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1996 Founded
1997 Batco
1998 Wheatheart
2000 Westfield
2004 AGI, IPO
2005 Grain Guard
2006 Hi Roller
2007 Twister, Union Iron
2010 Tramco
2011 Airlanco
2014 REM
2015 PTM, Westeel, VIS, FRAME
2016 Entringer, NuVision
Head Office
aGi Metal fab
aGi innOvatiOn
AGI Brasil
020202
AGI Latvia
AGI Russia
AGI Ukraine
AGI India
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ceo
message
committed to agriculture.
committed to growth.
The theme of our 2015 Annual Report speaks to our history, our future
and to how we operate each day. AGI was founded 20 years ago
based on a commitment to agriculture, a commitment to farmers, a
commitment to grain handlers and a focused commitment to grow our
business into new products and geographies to mitigate our exposure
to any one regional weather event.
To Grow from a single product line to the most comprehensive
product catalogue in our industry.
To Grow from one small region in Canada to a global company
selling to farmers and grain handlers everywhere grain is produced,
transported and consumed.
Today we still pursue the same strategy and commitment to
agriculture established by our founders. To recognize the contribution
and importance of the unique people that together formed the
foundation of AGI, we assembled our “Founder’s Wall” in 2015. As
you enter our head office in Winnipeg, you pass the pictures of each
of the founders of the businesses that AGI has assembled over the
past 20 years. Our Founder’s Wall begins with Rob Stenson, Art
Stenson and Gary Anderson, who came together to map out the
consolidation of the short line grain equipment industry and form
the strategy that we still pursue. 2016 is the first year that AGI will
have someone other than a founder as the CEO and so, as we look
back at 2015, we pause to recognize the outstanding success and
contributions from all of our founders. From a personal perspective,
I am very grateful to each of our founders and especially to Gary
Anderson who worked very closely with me over the past four years
to impart his deep expertise and knowledge of the industry, our
businesses, suppliers, partners and, most importantly, our employees
and customers. Gary’s retirement marks an inflection point in our
business as we pay tribute to our past while looking to our future
with the same excitement that our founders had in the early days.
On behalf of the entire AGI team and Board of Directors, I would like
to thank Gary for his outstanding leadership and contribution to AGI.
Gary’s passion for our business is an inspiration to everyone that Gary
has met or worked with over the past 20 years and to a person we
are sorry to see less of Gary and very pleased that he will continue
to be part of our Board. Gary has an amazing family that have been
part of the AGI story from the beginning, and we are also thankful
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to the contribution from Katie, Mary and Eric over the years as AGI
took Gary away from home all too often. All the best in retirement
Gary and a thank you for everything you have done for the people and
business of AGI.
Committed to Agriculture and Committed to Growth is the
perfect way to summarize 2015 and how AGI is positioned heading
into 2016. in 2015 we grew.
We built two new facilities in the U.S. which together marked
the largest capex program in our history. For many years now our
Hi Roller and Union Iron businesses have dealt with old facilities
that constrained capacity and hampered productivity. We corrected
this situation in 2015 by moving the businesses into new, expanded
facilities that will position both businesses to provide better service
and products to an expanding customer base. Hi Roller is the gold
standard in our industry and is now in a world class facility to match
a world class management, sales and operations team. We are lucky
to have this team within AGI.
We completed the largest acquisition in our history when we
welcomed Westeel to the AGI family. If you spend any time at all
in rural Canada it is hard to miss the Westeel brand. Our bins are a
familiar part of the Canadian landscape after more than 110 years
of partnering with Canadian farmers and commercial operators. The
Westeel businesses significantly increases our revenue in Canada
and increases our market share in grain bins to match our presence in
grain handling and conditioning equipment. This acquisition solidifies
our market leading platform to deliver unparalleled service and the
broadest product catalogue in our home markets. While we had
signed the acquisition of Westeel in 2014, it took until May 2015 to
close the deal and really get to work on integrating this wonderful
business into AGI. Gary Anderson, along with Gurcan Kocdag, led
a 100-day integration process with several teams assembled from
within Westeel and other AGI divisions. The integration process
went very well and within that time we achieved $5 million in cost
synergies and made good progress on our revenue synergy objectives.
These synergies are a crucial part of restructuring this business for
the long term benefit of all the employees at Westeel and for our
customers. Westeel will continue to deliver market leading products
and service by ensuring we have the best team and the most efficient
production processes in the market. I am very proud of our all of
our integration teams and our employees at Westeel and we are all
excited to see this business grow and flourish as a part of AGI.
TRADE SALES
in c$ millions
474.3
409.7
358.3
301.0
314.6
262.3
500
450
400
350
300
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
ADjuSTED EbiTDA
in c$ millions
90
80
70
60
50
40
30
20
10
0
78.2
72.6
64.3
59.7
53.3
49.5
2010
2011
2012
2013
2014
2015
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agI International sales
5%
8%
18%
2014
Total Sales:
$77 MiLLiON
47%
8%
7%
2015
Total Sales:
$124 MiLLiON
33%
21%
latin aMerica
russia, ukraine & kazakHstan
Middle east / africa
west / central eurOpe
australia / new zealand
rest Of wOrld
20%
2%
20%
11%
We entered the fertilizer sector. Our acquisition of G.J. Vis
Enterprises firmly positioned us as a significant player in the
fertilizer sector in Western Canada. The infrastructure required
for the distribution of fertilizer represents a new and significant
opportunity for AGI. The fertilizer sector has complementary demand
characteristics when combined with our grain businesses and brings
diversification and risk mitigation while expanding our services to
many of our existing customers right in our backyard. VIS is an
excellent company, with a top management and operations team,
and we are very pleased with our expansion into this new market.
We were very lucky to have George and Jim Vis join our senior
team. George and Jim built VIS around the right mix of high quality
products, leading technical sales and service and one of the proudest
group of employees you will ever meet. We are excited about
extending the expertise of George and Jim and their team into other
parts of our Commercial business going forward.
We grew organically. Our international business grew 54% in
2015 as our Commercial team expanded existing relationships,
entered new countries and built relationships with new customers.
