31, 2011 decreased compared to the prior year
due to the factors discussed above and a decrease of
$4.3 million in the Company’s gain on foreign exchange.
The decrease in the foreign exchange gain was in part
The financial information contained in this MD&A has
December 31, 2011, due largely to revenues from divisions
the result of $0.3 million non-cash loss (2010 – gain of
been prepared in accordance with International Financial
acquired in 2010 and 2011. The Company ended the year
$1.3 million) related to the translation of its U.S. dollar
Reporting Standards (“IFRS”). All dollar amounts are
with a strong fourth quarter due to robust preseason sales
denominated debt into Canadian dollars at the year-end
expressed in Canadian currency, unless otherwise noted.
of portable equipment and continued domestic strength in
exchange rate.
Throughout this MD&A references are made to “trade
sales”, “EBITDA”, “adjusted EBITDA”, “gross margin”,
“funds from operations” and “payout ratio”. A description
of these measures and their limitations are discussed
below under “Non-IFRS Measures”.
commercial grain handling. Adjusted EBITDA for the fiscal
year decreased compared to 2010 due to the impact of
foreign exchange, start-up challenges at the Company’s
Twister greenfield storage bin plant and regional market
issues at the Company’s Finland-based Mepu division.
DECEmbER 2006
Founded in 1982, Hi Roller was acquired
in December of 2006.
(thousands of dollars)
Year ended December 31
Trade sales (1)(2)
301,014
262,260
2011
2010
Adjusted EBITDA (2)
Net Profit
Diluted profit per share
Funds from operations (2)
Dividends per share
Payout ratio (2)
53,274
24,523
1.95
40,471
2.40
75%
59,730
30,761
2.40
53,067
2.07
50%
On October 4, 2011, the Company acquired the operating assets of
airlanco, a manufacturer of aeration products and filtration systems.
flat compared to 2010, despite less than optimal harvest
these strong margins due to high throughput levels and
conditions that reduced in-season third quarter sales, due
continued investment in manufacturing through capital
(1) Sales excluding gains or losses on foreign exchange contracts.
to strong preseason demand as dealers began building
expenditures and lean manufacturing practices.
(2) See “Non-IFRS Measures”.
inventory levels in advance of the 2012 season.
A brief summary of our operating results can be found
below. A more detailed narrative is included later in this
MD&A under “Explanation of Operating Results”.
Acquisitions in 2010 and 2011
To enhance the comparison of results between 2011 and
2010, we often refer to results “excluding acquisitions”
so the analysis is comparing only the divisions that were
owned for the full twelve months in both periods. When
comparing results “excluding acquisitions” for the twelve
month periods, the comparison excludes Mepu, Franklin,
Tramco and Airlanco.
trade sales (see non-IFRS measures)
Trade sales in 2011 increased compared to 2010 due
to revenues from divisions acquired in 2010 and 2011,
continued strength in commercial grain handling and an
increase in storage bin sales. Portable grain handling
sales as measured in base currencies ended 2011 roughly
The Company’s consolidated gross margin percentage
Trade sales for the year ended December 31, 2011 were
decreased from 39% in 2010 to 34% in 2011 due to the
significantly impacted by the rate of exchange between
impact of foreign exchange, sales mix and challenges
the Canadian and U.S. dollars. Ag Growth’s average rate
at the Company’s Edwards/Twister and Mepu divisions.
of foreign exchange in 2011 was $0.97 CAD per one
The factors that impacted gross margins at these divisions
U.S. dollar (2010 – $1.04 CAD per one U.S. dollar). Had
are discussed in more detail later in this MD&A.
the foreign exchange rates experienced in 2010 been in
effect in 2011, trade sales in 2011, excluding acquisitions,
would have increased by approximately an additional
$12.6 million.
Gross margin (see non-IFRS measures)
The gross margin percentages at divisions owned for a
full twelve months in both 2010 and 2011 were relatively
consistent year over year, with the exception of the
Edwards/Twister division, despite significant foreign
exchange headwinds. Excluding acquisitions and Edwards/
Twister, the Company’s gross margin percentage was 41%
in both 2010 and 2011. The Company was able to maintain
Adjusted EBitDA (see non-IFRS measures)
Adjusted EBITDA in 2011 benefited from high levels of
domestic demand for commercial equipment, strong
post-harvest demand for portable grain augers and lower
expenses related to stock based compensation and
performance related bonuses.
The stronger Canadian dollar in 2011 negatively impacted
adjusted EBITDA by approximately $5.7 million compared
to 2010. Challenges experienced at the Edwards/Twister
and Mepu divisions, which are discussed in more detail
later in this MD&A, contributed to a decrease in adjusted
EBITDA of $7.7 million compared to 2010.
17
The following table sets forth our geographic concentration
comparisons between 2011 and 2010. These acquisitions
of sales for the periods indicated.
are summarized briefly below.
Diluted profit per share
The decrease in diluted profit per share compared to
2010 is primarily the result of the decrease in adjusted
EBITDA discussed above. In addition, the Company’s gain
trade sales by geographic region
on foreign exchange decreased $4.3 million compared to
(thousands of dollars)
Year ended December 31
2010 due to a $0.3 million non-cash loss on the translation
of the Company’s U.S. dollar denominated debt to Canadian
dollars (2010 – gain of $1.3 million) and less favourable
foreign exchange hedging rates.
payout ratio (see non-IFRS measures)
The Company’s payout ratio increased to 75% (2010 –
50%) due largely to the factors that impacted adjusted
EBITDA as discussed above. The increase compared to
2010 is partially attributable to the increase in Ag Growth’s
monthly dividend rate implemented in November 2010.
Ag Growth’s payout ratio in 2010 would have been 58%
based on the current dividend rate of $2.40 per annum.
COrpOrAtE OVErViEW
We are a manufacturer of agricultural equipment with a
focus on grain handling, storage and conditioning products.
Our products service most agricultural markets including
the individual farmer, corporate farms and commercial
operations. Our business is affected by regional and global
trends in grain volumes, on-farm and commercial grain
storage and handling practices, and crop prices. Our
business is seasonal, with higher sales occurring in the
second and third calendar quarters compared with the first
and fourth quarters.
We manufacture in Canada, the US and Europe and we
sell products globally, with most of our sales in the US.
Canada
US
Overseas
Total
2011
63,746
182,727
54,541
2010
57,971
167,482
36,807
301,014
262,260
Our business is sensitive to fluctuations in the value of the
Canadian and US dollars as a result of our exports from
Canada to the US and as a result of earnings derived from
our US based divisions. Fluctuations in currency impact
our results even though we engage in currency hedging
with the objective of partially mitigating our exposure to
these fluctuations.
Our business is also sensitive to fluctuations in input costs,
especially steel, a principal raw material in our products.
Steel represented approximately 30% of production costs
in fiscal 2011 (2010 – 29%). Short-term fluctuations in the
price of steel impact our financial results even though we
strive to partially mitigate our exposure to such fluctuations
through the use of long-term purchase contracts, bidding
commercial projects based on current input costs and
passing input costs on to customers through sales
price increases.
The inclusion of the assets, liabilities and operating
results of a number of acquisitions significantly impact
Acquisitions in fiscal 2011
Airlanco – On October 4, 2011, the Company acquired the
operating assets of Airlanco, a manufacturer of aeration
products and filtration systems that are sold primarily into
the commercial grain handling and processing sectors.
The purchase price of $11.5 million was financed primarily
from Ag Growth’s acquisition line of credit while costs
related to the acquisition of $0.2 million and a working
capital adjustment of $0.4 million were financed by cash
on hand. The purchase price represents a valuation of
approximately five times Airlanco’s normalized fiscal 2010
EBITDA. Airlanco is located in Falls City, Nebraska and has
traditionally served customers headquartered or located in
North America. The Company had sales of approximately
$11 million in 2010, operating out of an 80,000 square foot
facility with 65 employees.
Acquisitions in fiscal 2010
Mepu – 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
The USDa is currently forecasting that U.S. farmers in 2012 will
plant 94 million acres of corn, the highest planting level since 1944.
based on the USDa yield estimate, this may result in a corn crop
in excess of 14 billion bushels (2011 – 12.4 billion bushels).
Russia and Eastern Europe. Mepu had average sales and
Tramco – Ag Growth acquired 100% of the outstanding
EBITDA of approximately 14 million Euros (CAD $19 million)
shares of Tramco, Inc. (“Tramco”), on December 20, 2010,
and 1.5 million Euros (CAD $2 million), respectively, in the
for cash consideration of $21.5 million, less a working
three fiscal years prior to acquisition. The nature of Mepu’s
capital adjustment of $1.3 million. Costs related to the
business is very seasonal with a heavy weighting towards
acquisition were $0.5 million. The acquisition was funded
economics, the potential for a large number of corn acres
in the U.S. and a return to normalized conditions in western
Canada. The USDA is currently forecasting that U.S.
farmers in 2012 will plant 94 million acres of corn (2011
– 92 million acres), the highest planting level since 1944.
Based on the USDA yield estimate, this may result in a corn
crop in excess of 14 billion bushels (2011 – 12.4 billion
bushels). In western Canada, management anticipates that
seeded acres will more closely approximate traditional
levels as current conditions are not indicative of the
excessive spring flooding that resulted in 4 million acres
of farmland going unseeded in 2011.
Sales of commercial equipment in North America were
at record levels in 2011 due to positive agricultural
economics and a commercial infrastructure which is
expanding its capacity to accommodate the growing
the second and third quarters.
Franklin – Ag Growth acquired the assets of
Winnipeg-based Franklin Enterprises Ltd (“Franklin”)
effective October 1, 2010 for cash consideration of
$7.1 million, plus costs related to the acquisition
of $0.4 million and a working capital adjustment of
$1.7 million. The acquisition was funded from cash on
hand. Franklin enhances Ag Growth’s manufacturing
capabilities and can increase production capacity in
periods of high in-season demand. Franklin has played
an integral role in the development of Ag Growth’s new
from cash on hand. Tramco is a manufacturer of heavy duty
number of total bushels of grain in the system. Based on
chain conveyors and related handling products, primarily
current conditions management anticipates continued high
for the grain processing sector. 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 food supply chain.
Tramco had average sales and EBITDA of approximately
$30 million and $4 million, respectively, in the two fiscal
levels of domestic demand in 2012, however domestic
sales may fall below the record sales achieved in 2011.
International commercial grain handling sales are expected
to increase compared to 2011 as the Company remains
very encouraged with respect to the outlook for developing
markets and the potential of product bundling with storage
years prior to acquisition. Tramco manufactures in Wichita,
bins and other Ag Growth products.
Kansas, and in Hull, England and has a sales office in
the Netherlands.
storage bin product line. Franklin’s custom manufacturing
business generates monthly sales of approximately
OUtlOOk
Management expects demand for portable grain handling
$1 million and roughly breaks even on an EBITDA basis.
equipment in 2012 will benefit from positive on-farm
Entering 2012, management believes the start-up
challenges at our greenfield storage bin facility at Twister
are largely resolved however targeted gross margins
may not be immediately achieved. Interest in our storage
bin product line remains strong both domestically and
19
overseas and management retains a very positive outlook
for contributions from this plant in 2012 and beyond. The
new bins have been well received by our domestic and
international customers.
Management expects earnings from Mepu in 2012 to
improve significantly compared to 2011 due to improved
market conditions, largely the result of a favourable 2011
harvest, and improved steel cost alignment. Mepu has
historically been very seasonal, with negative EBITDA in
the first and fourth quarters, and this trend is expected to
continue in 2012.
Ag Growth remains very optimistic with respect to its
international potential. The Company has continued to
invest in its international development with additions to
its sales team and has recently opened sales offices in
Columbia, Argentina and Latvia. Ag Growth’s international
sales backlog for 2012 is significantly higher compared
to the backlog at this time in 2011. The Company’s
geographic scope of activity continues to expand beyond
the original areas of focus of Russia, Eastern Europe and
Latin America to include increased activity in Southeast
Asia, the Middle East and Africa.
ag Growth remains very optimistic with respect to its international
potential. The Company has continued to invest in its international
development with additions to its sales team and has recently
opened sales offices in Columbia, argentina and latvia.
Management expects gross margins in portable and
Consistent with prior years, demand in 2012, particularly
commercial handling equipment to remain strong in 2012
in the second half, will be influenced by crop and harvest
and expects margin improvements at the Mepu and Twister
conditions. Changes in global macro-economic factors,
divisions. The Company’s gross margin expectations for
including the availability of credit in new markets, also may
storage products in 2012 are significantly higher than
influence demand, primarily for commercial grain handling
those achieved in 2011. However, storage sales are
and storage products. Results may be also be impacted by
expected to comprise a higher proportion of total sales in
changes in steel costs and other material inputs. The rate
2012 and this change in sales mix is expected to reduce
of exchange between the Canadian and US dollars may
gross margin on a consolidated basis. As a result of these
impact the comparison of results between 2012 and 2011.
offsetting factors, Ag Growth’s consolidated gross margin
The Company’s average rate of exchange in 2011 was
percentage in 2012 is expected to remain relatively
$1 USD = CAD $0.97.
consistent with 2011.
may 2007
Established in 1976, Twister was acquired
in May of 2007 by AGI.
DEtAilED OpErAtinG rESUltS
EBitDA rECOnCiliAtiOn
(thousands of dollars)
Year ended December 31
(thousands of dollars)
Year ended December 31
2010
262,260
Profit before income taxes
Trade sales (1)
Gain on foreign exchange (2)
Sales
Cost of inventories
Depreciation & amortization
Cost of sales
General and administrative
Transaction expenses
Depreciation & amortization
Other operating income
Finance costs
Finance loss (income)
Profit before income taxes
Current income taxes
Deferred income taxes
Profit for the period
Net profit per share
Basic
Diluted
(1) See “Non-IFRS Measures”.
(2) Primarily related to gains on foreign exchange contracts.
2011
301,014
4,918
305,932
198,767
5,436
204,203
49,392
1,676
3,758
(100)
12,668
159
34,176
3,910
5,743
24,523
1.97
1.95
7,007
269,267
160,581
3,377
163,958
46,009
1,696
3,353
(605)
12,484
(2,065)
44,437
5,627
8,049
30,761
2.43
2.40
Finance costs
Depreciation in cost of sales and G&A expenses
Amortization in cost of sales and G&A expenses
Accelerated vesting and death benefits
EBitDA (1)
Transaction costs
Gain on foreign exchange in sales (2)
Loss (gain) on foreign exchange in finance income
Loss on sale of property, plant & equipment
Other operating expense
Adjusted EBitDA (1)
(1) See “Non-IFRS Measures”.
(2) Primarily related to gains on foreign exchange contracts.
2011
34,176
12,668
5,418
3,776
0
56,038
1,676
(4,918)
276
76
126
53,274
2010
44,437
12,484
3,312
3,418
2,549
66,200
1,696
(7,007)
(1,300)
262
(121)
59,730
ASSEtS AnD liABilitiES
(thousands of dollars)
Total assets
Total liabilities
Year ended December 31
2011
394,566
192,407
2010
398,385
188,091
21
EXplAnAtiOn OF OpErAtinG rESUltS
trade sales
International trade sales in the year ended December 31,
Company’s gross margin was 41% in both 2010 and 2011.
2011 were $54.5 million (2010 – $36.8 million). The
The Company was able to maintain these strong margins
increase of 42% from a year earlier was primarily due
due to high throughput levels and continued investment
to our 2010 acquisitions of Mepu and Tramco. Excluding
in manufacturing through capital expenditures and lean
acquisitions, international trade sales in 2011 were
manufacturing practices.
(thousands of dollars)
Year ended December 31
2011
2010
301,014
262,260
238,478
247,727
Trade sales
Trade sales excluding
acquisitions (1)
Trade sales excluding
acquisitions, adjusted
for FX (2)
(1) Trade sales excluding acquisitions completed in 2010
and 2011.
(2) Trade sales excluding acquisitions and adjusted to assume
the 2011 FX rate was identical to the rate in 2010.
Trade sales were negatively impacted by a stronger
Canadian dollar compared to 2010. If the Canadian/US
dollar exchange rates in 2011 had been the same as in
2010, trade sales excluding acquisitions for the year ended
December 31, 2011 would have been $12.6 million higher
and exceeded the levels achieved in 2010.
Trade sales in 2011 benefited from continued strength in
commercial grain handling, increased storage bin sales
and revenues from acquisitions completed in 2010 and
2011. Portable grain handling sales as measured in base
$23.2 million, compared to $27.4 million in 2010. The
year over year decrease is largely due to the inclusion of
a single $10 million sale to Russia in 2010.
251,141
247,727
Gross profit and gross margin
(thousands of dollars)
Year ended December 31
2011
2010
301,014
262,260
198,767
102,247
160,581
101,678
Trade sales
Cost of inventories (1)
Gross Margin
Gross Margin (1)
(as a % of trade sales)
Gross Margin (2)
(excluding 2010
acquisitions)
37%
39%
(1) Excluding depreciation and amortization included in cost
of sales.
(2) Gross margin without taking into effect the divisions acquired
The Company’s consolidated gross margin percentage
decreased compared to 2010 due in part to the impact
of foreign exchange and product sales mix. Also of
significance were challenges experienced at the
Company’s Edwards/Twister and Mepu divisions:
• Edwards/twister – Ag Growth embarked on an
ambitious greenfield storage bin manufacturing project
in 2010 and anticipated the new equipment it had
purchased would be commissioned early in 2011. The
equipment was not commissioned until June 2011 and
with limited time to prototype the new designs and to
establish production processes and engineering support.
As a result, the Company experienced production
inefficiencies and incurred significant expenditures in
order to properly service its customers. Entering 2012,
management believes these start-up challenges are
34%
39%
as a result the Company had to commence production
in 2010 and 2011 so as to provide a comparison based only
largely resolved.
on the results of divisions that were operating in both periods.
• Mepu – Results at Finland-based Mepu in 2011 were
currencies ended 2011 roughly flat compared to 2010,
The gross margin percentages at divisions owned for a
significantly impacted by regional market challenges.
despite less than optimal growing conditions that reduced
full twelve months in both 2010 and 2011 were relatively
A major drought in northern Europe in 2010 led to a very
in-season third quarter sales, due to strong preseason
consistent year over year, with the exception of Edwards/
poor harvest, resulting in surplus inventory throughout
demand as dealers began building inventory levels in
Twister, despite significant foreign exchange headwinds.
the region as the Company entered 2011. In early 2011,
advance of 2012.
Excluding acquisitions and Edwards/Twister, the
the region experienced a significant spike in steel costs
which, due to the unusual competitive situation, Mepu
was unable to pass through to customers. As a result,
Mepu experienced significant margin compression
and reported negative EBITDA in 2011. Gross margin
and EBITDA at Mepu in 2012 are expected to increase
compared to 2011 due to improved market conditions,
largely the result of a favourable 2011 harvest, and
improved steel cost alignment.
General and administrative expenses
Trade sales in 2011 benefited from continued strength in commercial
grain handling, increased storage bin sales and revenues from
acquisitions completed in 2010 and 2011.
(thousands of dollars)
Year ended December 31
EBitDA and adjusted EBitDA
G&A (1)
G&A (as a % of
trade sales)
G&A excluding
acquisitions
2011
49,392
2010
43,460
16%
17%
38,723
41,222
(1) G&A excluding depreciation, amortization, transaction costs
and accelerated vesting and death benefits.
G&A expenses increased compared to 2010 largely due
to new acquisitions. As a percentage of trade sales, G&A
was 16% in 2011 (2010 – 17%). Compared to 2010, G&A
expenses net of acquisitions decreased $2.5 million mainly
due to lower stock-based compensation and short-term
bonuses, which were partially offset by increased
professional fees related the Company’s conversion
to IFRS and a continued investment in international
sales development.
(thousands of dollars)
Year ended December 31
EBITDA (1)
Adjusted EBITDA (1)
2011
56,038
53,274
2010
66,200
59,730
(1) See the EBITDA reconciliation table above and “Non-IFRS
Measures” later in this MD&A.
comprised of US $25.0 million aggregate principal amount
of non-amortizing secured notes that bear interest at
6.80% and mature October 29, 2016 and US $10.5 million
of non-amortizing term debt, net of all deferred financing
costs of $0.3 million. See “Capital Resources” for a
description of the Company’s credit facilities.
Obligations under capital lease of $0.2 million include a
number of equipment leases with an average interest rate
The decline in EBITDA and adjusted EBITDA in 2011
of 6.5%. The lease end dates are in 2012.
compared with a year earlier is largely due to the
stronger Canadian dollar in 2011, start-up challenges at
the Company’s new storage bin facility and the factors
affecting Mepu, as discussed under “Explanation of
Operating results”.
Finance costs
The Company’s bank indebtedness as at December 31,
2011 was $nil (2010 – $nil) and its outstanding long-term
debt and obligations under capital leases including the
current portion was $36.0 million (2010 – $25.2 million).
Long-term debt at December 31, 2011 is primarily
Finance costs for the year ended December 31, 2011 were
$12.7 million (2010 – $12.5 million). At December 31,
2011 the Company had outstanding $114.9 million
aggregate principal amount of convertible unsecured
subordinated debentures (2010 – $115.0 million). The
Debentures bear interest at an annual rate of 7.0% and
mature December 31, 2014. See “Capital Resources”.
In addition to interest on the instruments noted above,
finance costs include non-cash interest related to
debenture accretion, the amortization of deferred finance
costs, stand-by fees and other sundry cash interest.
23
profit and profit per share
For the year ended December 31, 2011, the Company
reported net profit of $24.5 million (2010 – $30.8 million),
basic net profit per share of $1.97 (2010 – $2.43), and
fully diluted net profit per share of $1.95 (2010 – $2.40).
Profit per share for the year ended December 31, 2011
decreased compared to the prior year primarily due to
lower adjusted EBITDA (see “Explanation of Operating
Results”) and a lower gain on foreign exchange.
Finance income
Finance income is comprised of interest earned on
the Company’s cash balances and gains or losses on
translation of the Company’s U.S. dollar denominated
long-term debt.
Depreciation and amortization
Under IFRS the depreciation of property, plant and
equipment and the amortization of intangible assets are
categorized on the income statement in accordance with
the function to which the underlying asset is related.
Depreciation
Year ended December 31
Effective tax rate
Year ended December 31
(thousands of dollars)
Current tax expense
Deferred tax expense
Total tax
2011
3,910
5,743
9,653
2010
5,627
8,049
13,676
Profit before taxes
34,176
44,437
Total tax %
28.2%
30.8%
Current income tax expense
For the year ended December 31, 2011, the Company
recorded current tax expense of $3.9 million (2010 –
$5.6 million). Current tax expense relates primarily to
(thousands of dollars)
2011
2010
certain subsidiary corporations of Ag Growth, including its
Depreciation in cost
of sales
Depreciation in G&A
Total depreciation
4,933
2,927
485
5,418
385
3,312
Amortization
Year ended December 31
(thousands of dollars)
2011
2010
Amortization in cost
of sales
Amortization in G&A
Total Amortization
503
3,273
3,776
450
2,968
3,418
U.S. and Finland based divisions.
Deferred income tax expense
For the year ended December 31, 2011, the Company
recorded deferred tax expense of $5.7 million (2010 –
$8.0 million). The deferred tax expense in 2011 relates
to the utilization of deferred tax assets plus a decrease
in deferred 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.
nOvEmbER 2007
Founded in 1852 and based in Decatur, Illinois, Union Iron
was acquired in November 2007.
Selected annual information
(thousands of dollars, other than per share data)
twelve months ended December 31
Trade sales
EBITDA
Adjusted EBITDA
Net income
Earnings per share – basic
Earnings per share – fully diluted
Funds from operations
Payout ratio
Dividends declared per share (2)
Fund trust units
Class B units
Common shares
Total assets
Total long-term liabilities
2011
301,014
56,038
53,274
24,523
1.97
1.95
40,471
75%
n/A
n/A
2.40
394,566
151,986
2010
262,260
66,200
59,730
30,761
2.43
2.40
53,067
50%
N/A
N/A
2.07
398,385
139,831
2009 (1)
237,294
60,680
59,277
45,303
3.53
3.45
52,165
51%
0.85
0.85
1.19
387,850
174,024
(1) Results for 2010 have been restated in accordance with IFRS. The Company was not required to apply IFRS to periods prior to 2010 and accordingly 2009 comparative data is presented in accordance with CGAAP.
(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
conversion transaction all Trust Units and Class B units
• The inclusion of the assets, liabilities and operating
in the table above:
of the Fund were exchanged for common shares of the
results of the following acquisitions significantly impacts
corporation (see “Conversion to a Corporation”).
comparisons in the table above:
• Sales, gain (loss) on foreign exchange, net earnings, and
net earnings per share are significantly impacted by the
• Total assets and long-term liabilities were impacted
rate of exchange between the Canadian and U.S. dollars.
by financing activities in 2009 as the Company issued
• On June 3, 2009, the Company converted from an
income trust to a corporation. In conjunction with the
$115 million face value of convertible debentures, repaid
its long-term debt, and issued new long-term debt.
• April 29, 2010 – Mepu
• October 1, 2010 – Franklin
• December 20, 2010 – Tramco
• October 4, 2011 – Airlanco
25
Quarterly financial information (thousands of dollars)
Q1
Q2
Q3
Q4
Fiscal 2011
Q1
Q2
Q3
Q4
Fiscal 2010
Average USD/CAD
exchange rate
0.99
0.96
0.97
0.96
0.97
Average USD/CAD
exchange rate
1.05
1.03
1.05
1.02
1.04
2011
2010
profit
4,706
11,994
4,570
3,253
24,523
profit (loss)
4,351
11,626
15,164
(380)
30,761
Sales
67,065
88,111
83,341
67,415
305,932
Sales
52,430
76,727
88,703
51,407
269,267
Basic profit per share
Diluted profit per share
0.38
0.97
0.37
0.26
1.97
0.38
0.91
0.36
0.26
1.95
Basic profit (loss)
per share
Diluted profit (loss)
per share
0.33
0.90
1.23
(0.03)
2.43
0.33
0.85
1.12
(0.03)
2.40
Interim period sales and profit historically reflect seasonality.
• Sales, net profit and profit per share are significantly
The third quarter is typically the strongest primarily due to
impacted by the acquisitions of Mepu (April 29, 2010),
Acquisitions in 2010 and 2011
In the fourth quarter narrative below the comparisons to
the timing of construction of commercial projects and high
Franklin (October 1, 2010), Tramco (December 20, 2010)
2010 most often include a comparison of consolidated
in-season demand at the farm level. Due to the seasonality
and Airlanco (October 2011).
of Ag Growth’s working capital movements, cash provided
by operations will typically be highest in the fourth quarter.
FOUrth QUArtEr
Sales and EBITDA in the fourth quarter of 2011 exceeded
The following factors impact the comparison between
the record levels achieved in 2010, despite the negative
periods in the table above:
• Sales, gain (loss) on foreign exchange, profit, and profit
per share in all periods are significantly impacted by the
rate of exchange between the Canadian and U.S. dollars.
impact of foreign exchange, due to strength in both
portable and commercial grain handling sales.
results and a comparison that includes only the divisions
that were owned for the full three month period in both
2010 and 2011. The “excluding acquisitions” comparison
below excludes Tramco (acquired December 2010) and
Airlanco (acquired October 2011).
trade sales
Trade sales for the three months ended December 31,
2011 were $67.0 million (2010 – $49.4 million). Excluding
acquisitions, trade sales in the fourth quarter of 2011
were $56.1 million, an increase of $6.9 million or 14%
over 2010. The increase in trade sales is largely due to
increased demand for portable grain handling equipment,
as the Company’s dealer network replenished their
inventory levels in advance of the 2012 season, higher
domestic sales of commercial handling equipment and an
increase in storage bin sales internationally.
Sales and EbITDa in the fourth quarter of 2011 exceeded the
record levels achieved in 2010, despite the negative impact
of foreign exchange, due to strength in both portable and
commercial grain handling sales.
Gross margin
Gross margin as a percentage of sales for the three months
ended December 31, 2011 was 33%, and excluding
acquisitions the gross margin in the fourth quarter of
of sales (2010 – $10.4 million or 24%). The decrease
EBITDA for the three months ended December 31, 2011
of $0.4 million from 2010 was primarily the result of
was $9.7 million, compared to $8.4 million in 2010.
a lower expense related to stock based compensation
The increase in EBITDA is the result of the factors above
and a reduction in short term bonuses, partially offset by
partially offset by a decrease in the Company’s gain on
2011 was 36% (2010 – 35%). Gross margin percentages
increased sales and marketing expenses as the Company
foreign exchange from $2.9 million in 2010 to $1.2 million
in the fourth quarter of 2011 benefited from sales mix,
continued to expand its international sales infrastructure.
in 2011.
manufacturing efficiencies realized through the impact of
G&A expenses as a percentage of sales are typically high in
lean manufacturing and the advantages of high production
the fourth quarter as the Company’s trade sales are lower
volumes, partially offset by the negative impact of the
due to seasonality.
For the three months ended December 31, 2011, the
Company reported net earnings of $3.3 million (2010
– loss of $0.4 million), basic net earnings per share of
stronger Canadian dollar and quarter-over-quarter gross
margin percentage decreases at the Edwards/Twister and
Mepu divisions.
Adjusted EBitDA, EBitDA and net earnings
Adjusted EBITDA for the three months ended December 31,
$0.26 (2010 – loss per share of $0.03), and fully diluted
net earnings per share of $0.26 (2010 – loss per share
2011 was $8.4 million (2010 – $6.7 million). Excluding
of $0.03).
Expenses
For the three months ended December 31, 2011, general
acquisitions, adjusted EBITDA in the fourth quarter of
2011 was $8.2 million (2010 – $6.5 million). The increase
and administrative expenses were $13.6 million or 20%
resulted primarily from higher sales of portable and
of sales. Excluding acquisitions, selling, general and
administrative expenses were $10.0 million or 20%
commercial grain handling as discussed above.
27
Cash flow and liquidity
(thousands of dollars)
Profit before income taxes for the period
Add charges (deduct credits) to operations not requiring a current cash payment:
Depreciation and amortization
Translation loss (gain) on foreign exchange
Non-cash interest expense
Stock based compensation
Loss on sale of assets
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
Provisions
Settlement of SAIP obligation
Income tax paid
Cash provided by operations
janUaRy 2008
Established in 1955, Applegate was acquired
by AGI in January of 2008.
Year ended December 31
2010
44,437
6,731
(1,022)
2,274
8,214
(263)
60,371
(9,664)
(1,321)
(5,248)
2,046
(2,868)
748
(16,307)
0
(5,063)
39,001
2011
34,176
9,194
1,793
2,422
2,038
(76)
49,547
(9,607)
(9,850)
5,034
(1,755)
1,445
280
(14,453)
(1,998)
(5,217)
27,879
For the year ended December 31, 2011, cash provided by
increase in the number of days accounts receivable remain
• Grain storage bin capacity – in 2010 the Company
operations was $27.9 million (2010 – $39.0 million). The
outstanding. In addition, payment terms related to certain
invested $15.9 million towards a grain storage bin
decrease in cash generated from operations compared to
preseason ordering programs have changed compared to
manufacturing facility and automated storage bin
2010 is the result of a decrease in EBITDA and net earnings
prior years which is expected to result in higher levels of
production equipment. The investment is expected to
which resulted primarily from the impact of foreign
accounts receivable in the first two quarters of 2012.
allow the Company to capitalize on international sales
exchange and challenges at the company’s Edwards/
Twister and Mepu divisions (see “Explanation of Operating
Results” above).
Working Capital requirements
Interim period working capital requirements typically reflect
Capital Expenditures
Ag Growth had maintenance capital expenditures of
$3.9 million in the year ended December 31, 2011 (2010
– $3.3 million), representing 1.3% of trade sales (2010 –
opportunities and to increase sales in North America.
In the year ended December 31, 2011, the Company
invested $3.4 million to complete the project. No
additional significant expenditures are anticipated.
1.3%). Maintenance capital expenditures in 2011 relate
• Manufacturing equipment – $1.3 million was invested
the seasonality of the business. Ag Growth’s collections of
primarily to purchases of manufacturing equipment, trucks,
to upgrade certain equipment to allow for increased
accounts receivable are weighted towards the third and
trailers, and forklifts and were funded through cash on
capacity and operating efficiency.
fourth quarters. This collection pattern, combined with
hand, cash from operations and bank indebtedness.
Ag Growth defines maintenance capital expenditures as
the paint line and shipping/receiving area to
cash outlays required to maintain plant and equipment
provide for increased capacity and improved
at current operating capacity and efficiency levels.
manufacturing efficiencies.
• Union Iron – $0.6 million was invested to upgrade
historically higher 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 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.
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, 2011 of $5.3 million (2010
– $21.7 million). As expected, non-maintenance capital
expenditures in 2011 have decreased significantly from
2010 largely due to the significant investment in 2010
related to the Company’s greenfield storage bin facility.
Non-maintenance capital expenditures in 2011 were
Working capital requirements in 2012 are expected to
financed through cash on hand, cash from operations and
be generally consistent with historical patterns, however
bank indebtedness.
growth in the Company’s storage bin sales and increasing
international sales with extended payment terms may
result in higher than historical inventory levels and an
The following capital expenditures were classified as
non-maintenance in 2011:
Capital expenditures in 2012 are expected to decrease
modestly compared to 2011 and are expected to be
financed through a combination of cash on hand, bank
indebtedness and term debt.
Cash Balance
The Company’s cash balance in 2011 decreased
$28 million (2010 – $74 million) as growth in working
capital and payments related to acquisitions offset cash
generated from operations net of dividend payments and
capital expenditures. The decrease was more significant
in 2010 due to higher capital expenditures, primarily due
to the greenfield bin plant in Alberta, and outlays related to
the Company’s normal course issuer bid.
29
Contractual obligations (thousands of dollars)
Debentures
Long-term debt
Capital leases
Operating leases
Total obligations
total
114,885
36,134
131
2,514
153,664
2012
0
0
131
657
788
2013
0
0
0
533
533
2014
114,885
10,709
0
513
126,107
2015
0
0
0
468
468
2016+
0
25,425
0
343
25,768
Debentures relate to the aggregate principal amount
“Convertible Debentures”). The remainder of the debenture
was drawn under this facility (2010 – $nil). The facilities
of debentures issued by the Company in October 2009
proceeds was deployed in fiscal 2011.
bear interest at rates of prime plus 0.50 % to prime plus
(see “Convertible Debentures” below). Long-term debt
at December 31, 2011 is comprised of US $25.0 million
aggregate principal amount of secured notes issued
through a note purchase and private shelf agreement
and US $10.5 million non-amortizing term debt, net of
deferred financing costs. Capital lease obligations relate
to a number of leases for equipment. The operating leases
relate primarily to vehicle, equipment, warehousing, and
facility leases and were entered into in the normal course
of business.
long-term debt
On October 29, 2009, the Company authorized the issue
1.50% based on performance calculations and were to
mature on October 29, 2012.
and sale of US $25.0 million aggregate principal amount of
Subsequent to December 31, 2011, the Company renewed
secured notes through a note purchase and private shelf
its credit facility on substantially the same terms with
agreement. The notes are non-amortizing and bear interest
its existing lenders. The renewed credit includes lender
at 6.80% and mature October 29, 2016. The note purchase
approval to expand the facility by an additional $25 million,
agreement also provides for a possible future issuance
bears interest at rates of prime plus 0.0% to prime plus
and sale of notes of up to an additional US $75.0 million
1.0% based on performance calculations and matures
aggregate principal amount, with maturity dates no longer
on the earlier of March 8, 2016 or three months prior to
than ten years from the date of issuance. Under the note
maturity date of the Debentures, unless refinanced on
As at March 14, 2012, the Company had outstanding
purchased agreement, Ag Growth is subject to certain
terms acceptable to the lenders. Ag Growth is subject
commitments of $1.5 million in relation to capital
financial covenants, including a maximum leverage ratio
to certain financial covenants, including a maximum
expenditures for property, plant and equipment.
and a minimum debt service ratio. The Company is in
leverage ratio and a minimum debt service ratio, and is in
CApitAl rESOUrCES
Cash
The Company had a cash balance of $6.8 million as at
compliance with all financial covenants.
compliance with all financial covenants.
On October 29, 2009, the Company also entered a credit
facility with three Canadian chartered banks that includes
Obligation under capital leases
Upon the acquisition of Franklin the Company assumed a
December 31, 2011 (2010 – $35.0 million). The Company’s
CAD $10.0 million and US $2.0 million available for
number of capital leases for manufacturing equipment. The
cash balance at December 31, 2010 was higher than is
working capital purposes, and provides for non-amortizing
leases bear interest at rates averaging 6.5% and mature in
typical because it included a portion of the net proceeds
long-term debt of up to CAD $38.0 million and US
2012. The Company expects to exercise the buyout option
received from an October 2009 debenture offering (see
$20.5 million. As at December 31, 2011, US $10.5 million
upon maturity of the equipment leases.
Convertible debentures
In October 2009 the Company issued $115 million
20 consecutive trading days ending on the fifth trading
day preceding the date on which the notice of redemption
COMMOn ShArES
The following common shares were issued and outstanding
aggregate principal amount of convertible unsecured
is given is not less than 125% of the conversion price.
during the periods indicated:
subordinated debentures (the “Debentures”) at a price of
On and after December 31, 2013, the Debentures may be
$1,000 per Debenture. The Debentures bear interest at
redeemed, in whole or in part, at the option of the Company
an annual rate of 7.0% payable semi-annually on June
at a price equal to their principal amount plus accrued and
December 31, 2009
30 and December 31. Each Debenture is convertible into
unpaid interest.
common shares of the Company at the option of the holder
at a conversion price of $44.98 per common share. The
maturity date of the Debentures is December 31, 2014.
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
Normal course issuer bid
Share award incentive plan issuance
December 31, 2010
Conversion of Debentures
# Common
Shares
13,078,040
(674,600)
140,000
12,543,440
2,556
Net proceeds of the offering of approximately
to pay the principal amount of the Debentures, in whole or
December 31, 2011 and March 14, 2012
12,545,996
$109.9 million were used by Ag Growth for general
in part, by issuing and delivering for each $100 due that
corporate purposes and to repay existing indebtedness
number of freely tradeable common shares obtained by
of approximately US $37.6 million and CAD $11.9 million
dividing $100 by 95% of the volume weighted average
under the Company’s credit facility. In 2010, the
trading price of the common shares on the Toronto Stock
Company used proceeds from the Debentures to
Exchange (“TSX”) for the 20 consecutive trading days
fund the acquisitions of Mepu, Franklin and Tramco
ending on the fifth trading day preceding the date fixed
(see “Acquisitions in Fiscal 2010”) and to finance the
for redemption or the maturity date, as the case may be.
expansion of the Company’s storage bin product line
Any accrued and unpaid interest thereon will be paid in
(see “Capital Expenditures”).
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
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.
equal to their principal amount plus accrued and unpaid
The Debentures trade on the TSX under the symbol
interest, provided that the volume weighted average
AFN.DB.
trading price of the common shares during the
On November 17, 2011, Ag Growth commenced a normal
course issuer bid for up to 994,508 common shares,
representing 10% of the Company’s public float at that
time. In the year ended December 31, 2011, no common
shares were purchased under the 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. 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.
In the year ended December 31, 2011, 2,556 common
shares were issued on conversion of $115,000 principal
amount of Debentures. Ag Growth has reserved 2,554,136
common shares for issuance upon conversion of the
Debentures as at December 31, 2011.
31
Ag Growth has granted 220,000 share awards under
its share award incentive plan. In fiscal 2010 a total of
140,000 share awards vested and the equivalent number
of common shares was issued to the participants. In 2011
an additional 40,000 share awards vested however no
common shares were issued as the participants were
compensated in cash rather than common shares. As at
December 31, 2011, a total of 40,000 share awards were
outstanding. These vested on January 1, 2012, however
no common shares were issued as the participants were
compensated in cash rather than common shares.
The administrator of the LTIP has acquired 317,304
common shares to satisfy its obligations with respect to
awards under the LTIP for fiscal 2007, 2008, 2009 and
2010. These common shares are held by the administrator
until such time as they vest to the LTIP participants. As at
December 31, 2011, a total of 182,928 common shares
related to the LTIP had vested to the participants.
A total of 23,144 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
In the year ended December 31, 2011, Ag Growth declared
In the year ended December 31, 2011, ag Growth declared dividends
of $2.40 per common share (2010 – $2.07).
monthly dividends. The Company’s Board of Directors
changes in working capital as they are necessary to drive
reviews financial performance and other factors when
organic growth and have historically been financed by the
assessing dividend levels. An adjustment to dividend levels
Company’s operating facility (See “Capital Resources”).
may be made at such time as the Board determines an
Funds from operations should not be construed as an
adjustment to be in the best interest of the Company.
alternative to cash flows from operating, investing, and
Dividends in a fiscal year are typically funded entirely
through cash from operations, although due to seasonality
financing activities as a measure of the Company’s liquidity
and cash flows.
dividends may be funded on a short-term basis by the
(thousands of dollars)
Year ended December 31
Company’s operating lines. Dividends in year ended
December 31, 2011 were funded through cash on
hand, cash from operations and bank indebtedness.
The Company expects dividends in 2012 will be funded
through bank indebtedness and cash from operations.
FUnDS FrOM OpErAtiOnS
Funds from operations, defined under “Non-IFRS
Measures” is cash flow from operating activities before
the net change in non-cash working capital balances
related to operations and stock-based compensation, less
EBITDA
Stock based
compensation
Non-cash interest
expense
Translation loss (gain)
on foreign exchange
Interest expense
Income taxes paid
Maintenance capital
expenditures
Funds from operations (1)
2011
56,038
2010
66,200
2,038
6,511
2,422
2,274
1,793
(12,668)
(5,217)
(3,935)
40,471
(1,022)
(12,484)
(5,063)
(3,349)
53,067
dividends to shareholders of $30.1 million (2010 –
maintenance capital expenditures and adjusted for the
$26.9 million). Ag Growth increased its monthly dividend
gain or loss on the sale of property, plant & equipment.
rate from $0.17 per common share to $0.20 per common
The objective of presenting this measure is to provide
share in November 2010. Ag Growth’s policy is to pay
a measure of free cash flow. The definition excludes
Funds from operations can be reconciled to cash provided
by operating activities as follows:
(thousands of dollars)
Year ended December 31
FinAnCiAl inStrUMEntS
Foreign exchange contracts
Risk from foreign exchange arises as a result of variations
contracts with three Canadian chartered banks to partially
hedge its foreign currency exposure on anticipated U.S.
dollar sales transactions and as at December 31, 2011,
in exchange rates between the Canadian and the U.S.
had outstanding the following foreign exchange contracts:
2011
2010
dollar. Ag Growth has entered into foreign exchange
Cash provided by
operating activities
Change in non-cash
working capital
Settlement of SAIP option
Cash portion of death
benefits (3)
Maintenance capital
expenditures
Loss on sale of assets
Funds from operations (1)
(3,935)
76
40,471
(3,349)
263
53,067
Shares outstanding (2)
12,562,335
12,828,372
Funds from operations
per share
Dividends declared
per share
Payout ratio (1)
(1) See “Non-IFRS Measures”.
3.22
2.40
75%
4.14
2.07
50%
27,879
39,001
14,453
1,998
16,307
0
Settlement Dates
Face Amount USD (000s)
Average rate CAD
CAD Amount (000s)
Jan – Dec 2012
$60,000
$0.9905
$59,430
Forward Foreign Exchange Contracts
0
845
The fair value of the outstanding forward foreign exchange
results can vary from these assumptions. It is possible
contracts in place as at December 31, 2011 was a
that materially different results would be reported using
loss of $1.8 million. Consistent with prior periods, the
different assumptions.
Company has elected to apply hedge accounting for these
contracts and the unrealized loss has been recognized
in other comprehensive income for the period ended
December 31, 2011.
CritiCAl ACCOUntinG EStiMAtES
The preparation of financial statements in conformity
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
deferred income taxes. Ag Growth’s accounting policies are
described in the notes to its December 31, 2011 audited
with IFRS requires management to make estimates and
financial statements.
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
(2) Fully diluted weighted average, excluding the potential dilution
liabilities at the date of the financial statements and
of the Debentures as the calculation includes the interest
the reported amount of revenues and expenses during
expense related to the Debentures.
(3) Accelerated vesting and death benefits expense of $2,549 has
been excluded from EBITDA in 2010. The non-cash portion of
this expense was $1,704.
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
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
33
continuously evaluated and updated. Ag Growth is not
annually. Assessing goodwill and intangible assets for
likelihood of utilizing such losses and deductions. These
able to predict changes in the financial conditions of its
impairment requires considerable judgment and is based in
estimates and assumptions are subject to significant
customers, and the Company’s judgment related to the
part on current expectations regarding future performance.
uncertainty and if changed could materially affect our
recoverability of accounts receivable may be materially
Changes in circumstances including market conditions
assessment of the ability to fully realize the benefit of the
impacted if the financial condition of the Company’s
may materially impact the assessment of the fair value of
deferred income tax assets. Deferred tax asset balances
customers deteriorates.
goodwill and intangible assets.
Valuation of inventory
Assessments and judgments are inherent in the
Deferred income taxes
Deferred income taxes are calculated based on
determination of the net realizable value of inventories.
assumptions related to the future interpretation of tax
The cost of inventories may not be fully recoverable if
legislation, future income tax rates, and future operating
they are slow moving, damaged, obsolete, or if the selling
results, acquisitions and dispositions of assets and
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 probable that those deferred tax assets would be
fully realized.
price of the inventory is less than its cost. Ag Growth
liabilities. Ag Growth periodically reviews and adjusts its
regularly reviews its inventory quantities and reduces the
estimates and assumptions of income tax assets and
riSkS AnD UnCErtAintiES
The risks and uncertainties described below are not the
cost attributed to inventory no longer deemed to be fully
liabilities as circumstances warrant. A significant change in
only risks and uncertainties we face. Additional risks
recoverable. Judgment related to the determination of net
any of the Company’s assumptions could materially affect
and uncertainties not currently known to us or that we
realizable value may be impacted by a number of factors
Ag Growth’s estimate of deferred tax assets and liabilities.
currently consider immaterial also may impair operations.
including market conditions.
Goodwill and intangible assets
Assessments and judgments are inherent in the
Future benefit of tax-loss carryforwards
Ag Growth should only recognize the future benefit of
tax-loss carryforwards where it is probable that sufficient
determination of the fair value of goodwill and intangible
future taxable income can be generated in order to fully
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.
assets. Goodwill and indefinite life intangible assets are
utilize such losses and deductions. We are required to
recorded at cost and finite life intangibles are recorded
make significant estimates and assumptions regarding
at cost less accumulated amortization. Goodwill and
future revenues and profit, and our ability to implement
industry cyclicality and general
economic conditions
The performance of the agricultural industry is cyclical.
intangible assets are tested for impairment at least
certain tax planning strategies, in order to assess the
To the extent that the agricultural sector declines or
apRIl 2010
Acquired in April 2010, Mepu is based in Ylane, Finland
and was established in 1952.
experiences a downturn, this is likely to have a negative
material and component price volatility by planning and
businesses, or successfully integrate any acquired
impact on the grain handling, storage and conditioning
negotiating significant purchases on an annual basis,
business, products, or technologies into the business, or
industry, and the business of Ag Growth. Among other
and endeavours to pass through to customers, most, if
increase the scope or change the nature of operations at
things, the agricultural sector has benefited from the
not all, of the price volatility. There can be no assurance
existing facilities without substantial expenses, delays or
expansion of the ethanol industry, and to the extent the
that industry dynamics will allow Ag Growth to continue
other operational or financial difficulties. The Company’s
ethanol industry declines or experiences a downturn, this
to reduce its exposure to volatility of production costs by
ability to increase the scope or change the nature of its
is likely to have a negative impact on the grain handling,
passing through price increases to its customers.
operations or acquire or develop additional businesses
storage and conditioning industry, and the business of
Ag Growth.
Foreign exchange risk
Ag Growth generates the majority of its sales in U.S.
Future developments in the domestic and global economies
dollars, but a materially smaller proportion of its expenses
may negatively impact the demand for our products.
are denominated in U.S. dollars. In addition, Ag Growth
Management cannot estimate the level of growth or
may denominate its long-term borrowings in U.S. dollars.
contraction of the economy as a whole or of the economy
Accordingly, fluctuations in the rate of exchange between
of any particular region or market that we serve. Adverse
the Canadian dollar and the U.S. dollar may significantly
changes in our financial condition and results of operations
impact the Company’s financial results. Management
may occur as a result of negative economic conditions,
has implemented a foreign currency hedging strategy
declines in stock markets, contraction of credit availability
and the Company has entered into a series of hedging
or other factors affecting economic conditions generally.
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
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 or a change in the
nature of operations at existing facilities or that acquired or
newly developed 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.
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
and the U.S. dollar may have a material adverse effect on
Ag Growth’s results of operations, business, prospects and
international sales and operations
A portion of Ag Growth’s sales are generated in overseas
financial condition.
Acquisition and expansion risk
Ag Growth may expand its operations by increasing the
scope or changing the nature of operations at existing
facilities or by acquiring or developing additional
businesses, products or technologies. There can be no
assurance that the Company will be able to identify,
acquire, develop or profitably manage additional
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
35
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.
increases in duties; taxes and changes in tax laws;
The world grain market is subject to numerous risks and
expropriation of property, cancellation or modification
uncertainties, including risks and uncertainties related to
of contract rights, unfavourable legal climate for the
international trade and global political conditions.
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 Ag Growth’s manufacturing facilities
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 is often subject
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 or in commercial
applications may result in product liability claims that require
insuring of risk and management of the legal process.
Dependence on key personnel
Ag Growth’s future business, financial condition, and
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.
Commodity prices, international trade and
political uncertainty
Prices of commodities are influenced by a variety of
Competition
Ag Growth experiences competition in the markets in
which it operates. Certain of Ag Growth’s competitors have
to widespread flooding, and insurance coverage for this
greater financial and capital resources than Ag Growth.
type of business interruption is limited. Ag Growth is not
Ag Growth could face increased competition from newly
able to predict the occurrence of business interruptions.
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
unpredictable factors that are beyond the control of
fragmented, there is also a risk that a larger, formidable
Ag Growth, including weather, government (Canadian,
competitor may be created through a combination of one
United States and other) farm programs and policies, and
or more smaller competitors. Ag Growth may also face
changes in global demand or other economic factors.
potential competition from the emergence of new products
A decrease in commodity prices could negatively impact
or technology.
the agricultural sector, and the business of 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.
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
operating results depend on the continued contributions
Debentures and is renewable at the option of the lenders.
coverage that, in the event of a substantial loss, would
of certain of Ag Growth’s executive officers and other key
There can be no guarantee the Company will be able to
not be sufficient to pay the full current market value or
management and personnel, certain of whom would be
obtain alternate financing and no guarantee that future
current replacement cost of its assets or cover the cost of
difficult to replace.
credit facilities will have the same terms and conditions
a particular claim.
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
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
negatively impacted.
interest rates
Ag Growth’s term and operating credit facilities bear
Ag Growth’s results of operations.
interest at rates that are in part dependent on performance
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 matures on the earlier of
March 8, 2016 or three months prior to the maturity of the
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 uses its discretion in determining amounts,
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 are 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
Ag Growth’s control.
income tax matters
Income tax provisions, including current and deferred
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
coverage limits and deductibility provisions of insurance,
executed a number of significant financings, acquisitions,
with a view to maintaining appropriate insurance coverage
reorganizations and business combinations over the course
on its assets and operations at a commercially reasonable
of its history including the Conversion. The computation
cost and on suitable terms. This may result in insurance
of income taxes payable as a result of these transactions
37
involves many complex factors as well as Ag Growth’s
operations may need to be dedicated to payment of the
to comply with these obligations could result in an event
interpretation of and compliance with relevant tax
principal of and interest on indebtedness, thereby reducing
of default which, if not cured or waived, could permit
legislation and regulations. While Ag Growth believes that
funds available for future operations and to pay dividends;
acceleration of the relevant indebtedness and trigger
its existing and proposed tax filing positions are probable to
(iii) certain of the borrowings under the Company’s credit
financial penalties including a make-whole provision in
be sustained, there are a number of existing and proposed
facility may be at variable rates of interest, which exposes
the note purchase agreement. If the indebtedness under
tax filing positions including in respect of the Conversion
Ag Growth to the risk of increased interest rates; and (iv)
the credit facility and note purchase agreement were
that are or may be the subject of review by taxation
Ag Growth may be more vulnerable to economic downturns
to be accelerated, there can be no assurance that the
authorities. Therefore, it is possible that additional taxes
and be limited in its ability to withstand competitive
assets of Ag Growth would be sufficient to repay in full
could be payable by Ag Growth and the ultimate value of
pressures. Ag Growth’s ability to make scheduled
that indebtedness. There can also be no assurance that
Ag Growth’s income tax assets and liabilities could change
payments of principal and interest on, or to refinance,
the credit facility or any other credit facility will be able to
in the future and that changes to these amounts could have
its indebtedness will depend on its future operating
be refinanced.
a material effect on Ag Growth’s consolidated financial
performance and cash flow, which are subject to prevailing
statements and financial position.
economic conditions, prevailing interest rate levels, and
financial, competitive, business and other factors, many of
which are beyond its control.
rECEnt ACCOUntinG ChAnGES
For all periods up to and including the year ended
December 31, 2010, Ag Growth presented its consolidated
financial statements in accordance with previous Canadian
Ag Growth may issue additional common shares
diluting existing shareholders’ interests
The Company is authorized to issue an unlimited number
The ability of Ag Growth to pay dividends or make other
generally accepted accounting principles (“CGAAP”). The
of common shares for such consideration and on such
payments or advances will be subject to applicable laws
Company’s financial statements for the quarterly reporting
terms and conditions as shall be established by the
and contractual restrictions contained in the instruments
periods beginning March 31, 2011 and the year ending
Directors without the approval of any shareholders, except
governing its indebtedness, including the Company’s
December 31, 2011, and this MD&A, have been prepared
as required by the TSX. In addition, the Company may,
credit facility and note purchase agreement. Ag Growth’s
in accordance with IFRS.
at its option, satisfy its obligations with respect to the
credit facility and note purchase agreement contain
interest payable on the Debentures and the repayment of
restrictive covenants customary for agreements of this
the face value of the Debentures through the issuance of
nature, including covenants that limit the discretion of
common shares.