Our FRAME and PTM businesses gained momentum in 2015 and
are well positioned going into 2016. These two businesses extend
our reach into the Middle East and Africa as well as into milling and
new Commercial grain customers. We are extremely proud of our
international team who are the true picture of road warriors. No year
should go by without thanking them for their continued dedication
to the business and to their families for supporting the time away
from home and the energy that it takes to travel and grow our global
business.
I am not sure what a “normal’ year is in agriculture, but it would
surely have to include at least one rare event or surprise. In that
context 2015 was a very normal year. We had a severe drought in
Western Canada that negatively impacted demand for our products.
Just as we were closing our Westeel transaction in May, we were
entering one of the worst droughts in Saskatchewan and Alberta in
perhaps 50 or more years. Farmers were forced to put the brakes
on any planned storage expansion, having a huge impact on our
newly acquired Westeel business. This is the reality of agriculture
and while we certainly would have preferred to have a different
environment for our first season with Westeel, we also remain
confident that the long term earning power of Westeel is absolutely
intact. This will be an excellent business for us going forward as the
business works through slightly elevated inventory levels and we
enter a new crop year.
We also had our challenges in 2015. Our Commercial business
operates in a complex environment as we support customers around
the world in building and expanding the global grain handling
infrastructure. We often supply these projects from up to four
different facilities and all products must be perfectly designed and
arrive at the right time. We made mistakes in 2015. When mistakes
happen we embrace them and learn from them to ensure we are
constantly getting better. This is when our commitment to our
customers is most visible and most important. We are committed
to every project, every product, every customer. Always. We stand
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behind everything we do and we aren’t satisfied until our customers
are as well. We are auditing our 2015 Commercial projects to
mine each one for opportunities for us to improve. Our quest for
improvement is precisely in line with our focus on our Lean culture.
We are working hard to embed Lean practices into the very culture
of AGI. We now have Lean coordinators in each AGI facility and
we promoted Michelle Martin to the position of Director of Lean.
Michelle has done an excellent job in rolling Lean out to our divisions
and leading the development of AGI’s brand of Lean culture.
As we closed out 2015, we were hard at work to continue our growth.
We have made an additional acquisition to add to our fertilizer
platform and we have finally entered Brazil in a meaningful way.
Our team in Brazil, led by Wilfried Toth, has been very busy in 2015.
We acquired Entringer S.A. in early 2016 and we will be detailing
our exciting entry into this huge new market for us throughout 2016.
We recently signed a deal to acquire NuVision Industries. This deal
extends our services and capabilities to now offer turnkey fertilizer
facilities. A truly unique platform in Western Canada. 2016 will be
a very busy year as we integrate and grow AGI in new products and
regions.
Our growth relies on having the best team in the industry. We have
excellent, dedicated and proud employees across our business. To
add to the team at our head office we welcomed Craig Wilson to the
new role of Vice President of Human Resources in December 2015
and Ryan Kipp as our first Vice President of Legal in January 2016.
Two great additions to the team that started to up our game from
day one.
Committed to Agriculture. Committed to Growth. A simple
phrase that means so much at AGI. The stability and risk mitigation
that our growth brings is for the benefit of our employees, our
customers and our shareholders. Our commitment to these three
groups is the foundation of AGI.
On behalf of AGI and our Board of Directors, I would like to thank
our shareholders and employees for their patience, dedication and
support of AGI in 2015.
Sincerely,
Tim Close
President and Chief Executive Officer
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management’s
DIscUssIon
& anaLysIs
This Management’s Discussion and Analysis (“MD&A”) should
be read in conjunction with the audited consolidated financial
statements and accompanying notes of Ag Growth International
Inc. (“AGI”, the “Company”, “we”, “our” or “us”) for the year ended
December 31, 2015. Results are reported in Canadian dollars unless
otherwise stated.
The financial information contained in this MD&A has been prepared
in accordance with International Financial Reporting Standards
(“IFRS”). All dollar amounts are expressed in Canadian currency,
unless otherwise noted.
Throughout this MD&A references are made to “trade sales”,
“EBITDA”, “adjusted EBITDA”, “gross margin”, “funds from
operations”, “payout ratio”, “adjusted payout ratio”, “adjusted
profit” and “diluted adjusted profit per share”. A description of these
measures and their limitations are discussed below under “Non-IFRS
Measures”.
This MD&A contains forward-looking statements. Please refer to the
cautionary language under the heading “Risks and Uncertainties” and
“Forward-Looking Statements” in this MD&A and in our most recently
filed Annual Information Form.
summary of Results
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”.
(thousands of dollars
other than per share data)
Trade sales (1)
Adjusted EbiTDA (1) (2)
Net profit (loss)
Diluted profit (loss) per share
Adjusted net profit (1)
Diluted adjusted profit per share (1) (3)
Year ended december 31
2015
$
2014
$
474,279
409,700
72,642
78,228
(25,229)
(1.81)
30,371
2.18
4,100
0.31
35,331
2.64
(1) See “Non-IFRS Measures”.
(2) See “Adjusted EBITDA” below in Summary of Results.
(3) See “Diluted profit per share and Diluted adjusted profit per share”
below in Summary of Results.
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Trade sales increased over 2014 primarily due to the acquisition of
Westeel on May 20, 2015. Excluding Westeel, trade sales decreased
2% compared to 2014 as significant growth in international markets
was more than offset by subdued demand in North America. The
decline in adjusted EBITDA was largely due to sales mix as softness
in North America most significantly impacted sales of AGI’s higher
margin Farm products, sales of which approximated the most recent
five-year average but decreased roughly 15% compared to record
2014 levels. In addition, demand for Westeel product was constrained
by a combination of high inventory levels entering the 2015 growing
season and poor weather conditions early in the year and as a
result Westeel’s sales and adjusted EBITDA in 2015 were well
below management expectations. Net loss per share in 2015 was
significantly impacted by losses on foreign exchange that resulted
from out of the money hedges and balance sheet translation and by
an impairment of assets charge related to a management review of
certain non-core assets. See “Diluted profit (per share) and Diluted
adjusted profit (per share)”, below.