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
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
transition to iFrS
For the majority of accounting policy choices, the
Company did not change the accounting policies it
applied under CGAAP if it was not required to do so under
IFRS. In preparing its consolidated financial statements
in accordance with IFRS 1 First-time Adoption of
International Financial Reporting Standards (“IFRS 1”),
the Company availed itself of certain of the optional
exemptions from full retrospective application of IFRS.
A comprehensive summary of the optional exemptions
applied by the Company is included in Note 33 in the
Company’s December 31, 2011 audited consolidated
Sales
financial statements.
Trade sales per CGAAP
The transition to IFRS did result in a number of changes
Reclassify – gain on foreign exchange
to the Company’s Statements of Financial Position as
Adoption of IFRS – revenue recognition
at January 1, 2010, its IFRS transition date, and to its
Sales per IFRS
Statements of Income, Comprehensive Income, Cash Flows
and Equity for its 2010 reporting periods. A comprehensive
Cost of sales
summary of all of the significant changes including the
various reconciliations of CGAAP financial statements
to those prepared under IFRS is included in Note 33 in
the Company’s December 31, 2011 audited financial
statements. Although the adoption of IFRS resulted in
adjustments to the Company’s financial statements, it
did not materially impact the underlying cash flows or
profitability trends of the Company.
inCOME StAtEMEnt prESEntAtiOn
The Company has elected to categorize its income
and expenses by their function which is one of the two
alternatives available under IFRS. Under this methodology
revenues and expenses are categorized according to their
underlying activity or asset. Accordingly, amortization
and foreign-exchange gains (losses), which were
Cost of sales per CGAAP
Adoption of IFRS – inventory overhead
Adoption of IFRS – revenue recognition
Reclassify – depreciation and amortization
Cost of sales per IFRS
General and administrative per CGAAP
Reclassify – stock based compensation
Reclassify – research and development
Reclassify – accelerated vesting and death benefits
Adoption of IFRS – acquisition costs
previously disclosed separately under CGAAP, have now
Adoption of IFRS – other
been allocated to sales, cost of sales or general and
Reclassify – depreciation and amortization
administrative expenses. Presentation differences under
Total general and administrative
IFRS, compared to the Company’s income statement
presentation under CGAAP, include the following:
General and administrative expenses
Year ended December 31, 2010
Year ended December 31, 2010
$
262,077
7,007
183
269,267
Year ended December 31, 2010
$
160,504
(8)
85
3,377
163,958
$
$35,505
6,394
1,444
2,549
1,696
117
3,353
$51,058
39
nEW ACCOUntinG prOnOUnCEMEntS
presentation of financial statements
(amendments to iAS 1)
On June 16, 2011, the International Accounting Standards
Benefits. The revisions include the elimination of the option
to defer the recognition of gains and losses, enhancing
iFrS 10 Consolidated financial statements
IFRS 10 replaces the portion of IAS 27, Consolidated
the guidance around measurement of plan assets and
and Separate Financial Statements that addresses the
defined benefit obligations, streamlining the presentation
accounting for consolidated financial statements. It also
Board’s (“IASB”) issued amendments to IAS 1, Presentation
of changes in assets and liabilities arising from defined
includes the issues raised in SIC-12, Consolidation –
of Financial Statements. The amendments enhance the
benefit plans and introduction of enhanced disclosures
Special Purpose Entities. What remains in IAS 27 is limited
presentation of other comprehensive income (“OCI”)
for defined benefit plans. The amendments are effective
to accounting for subsidiaries, jointly controlled entities,
in the financial statements, primarily by requiring the
for annual periods beginning on or after January 1, 2013.
and associates in separate financial statements. IFRS 10
components of OCI to be presented separately for items
The Company is currently assessing the impact of the
establishes a single control model that applies to all
that may be reclassified to the statement of earnings from
amendments on its consolidated financial statements.
entities (including “special purpose entities” or “structured
those that remain in equity. The amendments are effective
for annual periods beginning on or after January 1, 2012.
The Company is currently assessing the impact of the
amendments on its consolidated financial statements.
Offsetting financial assets and liabilities
In December 2011, the IASB issued amendments to IAS 32
Financial Instruments: Presentation. The amendments are
intended to clarify certain aspects of the existing guidance
Financial instruments: classification and
measurement (“iFrS 9”)
IFRS 9 as issued reflects the first phase of the IASB’s work
on offsetting financial assets and financial liabilities
due to the diversity in application of the requirements
on offsetting. The IASB also amended IFRS 7 to require
on the replacement of the existing standard for financial
information about all recognized financial instruments that
instruments (“IAS 39”) and applies to classification
are set off in accordance with IAS 32. The amendments
and measurement of financial assets and liabilities as
also require disclosure of information about recognized
defined in IAS 39. The standard is effective for annual
financial instruments subject to enforceable master netting
periods beginning on or after January 1, 2015. In
arrangements and similar agreements even if they are not
subsequent phases, the IASB will address classification
set off under IAS 32.
and measurement of hedge accounting. The adoption
of the first phase of IFRS 9 will have an effect on the
classification and measurement of Ag Growth’s financial
assets. The Company will quantify the effect in conjunction
with the other phases, when issued, to present a
comprehensive picture.
The amendments to IAS 32 are effective for annual periods
beginning on or after January 1, 2012. However, the new
offsetting disclosure requirements are effective for annual
periods beginning on or after January 1, 2013 and interim
periods within those annual periods. The amendments need
entity” as they are now referred to in the new standards,
or “variable interest entities” as they are referred to
in US GAAP). The changes introduced by IFRS 10 will
require management to exercise significant judgment to
determine which entities are controlled, and therefore are
required to be consolidated by a parent, compared with the
requirements of IAS 27. Under IFRS 10, an investor controls
an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee. This principle applies to all investees, including
structured entities.
IFRS 10 is effective for annual periods commencing on
or after January 1, 2013. The Company is currently in the
process of evaluating the implications of this new standard,
if any.
iFrS 11 Joint arrangements
IFRS 11 replaces IAS 3l, Interests in Joint Ventures and
Employee benefits (“iAS 19”)
On June 16, 2011, the IASB revised IAS 19, Employee
The Company is currently assessing the impact of adopting
Contributions by Venturers. IFRS 11 uses some of the terms
these amendments on the consolidated financial statements.
that were used by IAS 31, but with different meanings.
to be provided retrospectively to all comparative periods.
SIC-13, Jointly-controlled Entities – Non-monetary
Whereas IAS 31 identified three forms of joint ventures
(i.e., jointly controlled operations, jointly controlled assets
iFrS 12 Disclosure of interests in other entities
IFRS 12 includes all of the disclosures that were previously
and jointly controlled entities), IFRS 11 addresses only
in IAS 27 related to consolidated financial statements, as
Deferred tax: recovery of underlying assets
(amendments to iAS 12)
On December 20, 2010, the IASB issued Deferred Tax:
two forms of joint arrangements (joint operations and joint
well as all of the disclosures that were previously included
Recovery of Underlying Assets (amendments to IAS 12)
ventures) where there is joint control. IFRS 11 defines joint
in IAS 31 and IAS 28, Investment in Associates. These
concerning the determination of deferred tax on investment
control as the contractually agreed sharing of control of an
disclosures relate to an entity’s interests in subsidiaries,
property measured at fair value. The amendments
arrangement that exists only when the decisions about the
joint arrangements, associates and structured entities.
incorporate SIC-21, Income Taxes – Recovery of Revalued
relevant activities require the unanimous consent of the
A number of new disclosures are also required. One of the
Non-Depreciable Assets into IAS 12, Income Taxes for
parties sharing control.
most significant changes introduced by IFRS 12 is that an
non-depreciable assets measured using the revaluation
Because IFRS 11 uses the principle of control in IFRS 10
to define joint control, the determination of whether joint
entity is now required to disclose the judgments made to
model in IAS 16 Property, Plant and Equipment. The aim
determine whether it controls another entity.
of the amendments is to provide a practical solution for
control exists may change. In addition, IFRS 11 removes
IFRS 12 is effective for annual periods commencing on
the option to account for jointly controlled entities (“JCEs”)
or after January 1, 2013. The Company is currently in the
using proportionate consolidation. Instead, JCEs that
process of evaluating the implications of this new standard,
meet the definition of a joint venture must be accounted
which will be limited to disclosure requirements for the
for using the equity method. For joint operations (which
financial statements.
includes former jointly controlled operations, jointly
controlled assets, and potentially some former JCEs),
an entity recognizes its assets, liabilities, revenues and
expenses, and/or its relative share of those items, if any. In
addition, when specifying the appropriate accounting, IAS
31 focused on the legal form of the entity, whereas IFRS 11
focuses on the nature of the rights and obligations arising
from the arrangement.
iFrS 13 Fair value measurement
IFRS 13 does not change when an entity is required to use
fair value, but rather, provides guidance on how to measure
the fair value of financial and non-financial assets and
liabilities when required or permitted by IFRS. While many
• A requirement that deferred tax on non-depreciable
of the concepts in IFRS 13 are consistent with current
assets, measured using the revaluation model in IAS 16,
practice, certain principles, such as the prohibition on
should always be measured on a sale basis.
IFRS 11 is effective for annual periods commencing on
have a significant effect. The disclosure requirements are
or after January 1, 2013. The Company is currently in the
substantial and could present additional challenges.
blockage discounts for all fair value measurements, could
process of evaluating the implications of this new standard,
if any.
The amendments are mandatory for annual periods
beginning on or after January 1, 2012, but earlier
application is permitted. This amendment is not expected
IFRS 13 is effective for annual periods commencing on or
to have an impact on the Company.
after January 1, 2013 and will be applied prospectively.
The Company is currently in the process of evaluating the
implications of this new standard.
41
jurisdictions where entities currently find it difficult and
subjective to determine the expected manner of recovery
for investment property that is measured using the fair
value model in IAS 40, Investment Property. IAS 12 has
been updated to include:
• A rebuttable presumption that deferred tax on
investment property measured using the fair value
model in IAS 40 should be determined on the basis that
its carrying amount will be recovered through sale; and
DiSClOSUrE COntrOlS AnD prOCEDUrES
AnD intErnAl COntrOlS
Disclosure controls and procedures are designed to provide
accuracy and completeness of the acquired operations’
subject to adjustments that have the effect of excluding
financial information. The following is the summary
(including) amounts, that are included (excluded) in most
financial information pertaining to the acquisition that was
directly comparable measures calculated and presented in
reasonable assurance that all relevant information is
included in Ag Growth’s consolidated financial statements
accordance with IFRS. Non-IFRS financial measures are not
gathered and reported to senior management, including
for the twelve months ended December 31, 2011:
standardized; therefore, it may not be possible to compare
Ag Growth’s Chief Executive Officer and Chief Financial
Officer, on a timely basis so that appropriate decisions can
be made regarding public disclosure.
Management of Ag Growth is responsible for designing
internal controls over financial reporting for the Company
as defined under National Instrument 52-109 issued by
the Canadian Securities Administrators. Management has
designed such internal controls over financial reporting,
(thousands of dollars)
Airlanco (1)
Revenue
Profit (loss)
Current assets (2)
Non-current assets (2)
Current liabilities (2)
Non-current liabilities (2)
2,701
(92)
3,125
9,353
1,039
0
or caused them to be designed under their supervision,
(1) Results from October 4, 2011 to December 31, 2011
to provide reasonable assurance regarding the reliability
(2) Balance sheets as at December 31, 2011
of financial reporting and the preparation of the financial
statements for external purposes in accordance with IFRS.
There have been no material changes in Ag Growth’s
internal controls over financial reporting that occurred
The Company acquired the assets of Airlanco in fiscal
in the three month period ended December 31, 2011,
these financial measures with other companies’ non-IFRS
financial measures having the same or similar businesses.
We strongly encourage investors to review our consolidated
financial statements and publicly filed reports in their
entirety and not to rely on any single financial measure.
We use these non-IFRS financial measures in addition to,
and in conjunction with, results presented in accordance
with IFRS. These non-IFRS financial measures reflect an
additional way of viewing aspects of our operations that,
when viewed with our IFRS results and the accompanying
reconciliations to corresponding IFRS financial measures,
may provide a more complete understanding of factors and
trends affecting our business.
2011 (see “Acquisitions”). Management has not completed
that have materially affected, or are reasonably likely to
In the MD&A, we discuss the non-IFRS financial measures,
its review of internal controls over financial reporting or
materially affect, the Company’s internal controls over
including the reasons that we believe that these measures
disclosure controls and procedures for this newly acquired
financial reporting.
operation. Since the acquisition occurred within 365
days of the end 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 this acquisition, as permitted under
Section 3.3 of National Instrument 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
nOn-iFrS MEASUrES
In analyzing our results, we supplement our use of financial
measures that are calculated and presented in accordance
with IFRS, with a number of non-IFRS financial measures
including “EBITDA”, “Adjusted EBITDA”, “gross margin”,
“funds from operations”, “payout ratio” and “trade sales”.
provide useful information regarding our financial
condition, results of operations, cash flows and financial
position, as applicable and, to the extent material, the
additional purposes, if any, for which these measures are
used. Reconciliations of non-IFRS financial measures to
the most directly comparable IFRS financial measures are
contained in the MD&A.
A non-IFRS financial measure is a numerical measure of
Management believes that the Company’s financial results
a company’s historical performance, financial position
may provide a more complete understanding of factors
or cash flow that excludes (includes) amounts, or is
and trends affecting our business and be more meaningful
to management, investors, analysts and other interested
References to “funds from operations” are to cash
current economic conditions and macroeconomic trends
parties when certain aspects of our financial results are
flow from operating activities before the net change in
on the demand for our products, expectations regarding
adjusted for the gain (loss) on foreign exchange and other
non-cash working capital balances related to operations,
pricing for agricultural commodities, our working capital
operating expenses and income. This measurement is a
stock-based compensation and the non-cash portion of
and capital expenditure requirements, capital resources
non-IFRS measurement. Management uses the non-IFRS
accelerated vesting and death benefits, less maintenance
and the payment of dividends. Such forward-looking
adjusted financial results and non-IFRS financial measures
capital expenditures and adjusted for the gain or loss on
statements reflect our current beliefs and are based on
to measure and evaluate the performance of the business
the sale of property, plant & equipment. Management
information currently available to us, including certain key
and when discussing results with the Board of Directors,
believes that, in addition to cash provided by (used in)
expectations and assumptions concerning anticipated
analysts, investors, banks and other interested parties.
operating activities, funds from operations provide a useful
financial performance, business prospects, strategies,
supplemental measure in evaluating its performance.
product pricing, regulatory developments, tax laws, the
References to “EBITDA” are to profit before income taxes,
finance costs, accelerated vesting and death benefits,
References to “payout ratio” are to dividends declared as a
amortization and depreciation. References to “adjusted
percentage of funds from operations.
EBITDA” are to EBITDA before the gain (loss) on foreign
exchange, gains or losses on the sale of property, plant
and equipment, expenses related to corporate acquisition
activity and other operating expenses. Management
believes that, in addition to profit or loss, EBITDA and
adjusted EBITDA are useful supplemental measures in
evaluating the Company’s performance. Management
cautions investors that EBITDA and adjusted EBITDA should
not replace profit 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.
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 acquisitions of Mepu, Franklin, Tramco and Airlanco
(see “Acquisitions”), our business and strategy, including
References to “trade sales” are to sales net of the gain or
our outlook for our financial and operating performance,
loss on foreign exchange. References to “gross margin”
growth in sales to developing markets, the benefits of the
are to trade sales less cost of sales net of the depreciation
expansion of the Company’s grain storage product line
and amortization included in cost of sales. Management
including the anticipated resolution of start up issues at
cautions investors that trade sales should not replace sales
our Twister bin plant and the future contribution of that
as an indicator of performance.
plant to our operating and financial performance, the
effect of crop conditions in our market areas, the effect of
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, the cost and availability of
capital, foreign exchange rates, and competition. These
risks and uncertainties are described under “Risks and
Uncertainties” in this MD&A and in our most recently filed
Annual Information Form. 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.
ADDitiOnAl inFOrMAtiOn
Additional information relating to Ag Growth, including
Ag Growth’s most recent Annual Information Form, is
available on SEDAR (www.sedar.com).
43
OCTObER 2010
Franklin was established in 1979 and acquired
by AGI in October 2010.
DECEmbER 2010
Tramco was founded in 1967, and is based in Wichita, Kansas.
Tramco was acquired by AGI in December 2010.
OCTObER 2011
In October 2011, AGI acquired Airlanco based in
Falls City, NE. It was founded in 2000.
2011
The last 15 years have been dramatic for Ag Growth International, with acquisitions,
integration and expansion of our manufacturing facilities. We believe that strong
relationships and quality products are the cornerstones to success.
FinAnCiAl
StAtEMEntS
inDEpEnDEnt AUDitOrS’ rEpOrt
To the Shareholders of Ag Growth International Inc.
AUDitOrS’ rESpOnSiBilitY
Our responsibility is to express an opinion on these
of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used
consolidated financial statements based on our audits.
and the reasonableness of accounting estimates made by
We conducted our audits in accordance with Canadian
management, as well as evaluating the overall presentation
generally accepted auditing standards. Those standards
of the consolidated financial statements.
We have audited the accompanying consolidated financial
statements of Ag Growth International Inc., which comprise
the consolidated statements of financial position as at
December 31, 2011 and 2010 and January 1, 2010, and
the consolidated statements of income, comprehensive
income, changes in shareholders’ equity and cash flows
for the years ended December 31, 2011 and 2010, and
require that we comply with ethical requirements and plan
and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are
free from material misstatement.
a summary of significant accounting policies and other
An audit involves performing procedures to obtain
explanatory information.
MAnAGEMEnt’S rESpOnSiBilitY FOr thE
COnSOliDAtED FinAnCiAl StAtEMEntS
Management is responsible for the preparation and fair
presentation of these consolidated financial statements
in accordance with International Financial Reporting
Standards, and for such internal control as management
determines is necessary to enable the preparation of
consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
audit evidence about the amounts and disclosures in
the consolidated financial statements. 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
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,
2011 and 2010 and January 1, 2010, and its financial
performance and its cash flows for the years ended
December 31, 2011 and 2010 in accordance with
International Financial Reporting Standards.
Winnipeg, Canada
March 13, 2012
Chartered Accountants
COnSOliDAtED StAtEMEntS OF FinAnCiAl pOSitiOn
(in thousands of Canadian dollars)
ASSEtS (note 22)
Current assets
Cash and cash equivalents (note 15)
Cash held in trust (note 7)
Restricted cash (notes 6, 7, 16 and 21)
Accounts receivable (note 17)
Inventory (note 18)
Prepaid expenses and other assets (note 21(f))
Income taxes recoverable
Derivative instruments (note 27)
non-current assets
Property, plant and equipment, net (note 9)
Goodwill (note 11)
Intangible assets, net (note 10)
Available-for-sale investment (note 14)
Derivative instruments (note 27)
Deferred tax asset (note 25)
Assets held for sale (notes 9 and 13)
total assets
As at
December 31, 2011
As at
December 31, 2010
As at
January 1, 2010
6,839
—
2,439
49,691
64,558
2,720
1,506
—
127,753
83,434
65,876
75,510
2,800
—
38,092
265,712
1,101
394,566
34,981
822
1,860
38,535
52,574
7,628
—
4,200
140,600
79,022
62,355
72,345
2,000
—
42,063
257,785
—
398,385
109,094
—
—
25,072
39,621
1,772
598
7,652
183,809
37,873
52,187
68,441
2,000
1,848
47,356
209,705
—
393,514
47
COnSOliDAtED StAtEMEntS OF FinAnCiAl pOSitiOn (continued)
(in thousands of Canadian dollars)
liABilitiES AnD ShArEhOlDErS’ EQUitY
Current liabilities
Accounts payable and accrued liabilities (note 24 and 29)
Customer deposits
Dividends payable
Acquisition price, transaction and financing costs payable (notes 6 and 7)
Income taxes payable
Current portion of long-term debt (note 22)
Current portion of obligations under finance leases (note 22)
Current portion of derivative instruments (note 27)
Current portion of share award incentive plan (note 21)
Provisions (note 19)
non-current liabilities
Long-term debt (note 22)
Obligations under finance leases (note 22)
Convertible unsecured subordinated debentures (note 23)
Deferred tax liability (note 25)
Share award incentive plan (note 21)
total liabilities
As at
December 31, 2011
As at
December 31, 2010
As at
January 1, 2010
22,264
8,018
2,509
1,938
—
16
131
1,828
1,495
2,222
40,421
35,824
—
107,202
8,960
—
151,986
192,407
22,623
6,573
2,509
11,994
56
128
432
—
2,003
1,942
48,260
24,518
138
105,140
8,464
1,571
139,831
188,091
12,736
8,340
2,224
1,028
—
16
—
—
—
1,194
25,538
25,403
—
103,107
2,214
5,857
136,581
162,119
COnSOliDAtED StAtEMEntS OF FinAnCiAl pOSitiOn (continued)
(in thousands of Canadian dollars)
Shareholders’ equity (note 20)
Common shares
Accumulated other comprehensive income (loss)
Equity component of convertible debentures
Contributed surplus
Retained earnings
total shareholders’ equity
total liabilities and shareholders’ equity
Commitments and contingencies (note 32)
See accompanying notes
On behalf of the Board of Directors:
As at
December 31, 2011
As at
December 31, 2010
As at
January 1, 2010
151,039
(1,875)
5,105
5,341
42,549
202,159
394,566
151,376
(443)
5,105
6,121
48,135
210,294
398,385
157,279
5,590
5,105
3,859
59,562
231,395
393,514
Bill Lambert
Director
John R. Brodie, FCA
Director
49
COnSOliDAtED StAtEMEntS OF inCOME
(in thousands of Canadian dollars, except per share amounts)
Years ended December 31
Sales
Cost of goods sold (note 8(d))
Gross profit
Expenses
Selling, general and administrative (note 8(e))
Other operating income (note 8(a))
Finance costs (note 8(c))
Finance expense (income) (note 8(b))
Profit before income taxes
Income tax expense (note 25)
Current
Deferred
profit for the year
profit per share – basic (note 30)
profit per share – diluted (note 30)
See accompanying notes
2011
305,932
204,203
101,729
54,826
(100)
12,668
159
67,553
34,176
3,910
5,743
9,653
24,523
1.97
1.95
2010
269,267
163,958
105,309
51,058
(605)
12,484
(2,065)
60,872
44,437
5,627
8,049
13,676
30,761
2.43
2.40
COnSOliDAtED StAtEMEnt OF ChAnGES in ShArEhOlDErS’ EQUitY
(in thousands of Canadian dollars)
Year ended December 31, 2011
As at January 1, 2011
Profit for the year
Other comprehensive income (loss)
Conversion of subordinated debentures (note 20)
Share-based payment transactions (note 21)
Dividends to shareholders (note 20)
Common
shares
151,376
—
—
115
(452)
—
As at December 31, 2011
151,039
5,105
See accompanying notes
Equity
component of
convertible
debentures
Contributed
surplus
5,105
6,121
—
—
—
—
—
—
—
—
(780)
—
5,341
retained
earnings
48,135
24,523
—
—
—
(30,109)
42,549
Cash flow
hedge
reserve
2,966
—
(4,306)
—
—
—
Foreign
currency
reserve
(3,409)
—
2,286
—
—
—
(1,340)
(1,123)
Available-for-
sale reserve
—
—
588
—
—
—
588
total
equity
210,294
24,523
(1,432)
115
(1,232)
(30,109)
202,159
(in thousands of Canadian dollars)
Year ended December 31, 2010
As at January 1, 2010
Profit for the year
Other comprehensive loss
Share-based payment transactions
Common shares purchased under normal
course issuer bid
Dividends to shareholders
As at December 31, 2010
See accompanying notes
Common
shares
157,279
—
—
2,154
(8,057)
—
151,376
Equity component
of convertible
debentures
Contributed
surplus
5,105
3,859
—
—
—
—
—
5,105
—
—
2,262
—
—
6,121
retained
earnings
59,562
30,761
—
—
(15,334)
(26,854)
48,135
Cash flow
hedge
reserve
5,590
—
(2,624)
—
Foreign
currency
reserve
—
—
(3,409)
—
—
—
2,966
(3,409)
total
equity
231,395
30,761
(6,033)
4,416
(23,391)
(26,854)
210,294
51
COnSOliDAtED StAtEMEntS OF COMprEhEnSiVE inCOME
(in thousands of Canadian dollars)
Profit for the year
Other comprehensive loss
Change in fair value of derivatives designated as cash flow hedges
Gains on derivatives designated as cash flow hedges recognized in net earnings in the current period
Income tax effect on cash flow hedges
Exchange differences on translation of foreign operations
Gain on available-for-sale financial assets
Income tax effect on available-for-sale financial assets
Other comprehensive loss for the year
total comprehensive income for the year
See accompanying notes
Years ended December 31
2011
24,523
(1,556)
(4,452)
1,702
2,286
800
(212)
(1,432)
23,091
2010
30,761
3,034
(6,692)
1,034
(3,409)
—
—
(6,033)
24,728
COnSOliDAtED StAtEMEntS OF CASh FlOWS
(in thousands of Canadian dollars, except per share amounts)
OpErAtinG ACtiVitiES
Profit before income taxes for the year
Add (deduct) items not affecting cash
Depreciation of property, plant and equipment
Amortization of intangible assets
Translation loss (gain) on foreign exchange
Non-cash component of interest expense
Accelerated vesting
Stock-based compensation
Loss on sale of property, plant and equipment
Net change in non-cash working capital balances related to operations (note 15)
Settlement of SAIP obligation
Income tax paid
Cash provided by operating activities
inVEStinG ACtiVitiES
Acquisition of property, plant and equipment
Acquisition of shares of Tramco, Inc. (note 7), net of cash acquired
Acquisition of shares of Mepu Oy, including bank indebtedness assumed (note 7)
Acquisition of assets of Franklin Enterprises Ltd. (note 7)
Acquisition of assets of Airlanco Inc. (note 6)
Transfer to cash held in trust
Proceeds from sale of property, plant and equipment
Development of intangible assets
Transaction and financing costs payable
Cash used in investing activities
Years ended December 31
2011
2010
34,176
44,437
5,418
3,776
1,793
2,422
—
2,038
(76)
49,547
(14,453)
(1,998)
(5,217)
27,879
(9,254)
(9,930)
—
—
(11,970)
(243)
500
(1,471)
(433)
(32,801)
3,313
3,418
(1,022)
2,274
1,703
6,511
(263)
60,371
(16,307)
—
(5,063)
39,001
(25,021)
(10,163)
(12,309)
(8,856)
—
(2,682)
648
—
1,484
(56,899)
53
COnSOliDAtED StAtEMEntS OF CASh FlOWS (continued)
(in thousands of Canadian dollars, except per share amounts)
Years ended December 31
FinAnCinG ACtiVitiES
Repayment of long-term debt
Repayment of obligations under finance leases
Issuance of long-term debt
Dividends paid
Purchase of common shares under the normal course issuer bid
Purchase of shares in the market under the long-term incentive plan
Cash used in financing activities
net decrease in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
interest expense paid
See accompanying notes
2011
(319)
(439)
10,993
(30,109)
—
(3,346)
(23,220)
(28,142)
34,981
6,839
10,259
2010
(89)
(135)
—
(26,568)
(23,391)
(6,032)
(56,215)
(74,113)
109,094
34,981
11,694
nOtES tO COnSOliDAtED FinAnCiAl StAtEMEntS
December 31, 2011 (in thousands of Canadian dollars, except where otherwise noted and per share data)
1. OrGAniZAtiOn
The consolidated financial statements of Ag Growth
The first date at which IFRS was applied was
owned subsidiaries, Ag Growth Industries Partnership,
January 1, 2010 (the “Transition Date”). Note 33 contains
AGX Holdings Inc., Ag Growth Holdings Corp., Westfield
International Inc. (“Ag Growth Inc.”) for the years ended
reconciliations and descriptions of the effect of the
Distributing (North Dakota) Inc., Hansen Manufacturing
December 31, 2011 and 2010 were authorized for
Company’s transition from Canadian generally accepted
Corp. (“Hi Roller”), Union Iron Inc. (“Union Iron”),
issuance in accordance with a resolution of the directors
accounting principles (“GAAP”) to IFRS. It also includes
Applegate Trucking Inc., Applegate Livestock Equipment,
on March 13, 2012. Ag Growth International Inc. is a listed
reconciliations of: the consolidated statements of financial
Inc. (“Applegate”), Airlanco Inc. (“Airlanco”), Tramco,
company incorporated and domiciled in Canada, whose
position as at January 1, 2010 and December 31, 2010; the
Inc. (“Tramco”), Tramco Europe Ltd., Euro-Tramco B.V.,
shares are publicly traded at the Toronto Stock Exchange.
change in equity as at January 1, 2010 and December 31,
Ag Growth Suomi Oy and Mepu Oy (“Mepu”) as at
The registered office is located at 1301 Kenaston Blvd.,
2010; and the changes in net income and comprehensive
December 31, 2011. Subsidiaries are fully consolidated
Winnipeg, Manitoba, Canada.
income for the year ended December 31, 2010.
from the date of acquisition, it being the date on which
2. OpErAtiOnS
Ag Growth conducts business in the grain handling, storage
Basis of preparation
The consolidated financial statements are presented in
and conditioning market.
Included in these consolidated financial statements are
the accounts of Ag Growth Inc. and all of its subsidiary
partnerships and incorporated companies; together,
Ag Growth Inc. and its subsidiaries are referred to as
“Ag Growth” or the “Company”.
3. SUMMArY OF SiGniFiCAnt
ACCOUntinG pOliCiES
Statement of compliance
These consolidated financial statements have been
prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
Canadian dollars, which is also the functional currency of
the parent company Ag Growth International Inc. All values
are rounded to the nearest thousand. They are prepared
on the historical cost basis, except for derivative financial
instruments, which are measured at fair value.
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements and in preparing an opening IFRS
consolidated statement of financial position at January 1,
2010, for the purposes of the transition, except for elected
exemptions as described in note 33.
principles of consolidation
The consolidated financial statements include the
accounts of Ag Growth International Inc. and its wholly
Ag Growth obtains control, and continue to be consolidated
until the date that such control ceases. The financial
statements of the subsidiaries are prepared for the
same reporting period as the Company, using consistent
accounting policies. All intra-company balances, income
and expenses and unrealized gains and losses resulting
from intra-company transactions are eliminated in full.
Business combinations and goodwill
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured
as the fair value of the assets given, equity instruments
and liabilities incurred or assumed at the date of
exchange. Acquisition costs for business combinations
are expensed and included in selling, general and
administrative expenses. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are measured initially at fair values at the date
of acquisition.
55
Goodwill is initially measured at cost, being the excess
allocated to a new CGU compared to the part remaining in
prevailing at the reporting date and their statements of
of the cost of the business combination over Ag Growth’s
the old organizational structure.
2010 is carried at the amount reported in the consolidated
Any goodwill arising on the acquisition of a foreign
financial statements prepared under Canadian GAAP as of
operation and any fair value adjustments to the carrying
share in the net fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities. Any negative
difference is recognized directly in the statement
of income. If the fair values of the assets, liabilities
and contingent liabilities can only be calculated on a
provisional basis, the business combination is recognized
using provisional values. Any adjustments resulting
from the completion of the measurement process are
recognized within 12 months of the date of acquisition
(“measurement period”).
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each
of Ag Growth’s cash-generating units (“CGU”) that are
expected to benefit from the synergies of the combination,
irrespective of whether other assets and liabilities of the
On first-time adoption of IFRS, Ag Growth elected not
to apply IFRS 3, Business Combinations retrospectively
to acquisitions carried out before January 1, 2010.
Accordingly, the goodwill associated with acquisitions
carried out prior to the IFRS transition date of January 1,
December 31, 2009.
Foreign currency translation
Each entity in Ag Growth determines its own functional
currency and items included in the financial statements of
each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded by
Ag Growth entities at their respective functional currency
rates prevailing at the date of the transaction.
acquiree are assigned to those CGUs. Where goodwill forms
Monetary items are translated at the functional currency
part of a CGU and part of the operating unit is disposed
spot rate as of the reporting date. Exchange differences
of, the goodwill associated with the operation disposed of
from monetary items are recognized in the statement
is included in the carrying amount of the operation when
of income. Non-monetary items that are not carried at
determining the gain or loss on disposal of operation. If the
fair value are translated using the exchange rates as at
Company reorganizes its reporting structure in a way that
the dates of the initial transaction. Non-monetary items
changes the composition of one or more CGUs to which
measured at fair value in a foreign currency are translated
goodwill has been allocated, the goodwill is reallocated
using the exchange rates at the date when the fair value
to the units affected. Goodwill disposed of or reallocated
is determined.
income are translated at the monthly rates of exchange.
The exchange differences arising on the translation are
recognized in other comprehensive income. On disposal of
a foreign operation, the component of other comprehensive
income relating to that particular foreign operation is
recognized in the consolidated statement of income.
amounts of assets and liabilities arising on the acquisition
are treated as assets and liabilities of the foreign operation
and translated at the rate of exchange prevailing at the
reporting date.
property, plant and equipment
Property, plant and equipment is stated at cost, net of any
accumulated depreciation and any impairment losses
determined. Cost includes the purchase price, any costs
directly attributable to bringing the asset to the location
and condition necessary and, where relevant, the present
value of all dismantling and removal costs. Where major
components of property, plant and equipment have
different useful lives, the components are recognized
and depreciated separately. Ag Growth recognizes in
the carrying amount of an item of property, plant and
equipment the cost of replacing part of such an item when
the cost is incurred and if it is probable that the future
economic benefits embodied with the item can be reliably
measured. All other repair and maintenance costs are
in these cases is measured based on the relative values
of the operation disposed of and the portion of the CGU
retained, or the relative fair value of the part of a CGU
The assets and liabilities of foreign operations are
recognized in the consolidated statement of income as an
translated into Canadian dollars at the rate of exchange
expense when incurred.
Depreciation is calculated on a straight-line basis over the
leased item, are capitalized at the commencement of the
amortization and any accumulated impairment losses.
estimated useful lives of the assets as follows:
lease at the fair value of the leased property or, if lower, at
The useful lives of intangible assets are assessed as either
the present value of the minimum lease payments. Lease
finite or indefinite. Intangible assets with finite useful lives
payments are apportioned between finance charges and
are amortized over the useful economic life and assessed
reduction of the lease liability so as to achieve a constant
for impairment whenever there is an indication that the
rate of interest on the remaining balance of the liability.
intangible asset may be impaired. The amortization method
Finance charges are recognized in finance costs in the
and amortization period of an intangible asset with a finite
consolidated statement of income.
useful life is reviewed at least annually. Changes in the
Buildings and building components 20 to 60 years
Manufacturing equipment
10 to 20 years
Computer hardware
5 years
Leasehold improvements
Over the lease period
Equipment under finance leases
10 years
Furniture and fixtures
Vehicles
5 to 10 years
4 to 16 years
An item of property, plant and equipment and any
significant part initially recognized is derecognized upon
disposal or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising on
Leased assets are depreciated over the useful life of the
asset. However, if there is no reasonable certainty that
Ag Growth will obtain ownership by the end of the lease
term, the asset is depreciated over the shorter of the
estimated useful life of the asset and the lease term.
derecognition of the asset is included in the consolidated
Operating lease payments are recognized as an expense
statement of income when the asset is derecognized.
in the consolidated statement of income on a straight-line
The assets’ useful lives and methods of depreciation
of assets are reviewed at each financial year-end, and
adjusted prospectively, if appropriate. No depreciation is
basis over the lease term.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
taken on construction in progress until the asset is placed
construction or production of an asset that necessarily
in use. Amounts representing direct costs incurred for
takes a substantial period of time, which Ag Growth
major overhauls are capitalized and depreciated over the
considers to be 12 months or more, to get ready for its
estimated useful life of the different components replaced.
intended use or sale, are capitalized as part of the cost
leases
The determination of whether an arrangement is, or
of the respective assets. All other borrowing costs are
expensed in the period they occur.
contains, a lease is based on whether fulfillment of the
arrangement is dependent on the use of a specific asset or
intangible assets
Intangible assets acquired separately are measured on
assets or the arrangement conveys a right to use the asset.
initial recognition at cost. The cost of intangible assets
Finance leases, which transfer to Ag Growth substantially
all the risks and benefits incidental to ownership of the
acquired in a business combination is its fair value at
the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated
expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset are
accounted for by changing the amortization period or
method, as appropriate, and are treated as changes
in accounting estimates. The amortization expense on
intangible assets with finite lives is recognized in the
consolidated statement of income in the expense category
consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives, which
include brand names, are not amortized, but are tested
for impairment annually, either individually or at the CGU
level. The assessment of indefinite life is reviewed annually
to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
Internally generated intangible assets are capitalized when
the product or process is technically and commercially
feasible and Ag Growth has sufficient resources to
complete development. The cost of an internally generated
intangible asset comprises all directly attributable costs
necessary to create, produce and prepare the asset
to be capable of operating in the manner intended by
management. Expenditures incurred to develop new
57
demos and prototypes are recorded at cost as internally
least annually on December 31. The recoverable amount is
For assets other than goodwill, an assessment is made at
generated intangible assets. Amortization of the internally
the higher of an asset’s or CGU’s fair value less costs to sell
each reporting date as to whether there is any indication
generated intangible assets begins when the development
and its value in use.
is complete and the asset is available for use and it is
amortized over the period of expected future benefit.
Amortization is recorded in cost of goods sold. During the
period of development, the asset is tested for impairment
at least annually.
Value in use is determined by discounting estimated future
cash flows using a pretax discount rate that reflects the
current market assessment of the time value of money
and the specific risks of the asset. In determining fair
value less costs to sell, recent market transactions are
Finite life intangible assets are amortized on a straight-line
taken into account, if available. If no such transactions
basis over the estimated useful lives of the related assets
can be identified, an appropriate valuation model is used.
as follows:
Patents
8 years
Distribution networks
8 to 25 years
Demos and prototypes
3 to 10 years
The recoverable amount of assets that do not generate
independent cash flows is determined based on the CGU to
which the asset belongs.
Ag Growth bases its impairment calculation on detailed
Inventory order backlog
3 to 6 months
budgets and forecast calculations that are prepared
Software
8 years
separately for each of Ag Growth’s CGUs to which the
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset
individual assets are allocated. These budgets and forecast
calculations generally cover a period of five years. For
periods after five years, a terminal value approach is used.
and are recognized in the statement of income when the
An impairment loss is recognized in the consolidated
asset is derecognized.
impairment of non-financial assets
Ag Growth assesses at each reporting date whether there
is an indication that an asset may be impaired. If such
an indication exists, or when annual testing for an asset
is required, Ag Growth estimates the asset’s recoverable
amount. The recoverable amount of goodwill as well as
intangible assets not yet available for use is estimated at
statement of income if an asset’s carrying amount or
that of the CGU to which it is allocated is higher than its
recoverable amount. Impairment losses of CGUs are first
charged against the carrying value of the goodwill balance
included in the CGU and then against the value of the
other assets, in proportion to their carrying amount. In the
consolidated statement of income, the impairment losses
are recognized in those expense categories consistent with
the function of the impaired asset.
that previously recognized impairment losses may no
longer exist or may have decreased. If such indication
exists, Ag Growth estimates the asset’s or CGU’s
recoverable amount. A previously recognized impairment
loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognized.
The reversal is limited so that the carrying amount of the
asset does not exceed its recoverable amount, nor exceed
the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognized
for the asset or CGU in prior years. Such a reversal is
recognized in the consolidated statement of income.
Goodwill is tested for impairment annually as at
December 31 and when circumstances indicate that the
carrying value may be impaired. Impairment is determined
for goodwill by assessing the recoverable amount of each
CGU to which the goodwill relates. Where the recoverable
amount of the CGU is less than its carrying amount, an
impairment loss is recognized. Impairment losses relating
to goodwill cannot be reversed in future periods.
Intangible assets with indefinite useful lives are tested
for impairment annually as at December 31, either
individually or at the CGU level, as appropriate, and when
circumstances indicate that the carrying value may
be impaired.
Cash and cash equivalents
All highly liquid temporary cash investments with an
receivables or (iii) available-for-sale, and its financial
Derivatives embedded in host contracts are accounted for
liabilities as either (i) financial liabilities at fair value
as separate derivatives and recorded at fair value if their
original maturity of three months or less when purchased
through profit or loss or (ii) other financial liabilities.
economic characteristics and risks are not closely related
are considered to be cash equivalents. For the purpose of
Derivatives are designated as hedging instruments in an
to those of the host contracts and the host contracts
the consolidated statement of cash flows, cash and cash
effective hedge, as appropriate. Appropriate classification
are not held-for-trading. These embedded derivatives
equivalents consist of cash and money market funds, net of
of financial assets and liabilities is determined at the
are measured at fair value with changes in fair value
outstanding bank overdrafts.
time of initial recognition or when reclassified in the
recognized in the consolidated statement of income.
inventory
Inventory is comprised of raw materials and finished
consolidated statement of financial position.
Reassessment only occurs if there is a change in the terms
All financial instruments are recognized initially at fair value
of the contract that significantly modifies the cash flows
that would otherwise be required.
goods. Inventory is valued at the lower of cost and net
plus, in the case of investments and liabilities not at fair
realizable value, using a first-in, first-out basis. For
value through profit or loss, directly attributable transaction
Loans and receivables
finished goods, costs include all direct costs incurred in
costs. Financial instruments are recognized on the trade
Loans and receivables are non-derivative financial assets
production, including direct labour and materials, freight,
date, which is the date on which Ag Growth commits to
with fixed or determinable payments that are not quoted
directly attributable manufacturing overhead costs based
purchase or sell the asset.
on normal operating capacity and property, plant and
equipment depreciation.
Financial assets at fair value through profit or loss
(“FVTPL”)
Inventories are written down to net realizable value when
Financial assets at FVTPL include financial assets held-
the cost of inventories is estimated to be unrecoverable
for-trading and financial assets designated upon initial
due to obsolescence, damage or declining selling prices.
recognition at FVTPL. Financial assets are classified as
Net realizable value is the estimated selling price in the
held-for-trading if they are acquired for the purpose of
ordinary course of business, less estimated costs of
selling or repurchasing in the near term. This category
completion and the estimated costs necessary to make
includes derivative financial instruments entered into
in an active market. Assets in this category include
receivables and cash and cash equivalents. Loans and
receivables are initially recognized at fair value plus
transaction costs. They are subsequently measured at
amortized cost using the effective interest method less any
impairment. The effective interest amortization is included
in finance income in the consolidated statement of income.
The losses arising from impairment are recognized in the
consolidated statement of income in finance costs.
the sale. When the circumstances that previously caused
that are not designated as hedging instruments in hedge
Available-for-sale financial investments
inventories to be written down below cost no longer exist,
relationships as defined by IAS 39.
or when there is clear evidence of an increase in selling
prices, the amount of the write-down previously recorded
is reversed.
Financial instruments
Financial assets and liabilities
Ag Growth classifies its financial assets as (i) financial
assets at fair value through profit or loss, (ii) loans and
Financial assets at FVTPL are carried in the consolidated
statement of financial position at fair value with changes in
the fair value recognized in finance income or finance costs
in the consolidated statement of income.
Ag Growth has currently not designated any financial
assets upon initial recognition as FVTPL.
Available-for-sale financial investments include equity
and debt securities. Equity investments classified as
available-for-sale are those which are neither classified as
held-for-trading nor designated at FVTPL. Debt securities
in this category are those which are intended to be held
for an indefinite period of time and which may be sold in
response to needs for liquidity or in response to changes in
the market conditions.
59
After initial measurement, available-for-sale financial
has occurred after the initial recognition of the asset (an
Loans and receivables, together with the associated
investments are subsequently measured at fair value
incurred “loss event”) and that loss event has an impact on
allowance, are written off when there is no realistic
with unrealized gains or losses recognized as other
the estimated future cash flows of the financial asset or the
prospect of future recovery. If, in a subsequent year,
comprehensive income in the available-for-sale reserve
group of financial assets that can be reliably estimated.
the amount of the estimated impairment loss increases
until the investment is derecognized, at which time the
cumulative gain or loss is recognized in other operating
income, or determined to be impaired, at which time
the cumulative loss is reclassified to the consolidated
statement of income in finance costs and removed from
the available-for-sale reserve.
For financial assets carried at amortized cost, Ag Growth
first assesses individually whether objective evidence of
impairment exists individually for financial assets that
are individually significant, or collectively for financial
assets that are not individually significant. If Ag Growth
determines that no objective evidence of impairment exists
or decreases because of an event occurring after the
impairment was recognized, the previously recognized
impairment loss is increased or reduced by adjusting the
allowance account. If a write-off is later recovered, the
recovery is credited to finance costs in the consolidated
statement of income.
For a financial asset reclassified out of the available-for-
for an individually assessed financial asset, it includes
For available-for-sale financial investments, Ag Growth
sale category, any previous gain or loss on that asset that
the asset in a group of financial assets with similar
assesses at each reporting date whether there is objective
has been recognized in equity is amortized to profit or loss
credit risk characteristics and collectively assesses them
evidence that an investment or a group of investments
over the remaining life of the investment using the effective
for impairment. Assets that are individually assessed
is impaired. In the case of equity investments classified
interest method. Any difference between the new amortized
for impairment and for which an impairment loss is, or
as available-for-sale, objective evidence would include
cost and the expected cash flows is also amortized over
continues to be, recognized are not included in a collective
a significant or prolonged decline in the fair value of the
the remaining life of the asset using the effective interest
assessment of impairment.
method. If the asset is subsequently determined to be
impaired, then the amount recorded in equity is reclassified
to the consolidated statement of income.
Derecognition
If there is objective evidence that an impairment loss
has occurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the
present value of estimated future cash flows. The present
A financial asset is derecognized when the rights to receive
value of the estimated future cash flows is discounted at
cash flows from the asset have expired or when Ag Growth
the financial asset’s original effective interest rate.
has transferred its rights to receive cash flows from
the asset.
Impairment of financial assets
The carrying amount of the asset is reduced through the
use of an allowance account and the amount of the loss is
recognized in profit or loss. Interest income continues to
Ag Growth assesses at each reporting date whether there
be accrued on the reduced carrying amount and is accrued
is any objective evidence that a financial asset or a group
using the rate of interest used to discount the future cash
of financial assets is impaired. A financial asset is deemed
flows for the purpose of measuring the impairment loss.
to be impaired if, and only if, there is objective evidence
The interest income is recorded as part of finance income
of impairment as a result of one or more events that
in the consolidated statement of income.
investment below its cost. “Significant” is evaluated
against the original cost of the investment and “prolonged”
against the period in which the fair value has been below
its original cost. Where there is evidence of impairment,
the cumulative loss measured as the difference between
the acquisition cost and the current fair value, less any
impairment loss on that investment previously recognized
in the statement of income is removed from other
comprehensive income and recognized in the consolidated
statement of income. Impairment losses on equity
investments are not reversed through the consolidated
statement of income; increases in their fair value after
impairment are recognized directly in other comprehensive
income. In the case of debt instruments classified as
available-for-sale, impairment is assessed based on the
same criteria as financial assets carried at amortized
cost. However, the amount recorded for impairment is
the instruments and amortized using the effective interest
value. Derivatives are carried as financial assets when the
the cumulative loss measured as the difference between
rate method. The effective interest expense is included in
fair value is positive and as financial liabilities when the fair
the amortized cost and the current fair value, less any
finance costs in the consolidated statement of income.
value is negative.
impairment loss on that investment previously recognized
in the statement of income. If, in a subsequent year, the
fair value of a debt instrument increases and the increase
can be objectively related to an event occurring after
the impairment loss was recognized in the consolidated
statement of income, the impairment loss is reversed
through the consolidated statement of income.
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities
held-for-trading and financial liabilities designated
upon initial recognition at FVTPL. Financial liabilities are
classified as held-for-trading if they are acquired for the
purpose of selling in the near term. This category includes
derivative financial instruments entered into by the
Company that are not designated as hedging instruments
in hedge relationships as defined by IAS 39.
Gains or losses on liabilities held-for-trading are recognized
in the statement of income.
Derecognition
Ag Growth analyzes all of its contracts, of both a financial
A financial liability is derecognized when the obligation
and non-financial nature, to identify the existence of
under the liability is discharged or cancelled or expires.
any “embedded” derivatives. Embedded derivatives are
When an existing financial liability is replaced by another
from the same lender on substantially different terms,
or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a
accounted for separately from the host contract at the
inception date when their risks and characteristics are not
closely related to those of the host contracts and the host
contracts are not carried at fair value.
derecognition of the original liability and the recognition of
Any gains or losses arising from changes in the fair value
a new liability, and the difference in the respective carrying
of derivatives are recorded directly in the consolidated
amounts is recognized in the consolidated statement
statement of income, except for the effective portion
of income.
Interest income
of cash flow hedges, which is recognized in other
comprehensive income.
For all financial instruments measured at amortized cost,
For the purpose of hedge accounting, hedges are
interest income or expense is recorded using the effective
classified as:
interest method, which is the rate that exactly discounts
the estimated future cash payments or receipts through
the expected life of the financial instrument or a shorter
period, where appropriate, to the net carrying amount of
Ag Growth has not designated any financial liabilities upon
the financial asset or liability. Interest income is included in
initial recognition as FVTPL.
finance income in the consolidated statement of income.
Other financial liabilities
Derivative instruments and hedge accounting
Financial liabilities are measured at amortized cost using
Ag Growth uses derivative financial instruments such as
the effective interest rate method. Financial liabilities
forward currency contracts and interest rate swaps to
include long-term debt issued, which is initially measured
hedge its foreign currency risk and interest rate risk. Such
at fair value, which is the consideration received, net of
derivative financial instruments are initially recognized
transaction costs incurred. Transaction costs related to the
at fair value on the date on which a derivative contract
long-term debt instruments are included in the value of
is entered into and are subsequently remeasured at fair
• Fair value hedges when hedging the exposure to
changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment (except for foreign
currency risk).
• Cash flow hedges when hedging exposure to variability
in cash flows that is either attributable to a particular
risk associated with a recognized asset or liability or
a highly probable forecast transaction or the foreign
currency risk in an unrecognized firm commitment.
At the inception of a hedge relationship, Ag Growth
formally designates and documents the hedge relationship
61
to which Ag Growth wishes to apply hedge accounting
If the forecast transaction or firm commitment is no longer
techniques that are recognized by market participants.
and the risk management objective and strategy for
expected to occur, the cumulative gain or loss previously
Such techniques may include using recent arm’s length
undertaking the hedge. The documentation includes
recognized in equity is transferred to the consolidated
market transactions, reference to the current fair value
identification of the hedging instrument, the hedged item
statement of income. If the hedging instrument expires or
of another instrument that is substantially the same,
or transaction, the nature of the risk being hedged and
is sold, terminated or exercised without replacement or
discounted cash flow analysis or other valuation models.
how the entity will assess the effectiveness of changes
rollover, or if its designation as a hedge is revoked, any
in the hedging instrument’s fair value in offsetting the
cumulative gain or loss previously recognized in other
exposure to changes in the cash flows attributable to
comprehensive income remains in other comprehensive
the hedged risk. Such hedges are expected to be highly
income until the forecast transaction or firm commitment
effective in achieving offsetting changes in cash flows and
affects profit or loss.
provisions
Provisions are recognized when Ag Growth has a present
obligation, legal or constructive, as a result of a past event,
it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
Ag Growth uses primarily forward currency contracts as
and a reliable estimate can be made of the amount of
hedges of its exposure to foreign currency risk in forecast
the obligation. Where Ag Growth expects some or all of a
transactions and firm commitments.
provision to be reimbursed, for example under an insurance
are assessed on an ongoing basis to determine whether
they have been highly effective throughout the financial
reporting periods for which they were designated.
Hedges that meet the strict criteria for hedge accounting
are accounted for as follows:
Cash flow hedges
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position
The effective portion of the gain or loss on the hedging
if, and only if, there is a currently enforceable legal right to
instrument is recognized directly as other comprehensive
offset the recognized amounts and there is an intention to
income in the cash flow hedge reserve, while any
settle on a net basis, or to realize the assets and settle the
ineffective portion is recognized immediately in the
liabilities simultaneously.
consolidated statement of income in other operating
income or expenses. Amounts recognized as other
comprehensive income are transferred to the consolidated
statement of income when the hedged transaction affects
profit or loss, such as when the hedged financial income
or financial expense is recognized or when a forecast
sale occurs. Where the hedged item is the cost of a
non-financial asset or non-financial liability, the amounts
recognized as other comprehensive income are transferred
to the initial carrying amount of the nonfinancial asset
or liability.
Fair value of financial instruments
Fair value is the estimated amount that Ag Growth would
pay or receive to dispose of these contracts in an arm’s
length transaction between knowledgeable, willing parties
who are under no compulsion to act. The fair value of
financial instruments that are traded in active markets at
each reporting date is determined by reference to quoted
market prices, without any deduction for transaction costs.
For financial instruments not traded in an active market,
the fair value is determined using appropriate valuation
contract, the reimbursement is recognized as a separate
asset but only when the reimbursement is virtually certain.
The expense relating to any provision is presented in the
statement of income, net of any reimbursement. If the
effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
Warranty provisions
Provisions for warranty-related costs are recognized when
the product is sold or service provided. Initial recognition
is based on historical experience. The initial estimate of
warranty-related costs is revised quarterly.
profit per share
The computation of profit per share is based on the
weighted average number of shares outstanding during
the period. Diluted profit per share is computed in a similar
In transactions involving the sale of specific customer
• The usual payment terms apply.
way to basic profit per share except that the weighted
products, Ag Growth applies layaway sales accounting.
average shares outstanding are increased to include
Under layaway sales, Ag Growth recognizes revenue prior
additional shares assuming the exercise of share options,
to the product being shipped, provided the following criteria
share appreciation rights and convertible debt options,
are met as of the reporting date:
if dilutive.