AGI’s Farm business, excluding Westeel which is discussed
separately (see “Westeel Acquisition”), is comprised primarily of
portable grain handling equipment including grain augers, belt
conveyors and grain vacuums. Demand for AGI’s Farm equipment is
driven largely by the volume of the crop and the number of times the
grain is handled as this dictates the extent to which the equipment
is used and drives the replacement cycle. Grain is handled more
often when drying is required prior to sale or storage and when it is
stored on the farm as opposed to being sold directly to market. Lower
Farm sales in 2015 are partly attributable to a slightly smaller crop in
North America but demand has also been impacted by a number of
consecutive dry harvests that has lessened the recent usage of the
equipment and extended its replacement cycle. In addition, cautious
buying behavior persisted throughout the year as farmer sentiment
in 2015 was very low in the midst of a 38% year-over-year decline in
farmer net income.
AGI’s Commercial business is comprised primarily of high capacity
grain handling and conditioning equipment including enclosed belt
conveyors, chain conveyors and bucket elevators, and includes the
Westeel Italian subsidiaries acquired in May 2015. Demand for
Commercial equipment is less sensitive to a specific harvest but
rather is driven primarily by macro factors including the longer-
term trend towards higher global crop volumes and the agricultural
infrastructure gap in international markets. Sales of Commercial
equipment, excluding acquisitions, increased in 2015 as a decrease
in North American sales against a very strong 2014 comparative was
more than offset by a 26% increase in international business. The
increase in offshore sales resulted from growth in Latin America and
Southeast Asia and by continued activity in the Black Sea region,
including in Ukraine.
On May 20, 2015, AGI completed its acquisition of the Westeel
division (“Westeel”) of Vicwest Inc. (see “Westeel Acquisition”
below). Trade sales and adjusted EBITDA related to Westeel for the
period May 20, 2015 to December 31, 2015 are shown below:
(thousands of dollars)
Year ended december 31
TRADE SALES
AGI, excluding Westeel
Westeel (1)
TOTAL
ADjuSTED EbiTDA
AGI, Excluding Westeel
Westeel (1)
TOTAL
2015
$
2014
$
386,967
409,700
87,312
N/A
474,279
409,700
64,561
8,081
72,642
78,228
N/A
78,228
(1) See “Westeel Acquisition”. Trade sales and adjusted EBITDA include results subsequent
to the acquisition date of May 20, 2015 for Westeel and its Italian subsidiary PTM. Results
of Italian subsidiary Frame are included only subsequent to October 1, 2015. Prior to October
1, 2015 Frame was recorded as an investment on AGI’s balance and was excluded from AGI’s
consolidated results since for accounting purposes AGI could not demonstrate effective
control over the subsidiary due to a number of factors, including lack of Board representation.
WESTEEL ACquiSiTiON
AGI completed its acquisition of Westeel on May 20, 2015.
Headquartered in Winnipeg, Manitoba, Westeel is Canada’s leading
provider of grain storage solutions offering a wide range of on-farm
and commercial products for the agricultural industry. The acquisition
included Westeel’s foreign sales offices, its 100% interest in Italian
subsidiary PTM Technology, a manufacturer of grain handling
equipment, and its 51% interest in Frame, an Italian manufacturer of
storage bins.
Financial Results
The table below compares Westeel results to prior periods for
the entire twelve month periods ended December 31, 2014 and
December 31, 2015.
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AGI acquired Westeel on May 20, 2015. From the date of acquisition,
Westeel recorded trade sales of $87.3 million and adjusted EBITDA of
$8.1 million.
Westeel sales and adjusted EBITDA decreased compared to record
results in 2014 results as poor growing conditions in western Canada
early in 2015 lowered crop production expectations and negatively
impacted farmer sentiment. In addition, dealer inventory levels were
generally high prior to spring planting and the appearance of drought
conditions as Westeel aggressively shipped product in Q4 2014 and
Q1 2015 on the back of excellent 2014 sales. Although late rains
saved the 2015 western Canadian harvest, it was too late in the
season to materially impact demand for Westeel product.
WESTEEL
TRADE SALES (see “nOn-ifrs Measures”)
(thousands of dollars)
Year ended december 31
Canada
US
International
TOTAL
2015
$
138,085
216,590
119,604
474,279
2014
$
105,851
225,947
77,902
409,700
Change
32,234
(9,357)
41,702
64,579
Included in the table above are Westeel sales numbers from the May
20, 2015 acquisition date to December 31, 2015, as follows:
WESTEEL ONLy – TRADE SALES (MaY 20/15 – dec 31/15)
(thousands of dollars)
Year ended december 31
(thousands of dollars)
Year ended december 31, 2015
Trade sales (1)
Adjusted EBITDA (1)
Gross margin
2015
$
2014
$
148,506
193,103
12,949
24.0%
18,107
21.1%
(1) For the twelve month periods ended December 31, 2014 and 2015. AGI acquired Westeel
on May 20, 2015. In the table above, Frame trade sales and adjusted EBITDA reflect only the
amounts subsequent to acquisition of $14,098 and $1,851 respectively.
Integration and Synergies
Integration of the Westeel business is well advanced in all aspects of
the operation including production, coordination of North American
and International sales efforts, centralization of the marketing
function, information technology transfer and the human resources
and finance functions. Cost synergies realized in 2015 approximate $5
million annualized and relate primarily to organizational restructuring
and supply chain synergies. Management expects to realize
additional sales, manufacturing and purchasing synergies in 2016 and
is investigating product line expansion opportunities.
Gj ViS HOLDiNGS iNC. ACquiSiTiON
Effective November 30, 2015, AGI acquired 100% of the outstanding
shares of GJ Vis Holdings Inc. (“Vis”), a manufacturer of commercial
fertilizer and feed handling equipment, for a cash consideration of
$10.0 million, a contingent consideration of $4.7 million, plus costs
related to the acquisition estimated to be $0.1 million less working
capital adjustment of $0.7 million. The acquisition and related
transaction costs were funded from cash on hand.
The acquisition of Vis provides AGI with new capability and
experience in the planning, design and manufacture of high
throughput industrial fertilizer handling equipment.
Canada
US
International (1)
TOTAL
$
59,481
6,087
21,744
87,312
(1) Comprised primarily of sales from Italian subsidiaries PTM and Frame.