Construction contracts
Ag Growth from time to time enters into arrangements
with its customers that are considered construction
contracts. These contracts (or a combination of contracts)
revenue recognition
Revenue is recognized to the extent that it is probable
this implies the goods have been produced to the
or a combination of assets that are closely interrelated or
specifications of the customer and Ag Growth has
interdependent in terms of their design, technology and
that the economic benefits will flow to Ag Growth and the
assessed, through its quality control processes, that the
function or their ultimate purpose or use.
• The goods are ready for delivery to the customer;
are specifically negotiated for the construction of an asset
revenue can be reliably measured, regardless of when the
goods comply with the specifications;
• A deposit of more than 80% of the total contract value
If the outcome of such a contract can be reliably measured,
for the respective goods has been received;
revenue associated with the construction contract is
Ag Growth principally operates fixed price contracts.
payment is being made. Revenue is measured at the fair
value of the consideration received or receivable, taking
into account contractually defined terms of payment and
excluding taxes or duty. Ag Growth assesses its revenue
arrangements against specific criteria in order to determine
if it is acting as principal or agent. Ag Growth has
• The goods are specifically identified for the customer in
Ag Growth’s inventory tracking system; and
concluded that it is acting as a principal in all of its revenue
• Ag Growth does not have any other obligation than
arrangements. The following specific recognition criteria
to ship the product, or to store the product until the
must also be met before revenue is recognized:
customer picks it up.
Sale of goods
Bill and hold
Revenue from the sale of goods is in general recognized
Ag Growth applies bill and hold sales accounting. Under bill
when significant risks and rewards of ownership
and hold sales, Ag Growth recognizes revenue when the
are transferred to the customer. Ag Growth generally
buyer takes title, provided the following criteria are met as
recognizes revenue when products are shipped, free on
of the reporting date:
• It is probable that delivery will be made;
board shipping point; the customer takes ownership and
assumes risk of loss; collection of the related receivable is
probable; persuasive evidence of an arrangement exists;
and, the sales price is fixed or determinable. Customer
deposits are recorded as a current liability when cash is
received from the customer and recognized as revenue at
• The buyer specifically acknowledges the deferred
the time product is shipped, as noted above.
delivery instructions; and
recognized by reference to the stage of completion of
the contract activity at period end (the percentage of
completion method).
The outcome of a construction contract can be estimated
reliably when: (i) the total contract revenue can be
measured reliably; (ii) it is probable that the economic
benefits associated with the contract will flow to the entity;
(iii) the costs to complete the contract and the stage of
completion can be measured reliably; and (iv) the contract
costs attributable to the contract can be clearly identified
and measured reliably so that actual contract costs
incurred can be compared with prior estimates.
When the outcome of a construction contract cannot be
of costs incurred that are expected to be recoverable.
In applying the percentage of completion method, revenue
63
• The item is on hand, identified and ready for delivery to
estimated reliably (principally during early stages of a
the buyer at the time the sale is recognized;
contract), contract revenue is recognized only to the extent
recognized corresponds to the total contract revenue
• Where the deferred tax liability arises from the initial
Deferred tax items are recognized in correlation to the
(as defined above) multiplied by the actual completion
recognition of goodwill or of an asset or liability in a
underlying transaction either in the income statement,
rate based on the proportion of total contract costs (as
transaction that is not a business combination and,
other comprehensive income or directly in equity.
defined above) incurred to date and the estimated costs
at the time of the transaction, affects neither the
to complete.
accounting profit nor the taxable profit or loss.
Deferred tax assets and deferred tax liabilities are offset if
a legally enforceable right exists to offset current tax assets
income taxes
Ag Growth and its subsidiaries are generally taxable under
• In respect of taxable temporary differences associated
against current income tax liabilities and the deferred
with investments in subsidiaries, where the timing of the
taxes relate to the same taxable entity and the same
the statutes of their country of incorporation.
reversal of the temporary differences can be controlled
taxation authority.
Current income tax assets and liabilities for the current
and prior period are measured at the amount expected
and it is probable that the temporary differences will not
reverse in the foreseeable future.
Tax benefits acquired as part of a business combination,
but not satisfying the criteria for separate recognition
to be recovered from or paid to the taxation authorities.
Deferred tax assets are recognized for all deductible
at that date, would be recognized subsequently if
The tax rates and tax laws used to compute the amount
temporary differences, carryforward of unused tax credits
information about facts and circumstances changed.
are those that are enacted or substantively enacted at the
and unused tax losses, to the extent that it is probable that
The adjustment would either be treated as a reduction
reporting date in the countries where Ag Growth operates
taxable profit will be available against which the deductible
to goodwill if it occurred during the measurement period
and generates taxable income. Current income tax relating
temporary differences and the carryforward of unused tax
or in profit or loss, when it occurs subsequent to the
to items recognized directly in equity is recognized in
credits and unused tax losses can be utilized.
measurement period.
equity and not in the consolidated statement of income.
Management periodically evaluates positions taken in the
tax returns with respect to situations in which applicable
tax regulations are subject to interpretation and establishes
provisions where appropriate.
The carrying amount of deferred tax assets is reviewed
Sales tax
at each reporting date and reduced to the extent that it
Revenues, expenses and assets are recognized net of the
is no longer probable that sufficient taxable profit will be
amount of sales tax, except where the sales tax incurred
available to allow all or part of the deferred tax asset to be
on a purchase of assets or services is not recoverable
utilized. Unrecognized deferred tax assets are reassessed
from the taxation authority, in which case the sales tax is
Ag Growth follows the liability method of accounting
at each reporting date and are recognized to the extent
recognized as part of the cost of acquisition of the asset
for deferred taxes. Under this method, income tax
that it has become probable that future taxable profits will
or as part of the expense item as applicable and where
liabilities and assets are recognized for the estimated tax
allow the deferred tax asset to be recovered. Deferred tax
receivables and payables are stated with the amount of
consequences attributable to the temporary differences
assets and liabilities are measured at the tax rates that are
sales tax included.
between the carrying value of the assets and liabilities on
expected to apply in the year when the asset is realized
the financial statements and their respective tax bases.
or the liability is settled, based on tax rates (and tax laws)
Deferred tax liabilities are recognized for all taxable
temporary differences, except:
that have been enacted or substantively enacted at the
reporting date.
The net amount of sales tax recoverable from, or
payable to, the taxation authority is included as part of
receivables or payables in the consolidated statement of
financial position.
Share-based compensation plans
Employees of Ag Growth may receive remuneration in
surplus are reversed and credited to shareholders’ equity.
liability. The liability is remeasured to fair value at each
The amount of cash, if any, received from participants is
reporting date up to and including the settlement date,
the form of share-based payment transactions, whereby
also credited to shareholders’ equity.
with changes in fair value recognized in the consolidated
employees render services and receive consideration in
the form of equity instruments (equity-settled transactions,
long-term incentive plan and directors deferred
compensation plan) or cash (cash-settled transactions,
share award incentive plan). In situations where equity
instruments are issued and some or all of the goods or
services received by the entity as consideration cannot be
specifically identified, the unidentified goods or services
received are measured as the difference between the fair
value of the share-based payment transaction and the fair
value of any identifiable goods or services received at the
grant date and are capitalized or expensed as appropriate.
Equity-settled transactions
The cost of equity-settled transactions is recognized,
together with a corresponding increase in other
capital reserves, in equity, over the period in which the
performance and/or service conditions are fulfilled.
Where the terms of an equity-settled transaction award
are modified, the minimum expense recognized is the
expense as if the terms had not been modified, if the
original terms of the award are met. An additional expense
statement of income in the line of the function the
respective employee is engaged in.
post-retirement benefit plans
Ag Growth contributes to retirement savings plans subject
is recognized for any modification that increases the total
to maximum limits per employee. Ag Growth accounts for
fair value of the share-based payment transaction, or is
such defined contributions as an expense in the period
otherwise beneficial to the employee as measured at the
in which the contributions are required to be made.
date of modification.
Where an equity-settled award is cancelled, it is treated
as if it vested on the date of cancellation and any expense
not yet recognized for the award (being the total expense
as calculated at the grant date) is recognized immediately.
This includes any award where vesting conditions within
the control of either the Company or the employee are
not met. However, if a new award is substituted for the
Ag Growth does not have any defined benefit plans. Certain
of Ag Growth’s plans classify as multi-employer plans and
would ultimately provide the employee a defined benefit
pension. However, based upon the evaluation of the
available information, Ag Growth is not required to account
for the plans in accordance with the defined benefit
accounting rules, and accounts for such plans as it does
defined contribution plans.
cancelled award, and designated as a replacement award
on the date that it is granted, the cancelled and new
research and development expenses
Research expenses, net of related tax credits, are charged
The cumulative expense recognized for equity-settled
awards are treated as if they were a modification of the
to the consolidated statement of income in the period they
transactions at each reporting date until the vesting period
original award.
reflects the extent to which the vesting period has expired
and Ag Growth’s best estimate of the number of the shares
that will ultimately vest. The expense or credit recognized
for a period represents the movement in cumulative
expense recognized as at the beginning and end of that
period and is recognized in the consolidated statement of
income in the respective function line. When options and
other share-based compensation awards are exercised or
exchanged, the amounts previously credited to contributed
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted
earnings per share.
Cash-settled transactions
The cost of cash-settled transactions is measured initially
at fair value at the grant date using the Black-Scholes
model (note 21). This fair value is expensed over the period
until the vesting date, with recognition of a corresponding
are incurred. Development costs are charged to operations
in the period of the expenditure unless they satisfy the
condition for recognition as an internally generated
intangible asset.
Government grants
Government grants are recognized at fair value where there
is reasonable assurance that the grant will be received and
all attaching conditions will be complied with. Where the
grants relate to an asset, the fair value is credited to the
65
4. SiGniFiCAnt ACCOUntinG JUDGMEntS,
EStiMAtES AnD ASSUMptiOnS
The preparation of the financial statements requires
management to make judgments, estimates and
assumptions that affect the reported amounts of
cost of the asset and is released to the income statement
concerning the future and other key sources of estimation
evaluate goodwill and other non-financial assets could
over the expected useful life in a consistent manner with
uncertainty at the reporting date that have a significant risk
result in a material change to the results of operations.
the depreciation method for the relevant assets.
of causing a material adjustment to the carrying amounts
The key assumptions used to determine the recoverable
investment tax credits
Federal and provincial investment tax credits are accounted
of assets and liabilities within the next financial year are
amount for the different CGUs are further explained in
described below.
note 12.
for as a reduction of the cost of the related assets or
expenditures in the year in which the credits are earned
Construction contracts
The percentage of completion and the revenue to recognize
Development costs
Development costs are capitalized in accordance with the
and when there is reasonable assurance that the credits
are determined on the basis of estimates. Consequently,
accounting policy described in note 3. Initial capitalization
can be used to recover taxes.
Ag Growth has implemented an internal financial budgeting
of costs is based on management’s judgment that technical
and reporting system. In particular, Ag Growth reviews
and economical feasibility is confirmed, usually when a
the estimates of contract revenue and contract costs on a
project has reached a defined milestone according to an
quarterly basis.
established project management model.
assets, liabilities, income, expenses and the disclosure
or fair value less cost to sell calculations that use a
impairment of non-financial assets
Ag Growth’s impairment test is based on value in use
Useful lives of key property, plant and equipment
and intangible assets
The depreciation method and useful lives reflect the
of contingent liabilities. The estimates and related
discounted cash flow model. The cash flows are derived
pattern in which management expects the asset’s future
assumptions are based on previous experience and other
from the forecast for the next five years and do not include
economic benefits to be consumed by Ag Growth. Refer to
factors considered reasonable under the circumstances, the
restructuring activities that Ag Growth is not yet committed
note 3 for the estimated useful lives.
results of which form the basis of making the assumptions
to or significant future investments that will enhance
about carrying values of assets and liabilities that are not
the asset’s performance of the CGU being tested. These
readily apparent from other sources. However, uncertainty
calculations require the use of estimates and forecasts
about these assumptions and estimates could result in
of future cash flows. Qualitative factors, including market
outcomes that require a material adjustment to the carrying
presence and trends, strength of customer relationships,
amount of the asset or liability affected in future periods.
strength of local management, strength of debt and capital
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised
if the revision affects only that period, or in the period
of the revision and future periods if the revision affects
both current and future periods. The key assumptions
markets, and degree of variability in cash flows, as well as
other factors, are considered when making assumptions
with regard to future cash flows and the appropriate
discount rate. The recoverable amount is most sensitive
to the discount rate as well as the forecasted margins and
growth rate used for extrapolation purposes. A change in
any of the significant assumptions or estimates used to
Fair value of financial instruments
Where the fair value of financial assets and financial
liabilities recorded in the consolidated statement of
financial position cannot be derived from active markets,
they are determined using valuation techniques including
the discounted cash flow models. The inputs to these
models are taken from observable markets where possible,
but where this is not feasible, a degree of judgment is
required in establishing fair values. The judgments include
considerations of inputs such as liquidity risk, credit risk
and volatility. Changes in assumptions about these factors
could affect the reported fair value of financial instruments.
Share-based payments
Ag Growth measures the cost of equity-settled share-based
the respective company’s domicile. As Ag Growth assesses
applicable at a future date. The Company intends to adopt
the probability for a litigation and subsequent cash outflow
those standards when they become effective.
payment transactions with employees by reference to the
with respect to taxes as remote, no contingent liability has
fair value of equity instruments at the grant date, whereas
been recognized. Deferred tax assets are recognized for
the fair value of cash-settled share-based payments
all unused tax losses to the extent that it is probable that
is remeasured at every reporting date. Estimating fair
taxable profit will be available against which the losses
value for share-based payments requires determining
can be utilized. Significant management judgment is
the most appropriate valuation model for a grant of
required to determine the amount of deferred tax assets
these instruments, which is dependent on the terms and
that can be recognized, based upon the likely timing and
conditions of the grant. This also requires determining the
the level of future taxable profits together with future tax
most appropriate inputs to the valuation model including
planning strategies.
the expected life of the option, volatility and dividend yield.
taxes
Uncertainties exist with respect to the interpretation of
Acquisition accounting
For acquisition accounting purposes, all identifiable assets,
complex tax regulations, changes in tax laws and the
combination are recognized at fair value at the date of
amount and timing of future taxable income. Given the
acquisition. Estimates are used to calculate the fair value
wide range of international business relationships and the
of these assets and liabilities as of the date of acquisition.
long-term nature and complexity of existing contractual
Contingent consideration resulting from business
agreements, differences arising between the actual results
combinations is valued at fair value at the acquisition date
and the assumptions made, or future changes to such
as part of the business combination. Where the contingent
assumptions, could necessitate future adjustments to
consideration meets the definition of a derivative and,
taxable income and expenses already recorded. Ag Growth
thus, a financial liability, it is subsequently remeasured
establishes provisions, based on reasonable estimates,
to fair value at each reporting date. The determination of
for possible consequences of audits by the tax authorities
the fair value is based on discounted cash flows. The key
of the respective countries in which it operates. The
assumptions take into consideration the probability of
amount of such provisions is based on various factors,
meeting each performance target and the discount factor.
presentation of financial statements
(amendments to iAS 1)
On June 16, 2011, the IASB issued amendments to IAS 1,
Presentation of Financial Statements. The amendments
enhance the presentation of other comprehensive income
(“OCI”) in the financial statements, primarily by requiring
the components of OCI to be presented separately for items
that may be reclassified to the statement of earnings from
those that remain in equity. The amendments are effective
for annual periods beginning on or after January 1, 2012.
The Company is currently assessing the impact of the
Financial instruments: classification and
measurement (“iFrS 9”)
IFRS 9 as issued reflects the first phase of the International
Accounting Standards Board’s (“IASB”) work on the
replacement of the existing standard for financial
instruments (“IAS 39”) and applies to classification
and measurement of financial assets and liabilities
as defined in IAS 39. The standard is effective for
annual periods beginning on or after January 1, 2015.
In subsequent phases, the IASB will address classification
and measurement of hedge accounting. The adoption
of the first phase of IFRS 9 will have an effect on the
liabilities and contingent liabilities acquired in a business
amendments on its consolidated financial statements.
such as experience of previous tax audits and differing
interpretations of tax regulations by the taxable entity and
the responsible tax authority.
5. StAnDArDS iSSUED BUt nOt YEt EFFECtiVE
Standards issued but not yet effective up to the date of
classification and measurement of Ag Growth’s financial
assets. The Company will quantify the effect in conjunction
issuance of the Company’s financial statements are listed
with the other phases, when issued, to present a
Such differences of interpretation may arise on a wide
below. This listing is of standards and interpretations
comprehensive picture.
variety of issues, depending on the conditions prevailing in
issued, which the Company reasonably expects to be
67
Employee benefits (“iAS 19”)
On June 16, 2011, the IASB revised IAS 19, Employee
periods. The Corporation is currently assessing the impact
SIC-13, Jointly-controlled Entities – Non-monetary
of adopting these amendments on the consolidated
Contributions by Venturers. IFRS 11 uses some of the terms
Benefits. The revisions include the elimination of the option
financial statements.
to defer the recognition of gains and losses, enhancing
the guidance around measurement of plan assets and
defined benefit obligations, streamlining the presentation
of changes in assets and liabilities arising from defined
benefit plans and introduction of enhanced disclosures
for defined benefit plans. The amendments are effective
for annual periods beginning on or after January 1, 2013.
The Company is currently assessing the impact of the
amendments on its consolidated financial statements.
iFrS 10 Consolidated financial statements
IFRS 10 replaces the portion of IAS 27, Consolidated
and Separate Financial Statements that addresses the
accounting for consolidated financial statements. It also
includes the issues raised in SIC-12, Consolidation –
Special Purpose Entities. What remains in IAS 27 is limited
to accounting for subsidiaries, jointly controlled entities,
and associates in separate financial statements. IFRS 10
establishes a single control model that applies to all entities
that were used by IAS 31, but with different meanings.
Whereas IAS 31 identified three forms of joint ventures
(i.e., jointly controlled operations, jointly controlled assets
and jointly controlled entities), IFRS 11 addresses only
two forms of joint arrangements (joint operations and joint
ventures) where there is joint control. IFRS 11 defines joint
control as the contractually agreed sharing of control of an
arrangement that exists only when the decisions about the
relevant activities require the unanimous consent of the
parties sharing control.
Offsetting Financial Assets and liabilities
In December 2011, the IASB issued amendments to IAS 32
(including “special purpose entities” or “structured entity” as
Because IFRS 11 uses the principle of control in IFRS 10
they are now referred to in the new standards, or “variable
to define joint control, the determination of whether joint
Financial Instruments: Presentation. The amendments are
interest entities” as they are referred to in US GAAP). The
control exists may change. In addition, IFRS 11 removes
intended to clarify certain aspects of the existing guidance
changes introduced by IFRS 10 will require management to
the option to account for jointly controlled entities (“JCEs”)
on offsetting financial assets and financial liabilities
exercise significant judgment to determine which entities are
using proportionate consolidation. Instead, JCEs that
due to the diversity in application of the requirements
controlled, and therefore are required to be consolidated by
meet the definition of a joint venture must be accounted
on offsetting. The IASB also amended IFRS 7 to require
a parent, compared with the requirements of IAS 27. Under
for using the equity method. For joint operations (which
information about all recognized financial instruments that
IFRS 10, an investor controls an investee when it is exposed,
includes former jointly controlled operations, jointly
are set off in accordance with IAS 32. The amendments
or has rights, to variable returns from its involvement with
controlled assets, and potentially some former JCEs),
also require disclosure of information about recognized
the investee and has the ability to affect those returns
an entity recognizes its assets, liabilities, revenues and
financial instruments subject to enforceable master netting
through its power over the investee. This principle applies to
expenses, and/or its relative share of those items, if any.
arrangements and similar agreements even if they are not
all investees, including structured entities.
In addition, when specifying the appropriate accounting,
set off under IAS 32.
IFRS 10 is effective for annual periods commencing on
The amendments to IAS 32 are effective for annual periods
or after January 1, 2013. The Company is currently in
beginning on or after January 1, 2012. However, the new
the process of evaluating the implications of this new
offsetting disclosure requirements are effective for annual
standard, if any.
periods beginning on or after January 1, 2013 and interim
periods within those annual periods. The amendments
need to be provided retrospectively to all comparative
iFrS 11 Joint Arrangements
IFRS 11 replaces IAS 3l, Interests in Joint Ventures and
IAS 31 focused on the legal form of the entity, whereas
IFRS 11 focuses on the nature of the rights and obligations
arising from the arrangement.
IFRS 11 is effective for annual periods commencing on
or after January 1, 2013. The Company is currently in
the process of evaluating the implications of this new
standard, if any.
iFrS 12 Disclosure of interests in other entities
IFRS 12 includes all of the disclosures that were previously
in IAS 27 related to consolidated financial statements, as
Deferred tax: recovery of underlying assets
(amendments to iAS 12)
On December 20, 2010, the IASB issued Deferred Tax:
6. BUSinESS COMBinAtiOnS 2011
(a) Airlanco inc. (“Airlanco”)
Effective October 4, 2011, the Company acquired
well as all of the disclosures that were previously included
Recovery of Underlying Assets (amendments to IAS 12)
substantially all of the operating assets of Airlanco,
in IAS 31 and IAS 28, Investment in Associates. These
concerning the determination of deferred tax on investment
a manufacturer of grain drying systems. The Company
disclosures relate to an entity’s interests in subsidiaries,
property measured at fair value. The amendments
acquired Airlanco to expand its catalogue of aeration and
joint arrangements, associates and structured entities.
incorporate SIC-21, Income Taxes – Recovery of Revalued
dust collection products.
A number of new disclosures are also required. One of the
Non-Depreciable Assets into IAS 12, Income Taxes for
most significant changes introduced by IFRS 12 is that an
non-depreciable assets measured using the revaluation
entity is now required to disclose the judgments made to
model in IAS 16 Property, Plant and Equipment. The aim
determine whether it controls another entity.
of the amendments is to provide a practical solution for
IFRS 12 is effective for annual periods commencing on
or after January 1, 2013. The Company is currently in the
process of evaluating the implications of this new standard,
which will be limited to disclosure requirements for the
financial statements.
iFrS 13 Fair Value Measurement
IFRS 13 does not change when an entity is required to use
fair value, but rather, provides guidance on how to measure
the fair value of financial and non-financial assets and
jurisdictions where entities currently find it difficult and
subjective to determine the expected manner of recovery
for investment property that is measured using the fair
value model in IAS 40, Investment Property. IAS 12 has
been updated to include:
• A rebuttable presumption that deferred tax on
investment property measured using the fair value
model in IAS 40 should be determined on the basis that
its carrying amount will be recovered through sale; and
liabilities when required or permitted by IFRS. While many
• A requirement that deferred tax on non-depreciable
The purchase has been accounted for by the acquisition
method with the results of Airlanco’s operations
included in the Company’s net earnings from the date of
acquisition. The assets and liabilities of Airlanco on the
date of acquisition have been recorded in the consolidated
financial statements at their estimated fair values
as follows:
Accounts receivable
Inventory
Prepaid expenses and other
Property, plant and equipment
Intangible assets
Distribution network
of the concepts in IFRS 13 are consistent with current
assets, measured using the revaluation model in IAS 16,
Brand name
practice, certain principles, such as the prohibition on
should always be measured on a sale basis.
blockage discounts for all fair value measurements, could
have a significant effect. The disclosure requirements are
substantial and could present additional challenges.
The amendments are mandatory for annual periods
beginning on or after January 1, 2012, but earlier
application is permitted. This amendment is not expected
IFRS 13 is effective for annual periods commencing on or
to have an impact on the Company.
Order backlog
Patents
Goodwill
Accounts payable and accrued liabilities
Customer deposits
after January 1, 2013 and will be applied prospectively.
The Company is currently in the process of evaluating the
implications of this new standard.
$
1,549
2,134
126
1,747
3,090
1,608
21
4
3,087
(1,192)
(204)
11,970
69
The allocation of the consideration transferred to acquired
assets and liabilities is preliminary, utilizing information
available at the time the consolidated financial statements
7. BUSinESS COMBinAtiOnS 2010
(a) Mepu
Effective April 29, 2010, the Company acquired 100% of
were prepared, and the final allocation of the consideration
the outstanding shares of Mepu, a manufacturer of grain
transferred may change when more information
drying systems. The acquisition of Mepu provides the
becomes available.
The goodwill of $3,087 comprises the value of expected
synergies arising from the acquisition and the values
included in the workforce of the new subsidiary. 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.
goodwill balance is allocated to the Airlanco CGU and is
The purchase has been accounted for by the aquisition
expected to be deductible for tax purposes.
From the date of acquisition, Airlanco has contributed
$2,701 of revenue and a net loss before tax of $92 to the
2011 results of the company. If the acquisition had taken
place as at January 1, 2011, revenue and profit from
continuing operations would have increased by $9,766 and
$2,088, respectively.
method with the results of Mepu’s operations included in
the Company’s net earnings from the date of acquisition.
The assets and liabilities of Mepu as at the date of
acquisition have been recorded in the consolidated
financial statements at their fair values as follows:
Accounts receivable
Inventory
The consideration transferred of $11,970 was paid in cash.
Prepaid expenses and other
The impacts on the cash flow on the acquisition of Airlanco
Deferred tax asset
are as follows:
Transaction costs of the acquisition
Purchase consideration transferred
net cash flow on acquisition
$
160
11,970
12,130
As at December 31, 2011, the Company had restricted
cash of $508 relating to the acquisition of Airlanco and $91
of transaction costs payable included in acquisition price,
transaction and financing costs payable.
Property, plant and equipment
Intangible assets
Distribution network
Brand name
Order backlog
Goodwill
Bank indebtedness
Long-term debt
Accounts payable and accrued liabilities
$
1,208
4,465
396
330
4,084
1,562
743
363
3,614
(1,035)
(382)
(2,752)
Customer deposits
Deferred tax liability
purchase consideration transferred
(134)
(1,188)
11,274
The goodwill of $3,614 comprises the value of expected
synergies arising from the acquisition and the values
included in the workforce of the new subsidiary. The goodwill
balance is allocated to Mepu and certain North American
divisions’ CGUs because management is expecting sales
synergies from a wider product line and complementary
distribution networks. None of the goodwill recognized is
expected to be deductible for income tax purposes.
From the date of acquisition, Mepu has contributed to the
2010 results $11,089 of revenue and $850 to the net profit
before tax of the Company. If the combination had taken
place as at January 1, 2010, revenue from continuing
operations in 2010 would have increased by $2,378 and
the profit from continuing operations for the Company in
2010 would decrease by $1,631.