Sales in Canada were negatively impacted by drought conditions
in western Canada early in 2015 that lowered crop production
expectations and negatively affected farmer sentiment. Inventory
levels were generally high prior to spring planting, especially with
respect to Westeel storage products, as dealer intake in Q4 2014 and
Q1 2015 was very high subsequent to strong 2014 sales. Reduced
farmer demand and high dealer inventory levels resulted in lower
sales for portable grain handling equipment, aeration products and
storage bins and in-season demand was negatively influenced by a
quick and efficient harvest.
In the United States, sales of Farm equipment decreased in 2015 due
to a slightly smaller crop, an extended replacement cycle for grain
augers that resulted from a number of consecutive dry harvests, and
cautious buying behaviour related to a rapid drop in year-over-year
farmer net income. Commercial sales in the U.S. also decreased
slightly compared to a strong 2014 comparative. The negative impact
of the factors noted above more than offset the positive impact of a
stronger U.S. dollar relative to its Canadian counterpart.
AGI’s international sales, excluding the impact of acquisition,
increased 26% in 2015. The significant increase reflects continued
momentum in Latin America and strong sales in the Black Sea region,
including Ukraine. In addition, international sales at Westeel were
$21.7 million and these related primarily to Italian subsidiaries PTM
and Frame and sales in the EMEA region. In Latin America, large
projects in Peru and Bolivia contributed to sales of over $25 million,
an $11 million increase over the prior year. In Russia and Ukraine,
sales increased to over $36 million in 2015 largely due to business in
Ukraine with multinational grain traders.
See also “Outlook”.
101010
GROSS MARGiN (see “nOn-ifrs Measures”)
(thousands of dollars
other than per share data)
Year ended december 31
AGI, excluding Westeel
Westeel (1)
Consolidated
(1) For the period May 20, 2015 – December 31, 2015.
Year ended december 31
2015
%
34.6
24.0
32.6
2014
%
34.1
N/A
34.1
Profit (loss) as reported
Per share as reported
Non-cash CRA settlement
Loss on foreign exchange
M&A Activity
Strong gross margins were achieved despite lower sales of higher
margin Farm equipment as AGI reacted quickly to signs of changing
demand patterns and due to the positive impact of a weaker
Canadian dollar. Gross margin percentages at Westeel exceeded
2014 comparatives despite significantly lower production volumes
due to lower steel costs and organizational synergies achieved
subsequent to its acquisition by AGI.
ADjuSTED EbiTDA (see “nOn-ifrs Measures”)
Adjusted EBITDA for the year ended December 31, 2015 was $72.6
million (2014 - $78.2 million). The decrease compared to very strong
results in 2014 resulted from lower North American sales of portable
and commercial grain handling equipment.
(thousands of dollars)
Year ended december 31
EbiTDA (1)
Loss on foreign exchange (2)
Non-cash Share Based Compensation
Allowance for bad debt (3)
M&A activity
Loss (gain) on sale of PP&E
ADjuSTED EbiTDA (1)
2015
$
27,477
31,322
3,004
2,280
5,405
3,154
2014
$
60,470
11,963
4,516
0
1,801
(522)
72,642
78,228
(1) See “Non-IFRS Measures”.
(2) See “Impact of Foreign Exchange” below.
(3) In 2015 the Company recorded a provision related to the net balance owing from an
international customer that related to sales invoiced primarily in 2013.
DiLuTED pROfiT pER SHARE AND DiLuTED
ADjuSTED pROfiT pER SHARE
Diluted loss per share for the year ended December 31, 2015 was
$1.81 (2014 – profit of $0.31). The decrease was primarily the result
of lower EBITDA, an asset impairment charge, transaction costs
related to the acquisition of Westeel and losses on foreign exchange.
A reconciliation to diluted adjusted profit per share follows:
2015
$
(25,229)
(1.81)
0
31,322
5,405
0
13,439
3,154
2,280
30,371
2.18
2014
$
4,100
0.31
16,889
11,963
1,801
1,100
0
(522)
0
35,331
2.64
Non-cash loss on available-for-sale investment
Non-cash loss on impairment of assets
Loss (gain) on sale of PP&E
Allowance for bad debt (2)
ADjuSTED pROfiT (1)
DiLuTED ADjuSTED pROfiT pER SHARE (1)
(1) See “Non-IFRS Measures”
(2) In 2015 the Company recorded a provision related to the net balance owing from an
international customer that related to sales invoiced primarily in 2013.
iMpACT Of fOREiGN ExCHANGE
Sales and Adjusted EBITDA
AGI’s average rate of exchange for the year ended December 31,
2015 was $1.27 (2014 = $1.10). A lower Canadian dollar results in
an increase in reported trade sales as U.S. denominated sales are
translated into Canadian dollars at a higher rate. Similarly, a lower
Canadian dollar results in an increase in U.S. dollar denominated
inputs and SG&A expenses as U.S. denominated costs are translated
into Canadian dollars at a higher rate. As U.S. dollar sales exceed
U.S. dollar costs, adjusted EBITDA benefits from a weaker Canadian
dollar. In addition, a weaker Canadian dollar may result in higher
input costs of certain Canadian dollar denominated inputs,
including steel.
Gains and Losses on Foreign Exchange
AGI has entered forward foreign exchange contracts with the
objective of partially mitigating exposure to currency fluctuations.
The table below summarizes outstanding foreign exchange contracts.
fORWARD fOREiGN ExCHANGE CONTRACTS
Settlement
Dates
face Amount
uSD (000’s)
Average Rate
CAD
$
2016 – Q1
2016 – Q2
2016 – Q3
2016 – Q4
2017 – Q1
17,500
23,500
33,500
26,000
9,000
1.17
1.18
1.18
1.18
1.25
CAD
Amount
(000’s)
20,408
27,660
39,453
30,773
11,216
In the year ended December 31, 2015, AGI realized a loss on maturing
foreign exchange contracts of approximately $15 million. Based on
current rates of foreign exchange the Company expects to realize
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significant losses on its foreign exchange contracts in 2016. Currency
fluctuations also result in non-cash gains or losses on foreign
exchange. See “Financial Instruments – Foreign exchange contracts”.
corporate overview
AGI is a manufacturer of agricultural equipment with a focus on
grain handling, storage and conditioning products. Our products
service both Farm and Commercial markets and we sell to farmers,
contractors and corporate entities. Our business is affected by
regional and global trends in grain volumes, on-farm and commercial
grain storage and handling practices, harvest conditions and, to a
lesser extent, 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 U.S. and
Europe and we sell products globally.
outlook
AGI’s Farm business, excluding Westeel which is discussed below,
is comprised primarily of portable grain handling equipment and
represents roughly 25% - 35% of AGI’s revenue profile. Demand for
Farm equipment is driven primarily by the amount of grain handled
as this dictates farmer capacity requirements and the product
replacement cycle. In February 2016 the USDA projected that U.S.
farmers would plant 90 million acres of corn in 2016 (2015 – 88
million), as relative returns on U.S. crops are expected to favour corn.
In addition, the USDA estimates corn stored on U.S. farms entering
2016 approximated 6.8 billion bushels or roughly one-half of the 2015
harvest, a reflection of low commodity prices and farmer hesitancy
to move and sell grain at current prices. Market participants
generally expect substantial corn movement to market prior to the
2016 harvest. The combination of these factors, along with a USDA
projection that farmer net income has generally stabilized after a
steep drop in 2015, provides an improved demand environment as
the Company enters the 2016 crop year. Based on current conditions,
management anticipates increased demand to appear with the
new crop season. Management expects sales in the first quarter of
2016 to reflect the weak demand levels experienced in Q4 2015 that
resulted from slightly elevated inventory levels and cautious buying
behavior at the dealer and consumer levels. Nonetheless, existing
indicators point towards higher demand for Farm equipment in fiscal
2016 compared to 2015.
AGI’s Commercial business represents roughly 35% - 45% of
AGI’s revenue and is comprised primarily of high capacity grain
handling and conditioning equipment and Westeel’s international
businesses. In North America, demand for Commercial equipment is
less sensitive to a specific harvest but rather is driven primarily by
macro factors including the longer-term trend towards higher crop
volumes, the drive towards improved efficiencies in a mature market
and, more recently, the dissolution of the Canadian Wheat Board.
Current activity in North America is reflective of these trends and
existing backlogs approximate the levels at the same time in 2015.
Offshore, the commercial infrastructure in both grain producing and
grain importing countries remains vastly underinvested resulting in
significant global opportunities for AGI. Our international business
expanded significantly in 2015 due to increasing brand presence,
continued momentum in Eastern Europe and Latin America and
the acquisition of Westeel’s international businesses. Current
backlogs are slightly higher than at the same time a year ago.
AGI’s commercial business, both domestically and overseas, is
expected to perform well in 2016 and sales are anticipated to
exceed 2015 levels. Consistent with prior periods, realized sales
are subject to the timing of customer commitment and delivery
considerations.
Westeel’s North American business is comprised of corrugated
storage bins, smoothwall bins and liquid storage tanks and
represents roughly 20% to 30% of AGI revenues. Demand
drivers for storage include volume of grains grown, crop trends,
fertilizer storage and handling practices and the consolidation
of farms. The macro environment in Canada is supportive of
these trends and management anticipates a return to more
typical market conditions with the new crop cycle. Similar to
the fourth quarter of 2015, demand in the first quarter of 2016 is
expected to be negatively impacted by higher dealer inventories
that resulted in lower participation in key preseason selling
programs. Based on current conditions, sales and adjusted
EBITDA for the balance of 2016 are anticipated to reflect an
improvement over 2015.
AGI’s financial results are impacted by the rate of exchange
between the Canadian and U.S. dollars and a weaker Canadian
dollar relative to its U.S. counterpart positively impacts profit
and adjusted EBITDA. However, a portion of the Company’s
foreign exchange exposure has been hedged through forward
foreign exchange contracts and based on current rates of
exchange the Company expects to recognize a significant loss
on these contracts in fiscal 2016.
Demand in 2016 will be influenced by, among other factors,
weather patterns, crop conditions and the timing of harvest and
conditions during harvest. Changes in global macroeconomic
factors as well as sociopolitical factors in certain local or
regional markets, including the ongoing uncertainty and
volatility in Ukraine, and the availability of credit and export
credit agency support in offshore markets, also may influence
sales, primarily of commercial grain handling and storage
products. Results may also be impacted by changes in steel
prices and other material input costs and the rate of exchange
between the Canadian and U.S. dollars.
On balance, results in the first quarter of 2016 are expected to
be negatively impacted by low Farm demand in North America
and the impact of elevated inventory levels at Westeel. As a
result, based on current conditions, management anticipates
consolidated adjusted EBITDA in Q1 2016 will approximate
2015 levels. Management remains positively biased with
respect to fiscal 2016 and anticipates results for the balance
of the year will reflect a return to more typical buying patterns
for Farm equipment, steady demand for domestic Commercial
products and continued growth in offshore markets.
121212
ACquiSiTiON Of ENTRiNGER S.A.
Effective March 9, 2016, the Company acquired 100% of the
outstanding shares of Entringer Industrial S.A. [“Entringer”] for cash
consideration of $15.3 million. $10.2 million was paid on acquisition
and the remaining $5.1 million is payable if Entringer achieves
specified earnings targets. The acquisition and related transaction
costs were funded from the Company’s cash balance.
Entringer sales in 2015 were R$43 million and EBITDA over the
previous six years has averaged approximately R$5.6m, with peak
EBITDA of R$9.9m in 2013 and negative EBITDA of approximately
R$1.3 million in 2015. Terms of the transaction included payment of
R$30 million upon closing which represents a multiple of 5.4x against
the previous six-year average EBITDA. The agreement includes a
R$15 million earn-out provision based on Entringer meeting certain
EBITDA thresholds.
iMpAiRMENT Of ASSETS – STRATEGiC REViEW
Of AppLEGATE AND MEpu OpERATiONS
Results for the twelve months ended December 31, 2015 include a
charge of $13.4 million to record management’s estimate of the fair
value of assets, including intangible assets, at AGI’s Applegate and
Mepu divisions.
Applegate
Acquired in 2008, Applegate manufactures livestock equipment
and commercial and farm capacity storage bin unload equipment.
Applegate’s livestock business is non-core and has been unable
to provide sustainable positive EBITDA due in part to abundant
production capacity in the industry. Accordingly, management is
assessing alternatives to exit livestock equipment manufacturing.