The purchase consideration in the amount of $11,274
was paid in cash. The impacts on the cash flow on the
acquisition of Mepu are as follows:
Transaction costs of the acquisition
Purchase consideration transferred
net cash flow on acquisition
$
643
11,274
11,917
Transaction costs of the acquisition are included in cash
flows from investing activities. In the three-month period
ended June 30, 2011, the conditions related to the cash
The acquisition of Franklin was an asset purchase and as
The assets and liabilities of Tramco on the date of
holdback were met and the Company transferred $572
such the Company does not have access to the books and
acquisition have been recorded in the consolidated financial
from cash held in trust to the vendors. As at December 31,
records of Franklin for any periods prior to the acquisition
statements at their estimated fair values as follows:
2011 there are no remaining funds held in trust.
date of October 1, 2010. Therefore, the impacts on revenues
(b) Franklin Enterprises ltd. (“Franklin”)
Effective October 1, 2010, the Company acquired
substantially all of the operating assets of Franklin,
a custom manufacturer. The Company acquired Franklin
and profit of the Company from an acquisition of Franklin at
the beginning of 2010 cannot be reported. From the date of
acquisition, Franklin has contributed $3,261 of revenue and
a net loss before tax of $548 to the 2010 results.
to enhance its manufacturing capabilities and to increase
The purchase consideration in the amount of $8,856 was
production capacity in periods of high in-season demand.
paid in cash. The impacts on the cash flow on acquisition
Accounts receivable
Inventory
Prepaid expenses and other
Deferred tax asset
Property, plant and equipment
Intangible assets
Distribution network
of Franklin are as follows:
Transaction costs of the acquisition
Purchase consideration transferred
net cash flow on acquisition
$
356
8,856
9,212
Brand name
Software
Order backlog
Goodwill
$
4,211
4,162
208
340
8,495
1,701
2,361
1,118
272
7,343
(4,458)
(967)
(143)
(4,550)
20,093
In the three-month period ended December 31, 2011,
the conditions related to the cash holdback were met and
the Company transferred $250 cash held in trust to the
vendors. As at December 31, 2011 there are no remaining
funds held in trust.
(c) tramco, inc. (“tramco”)
Effective December 20, 2010, the Company acquired 100%
of the outstanding shares of Tramco, a manufacturer of
chain conveyors. Tramco is an industry leader and provides
the Company with an entry point into the grain processing
sector of the food supply chain.
The purchase has been accounted for by the acquisition
method with the results of Tramco’s operations included in
the Company’s net earnings from the date of acquisition.
Accounts payable and accrued liabilities
Customer deposits
Income taxes payable
Deferred tax liability
purchase consideration transferred
The goodwill of $7,343 comprises the value of expected
synergies arising from the acquisition and the values
included in the workforce of the new subsidiary.
Goodwill at the time of the transaction is not deductible for
tax purposes.
From the acquisition date of December 20, 2010, Tramco
contributed $184 of revenue and a net loss before tax
of $78 to 2010 results of the Company. Tramco has
71
The purchase has been accounted for by the acquisition
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 on the date of
acquisition 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 finance lease contracts
Accounts payable and accrued liabilities
purchase consideration transferred
$
1,557
8
8,171
68
(707)
(241)
8,856
The goodwill of $68 comprises the value of expected
synergies arising from the acquisition and the values
included in the workforce of the new subsidiary. The
goodwill balance is allocated to the Franklin CGU and is
expected to be deductible for tax purposes.
operations in the U.S. and the U.K. and their results were not consolidated on a regular basis.
As a result, the Company is not able to quantify the impact Tramco would have had on the
Company’s financial results if the acquisition had been made on January 1, 2010.
The impacts on the cash flow on acquisition of Tramco are as follows:
Purchase consideration paid in 2010
Purchase consideration paid in 2011
Transferred to cash held in trust
Transaction costs of the acquisition paid in 2010
Transaction costs of the acquisition paid in 2011
net cash flow on acquisition
$
9,168
9,930
995
339
164
20,596
Transaction costs of the acquisition are included in cash flows from investing activities. At the
request of the vendor, the purchase price was paid in two installments. As at December 31,
(c) Finance costs
Interest on overdrafts and other finance costs
51
49
Interest, including non-cash interest, on debts
and borrowings
Interest, including non-cash interest, on convertible
debentures (note 23)
2,377
2,344
10,220
10,083
Finance charges payable under finance lease contracts
20
8
(d) Cost of goods sold
Depreciation
Amortization of intangible assets
Warranty provision
Cost of inventories recognized as an expense
2011, the Company had restricted cash of $1,017 relating to the acquisition of Tramco.
(e) Selling, general and administrative expenses
Additionally, there is $322 due to vendor included in acquisition price, transaction and
Depreciation
financing costs payable.
8. OthEr EXpEnSES (inCOME)
(a) Other operating expense (income)
Cash flow hedge accounting
Net loss on disposal of property, plant and equipment
Other
(b) Finance expense (income)
Interest income from banks
Loss (gain) on foreign exchange
Amortization of intangible assets
Minimum lease payments recognized as an operating
lease expense
Transaction costs
Selling, general and administrative
(f) Employee benefits expense
Wages and salaries
Share-based payment transaction expense
Pension costs
Included in cost of goods sold
Included in general and administrative expense
2011
$
126
76
(302)
(100)
(117)
276
159
2010
$
(121)
262
(746)
(605)
(765)
(1,300)
(2,065)
12,668
12,484
4,933
2,927
503
280
450
748
198,487
204,203
159,833
163,958
485
3,273
943
1,676
48,449
54,826
385
2,968
1,273
1,696
44,736
51,058
67,085
58,686
2,038
1,925
71,048
48,013
23,035
71,048
6,504
1,470
66,660
30,630
36,030
66,660
9. prOpErtY, plAnt AnD EQUipMEnt
COSt
Balance, January 1, 2011
Additions
Acquisitions of a subsidiary
land
$
4,777
61
52
Classification as assets held for sale
(146)
Disposals
Exchange differences
Balance, December 31, 2011
DEprECiAtiOn
Balance, January 1, 2011
Depreciation charge for the year
Classification as asset held for sale
Disposals
Exchange differences
Balance, December 31, 2011
Net book value, January 1, 2011
Net book value, December 31, 2011
—
7
4,751
—
—
—
—
—
—
4,777
4,751
Buildings
and building
components
$
27,599
9,730
764
(1,089)
—
176
37,180
1,492
1,055
(134)
—
33
2,446
26,107
34,734
Grounds
$
488
35
71
—
—
3
597
124
65
—
—
1
190
364
407
$
431
35
—
—
—
—
466
196
71
—
—
3
270
235
196
leasehold
improvements
Furniture
and fixtures
Computer
hardware
Manufacturing
equipment
Construction
in progress
$
$
$
$
982
80
65
—
—
21
Vehicles
$
5,283
1,043
101
—
(164)
112
31,548
15,039
17,589
(17,294)
1,948
525
25
—
(24)
27
668
—
(724)
269
1,148
6,375
2,501
46,800
295
105
—
—
6
406
687
742
1,889
673
—
(68)
8
2,502
3,394
3,873
1,115
308
—
(16)
11
1,418
833
1,083
6,512
3,141
—
(262)
38
9,429
25,036
37,371
—
—
—
(18)
277
—
—
—
—
—
—
17,589
277
total
$
90,645
9,254
1,746
(1,235)
(912)
597
100,095
11,623
5,418
(134)
(346)
100
16,661
79,022
83,434
73
Buildings
and building
components
leasehold
improvements
Furniture
and fixtures
land
$
Grounds
$
$
$
COSt
Balance, January 1, 2010
Additions
Acquisitions of a subsidiary
Disposals
Exchange differences
2,919
—
2,023
(66)
(99)
235
80
180
—
(7)
14,030
3,012
11,159
(170)
(432)
Balance, December 31, 2010
4,777
488
27,599
DEprECiAtiOn
Balance, January 1, 2010
Depreciation charge for the year
Disposals
Exchange differences
Balance, December 31, 2010
Net book value, January 1, 2010
Net book value, December 31, 2010
—
—
—
—
—
2,919
4,777
77
47
—
—
124
158
364
1,036
490
(23)
(11)
1,492
12,994
26,107
453
—
—
—
(22)
431
139
63
—
(6)
196
314
235
Vehicles
$
3,870
1,276
161
(146)
122
Computer
hardware
Manufacturing
equipment
Construction
in progress
$
$
$
1,568
22,451
206
214
(5)
(35)
2,902
6,915
(260)
(460)
253
17,309
—
—
27
total
$
46,635
24,797
20,750
(647)
(890)
$
856
12
98
—
16
982
5,283
1,948
31,548
17,589
90,645
214
82
—
(1)
295
642
687
1,454
519
(79)
(5)
1,889
2,416
3,394
871
254
(3)
(7)
1,115
697
833
4,971
1,858
(146)
(171)
6,512
17,480
25,036
—
—
—
—
—
253
17,589
8,762
3,313
(251)
(201)
11,623
37,873
79,022
Construction in progress is comprised primarily of building and equipment, the cost of which are not depreciated until the assets are ready for use in the reporting period.
Ag Growth regularly assesses its long-lived assets for impairment. As at December 31, 2011 and 2010, the recoverable amount of each CGU exceeded the carrying amounts of the assets
allocated to the respective units.
Capitalized borrowing costs
No borrowing costs were capitalized in 2010 or 2011.
Finance leases
Included in manufacturing equipment is equipment held under finance leases, the carrying value of which at December 31, 2011 was $131 (December 31, 2010 – $839, January 1, 2010 – nil).
Leased assets are pledged as security for the related finance lease liabilities.
10. intAnGiBlE ASSEtS
Distribution
networks
Brand names
patents
Software
Order backlog
Development
projects
COSt
Balance, January 1, 2011
52,346
32,582
1,138
1,092
$
$
$
$
Additions
Internal development
Acquisition
Exchange differences
Balance, December 31, 2011
AMOrtiZAtiOn
Balance, January 1, 2011
Amortization charge for the year
Exchange differences
Balance, December 31, 2011
net book value, December 31, 2011
—
3,090
197
55,633
14,509
3,226
139
17,874
37,759
—
1,608
124
34,314
—
—
—
—
34,314
—
4
20
1,162
568
87
10
665
497
—
—
25
1,117
—
135
5
140
977
$
628
—
21
17
666
364
281
21
666
—
$
—
2,011
—
(1)
2,010
—
47
—
47
1,963
total
$
87,786
2,011
4,723
382
94,902
15,441
3,776
175
19,392
75,510
75
COSt
Balance, January 1, 2010
Additions – acquisition of subsidiary
Exchange differences
Balance, December 31, 2010
AMOrtiZAtiOn
Balance, January 1, 2010
Amortization charge for the year
Exchange differences
Balance, December 31, 2010
net book value, January 1, 2010
net book value, December 31, 2010
Distribution
networks
$
49,709
3,263
(626)
52,346
11,763
2,970
(224)
14,509
37,946
37,837
Brand names
patents
Software
Order backlog
$
29,812
3,104
(334)
32,582
—
—
—
—
29,812
32,582
$
1,184
—
(46)
1,138
501
83
(16)
568
683
570
$
—
1,118
(26)
1,092
—
—
—
—
—
1,092
$
—
635
(7)
628
—
365
(1)
364
—
264
total
$
80,705
8,120
(1,039)
87,786
12,264
3,418
(241)
15,441
68,441
72,345
The Company is continuously working on research and development projects. The Company
annually. For definite life intangibles, the Company assesses whether there are indicators
operates a development centre that coordinates the efforts throughout Ag Growth.
of impairment at subsequent reporting dates as a triggering event for performing an
Development costs capitalized include the development of new products and the
impairment test.
development of new applications of already existing products and prototypes. Research costs
and development costs that are not eligible for capitalization have been expensed and are
recognized in selling, general and administrative expenses.
Other significant intangible assets are goodwill (note 11) and the distribution network of
the Company. The distribution network was acquired in past business combinations and
reflects the Company’s dealer network in North America and the dealer network of the Mepu
Intangible assets include patents acquired through business combinations, which have
operating division. The remaining amortization period for the distribution network ranges
a remaining life of seven years. All brand names with a carrying amount of $34,314
from 4 to 19 years.
(December 31, 2010 – $32,582, January 1, 2010 – $29,812) have been qualified as
indefinite useful life intangible assets, as the Company expects to maintain these brand
names and currently no end point of the useful lives of these brand names can be
determined. The Company assesses the assumption of an indefinite useful life at least
As of the reporting date, the Company had no contractual commitments for the acquisition of
intangible assets.
11. GOODWill
The Company’s CGUs and goodwill and indefinite life intangible assets allocated thereto are
COSt
Balance, beginning of year
Additions – acquisition of subsidiary
Exchange differences
Balance, end of year
2011
$
62,355
3,087
434
65,876
2010
$
52,187
11,025
(857)
62,355
12. iMpAirMEnt tEStinG
For purposes of impairment testing, the Company determined that each of its seven
as follows:
Westfield
Goodwill
Intangible assets with indefinite lives
Edwards
Goodwill
Intangible assets with indefinite lives
operating divisions were CGUs as of its IFRS transition date. Under the IFRS 1 transition
guidance, Ag Growth performed an impairment test as at January 1, 2010. Upon the
Hi Roller
Goodwill
acquisition of Franklin during 2010, Ag Growth reconsidered its CGUs and concluded that
Intangible assets with indefinite lives
Wheatheart no longer met the CGU definition and management then reallocated the assets
and goodwill on a relative fair value basis to the Applegate and Westfield CGUs.
Union Iron
Goodwill
Goodwill acquired through business combinations is allocated on a relative fair value basis
to the CGUs that benefit from the acquisition. The Company performs its annual goodwill
impairment test as at December 31 on all CGUs. The recoverable amount of the CGUs has
Intangible assets with indefinite lives
Tramco
Goodwill
been determined based on value in use for the year ended December 31, 2011 and fair
Intangible assets with indefinite lives
value less costs to sell calculation as at January 1, 2010, the Transition Date, using cash
flow projections covering a five-year period. The various pre-tax discount rates applied to
Other
Goodwill
the cash flow projections are between 11.8% and 17.1% (December 31, 2010 – 12.2% and
Intangible assets with indefinite lives
December 31
2011
December 31
2010
January 1
2010
$
$
$
30,435
19,000
30,435
19,000
29,208
19,000
6,438
5,163
5,588
3,296
8,199
2,193
7,450
2,360
7,766
2,302
6,438
5,163
5,465
3,224
8,018
2,144
7,286
2,308
4,713
743
18.9%, January 1, 2010 – 14.3% and 19.8%) and cash flows beyond the five-year period
are extrapolated using a 3% growth rate (December 31, 2010 – 3% , January 1, 2010 –
3%), which is management’s estimate of long-term inflation and productivity growth in the
industry and geographies in which it operates.
Total
Goodwill
Intangible assets with indefinite lives
65,876
34,314
62,355
32,582
5,123
5,163
5,751
3,392
8,437
2,257
—
—
3,668
—
52,187
29,812
77
key assumptions used in valuation calculations
The calculation of value in use or fair value less cost to sell for all the CGUs are most
13. ASSEtS hElD FOr SAlE
In 2010, Ag Growth transferred all production activities from its Lethbridge, Alberta facility
sensitive to the following assumptions:
• Gross margin;
• Discount rates;
• Market share during the budget period; and
• Growth rate used to extrapolate cash flows beyond the budget period.
Gross margins
Forecasted gross margins are based on actual gross margins achieved in the years
preceding the forecast period. Margins are kept constant over the forecast period and the
terminal period, unless management has started an efficiency improvement process.
Discount rates
Discount rates reflect the current market assessment of the risks specific to each CGU.
The discount rate was estimated based on the weighted average cost of capital for the
industry. This rate was further adjusted to reflect the market assessment of any risk specific
to the CGU for which future estimates of cash flows have not been adjusted.
Market share assumptions
These assumptions are important because, as well as using industry data for growth rates
(as noted below), management assesses how the CGU’s position, relative to its competitors,
might change over the forecast period.
Growth rate estimates
Rates are based on published research and are primarily derived from the long-term CPI
expectations for the markets in which Ag Growth operates. Management considers CPI to be
a conservative indicator of the long-term growth expectations for the agricultural industry.
to Nobleford, Alberta. Ag Growth concluded that the land and building in Lethbridge, Alberta,
Canada met the definition of an asset held for sale. The carrying amounts of the assets as
presented in the consolidated statement of financial position solely consist of the land and
building. The land carrying value is $146 as at December 31, 2011.
14. AVAilABlE-FOr-SAlE inVEStMEnt
On December 22, 2009, the Company purchased two million common shares at $1.00 per
share in a private Canadian corporate farming organization (“Investco”). The Company’s
investment represents approximately 2.0% of the outstanding shares of Investco. At this
point in time, management intends to hold the investment for an indefinite period of time.
In the year ended December 31, 2011, Investco completed a private placement of
22,193,921 common shares at $1.40 per common share. The private placement included
a large number of unrelated parties and increased Investco’s outstanding common shares
by approximately 40%. The private placement was determined to represent a quoted
market price and as a result the Company assessed the fair value of its 2,000,000 common
shares at $1.40 per common share. Accordingly, the Company increased the value of its
investment by $800 with the offsetting amount recorded in other comprehensive income.
As at December 31, 2011, given there has been no recent market activity, the $2.8 million
represents cost which is deemed to be the fair value carrying amount.
15. CASh AnD CASh EQUiVAlEntS/ChAnGES in nOn-CASh WOrkinG CApitAl
Cash and cash equivalents as at the date of the consolidated statement of financial position
16. rEStriCtED CASh
Restricted cash of $2,439 (2010 – $1,860) consists of holdbacks related to the acquisition
and for the purpose of the consolidated statement of cash flows are as follows:
of Tramco (note 7), and Airlanco (note 6), $885 of funds advanced to Ag Growth as collateral
Cash at banks and on hand
Short-term deposits
total cash and cash equivalents
December 31
2011
December 31
2010
January 1
2010
$
6,839
—
6,839
$
11,201
23,780
34,981
$
41,110
67,984
109,094
for a receivable from an end user of Ag Growth products and $29 related to the long-term
incentive plan (note 21). Subsequent to December 31, 2011, the $885 receivable from the
end user was collected and the restricted cash was released.
17. ACCOUntS rECEiVABlE
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 following table sets forth details
of the age of trade accounts receivable that are not overdue, as well as an analysis of
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term
overdue amounts and the related allowance for doubtful accounts:
deposits are made for varying periods of between one day and three months, depending
on the immediate cash requirements of the Company, and earn interest at the respective
short-term deposit rates.
The change in the non-cash working capital balances related to operations is calculated
as follows:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Customer deposits
Provisions
2011
$
(9,607)
(9,850)
5,034
(1,755)
1,445
280
2010
$
(9,664)
(1,321)
(5,248)
2,046
(2,868)
748
(14,453)
(16,307)
December 31
2011
December 31
2010
January 1
2010
$
50,188
(497)
49,691
$
39,019
(484)
38,535
$
25,571
(499)
25,072
Total accounts receivable
Less allowance for doubtful accounts
total accounts receivable, net
Of which
Neither impaired nor past due
33,412
17,661
17,552
Not impaired and past the due date
as follows:
Within 30 days
31 to 60 days
61 to 90 days
Over 90 days
Less allowance for doubtful accounts
total accounts receivable, net
9,356
2,761
957
3,702
(497)
49,691
7,231
7,044
3,295
3,788
(484)
38,535
3,457
927
795
2,840
(499)
25,072
79
Trade receivables assessed to be impaired are included in selling, general and administrative
Assumptions used to calculate the provision for warranties were based on current sales
expenses in the period of the assessment. The movement in the Company’s allowance for
levels and current information available about returns.
doubtful accounts for the periods ended December 31, 2011 and December 31, 2010 was
as follows:
2011
$
484
10
(1)
34
(33)
3
497
2010
$
499
113
(5)
17
(137)
(3)
484
Balance, beginning of year
Costs recognized
Amounts charged against provision
Balance, end of year
20. EQUitY
(a) Common shares
Authorized
Unlimited number of voting common shares without par value
2011
$
1,942
3,032
(2,752)
2,222
2010
$
1,194
2,971
(2,223)
1,942
Balance, beginning of year
Additional provision recognized
Amounts written off during the period as uncollectible
Amounts recovered during the period
Unused provision reversed
Exchange differences
Balance, end of year
18. inVEntOrY
Raw materials
Finished goods
December 31
2011
December 31
2010
January 1
2010
$
37,159
27,399
64,558
$
29,516
23,058
52,574
$
21,581
18,040
39,621
Inventory is recorded at the lower of cost and net realizable value.
During the year ended December 31, 2011, no provisions (2010 – nil) were expensed
through cost of goods sold. There were no write-downs of finished goods and no reversals
of write-downs included in cost of goods sold during the year.
19. prOViSiOnS
Provisions consist of the Company’s warranty provision. A provision is recognized for
expected claims on products sold based on past experience of the level of repairs and
returns. It is expected that most of these costs will be incurred in the next financial year.
Issued
12,411,620 common shares
Balance, January 1, 2010
number
Amount
#
$
13,020,099
157,279
Purchase of common shares under LTIP
(167,900)
Purchase of common shares under normal course issuer bid
(674,600)
Settlement of LTIP obligation – vested shares
Settlement of SAIP obligation –vested shares
81,951
140,000
(6,032)
(8,057)
2,737
5,449
Balance, December 31, 2010
12,399,550
151,376
Purchase of common shares under LTIP (note 21(a))
(67,996)
(3,346)
Conversion of subordinated debentures
Settlement of LTIP obligation – vested shares (note 21(e))
Balance, December 31, 2011
2,556
77,510
115
2,894
12,411,620
151,039
The 12,411,620 common shares at December 31, 2011 are net of 134,376 common shares
with a stated value of $5,428 that are being held by the Company under the terms of the LTIP
until vesting conditions are met.
The 12,399,550 common shares at December 31, 2010 are net of 143,890 common shares
Foreign currency translation reserve
with a stated value of $5,027 that are being held by the Company under the terms of the LTIP
The foreign currency translation reserve is used to record exchange differences arising from
until vesting conditions are met.
the translation of the financial statements of foreign subsidiaries. It is also used to record the
(b) normal course issuer bid
On November 17, 2011, Ag Growth commenced a normal course issuer bid for up to
effect of hedging net investments in foreign operations.
Available-for-sale reserve
994,508 common shares, representing 10% of the Company’s public float at the time. The
The available-for-sale reserve contains the cumulative change in the fair value of available-
normal course issuer bid will terminate on November 20, 2012 unless terminated earlier by
for-sale investment. Gains and losses are reclassified to the consolidated statement of
Ag Growth. In the year ended December 31, 2011, no common shares were purchased under
income when the available-for-sale investment is impaired or derecognized.
the normal course issuer bid.
On December 10, 2009, Ag Growth commenced a normal course issuer bid for up to
(e) Dividends paid and proposed
In the year ended December 31, 2011, the Company declared dividends of $30,109 or $2.40
1,272,423 common shares, representing 10% of the Company’s public float at that time. The
per common share (2010 – $26,854 or $2.12 per common share). Ag Growth’s dividend
normal course issuer bid terminated on December 9, 2010. In the year ended December 31,
policy is to pay cash dividends on or about the 30th of each month to shareholders of record
2010, Ag Growth purchased and cancelled 674,600 common shares under the normal course
on the last business day of the previous month and the Company’s current monthly dividend
issuer bid for $23,391.
(c) Contributed surplus
Balance, beginning of year
Equity-settled director compensation
Obligation under LTIP
Exercise price on vested SAIP awards
Settlement of LTIP obligation – vested shares
Balance, end of year
2011
$
6,121
345
1,769
—
(2,894)
5,341
2010
$
3,859
227
4,279
18
(2,262)
6,121
(d) Accumulated other comprehensive income
Accumulated other comprehensive income is comprised of the following:
Cash flow hedge reserve
The cash flow hedge reserve contains the effective portion of the cash flow hedge
relationships incurred as at the reporting date.
rate is $0.20 per common share. Subsequent to December 31, 2011, the Company declared
dividends of $0.20 per common share on each of January 31, 2012 and February 28, 2012.
(f) 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 of Directors 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 Company, acting jointly or in concert, acquires (other than pursuant to an
exemption available under the Rights Plan) beneficial ownership of 20% 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
81
Common Shares equal to four times the exercise price of the Rights for an amount in cash
consultants or other service providers to the Company and its affiliates (“Service Providers”).
equal to the exercise price. The exercise price of the Rights pursuant to the Rights Plan is
Share Awards may not be granted to non-management Directors. Under the terms of the
$150 per Right.
21. ShArE-BASED COMpEnSAtiOn plAnS
(a) long-term incentive plan (“ltip”)
The LTIP is a compensation plan that awards common shares to key management based on
SAIP, 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.
The shareholders reserved for issuance 220,000 common shares, subject to adjustment in
the Company’s operating performance. Pursuant to the LTIP, the Company establishes the
lieu of dividends, if applicable, and no additional awards may be granted without shareholder
amount to be allocated to management based upon the amount by which distributable cash,
approval. As at December 31, 2011, 220,000 (2010 – 220,000) Share Awards have been
as defined in the LTIP, exceeds a predetermined threshold. The service period commences
granted and 40,000 (2010 – 80,000) remain outstanding.
on January 1 of the year the award is generated and ends at the end of the fiscal year.
The award vests on a graded scale over an additional three-year period from the end of
the respective performance year. The LTIP provides for immediate vesting in the event
of retirement, death, termination without cause or in the event the participant becomes
disabled. The cash awarded under the plan formula is used to purchase Ag Growth common
shares at market prices. All vested awards are settled with participants in common shares
purchased by the administrator of the plan and there is no cash settlement alternative.
During the year ended December 31, 2011, 40,000 Share Awards vested and were
exercised, at which time the participants received a cash payment of $1,998. On January 1,
2010, 73,333 Share Awards vested and were exercised, at which time common shares of
the Company were issued for $2,586. 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, of
which $2,411 had been expensed prior to October 15, 2010 and included in the SAIP liability.
The amount owing to participants is recorded as an equity award in contributed surplus
Subsequent to December 31, 2011, the remaining 40,000 Share Awards vested, at which
as the award is settled with participants with treasury shares purchased in the open
time the participants received a cash payment of $1,490. For the year ended December 31,
market. The expense is recorded in the different consolidated statement of income lines by
2011, Ag Growth recorded income of $76 (2010 – expense of $2,707) for the Share Awards.
function depending on the role of the respective management member. For the year ended
December 31, 2011, Ag Growth expensed $1,769 (2010 – $3,570) for the LTIP. Additionally,
there is $29 in restricted cash related to the LTIP.
(c) Directors’ Deferred Compensation plan (“DDCp”)
Under the DDCP, every Director receives a fixed base retainer fee, an attendance fee for
meetings and a committee chair fee, if applicable, and a minimum of 20% of the total
During the year ended December 31, 2011, the administrator purchased 67,996 common
compensation must be taken in common shares. A Director will not be entitled to receive
shares (2010 – 167,900 common shares) in the market for $3,346 (2010 – $6,032). The fair
the common shares he or she has been granted until a period of three years has passed
value of this share-based payment equals the share price as of the respective measurement
since the date of grant or until the Director ceases to be a Director, whichever is earlier.
date as dividends related to the shares in the administrated fund are paid annually to the
The Directors’ common shares are fixed based on the fees eligible to him for the respective
LTIP participants.
(b) Share award incentive plan (“SAip”)
The Company has a share award incentive plan that authorizes the Directors to grant awards
(“Share Awards”) to employees or officers of Ag Growth or any affiliates of the Company or
period and his decision to elect for cash payments for dividends related to the common
shares; therefore, the Director’s remuneration under the DDCP vests directly in the respective
service period. The three-year period (or any shorter period until a Director ceases to be a
Director) qualifies only as a waiting period to receive the vested common shares.
For the years ended December 31, 2011 and 2010, the Directors elected to receive the
As at December 31, 2011, a total of 935,325 options (2010 - 970,319) are available for
majority of their remuneration in common shares. For the year ended December 31, 2011,
grant. No options have been granted as at December 31, 2011.
an expense of $345 (2010 – $227) was recorded for the share grants, and a corresponding
amount has been recorded to contributed surplus. The share grants were measured with the
contractual agreed amount of service fees for the respective period.
The total number of common shares issuable pursuant to the DDCP shall not exceed 35,000,
subject to adjustment in lieu of dividends, if applicable. For the year ended December 31,
2011, 9,161 common shares were granted under the DDCP and as at December 31, 2011,
a total of 23,144 common shares had been granted under the DDCP and no common shares
had been issued.
(d) 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 allow these individuals an opportunity 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
(e) Summary of expenses recognized under share-based payment plans
For the year ended December 31, 2011, an expense of $2,038 (2010 – $6,504) was
recognized for employee and Director services rendered.
The total carrying amount of the liability for the SAIP as of December 31, 2011 was $1,495
(2010 – $3,574). There have been no cancellations or modifications to any of the plans
during the years ended December 31, 2011 or December 31, 2010.
A summary of the status of the options under the SAIP is presented below:
Outstanding, beginning of year
Exercised
Outstanding, end of year
2011 Shares
2010 Shares
#
80,00
(40,000)
40,000
#
220,000
(140,000)
80,000
and designate the individuals to whom options may be granted and the number of common
The exercise price on all SAIP awards is $0.10 per common share. All outstanding options
shares to be optioned to each. The maximum number of common shares issuable on
under the SAIP as of December 31, 2011 vested and were exercised on January 1, 2012.
A summary of the status of the shares under the LTIP is presented below:
exercise of outstanding options at any time may not exceed 7.5% of the aggregate number
of issued and outstanding common shares, less the number of common shares issuable
pursuant to all other security-based compensation agreements. The number of common
shares reserved for issuance to any one individual may not exceed 5% of the issued and
outstanding common shares.
Options will vest and be exercisable as to one-third of the total number of common shares
subject to the options on each of the first, second and third anniversaries of the date of
Vested
Granted
the grant. The exercise price of the options shall be fixed by the Board of Directors or a
Outstanding, end of year
Committee thereof on the date of the grant and may not be less than the market price of the
common shares on the date of the grant. The options must be exercised within five years of
the date of the grant.
Outstanding, beginning of year
2011 Shares
2010 Shares
#
143,890
(77,510)
67,996
134,376
#
57,941
(81,951)
167,900
143,890
83
The following table lists the inputs to the models used for the SAIP for the years ended
The dividend yield was set to 0% for the calculation of the option value, as the Share Award
December 31, 2011 and December 31, 2010:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of share options (years)
Weighted average share price ($)
2011
$
0
26.88
1
1
2010
$
0
23.20
1
1
37.48
50.07
holders already receive during the period between grant date and vesting date of the Share
Award the same dividend as all actual shareholders. The expected life of the Share Awards
is the period between the reporting date and the vesting date, as the Share Awards can
be exercised by the holders only at the vesting date. The expected volatility reflects the
assumption that the historical volatility over a period similar to the Share Awards is indicative
of future trends, which may also not necessarily be the actual outcome.
(f) Accelerated vesting and death benefits
On October 15, 2010, Ag Growth announced the passing of its Chief Executive Officer. Upon
Model used
Black-Scholes
Black-Scholes
his passing, all previously unvested share-based compensation vested immediately, certain
The fair value per option at December 31, 2011 was $37.38.
22. lOnG-tErM DEBt AnD OBliGAtiOnS FrOM FinAnCE lEASES
death benefits became payable to his estate and the Company became entitled to proceeds
of $3,000 related to an insurance policy, which was recorded in prepaid expenses and other
assets as at December 31, 2010. The insurance proceeds were received in 2011.
interest rate
%
Maturity
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Current portion of interest-bearing loans and borrowings
Obligations under finance leases
Nordea equipment loan (Euro denominated)
GMAC loans
total current portion of interest-bearing loans and borrowings
non current interest-bearing loans and borrowings
Series A secured notes (U.S. dollar denominated)
Term debt (U.S. dollar denominated)
Nordea equipment loan (Euro denominated)
GMAC loans
Obligations under finance leases
Total non-current interest-bearing loans and borrowings
Less deferred financing costs
total interest-bearing loans and borrowings
6.5
2.0
0.0
6.8
3.8
2.0
0.0
6.5
2011 – 2012
2013
2011 and 2014
2016
2012
2013
2011 and 2014
2011 – 2012
131
—
16
147
25,425
10,709
—
3
—
36,137
36,284
313
35,971
432
112
16
560
—
—
16
16
24,865
26,165
—
196
15
138
25,214
25,774
558
25,216
—
—
31
—
26,196
26,212
793
25,419
(a) Bank indebtedness
Ag Growth has operating facilities of $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, 2011 on
Ag Growth’s Canadian dollar term debt was 3.5% (2010 – 3.1%), and on its U.S. dollar term
debt was 3.8% (2010 – 3.8%). As at December 31, 2011 and December 31, 2010, there
were no amounts outstanding under these facilities. The facilities mature October 29, 2012.
Collateral for the operating facilities rank pari passu with the Series A secured notes 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.
(b) long-term debt
The Series A secured notes were issued on October 29, 2009. The non-amortizing notes bear
interest at 6.8% payable quarterly and mature on October 29, 2016. 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.
Term loans bear interest at rates of prime plus 0.5% to prime plus 1.5% based on
performance calculations. As at December 31, 2011, term loans of U.S. $10,530 were
outstanding and there were no term loans outstanding at December 31, 2010. Ag Growth’s
credit facility provides for term loans of up to $38,000 and U.S. $20,500 and matures
The Nordea equipment loan is denominated in Euros, bears interest at 2% and was fully
repaid during the year ended December 31, 2011.
GMAC loans bear interest at 0% and mature in 2014. The vehicles financed are pledged
as collateral.
(c) Covenants
Ag Growth is subject to certain financial covenants in its credit facility agreements,
which must be maintained to avoid acceleration of the termination of the agreement. The
financial covenants require Ag Growth to maintain a debt to earnings before interest, taxes,
depreciation and amortization (“EBITDA”) ratio of less than 2.5 and to provide debt service
coverage of a minimum of 1.0. As at December 31, 2011 and December 31, 2010, Ag Growth
was in compliance with all financial covenants.
23. COnVErtiBlE UnSECUrED SUBOrDinAtED DEBEntUrES
Principal amount
Equity component
Accretion
Financing fees, net of amortization
Convertible unsecured subordinated
debentures
2011
$
2010
$
January 1
2010
$
114,885
115,000
115,000
(7,475)
2,770
(2,978)
(7,475)
1,438
(3,823)
(7,475)
185
(4,603)
107,202
105,140
103,107
October 29, 2012. In the event the credit facility is not renewed, all outstanding amounts
On October 27, 2009, the Company issued convertible unsecured subordinated debentures in
become repayable in quarterly installments beginning on January 31, 2014.
the aggregate principal amount of $100 million, and on November 6, 2009 the underwriters
Subsequent to December 31, 2011, the Company renewed its credit facility on substantially
the same terms with its existing lenders. The renewed credit facility includes a $25 million
accordion feature, bears interest at rates of prime plus 0.0% to prime plus 1.0% based on
performance calculations and matures on the earlier of March 8, 2016 or three months prior
to maturity date of convertible unsecured subordinated debentures, unless refinanced on
terms acceptable to the Lenders.
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.
85
Each Debenture is convertible into common shares of the Company at the option of the
The liability component has been accreted using the effective interest rate method, and
holder at any time on the earlier of the maturity date and the date of redemption of the
during the year ended December 31, 2011, the Company recorded accretion of $1,332
Debenture, at a conversion price of $44.98 per common share being a conversion rate of
(2010 – $1,253), non-cash interest expense related to financing costs of $845 (2010 – $780)
approximately 22.2321 common shares per $1,000 principal amount of Debentures. During
and interest expense on the 7% coupon of $8,043 (2010 – $8,050). The estimated fair value
the year ended December 31, 2011, holders of 115 Debentures exercised the conversion
of the holder’s option to convert Debentures to common shares in the amount of $7,475 has
option and were issued 2,556 common shares. As at December 31, 2011, Ag Growth has
been separated from the fair value of the liability and is included in shareholders’ equity, net
reserved 2,554,136 common shares for issuance upon conversion of the Debentures.
of income tax of $2,041, and its pro rata share of financing costs of $329.
The Debentures are not redeemable before December 31, 2012. On and after December 31,
24. ACCOUntS pAYABlE AnD ACCrUED liABilitiES
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 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, 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 30). 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.
Trade payables
Other payables
Personnel-related accrued liabilities
Accrued outstanding service invoices
Other
December 31
2011
December 31
2010
January 1
2010
$
8,212
4,860
7,176
750
1,266
$
7,323
7,207
6,687
587
819
$
4,074
2,418
4,929
330
985
22,264
22,623
12,736
Trade payables and other payables are non-interest bearing and are normally settled on
30- or 60-day terms. Personnel-related accrued liabilities include primarily vacation accruals,
bonus accruals and overtime benefits. For explanations on the Company’s credit risk
management processes, refer to note 27.
25. inCOME tAXES
The major components of income tax expense for the years ended December 31, 2011 and
A reconciliation between tax expense and the product of accounting profit multiplied by the
Company’s domestic tax rate for the year ended December 31, 2011 and 2010 is as follows:
2010 are as follows:
Consolidated statement of income
Current tax expense
Current income tax charge
Deferred tax expense
2011
$
2010
$
3,910
5,627
Origination and reversal of temporary differences
5,743
8,049
Accounting profit before income tax
At the Company’s statutory income tax rate of 28.05%
(2010 – 29.54%)
Tax rate changes
Recognition of deferred tax assets
Foreign rate differential
income tax expense reported in the consolidated
statement of income
Consolidated statement of comprehensive income
Deferred tax related to items charged or credited directly
to other comprehensive income during the period
Unrealized gain on derivatives and available-for-sale
investment
Exchange differences on translation of foreign operations
income tax charged directly to other
comprehensive income
9,653
13,676
Permanent differences and others
At the effective income tax rate 28.24% (2010 – 30.78%)
2011
$
2010
$
(1,490)
214
(1,034)
(540)
(1,276)
(1,574)
2011
$
2010
$
34,176
44,437
9,586
13,127
265
(91)
901
(1,008)
9,653
(520)
—
1,252
(183)
13,676
87
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
Consolidated statement of financial position
Consolidated statement of income
Inventories
Property, plant and equipment and other assets
Intangible assets
Deferred financing costs
Accruals and long-term provisions
Tax loss carryforwards expiring between 2016 to 2027
Investment tax credit carryforward expiring between
2025 and 2030
Canadian exploration expenses
Capitalized development expenditures
Convertible debentures
SAIP liability
Equity impact LTIP
Foreign exchange gains
Other comprehensive income
Exchange difference on translation of foreign operations
Deferred tax expense
net deferred tax assets
reflected in the statement of financial position as follows
Deferred tax assets
Deferred tax liabilities
Deferred tax assets, net
As at
December 31, 2011
As at
December 31, 2010
As at
January 1, 2010
$
(200)
(10,145)
(12,900)
(63)
1,642
16,809
4,627
29,157
(465)
(1,279)
397
1,283
—
269
—
$
(192)
(9,112)
(13,044)
21
748
21,871
4,763
29,157
—
(1,628)
977
1,253
6
(1,221)
—
$
(120)
(6,757)
(10,154)
165
452
29,736
4,710
29,157
—
(1,984)
1,690
989
(487)
(2,255)
—
29,132
33,599
45,142
38,092
(8,960)
29,132
42,063
(8,464)
33,599
47,356
(2,214)
45,142
2011
$
8
1,033
(144)
84
(894)
5,062
136
—
465
(349)
580
(30)
6
—
(214)
5,743
2010
$
72
(475)
652
144
(296)
7,865
(53)
—
—
(356)
713
(264)
(493)
—
540
8,049
reconciliation of deferred tax assets, net
Opening balance as at January 1
Deferred tax expense during the period recognized in profit
or loss
Deferred tax income during the period recognized in other
comprehensive income
Deferred tax liabilities acquired on acquisitions
Opening balance as at December 31
2011
$
2010
$
33,599
45,142
(5,743)
(8,049)
1,276
—
29,132
1,574
(5,068)
33,599
The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which these temporary differences, loss carryforwards
and investment tax credits become deductible. Based on the analysis of taxable temporary
differences and future taxable income, the management of the Company is of the opinion
that there is convincing evidence available for the probable realization of all deductible
temporary differences of the Company’s tax entities. Accordingly, the Company has recorded
a deferred tax asset for all deductible temporary differences as of the reporting date and as
at December 31, 2010.
The Company has recorded tax losses related to its Finnish operations of $1,413 Euros.
Based on historical results and an expectation of future profits, a deferred tax asset has been
recognized for these losses as it is probable they will be utilized.
At December 31, 2011, there was no recognized deferred tax liability (2010 – nil; January 1,
2010 – nil) for taxes that would be payable on the unremitted earnings of certain of the
Company’s subsidiaries. The Company has determined that undistributed profits of its
subsidiaries will not be distributed in the foreseeable future. The temporary differences
associated with investments in subsidiaries, for which a deferred tax asset has not been
recognized, aggregate to $622 (December 31, 2010 – $622; January 1, 2010 – nil).
Income tax provisions, including current and deferred 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 to a corporate entity.
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 tax filing positions are
probable to be sustained, there are a number of tax filing positions including in respect of
the conversion to a corporate entity 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.
There are no income tax consequences to the Company attached to the payment of dividends
in either 2011 or 2010 by the Company to its shareholders.
26. pOSt-rEtirEMEnt 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 during the year
ended December 31, 2011 was $1,925 (2010 – $1,470). Ag Growth expects to contribute
$2,000 for the full year 2012.
Ag Growth accounts for one plan covering substantially all of its employees of the Mepu
division as a defined contribution plan, although it does provide the employees with a
defined benefit (average pay) pension. The plan qualifies as a multi-employer plan and
is administered by the Government of Finland. Ag Growth is not able to obtain sufficient
information to account for the plan as a defined benefit plan.
89
27. FinAnCiAl inStrUMEntS AnD FinAnCiAl riSk MAnAGEMEnt
(a) Management of risks arising from financial instruments
Ag Growth’s principal financial liabilities, other than derivatives, comprise loans and
borrowings and trade and other payables. The main purpose of these financial liabilities is
to finance the Company’s operations and to provide guarantees to support its operations.
The Company has deposits, trade and other receivables and cash and short-term deposits
that are derived directly from its operations. The Company also holds an available-for-sale
investment and enters into derivative transactions.
The Company’s activities expose it to a variety of financial risks: market risk (including
foreign exchange and interest rate), credit risk and liquidity risk. The Company’s overall risk
management program focuses on the unpredictability of financial markets and seeks to
The sensitivity analyses in the following sections relate to the position as at December 31,
2011, December 31, 2010 and January 1, 2010.
The sensitivity analyses have been prepared on the basis that the amount of net debt,
the ratio of fixed to floating interest rates of the debt and derivatives and the proportion
of financial instruments in foreign currencies are all constant. The analyses exclude the
impact of movements in market variables on the carrying value of provisions and on the
non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analyses:
• The consolidated statement of financial position sensitivity relates to derivatives.
minimize potential adverse effects on the Company’s financial performance. The Company
• The sensitivity of the relevant consolidated statement of income item is the effect of the
uses derivative financial instruments to mitigate certain risk exposures. The Company does
assumed changes in respective market risks. This is based on the financial assets and
not purchase any derivative financial instruments for speculative purposes. Risk management
financial liabilities held at December 31, 2011 and December 31, 2010, including the
is the responsibility of the corporate finance function, which has the appropriate skills,
effect of hedge accounting.
experience and supervision. The Company’s domestic and foreign operations along with
the corporate finance function identify, evaluate and, where appropriate, mitigate financial
risks. Material risks are monitored and are regularly discussed with the Audit Committee of
• The sensitivity of equity is calculated by considering the effect of any associated cash flow
hedges at December 31, 2011 for the effects of the assumed underlying changes.
the Board of Directors. The Audit Committee reviews and monitors the Company’s financial
Foreign currency risk
risk-taking activities and the policies and procedures that were implemented to ensure that
financial risks are identified, measured and managed in accordance with Company policies.
The risks associated with the Company’s financial instruments are as follows:
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument
will fluctuate because of changes in market prices. Components of market risk to which
Ag Growth is exposed are discussed below. Financial instruments affected by market risk
include trade accounts receivable and payable, available-for-sale investment and derivative
financial instruments.
The objective of the Company’s foreign exchange risk management activities is to minimize
transaction exposures and the resulting volatility of the Company’s earnings, subject to
liquidity restrictions, by entering into foreign exchange forward contracts. Foreign currency
risk is created by fluctuations in the fair value or cash flows of financial instruments due to
changes in foreign exchange rates and exposure.
A significant part of the Company’s sales are transacted in U.S. dollars and as a result
fluctuations in the rate of exchange between the U.S. and Canadian dollar can have a
significant effect on the Company’s 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, 2011, Ag Growth’s
The open foreign exchange forward contracts as at December 31, 2011 are as follows:
U.S. dollar denominated debt totalled U.S. $35.5 million (2010 – $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 on revenue:
Settlement dates
Face value
Average rate
January – December 2012
U.S. $
60,000
Cdn $
$0.99
The Company enters into foreign exchange forward contracts to mitigate foreign currency
risk relating to certain cash flow exposures. The hedged transactions are expected to occur
within a maximum 24-month period. The Company’s foreign exchange forward contracts
reduce the Company’s risk from exchange movements because gains and losses on such
contracts offset gains and losses on transactions being hedged. The Company’s exposure to
foreign currency changes for all other currencies is not material.
notional Canadian dollar equivalent
notional amount
of currency sold
Contract amount
Cdn $ equivalent
Unrealized loss
U.S. $
60,000
$
0.9905
$
59,430
$
1,828
The open foreign exchange forward contracts as at December 31, 2010 are as follows:
notional Canadian dollar equivalent
notional amount
of currency sold
U.S. $
55,000
Contract amount
Cdn $ equivalent
Unrealized gain
$
1.08
$
59,400
$
4,200
Ag Growth’s sales denominated in U.S. dollars for the year ended December 31, 2011
The terms of the foreign exchange forward contracts have been negotiated to match the
were U.S. $214 million, and the total of its cost of goods sold and its selling, general and
terms of the commitments. There were no highly probable transactions for which hedge
administrative expenses denominated in that currency were U.S. $132 million. Accordingly,
accounting has been claimed that have not occurred and no significant element of hedge
a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart
ineffectiveness requiring recognition in the consolidated statement of income.
would result in a $21.4 million increase or decrease in sales and a total increase or decrease
of $13.2 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 a $3.6 million
increase or decrease in the foreign exchange gain and a $7.0 million increase or decrease to
other comprehensive income.
The counterparty to the contracts are three multinational commercial banks and therefore
credit risk of counterparty non-performance is remote. Realized gains or losses are included
in net earnings and for the year ended December 31, 2011 the Company realized a gain on
its foreign exchange contracts of $5.0 million (2010 – $8.7 million).
The cash flow hedges of the expected future sales were assessed to be highly effective and
a net unrealized loss of $1,828, with a deferred tax asset of $481 relating to the hedging
instruments, is included in accumulated other comprehensive income.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. Furthermore, as Ag Growth
regularly reviews the denomination of its borrowings, the Company is subject to changes
in interest rates that are linked to the currency of denomination of the debt. Ag Growth’s
Series A secured notes and convertible unsecured subordinated debentures outstanding at
December 31, 2011, December 31, 2010 and January 1, 2010 are at a fixed rate of interest.
91
As at December 31, 2011, the Company had outstanding $10,530 of U.S. dollar term debt at
At December 31, 2011, the Company had two customers (December 31, 2010 – two
a floating rate of interest. A 10% increase or decrease in the Company’s interest rate would
customers, January 1, 2010 – four customers) that accounted for approximately 14%
result in an increase or decrease of $7 to long-term interest expense.
(December 31, 2010 – 30%, January 1, 2010 – 32%) of all receivables owing. The
Credit risk
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 are
with customers in the agriculture industry and are subject to normal industry credit risks.
requirement for an impairment is analyzed at each reporting date on an individual basis
for major customers. Additionally, a large number of minor receivables are grouped into
homogeneous groups and assessed for impairment collectively. The calculation is based on
actual incurred historical data. The Company does not hold collateral as security.
This credit exposure is mitigated through the use of credit practices that limit transactions
The Company does not believe that any single customer group represents a significant
according to the customer’s credit quality and due to the accounts receivable being spread
concentration of credit risk.
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
Liquidity risk
consolidated statement of financial position.
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.
Accounts receivable and long-term receivables are subject to credit risk exposure and the
In managing liquidity risk, Ag Growth has access to committed short and long-term debt
carrying values reflect management’s assessment of the associated maximum exposure
facilities as well as to equity markets, the availability of which is dependent on market
to such credit risk. The Company regularly monitors customers for changes in credit risk.
conditions. Ag Growth believes it has sufficient funding through the use of these facilities to
Trade receivables from international customers are often insured for events of non-payment
meet foreseeable borrowing requirements.
through third-party export insurance. In cases where the credit quality of a customer does
not meet the Company’s requirements, a cash deposit is received before goods are shipped.
The table below summarizes the undiscounted contractual payments of the Company’s financial liabilities as at December 31, 2011:
December 31, 2011
Bank debt (includes interest)
Trade and other payables
Finance lease obligations
Dividends payable
Convertible unsecured subordinated debentures (include interest)
Acquisition price, transaction and financing costs payable
total financial liability payments
December 31, 2010
Bank debt (includes interest)
Trade and other payables
Finance lease obligations
Dividends payable
Convertible unsecured subordinated debentures (include interest)
Acquisition price, transaction and financing costs payable
total financial liability payments
total
$
45,497
24,486
131
2,509
139,011
1,938
213,572
total
$
35,225
24,565
570
2,509
147,200
11,994
222,063
0 – 6 months
6 – 12 months
12 – 24 months
2 – 4 years
After 4 years
$
1,073
24,486
66
2,509
4,021
1,429
33,584
$
1,073
—
65
—
4,021
509
5,668
$
2,133
—
—
—
8,042
—
10,175
$
14,351
—
—
—
122,927
—
137,278
$
26,867
—
—
—
—
—
26,867
0 – 6 months
6 – 12 months
12 – 24 months
2 – 4 years
After 4 years
$
912
24,565
226
2,509
4,025
11,994
44,231
$
912
—
226
—
4,025
—
5,163
$
1,824
—
118
—
8,050
—
9,992
$
3,613
—
—
—
131,100
—
134,713
$
27,964
—
—
—
—
—
27,964
93
(b) Fair value
Set out below is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments that are carried in the consolidated financial statements:
December 31, 2011
December 31, 2010
January 1, 2010
Carrying amount
Fair value
Carrying amount
Fair value
Carrying amount
Fair value
Financial assets
Held-for-trading
Derivative instruments
Loans and receivables
Cash and cash equivalents
Cash held in trust
Restricted cash
Accounts receivable
Financial liabilities
Other financial liabilities
Interest-bearing loans and borrowings
Trade and other payables
Finance lease obligations
Dividends payable
Acquisition price, transaction and financing costs payable
Derivative instruments
$
—
6,839
—
2,439
49,691
36,153
24,486
131
2,509
1,938
1,828
$
$
$
$
$
—
4,200
4,200
9,500
9,500
6,839
—
2,439
49,691
39,593
24,486
131
2,509
1,938
1,828
34,981
822
1,860
38,535
25,204
24,565
570
2,509
11,994
—
105,140
34,981
822
1,860
38,535
28,171
24,565
570
2,509
11,994
—
109,094
109,094
—
—
—
—
25,072
25,072
26,212
13,930
—
2,224
1,028
—
26,338
13,930
—
2,224
1,028
—
116,231
103,107
106,400
Convertible unsecured subordinated debentures
107,202
107,671
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced
or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
• Cash and cash equivalents, cash held in trust, restricted cash, accounts receivable,
dividends payable, finance lease obligations, acquisition price, transaction and financing
(c) Fair value (“FV”) hierarchy
Ag Growth uses the following hierarchy for determining and disclosing the fair value of
financial instruments by valuation technique:
costs payable, accounts payable and other current liabilities approximate their carrying
Level 1
amounts largely due to the short-term maturities of these instruments.
The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is
• Fair value of quoted notes and bonds is based on price quotations at the reporting date.
determined using quoted, unadjusted market prices for identical assets or liabilities.
The fair value of unquoted instruments, loans from banks and other financial liabilities
Level 2
as well as other non-current financial liabilities is estimated by discounting future
Fair value measurements that require inputs other than quoted prices in Level 1, and for
cash flows using rates currently available for debt on similar terms, credit risk and
which all inputs that have a significant effect on the recorded fair value are observable, either
remaining maturities.
directly or indirectly, are classified as Level 2 in the FV hierarchy.
• The Company enters into derivative financial instruments with financial institutions
Level 3
with investment grade credit ratings. Derivatives valued using valuation techniques
Fair value measurements that require unobservable market data or use statistical techniques
with market observable inputs are mainly foreign exchange forward contracts and one
to derive forward curves from observable market data and unobservable inputs are classified
option embedded in a convertible debt agreement. The most frequently applied valuation
as Level 3 in the FV hierarchy.
techniques include forward pricing, using present value calculations. The models
incorporate various inputs including the credit quality of counterparties and foreign
exchange spot and forward rates.
The FV hierarchy of financial instruments measured at fair value on the consolidated
statement of financial position is as follows:
Financial assets
Cash and cash equivalents
Cash held in trust
Derivative instruments
Restricted cash
level 1
$
6,839
—
—
2,439
December 31, 2011
level 2
level 3
$
—
—
—
—
$
—
—
—
—
level 1
$
34,981
822
—
1,860
December 31, 2010
level 2
$
—
—
4,200
—
level 3
$
—
—
—
—
95
During the reporting periods ended December 31, 2011 and December 31, 2010, there were
The table below calculates the ratio based on EBITDA achieved in the previous 12 months:
no transfers between Level 1 and Level 2 fair value measurements.
At December 31, 2011, Ag Growth has $2,439 of restricted cash, which is classified as a
current asset (note 16).
Interest from financial instruments is recognized in finance costs and finance income.
Foreign currency and impairment reversal impacts for loans and receivables are reflected in
other income (expense).
Net debt
EBITDA
Ratio
December 31
2011
December 31
2010
January 1
2010
$
136,187
56,038
$
94,677
66,200
$
19,416
60,680
2.43 times
1.43 times
0.32 times
28. CApitAl DiSClOSUrE AnD MAnAGEMEnt
Ag Growth’s capital structure is comprised of shareholders’ equity and long-term debt.