Sales of Applegate livestock equipment were approximately $13
million in 2015.
Detailed operating Results
Mepu
AGI acquired Finland-based Mepu, a manufacturer of portable and
stationary grain dryers, in April 2010. The core business of Mepu
has been challenged for several years by an increasingly competitive
domestic marketplace and by its customers’ reliance on unpredictable
EU subsidies. Mepu sales in 2015 were $9.2 million. Over the last
five years, Mepu has generated positive EBITDA only in 2013 and
has averaged a loss of approximately $0.8 million in the other four
years. While Mepu was acquired in part to support AGI’s 2009 entry
into Russia, AGI’s international business has outgrown the resources
available in Finland and has for several years been supported by a
number of locations throughout the world. Based on the preceding,
management is assessing alternatives to exit the business of Mepu.
(thousands of dollars
other than per share data)
Trade sales (1)
Loss on FX
SALES
Cost of inventories
Depreciation / amortization
Cost of sales
General & administrative
M&A activity
Depreciation / amortization
Impairment of investment
Impairment of assets
Other operating (income) expenses
Finance costs
Finance expense
Profit (loss) before income taxes
Current income taxes
Deferred income taxes
pROfiT (LOSS) fOR THE pERiOD
pROfiT (LOSS) pER SHARE
bASiC
DiLuTED
(1) See “Non-IFRS Measures”.
Year ended december 31
2015
$
2014
$
474,279
409,700
(24,795)
(9,555)
449,484
400,145
319,482
269,817
10,963
6,721
330,445
276,538
90,555
66,980
5,405
6,705
0
13,439
253
18,490
6,312
(22,120)
4,722
(1,613)
(25,229)
(1.81)
(1.81)
1,801
5,000
1,100
0
(1,305)
11,450
2,382
36,199
4,757
27,342
4,100
0.31
0.31
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131313
eBItDa and adjusted eBItDa
Reconciliation
(thousands of dollars)
Year ended december 31
2015
$
2014
$
Profit (loss) before income taxes
(22,120)
36,199
Impairment of available for sale investment
0
1,100
Impairment of assets
Finance costs
Depreciation / amortization in cost of sales
Depreciation / amortization in SG&A expenses
EbiTDA (1)
Loss of foreign exchange
Non-cash share based compensation
M&A activity
Allowance for bad debt (2)
Loss (gain) on sale of property,
plant & equipment
ADjuSTED EbiTDA (1)
13,439
18,490
10,963
6,705
0
11,450
6,721
5,000
27,477
60,470
31,322
11,963
3,004
5,405
2,280
4,516
1,801
0
3,154
(522)
72,642
78,228
Adjusted EBITDA as a % of trade sales
15.3%
19.1%
(1) See “Non-IFRS Measures”.
(2) In 2015 the Company recorded a provision related to the net balance owing from an
international customer that related to sales invoiced primarily in 2013.
assets and Liabilities
(thousands of dollars)
Year ended december 31
Total assets
Total liabilities
2015
$
2014
$
739,739
447,116
502,021
237,390
explanation of operating Results
TRADE SALES
(thousands of dollars)
Year ended december 31
Canada
US
International
TOTAL
2015
$
138,085
216,589
119,605
474,279
2014
$
105,851
225,947
77,902
409,700
Change
32,234
(9,358)
41,703
64,579
Trade sales in the table above include results subsequent to the
acquisition date of May 20, 2015 for Westeel and Italian subsidiary
PTM. Results of Italian subsidiary Frame are included only subsequent
to October 1, 2015. Totals are as follows:
WESTEEL ONLy – TRADE SALES (MaY 20/15 – dec 31/15)
(thousands of dollars)
Year ended december 31, 2015
Canada
US
International
TOTAL
Canada
$
59,481
6,087
21,744
87,312
Sales in Canada were negatively impacted by drought conditions
in western Canada early in 2015 that lowered crop production
expectations and negatively affected farmer sentiment. Inventory
levels were generally high prior to spring planting, especially with
respect to Westeel storage products, as dealer intake in Q4 2014 and
Q1 2015 was very high subsequent to strong 2014 sales. Reduced
farmer demand and high dealer inventory levels resulted in lower
sales for portable grain handling equipment, aeration products and
storage bins and in-season demand was negatively influenced by a
quick and efficient harvest.
United States
In the United States, sales of Farm equipment decreased in 2015 due
to a slightly smaller crop, an extended replacement cycle for grain
augers that resulted from a number of consecutive dry harvests, and
cautious buying behaviour related to a rapid drop in year-over-year
farmer net income. Commercial sales in the U.S. also decreased
slightly compared to a strong 2014 comparative. The negative impact
of the factors noted above more than offset the positive impact of a
stronger U.S. dollar relative to its Canadian counterpart.
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141414
GENERAL AND ADMiNiSTRATiVE ExpENSES
For the year ended December 31, 2015, SG&A expenses
excluding Westeel were $77.1 million (22% of sales) compared
to $67.0 million (15% of sales) in 2014. The increase of $10.1
million is largely related to the items below:
• Bad debt expense in 2015 includes a $2.3 million expense
related primarily to 2013 business with an international
customer.
• Costs related to moving the Hi Roller and Union Iron divisions
to their new production facilities were approximately
$1.0 million.
• Sales and marketing expenses increased $2.2 million largely
to an investment of approximately $0.2 million per quarter
related to AGI’s entry into Brazil, additional personnel at
the divisional level to support growth as well as continued
investment to support the Company’s international
sales team.
• Third party commission expense increased $2.4 million
primarily due to geographic sales mix.
• Share based compensation decreased $1.5 million due to a
change in forecasted achievement levels.
• The remaining variance is the result of a number of offsetting
factors with no individual variance larger than $1.0 million.
International
AGI’s international sales, excluding the impact of acquisition,
increased 26% in 2015. The significant increase reflects continued
momentum in Latin America and strong sales in the Black Sea region,
including Ukraine. In addition, international sales at Westeel were
$21.7 million and these related primarily to Italian subsidiaries PTM
and Frame and sales in the EMEA region. In Latin America, large
projects in Peru and Bolivia contributed to sales of over $25 million,
an $11 million increase over the prior year. In Russia and Ukraine
sales increased to over $36 million in 2015 largely due to business in
Ukraine with multinational grain traders.
Also see “Outlook”.
GROSS pROfiT AND GROSS MARGiN
(thousands of dollars)
Year ended december 31
Trade sales (1)
Cost of inventories (2)
GROSS MARGiN
Gross margin (1)(2) (as a % of trade sales)
Gross margin, excluding Westeel
(1) See “Non-IFRS Measures”.
(2) Excludes depreciation and amortization included in cost of sales.
2015
$
2014
$
474,279
409,700
319,482
269,817
154,797
139,883
32.6%
34.6%
34.1%
34.1%
Strong gross margins were achieved despite lower sales of higher
margin Farm equipment as AGI reacted quickly to signs of changing
demand patterns and due to the positive impact of a weaker
Canadian dollar. Gross margin percentages at Westeel exceeded
2014 comparatives despite significantly lower production volumes
due to lower steel costs and organizational synergies achieved
subsequent to its acquisition by AGI.
On an earnings basis, AGI benefits from a weaker Canadian dollar
as its U.S. dollar denominated sales significantly exceed costs
denominated in that currency. On a gross margin percentage basis
however, the benefit of a weaker Canadian dollar relates only to AGI’s
Canadian divisions that derive U.S. dollar revenues in excess of U.S.
dollar costs.
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151515
EbiTDA AND ADjuSTED EbiTDA
(thousands of dollars)
EbiTDA (1)
ADjuSTED EbiTDA (1)
Year ended december 31
2015
$
27,477
72,642
2014
$
60,470
78,228
(1)See the EBITDA and adjusted EBITDA reconciliation table above and “Non-IFRS Measures”.
Adjusted EBITDA decreased compared to very strong results in 2014 due to lower North American sales of portable and commercial grain
handling equipment. EBITDA decreased compared to 2014 for the reasons discussed above and due to losses on foreign exchange. See
“EBITDA and Adjusted EBITDA Reconciliation” above for a reconciliation between these measures.
fiNANCE COSTS
Senior Debt
(thousands of dollars)
Series A Notes
Swing Line
Swing Line
Revolver
Revolver
Term Loan A
Term Loan B
Series B Notes
TOTAL
Currency(1)
Maturity
USD
CAD
USD
CAD
USD
CAD
CAD
CAD
2016
2019
2019
2019
2019
2019
2022
2025
Total
facility
34,600
20,000
6,920
105,000
62,280
50,000
40,000
25,000
Amount
Drawn
34,600
0
0
0
0
50,000
40,000
25,000
343,800
149,600
interest
Rate(2)
6.80%
4.50%
5.00%
4.50%
5.00%
3.84%
4.32%
4.44%
interest
Fixed
Floating
Floating
Floating
Floating
Fixed
Fixed
Fixed
(1) USD amounts translated to Canadian dollars at the December 31, 2015 rate of exchange of $1.3840.
(2) As at December 31, 2015.
In addition to the above, as at December 31, 2015 the Company had outstanding $138 million aggregate principal amount of 5.25% convertible
unsecured subordinated debentures and $75 million aggregate principal amount of 5.00% convertible unsecured subordinated debentures. See
“Capital Resources”.
Finance costs for the year ended December 31, 2015 were $18.5 million (2014 – $11.5 million). The higher expense in 2015 relates to financing
the acquisition of Westeel partially through a convertible debenture issuance and through an increase in amounts drawn on the Company’s
credit facility as well as a debenture issuance in September 2015. Finance costs in both periods include non-cash interest related to convertible
debenture accretion, the amortization of deferred finance costs related to the convertible debentures, stand-by fees and other sundry cash
interest.
fiNANCE ExpENSE
Finance expense in both periods relates primarily to non-cash gains and losses on the translation of the Company’s U.S. dollar denominated
long-term debt at the rate of exchange in effect at the end of the quarter.
OTHER OpERATiNG iNCOME
Other operating income in both periods includes interest income charged on accounts receivable and gains and losses on the sale of property,
plant & equipment. In 2015 other operating income includes the reversal of a customer rebate accrued in prior periods that is no longer payable.
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161616
DEpRECiATiON AND AMORTizATiON
EffECTiVE TAx RATE
Depreciation of property, plant and equipment and amortization
of intangible assets are categorized on the income statement in
accordance with the function to which the underlying asset is
related. The increase in 2015 primarily relates to the depreciation and
amortization of Westeel assets. Total depreciation and amortization is
summarized below:
DEpRECiATiON
(thousands of dollars)
Year ended december 31
2015
$
8,418
640
9,058
2014
$
6,167
614
6,781
Depreciation in cost of sales
Depreciation in G&A
TOTAL DEpRECiATiON
AMORTizATiON
(thousands of dollars)
Year ended december 31
Current tax expense
Deferred tax expense
2015
$
4,722
2014
$
4,757
(1,613)
27,342
AGI Conversion – Agreement with CRA
0
(16,889)
TOTAL TAx ExCLuDiNG AGREEMENT
WiTH CRA
Profit before taxes
Total tax %
3,109
(22,120)
(14%)
15,210
36,199
42%
The effective tax rate in both periods was significantly impacted by
non-cash income statement items that are not deductible for tax
purposes.
EffECTiVE TAx RATE
(thousands of dollars)
Year ended december 31
(thousands of dollars)
Year ended december 31
Adjusted profit (1)
Total tax
ADjuSTED pROfiT bEfORE TAx
Tax %
2015
$
30,371
3,109
33,480
9%
2014
$
35,331
15,210
50,541
30%
(1) See “Non-IFRS Measures”. A calculation of adjusted profit may be found under “Diluted profit
per share and Diluted adjusted profit per share” above.
AGi CONVERSiON – AGREEMENT WiTH CRA
On February 25, 2015, AGI announced that it had entered into an
agreement with Canada Revenue Agency (the “CRA”) regarding the
CRA’s objection to the tax consequences of the conversion of AGI
from an income trust structure into a business corporation in June
2009. The agreement did not give rise to any cash outlay by AGI
and subsequent to the settlement AGI had unused tax attributes
remaining of $16.3 million and these are recorded as an asset on
the Company’s balance sheet. As at December 31, 2015, the balance
sheet asset related to these unused attributes was $17.1 million.