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
Ag Growth’s objectives when managing its capital structure are to maintain and preserve
acquisitions:
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.
The Company manages the capital structure and makes adjustments to it in light of changes
in economic conditions and the risk characteristics of the underlying assets. The Company’s
capital management objectives have remained unchanged from the prior year. The Company
is not subject to any externally imposed capital requirements other than financial covenants
in its credit facilities and as at December 31, 2011 and December 31, 2010, all of these
covenants were complied with.
Ag Growth monitors its capital structure using non-IFRS financial metrics including net debt
December 31
2011
December 31
2010
$
136,187
202,159
$
94,677
210,294
January 1
2010
$
19,416
231,395
0.67 times
0.45 times
0.08 times
Net debt
Shareholders’ equity
Ratio
29. rElAtED pArtY DiSClOSUrES
relationship between parent and subsidiaries
The main transactions between the corporate entity of the Company and its subsidiaries is
to EBITDA for the immediately preceding 12-month period and net debt to shareholders’
the providing of cash fundings based on the equity and convertible debt funds of Ag Growth
equity. Ag Growth defines net debt as long-term debt plus the liability component of
Debentures, less cash and cash equivalents.
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.
International Inc. Furthermore, the corporate entity of the Company is responsible for
the billing and supervision of major construction contracts with external customers and
the allocation of sub-projects to the different subsidiaries of the Company. Finally, the
parent company is providing management services to the Company entities. Between the
subsidiaries there are limited inter-company sales of inventories and services. Because all
subsidiaries are currently 100% owned by Ag Growth International Inc., these inter-company
transactions are 100% eliminated on consolidation.
Other relationships
Burnet, Duckworth & Palmer LLP (“BDP”) provides legal services to the Company and
a Director of Ag Growth is a partner of BDP. The total cost of these legal services was
$0.4 million during the year ended December 31, 2011 (2010 – $0.1 million). Included in
accounts payable and accrued liabilities as at December 31, 2011 is $0.5 million (2010 –
$0.1 million) owing to BDP. These transactions are measured at the exchange amount and
were incurred during the normal course of business.
Compensation of key management personnel of Ag Growth
Ag Growth’s key management consists of 25 individuals including its CEO, CFO, its Officers
and other senior management, divisional general managers and its Directors.
Short-term employee benefits
Contributions to defined contribution plans
Salaries
Accelerated vesting and death benefits
Share-based payments
total compensation paid to key management personnel
2011
$
85
165
4,526
—
2,038
6,814
2010
$
73
122
3,553
2,549
6,504
12,801
key management interests in an employee incentive plan
Share Awards held by key management personnel under the SAIP have the following expiry dates and exercise prices:
issue date
Expiry date
2007
January 1, 2010, 2011
and 2012
$
0.10
#
40,000
#
80,000
#
220,000
Exercise price
number outstanding
number outstanding
number outstanding
December 31, 2011
December 31, 2010
January 1, 2010
Key management employees have been granted the following LTIP awards for the different vesting dates without any exercise price:
issue date
2007
2008
2009
2010
Expiry date
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
December 31, 2011
Shares outstanding
December 31, 2010
January 1, 2010
#
—
2,675
80,704
50,997
134,376
#
17,482
5,352
121,056
—
143,890
#
46,933
7,339
—
—
54,272
97
30. EArninGS pEr ShArE
Net earnings per share is based on the consolidated net earnings for the period divided by
There have been no other transactions involving ordinary shares or potential ordinary
the weighted average number of shares outstanding during the period. Diluted earnings
shares between the reporting date and the date of completion of these consolidated
per share are computed in accordance with the treasury stock method and based on the
financial statements.
weighted average number of shares and dilutive share equivalents.
The following reflects the income and share data used in the basic and diluted earnings per
the above diluted net earnings per share because their effect is anti-dilutive.
The convertible unsecured subordinated debentures were excluded from the calculation of
share computations:
Net profit attributable to shareholders for basic
and diluted earnings per share
December 31
2011
December 31
2010
$
$
31. rEpOrtABlE BUSinESS SEGMEnt
The Company is managed as a single business segment that manufactures and distributes
grain handling, storage and conditioning equipment. The Company determines and presents
business segments based on the information provided internally to the CEO, who is
24,523
30,761
Ag Growth’s Chief Operating Decision Maker (“CODM”). When making resource allocation
Basic weighted average number of shares
12,423,173
12,675,342
decisions, the CODM evaluates the operating results of the consolidated entity.
Dilutive effect of DDCP
Dilutive effect of LTIP
16,719
122,463
10,593
142,437
All segment revenue is derived wholly from external customers and as the Company has a
single reportable segment, inter-segment revenue is zero.
Diluted weighted average number of shares
12,562,355
12,828,372
Basic earnings per share
Diluted earnings per share
1.97
1.95
2.43
2.40
Canada
United States
International
revenues
property, plant and equipment, goodwill, intangible assets
and available-for-sale investment
2011
$
63,746
187,645
54,541
305,932
2010
$
57,971
174,489
36,807
269,267
2011
$
152,411
64,787
10,422
227,620
2010
$
148,108
57,166
10,448
215,722
The revenue information above is based on the location of the customer. The Company has no single customer that represents 10% or more of the Company’s revenues.
32. COMMitMEntS AnD COntinGEnCiES
(a) Contractual commitment for the purchase of property, plant and
equipment
As of the reporting date, the Company has entered into commitments to purchase property,
(d) Finance leases
The Company has finance leases for various items of manufacturing equipment. Future
minimum lease payments under finance leases, together with the present value of the net
minimum lease payments, are as follows:
plant and equipment of $1.5 million.
(b) letters of credit
As at December 31, 2011, the Company has outstanding letters of credit in the amount of
$1,987 (2010 – $642).
(c) Operating leases
The Company leases office and manufacturing equipment, warehouse facilities and vehicles
under operating leases with minimum aggregate rent payable in the future as follows:
Within one year
After one year but not more than five years
$
657
1,857
2,514
December 31, 2011
December 31, 2010
Minimum lease
payments
Minimum lease
payments
Within one year
After one year but not more than
five years
Total minimum lease payments
Less amount representing
finance charges
present value of minimum
lease payments
$
131
—
131
4
127
$
432
138
570
23
547
These leases have a life of between one and five years with no renewal options included in
The leased equipment is pledged as collateral. Interest expense related to obligations under
the contracts.
capital leases was $23 for the year ended December 31, 2011 (2010 – nil).
During the year ended December 31, 2011, the Company recognized an expense of $943
(2010 – $1,273) for leasing contracts. This amount relates only to minimum lease payments.
(e) legal actions
The Company is involved in various legal matters arising in the ordinary course of business.
The resolution of these matters is not expected to have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
99
33. EXplAnAtiOn OF trAnSitiOn tO iFrS
The Company’s consolidated annual financial statements were previously prepared in
accordance with Canadian GAAP.
The Company’s consolidated financial statements for the year ended December 31, 2011 are
the first annual financial statements prepared in accordance with IFRS and were prepared as
(b) Share-based payments
The Company has elected to retrospectively apply the provisions of IFRS 2, Share-based
Payments (“IFRS 2”) only to (i) equity instruments granted after November 7, 2002 that
are unvested at the Transition Date, and (ii) liability instruments arising from share-based
payment transactions that are outstanding at the Transition Date.
described in note 3, including application of IFRS 1.
(c) Foreign exchange
Cumulative currency translation differences for all foreign operations are deemed to be zero
IFRS 1 also requires that comparative financial information is provided. As a result, the first
date at which the Company has applied IFRS was January 1, 2010 (the “Transition Date”).
as at January 1, 2010.
IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of
(d) Borrowing costs
the reporting date, which for the Company is December 31, 2011. However, it also provides
The Company has elected only to capitalize borrowing costs relating to qualifying assets on
for certain optional exemptions and certain mandatory exceptions for first-time adopters.
or after the date of transition.
Elected exemptions from full retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1, the Company
has applied certain of the optional exemptions from full retrospective application of IFRS. The
optional exemptions applied by the Company are described below.
(a) Business combinations
The Company has applied the business combinations exemption in IFRS 1 to not apply IFRS 3
retrospectively to past business combinations. Accordingly, the Company has not restated
business combinations that took place prior to the Transition Date.
reconciliation of financial position
The following is a reconciliation of the Company’s consolidated statement of financial position reported in accordance with Canadian GAAP to its consolidated statement of financial position
reported in accordance with IFRS at the transition date January 1, 2010:
ASSEtS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes recoverable
Derivative instruments
Deferred taxes
non-current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Available-for-sale investment
Derivative instruments
Deferred tax asset
total assets
note
Canadian GAAp
iFrS Adjustments
$
$
6
2
5, 8
3, 7
3
3
3, 5b, 7, 8
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
194,041
387,850
—
—
189
(86)
—
—
(10,103)
(10,000)
10,094
(150)
(582)
—
—
6,302
15,664
5,664
iFrS
$
109,094
25,072
39,621
1,772
598
7,652
—
183,809
37,873
52,187
68,441
2,000
1,848
47,356
209,705
393,514
101
liABilitiES AnD ShArEhOlDErS’ EQUitY
Current liabilities
Accounts payable and accrued liabilities
Customer deposits
Long-term incentive plan
Dividends payable
Acquisition price, transaction and financing costs payable
Current portion of deferred credit
Current portion of long-term debt
Provisions
non-current liabilities
Long-term debt
Convertible unsecured subordinated debentures
Deferred tax liability
Deferred credit
Share award incentive plan
total liabilities
Shareholders’ equity
Common shares
Accumulated other comprehensive income
Equity component of convertible debentures
Contributed surplus
Retained earnings
total shareholders’ equity
note
Canadian GAAp
iFrS Adjustments
$
$
8
1
5a
8
3, 5b, 7
5a
1
13,930
8,340
2,184
2,224
1,028
9,305
16
—
37,027
25,403
103,107
1,047
38,601
5,866
174,024
211,051
157,279
5,590
—
8,653
5,277
176,799
387,850
(1,194)
—
(2,184)
—
—
(9,305)
—
1,194
(11,489)
—
—
1,167
(38,601)
(9)
(37,443)
(48,932)
—
—
5,105
(4,794)
54,285
54,596
5,664
iFrS
$
12,736
8,340
—
2,224
1,028
—
16
1,194
25,538
25,403
103,107
2,214
—
5,857
136,581
162,119
157,279
5,590
5,105
3,859
59,562
231,395
393,514
The following is a reconciliation of the Company’s consolidated statement of financial position reported in accordance with Canadian GAAP to its consolidated statement of financial position
reported in accordance with IFRS at December 31, 2010:
ASSEtS
Current assets
Cash and cash equivalents
Cash held in trust
Restricted cash
Accounts receivable
Inventories
Prepaid expenses and other assets
Derivative instruments
Deferred taxes
non-current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Available-for-sale investment
Deferred tax asset
total assets
note
Canadian GAAp
Adjustments
$
34,981
822
1,860
36,910
53,631
7,840
4,200
10,817
151,061
67,206
64,055
72,388
2,000
34,853
240,502
391,563
$
—
—
—
1,625
(1,057)
(212)
—
(10,817)
(10,461)
11,816
(1,700)
(43)
—
7,210
17,283
6,822
4
4, 6
2
8
7
2, 4
4
5b, 7, 8
iFrS
$
34,981
822
1,860
38,535
52,574
7,628
4,200
—
140,600
79,022
62,355
72,345
2,000
42,063
257,785
398,385
103
liABilitiES AnD ShArEhOlDErS’ EQUitY
Current liabilities
Accounts payable and accrued liabilities
Customer deposits
Long-term incentive plan
Dividends payable
Acquisition price, transaction and financing costs payable
Income taxes payable
Current portion of deferred credit
Current portion of long-term debt
Current portion of obligations under finance leases
Current portion of share award incentive plan
Current portion of deferred tax liability
Provisions
non-current liabilities
Long-term debt
Obligations under finance leases
Convertible unsecured subordinated debentures
Deferred tax liability
Deferred credit
Share award incentive plan
total liabilities
Shareholders’ equity
Common shares
Accumulated other comprehensive income (loss)
Equity component of convertible debentures
Contributed surplus
Retained earnings (accumulated deficit)
total shareholders’ equity
note
Canadian GAAp
$
iFrS Adjustments
$
8
1
5a
8
8
5b, 7
5a
1
24,565
6,573
1,870
2,509
11,994
56
8,302
128
432
2,003
426
—
58,858
24,518
138
105,140
6,602
34,018
1,573
171,989
230,847
151,376
(1,026)
—
11,121
(755)
160,716
391,563
(1,942)
—
(1,870)
—
—
—
(8,302)
—
—
—
(426)
1,942
(10,598)
—
—
—
1,862
(34,018)
(2)
(32,158)
(42,756)
—
583
5,105
(5,000)
48,890
49,578
6,822
iFrS
$
22,623
6,573
—
2,509
11,994
56
—
128
432
2,003
—
1,942
48,260
24,518
138
105,140
8,464
—
1,571
139,831
188,091
151,376
(443)
5,105
6,121
48,135
210,294
398,385
reconciliation of equity as reported under Canadian GAAp and iFrS
The following is a reconciliation of the Company’s equity reported in accordance with Canadian GAAP to its equity in accordance with IFRS at the Transition Date:
note
Common shares
Equity component
of debenture
Contributed
surplus
retained
earnings
As reported under Canadian GAAP –
December 31, 2009
Reclassifications
Long-term incentive plan liability
Equity component of debenture
Differences increasing (decreasing)
reported amounts
DDCP
SAIP
Deferred income taxes
Transaction costs
Translation of foreign operations
1
8
1
1
5b
2
3
Deferred income taxes deferred credit
5a, 7
Inventories
Property, plant and equipment
6
7
$
157,279
—
—
—
—
—
—
—
—
—
—
$
—
—
7,146
—
—
(2,041)
—
—
—
—
—
$
8,653
2,184
(7,146)
168
—
—
—
—
—
—
—
As reported under IFRS – January 1, 2010
157,279
5,105
3,859
$
5,277
—
—
(168)
9
57
(86)
(427)
44,794
189
9,917
59,562
Accumulated other
comprehensive
income
$
5,590
—
—
—
—
—
—
—
—
—
—
5,590
total
$
176,799
2,184
—
—
9
(1,984)
(86)
(427)
44,794
189
9,917
231,395
105
The following is a reconciliation of the Company’s equity reported in accordance with Canadian GAAP to its equity in accordance with IFRS at December 31, 2010:
note
Common shares
Equity component
of debenture
Contributed
surplus
retained
earnings
As reported under Canadian GAAP –
December 31, 2010
Reclassifications
Long-term incentive plan liability
Equity component of debenture
Differences increasing (decreasing)
reported amounts
DDCP
SAIP
Income taxes – convertible debentures
Transaction costs
Translation of foreign operations
Deferred income taxes – deferred credit
Deferred income taxes – temporary
differences
Property, plant and equipment
Inventories
1
8
1
1
5b
2
3
5a
7
7
6
$
151,376
—
—
—
—
—
—
—
—
—
—
—
$
—
—
7,146
—
—
(2,041)
—
—
—
—
—
—
$
11,121
1,870
(7,146)
276
—
—
—
—
—
—
—
—
As reported under IFRS – December 31, 2010
151,376
5,105
6,121
$
(755)
—
—
(276)
2
413
(1,789)
(427)
42,320
(3,632)
11,884
395
48,135
Accumulated other
comprehensive
income
$
total
$
(1,026)
160,716
—
—
—
—
—
—
427
—
224
(68)
—
(443)
1,870
—
—
2
(1,628)
(1,789)
—
42,320
(3,408)
11,816
395
210,294
nOtES tO thE rECOnCiliAtiOnS
1. Share-based payments
The Company elected to retrospectively apply the provisions of IFRS 2 only to equity-settled
Date, the impact of this adjustment was to decrease prepaid expenses and other assets
and decrease retained earnings by $86. Transaction costs incurred in 2010 related to the
business combinations for Mepu, Franklin and Tramco (note 7) resulted in an aggregate
awards that were unvested at the Transition Date and liability awards outstanding at the
decrease to the goodwill balance in the amount of $1,577 and an additional decrease of
Transition Date.
$126 to prepaid expenses at December 31, 2010.
The differences impacting the statement of financial position at the Transition Date include:
• LTIP was classified under Canadian GAAP as a liability plan, whereas under IFRS 2 due
to the final settlement of the plan with treasury shares acquired by the administrator
for the benefit of the management members, the plan qualifies as an equity-settled
plan. Therefore, this change resulted in a reclassification of the balances from liability
into shareholders’ equity. At the Transition Date, the impact of this adjustment was to
decrease the long-term incentive plan liability and increase contributed surplus by $2,184
(December 31, 2010 – $1,870).
• Awards with graded vesting provisions are treated as a single award for both
measurement and recognition purposes under Canadian GAAP. IFRS 2 requires such
awards to be treated as a series of individual awards, with compensation measured
and recognized separately for each tranche of options within a grant that has a different
vesting date. This impacts the LTIP and the SAIP of the Company. At the Transition Date,
the impact of this adjustment was to decrease the share award incentive plan liability and
increase retained earnings by $9 (December 31, 2010 – $2).
• For the directors deferred compensation plan (“DDCP”) the share-based remuneration
vests under IFRS 2 directly in the respective service period, whereas under Canadian
GAAP the expense was allocated over the deferred compensation period of three years.
At the transition date, the impact of this adjustment was to decrease retained earnings
and increase contributed surplus by $168 (December 31, 2010 – $276).
2. transaction costs
In accordance with IFRS 3 (revised 2008) transaction costs incurred in the process of
acquiring a business cannot be capitalized, but have to be immediately expensed. Under
Canadian GAAP these transaction costs were capitalized by Ag Growth. As at the Transition
3. translation of foreign operations
Under Canadian GAAP, until December 31, 2009 the Company had classified all business
units as integrated operations and therefore used the Canadian dollar as the functional
currency for all foreign entities. As at January 1, 2010, the Company determined that
its foreign operations Hi Roller, Union Iron and Applegate had more characteristics of
self-sustaining operations than integrated foreign operations. Accordingly, the Company
adopted the current rate method of foreign currency translation for these foreign operations,
resulting in using the local currency of these foreign operations as their functional currency
under Canadian GAAP, applied on a prospective basis. In accordance with IAS 21, for IFRS
purposes, every entity of the Company has to be individually reviewed for the determination
of its functional currency and this has to be performed retrospectively as of the IFRS
transition date. Therefore, for IFRS purposes, Hi Roller, Union Iron and Applegate were
classified as U.S. dollar functional currency entities as of the transition date of January 1,
2010, whereas under Canadian GAAP they were still Canadian dollar functional currency
entities. This change in the functional currency had the following impacts on the Company’s
assets, liabilities and retained earnings:
(1) Goodwill: decrease of balance by $150
(2) Property, plant and equipment: increase of balance by $177
(3) Intangible assets: decrease of balance by $582
(4) Deferred tax liability: decrease of balance by $128
(5) Retained earnings: decrease of balance by $427
For the elective exemptions from the retrospective application of IFRS 1 the Company elected
to recognize the cumulative translation adjustment existing at the Transition Date directly
into retained earnings. Therefore all the above listed impacts were directly recorded in the
Company’s retained earnings and have no impact on the other comprehensive income of
the Company.
107
4. revenue recognition
Under Canadian GAAP all product deliveries were recorded when the risk of ownership
b. IFRS requires the bifurcation of convertible debt instruments into a liability and an equity
component. IFRS further requires the recognition of a temporary difference based on the
was transferred. Similarly, for IFRS purposes, the majority of the revenues of Ag Growth are
difference between the carrying amount of the liability at issuance and its underlying tax
realized at the time of transfer of the risk of ownership. However, as described in note 3, the
basis. All changes in the initial temporary difference for the liability component of the
Company has classified certain of its customer contracts as construction contracts resulting
convertible debt are recognized in the consolidated statement of income.
in the earlier recognition of revenues and gross margin with the application of the percentage
of completion method of accounting. As at December 31, 2010, as a result of the adjustment,
the Company increased accounts receivable by $1,625, decreased inventory $1,452,
decreased goodwill $123, and decreased intangible assets $43 (as the sale adjustment
impacted the acquisition accounting).
Under Canadian GAAP the tax basis of the liability component of the convertible debenture
is considered to be the same as its carrying amount, and therefore the recognition of a
temporary difference is not required. This difference between IFRS and Canadian GAAP
results in an additional temporary difference for the Company’s $115,000 Debenture.
An additional deferred tax liability of $1,984 has to be recorded as of the Transition Date
5. income taxes
As noted above, the deferred tax balances as of the Transition Date and as of December 31,
(December 31, 2010 - $1,628). The impact of $1,984 as of the Transition Date results in a
corresponding debit entry to the equity component of the convertible debenture of $2,041
2010 are impacted by the IFRS and Canadian GAAP adjustments.
and increase to retained earnings of $57. Subsequent movements in the deferred tax liability
Additionally, the accounting for income taxes under IAS 12 resulted in the following
differences for the Company:
a. In 2009, the Company converted from an income fund into a corporate entity under a plan
of arrangement with a previously unrelated company. As a result of this transaction, the
Company received tax attributes for which deferred tax assets in the amount of $69,800
were recorded. The difference between this deferred tax asset and the purchase price of
$13,500 for shares of the previously unrelated company was recorded under Canadian
of $413 at December 31, 2010 resulted in a decrease to deferred income tax expense.
6. inventories
Due to the remeasurement of property, plant and equipment and changes to the depreciation
expense, Ag Growth was required to adjust the overhead allocation on the valuation of its
inventory by $189 at transition ($395 – December 31, 2010).
7. property, plant and equipment
For all items of property, plant and equipment, the provisions of IAS 16 were retrospectively
GAAP as a deferred credit. This deferred credit had a carrying amount under Canadian
applied. The assessment and annual review criteria of useful lives and depreciation methods
GAAP of $47,906 (January 1, 2010) and $42,320 (December 31, 2010), respectively.
are more explicit in IFRS, which required Ag Growth to adjust certain carrying amounts
For IFRS purposes, the difference between the tax benefits and the purchase price
of its assets. Furthermore, the componentization requirements are more explicit in IFRS.
cannot be deferred, but the benefit from the higher fair value of the tax benefits has to be
Differences relating to the level of componentization, depreciation methods and useful lives
retrospectively recorded as of the Transition Date. The adjustment results in an increase
resulted in the carrying value of these assets at the transition date to increase from the
to retained earnings as of the different reporting dates during the comparison period 2010
recorded amount under Canadian GAAP by $9,917 (December 31, 2010 – $11,816). The
and the elimination of the deferred credit as reported under Canadian GAAP.
related tax impact of the change in temporary differences resulted in additional deferred tax
liability of $3,112 at the Transition Date (December 31, 2010 – $3,408).
8. reclassifications
Certain balances have been reclassified between accounts to conform with IFRS.
deferred credits are generally not recognized, which ultimately results in an increase in
the Company’s non-cash deferred tax expense of $5,586 at December 31, 2010.
Reconciliation of profit and loss for the twelve-month period ended December 31, 2010
b. Under IFRS, a temporary difference is recorded related to the convertible debenture
note
Year ended
December 31, 2010
resulting in the recognition of a deferred tax liability on transition. Subsequent
movements in the deferred tax liability of $339 at December 31, 2010 resulted in a
decrease to deferred income tax expense.
Net income reported under Canadian GAAP
Differences increasing (decreasing) net income
Depreciation expense
Cost of sales
Deferred income tax
Deferred credit
Convertible debentures
Temporary differences
Cost of sales
General and administrative
General and administrative
Translation gain
Net profit recorded under IFRS
1
1
2a
2b
2c
3
4
5
6
$
36,156
2,113
(44)
(5,586)
339
(375)
8
(1,703)
(115)
(32)
30,761
notes to the reconciliations
1. The componentization of property, plant, equipment and change in useful lives and
depreciation methods resulted in a decrease to depreciation expense of $2,113, and a
reduction to the gain on sale of property, plant and equipment of $44, respectively.
c. The temporary differences arising from changes in carrying values of inventories and
property, plant and equipment on transition to IFRS result in an increase of $375 to
future income tax expense at December 31, 2010.
3. The change in the Company’s depreciation method impacted the Company’s inventory
overhead rate, which resulted in a change in inventory values and change in inventories
expensed through cost of goods sold.
4. Under IFRS, transaction costs incurred in the process of acquiring a business cannot
be capitalized, but instead have to be immediately expensed resulting in an increase to
selling, general and administrative expense of $1,703 at December 31, 2010.
5. Under IFRS, the calculation of the expense related to equity-settled compensation plans
differs to reflect changes in the measurement and recognition of equity-settled awards
that were outstanding and unvested at the Transition Date and those that were granted
during the period. The impact of this adjustment was to increase (decrease) the SAIP
expense by $(7) and the DDCP by $108 for year ended December 31, 2010.
6. Under IFRS, the Company has identified a limited number of contracts as construction
contracts and has recognized revenue based on the percentage of completion
methodology, which typically results in earlier recognition of revenues and costs. As a
2. a. The Company converted from an income fund into a corporate entity in 2009 under a
result, certain revenues and costs denominated in foreign currencies were recognized in
plan of arrangement that resulted in the Company receiving tax attributes and recording
different periods compared to Canadian GAAP and were translated to Canadian dollars at
a deferred tax asset of $69,800 and a related deferred credit of $56,300. Under IFRS,
different rates of foreign exchange.
109
(e) reconciliation of comprehensive income as reported under Canadian
GAAp and iFrS
The following is a reconciliation of the Company’s comprehensive income reported in
accordance with Canadian GAAP to its comprehensive income in accordance with IFRS for
the year ended December 31, 2010:
Year ended
December 31, 2010
note
Comprehensive income as reported under Canadian GAAP
Differences (decreasing) increasing reported amounts
Differences in net income
Change in other comprehensive income
Foreign currency translation
(i)
(ii)
Comprehensive income as reported under IFRS
$
29,540
(5,395)
583
(4,812)
24,728
(i) Differences in net income
Reflects the differences in net income between Canadian GAAP and IFRS as described in
note 33.
(ii) Foreign currency translation
Assets and liabilities of foreign operations having a functional currency other than the
Canadian dollar are translated at the rate of exchange prevailing at the reporting date and
revenue and expenses at average rates during the period. The increase in property, plant and
equipment creates increased foreign currency translation adjustments recorded in OCI.
34. COMpArAtiVE FiGUrES
Certain of the comparative figures have been reclassified to conform to the current
year’s presentation.
Officers
Gary Anderson, President, Chief Executive Officer and Director
Steve Sommerfeld, CA, Executive Vice President and Chief Financial Officer
Dan Donner, Senior Vice President, Sales and Marketing
Paul Franzmann, CA, Senior Vice President, Operations
Ron Braun, Vice President, Portable Grain Handling
Nicolle Parker, Vice President, Finance and Integration
Craig Nimegeers, Vice President, Engineering
Arto Sainio, Managing Director, European Operations
Gurcan Kocdag, Vice President, Storage and Conditioning
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).