Amortization in cost of sales
Amortization in G&A
TOTAL AMORTizATiON
2015
$
2,545
6,065
8,610
2014
$
554
4,386
4,940
CuRRENT iNCOME TAx ExpENSE
For the year ended December 31, 2015 the Company recorded a
current tax expense of $4.8 million (2014 – $4.8 million). Current tax
relates primarily to AGI’s U.S. subsidiaries.
DEfERRED iNCOME TAx ExpENSE
For the year ended December 31, 2015 the Company recorded
a deferred tax recovery of $1.6 million (2014 – expense of $27.3
million). Deferred tax expense in 2015 relates to the increase
of deferred tax assets plus a decrease in deferred tax liabilities
that related to recognition of temporary differences between the
accounting and tax treatment of accruals, long-term provisions
and convertible debentures.
Upon conversion to a corporation from an income trust in June 2009
(the “Conversion”) the Company received certain tax attributes
that may be used to offset tax otherwise payable in Canada. The
Company’s Canadian taxable income is based on the results of its
divisions domiciled in Canada, including the corporate office, and
realized gains or losses on foreign exchange. For the year ended
December 31, 2015, the Company generated new net Canadian tax
losses of $0.7 million (2014 –utilized $7.8 million of tax attributes).
Through the use of these attributes and since the date of Conversion
a cumulative amount of $36.3 million has been utilized. Utilization
of these tax attributes is recognized in deferred income tax expense
on the Company’s income statement. As at December 31, 2015, the
balance sheet asset related to these unused attributes was
$17.1 million.
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171717
pROfiT (LOSS) AND DiLuTED pROfiT (LOSS) pER SHARE
AND ADjuSTED DiLuTED pROfiT (LOSS) pER SHARE
The following factors impact comparability between years in the
table above:
For the year ended December 31, 2015 the Company reported a loss
of $25.2 million (2014 – profit of $4.1 million), a basic loss per share
of $1.81 (2014 – profit of $0.31) and a fully diluted loss per share
of $1.81 (2014 – profit of $0.31). The loss experienced in 2015 was
largely the result of a non-cash impairment charge on assets of Mepu
and Applegate and realized and unrealized foreign exchange losses
as well as lower adjusted EBITDA. A reconciliation of adjusted profit
per share is below:
(thousands of dollars other
than per share data)
Profit (loss) as reported
Per share as reported
Non-cash CRA settlement
Loss on foreign exchange
Non-cash loss on available-for-sale
investment
Non-cash loss on impairment of Assets
Loss (gain) on sale of PP&E
M&A Activity
Allowance for bad debt
ADjuSTED pROfiT (1)
DiLuTED ADjuSTED pROfiT pER SHARE (1)
(1) See “Non-IFRS Measures”.
SELECTED ANNuAL iNfORMATiON
Year ended december 31
2015
$
(25,229)
(1.81)
0
31,322
2014
$
4,100
0.31
16,889
11,963
0
1,100
13,439
3,154
5,405
2,280
30,371
2.18
0
(522)
1,801
0
35,331
2.64
(thousands of dollars,
other than per share data)
Sales
EBITDA (1)
Adjusted EBITDA (1)
Net Profit (loss)
twelve Months ended
december 31
2015
$
2014
$
2013
$
474,279
409,700
358,348
Q1
Q2
Q3
Q4
27,477
60,470
61,556
yTD
72,642
78,228
61,186
(25,229)
4,100
22,591
2014
• The acquisition of Westeel in May 2015 significantly impacts all
information in the table above.
• Net profit and net profit per share were significantly impacted in
2015 by a $13.4 million impairment charge related to assets at the
Company’s Applegate and Mepu divisions.
• Net profit and profit per share in 2014 was significantly impacted
by an expense of $16,9 million related to the Company’s agreement
with the CRA regarding its conversion to a corporation (see “AGI
Conversion – Agreement with CRA”).
• Sales, gain (loss) on foreign exchange, net earnings, and net
earnings per share are significantly impacted by the rate of
exchange between the Canadian and U.S. dollars. The impact was
most significant in 2015 and the second half of 2014 due to a rapid
weakening of the Canadian dollar vs. its U.S. counterpart.
• A widespread drought in the U.S. impacted sales and profit in the
third and fourth quarters of 2012 and the first and second quarters
of 2013.
Quarterly Financial Information
2015
(thousands of dollars other than per share data and exchange rate):
Average
uSD/CAD
Exchange
Rate
$
1.23
1.24
1.30
1.33
1.27
basic
profit
(loss)per
Share
$
Diluted
profit
(loss) per
Share
$
(0.26)
0.60
(0.60)
(1.48)
(1.81)
(0.26)
0.58
(0.60)
(1.48)
(1.81)
Sales
$
profit
$
87,259
(3,409)
122,396
8,173
125,590
(8,638)
114,239
(21,355)
449,484
(25,229)
Profit (loss) per share - basic
Profit (loss) per share - fully diluted
(1.81)
(1.81)
0.31
0.31
1.80
1.77
Funds from operations (1)
40,178
55,549
52,793
Payout ratio (1)
Dividends declared per
common share
83%
57%
57%
2.40
2.40
2.40
Total assets
739,739
447,116
485,636
Total long-term liabilities
349,998
123,415
116,346
(1) See “Non-IFRS Measures”.
(thousands of dollars other than per share data and exchange rate):
Average
uSD/CAD
Exchange
Rate
$
profit /
loss
$
basic
profit per
Share
$
Diluted
profit per
Share
$
Sales
$
Q1
Q2
Q3
Q4
yTD
1.09
1.10
1.09
1.13
1.10
84,278
1,218
112,838
13,638
114,915
8,653
88,114
(19,409)
400,145
4,100
0.09
1.04
0.66
(1.48)
0.31
0.09
0.98
0.65
(1.45)
0.31
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The following factors impact the comparison between periods in the
table above:
• AGI’s acquisition of Westeel on May 20, 2015 significantly impacts
comparisons to prior periods of assets, liabilities and operating
results.
• The loss and loss per share in the fourth quarter of 2015 was
significantly impacted by an asset impairment charge of $13.4
million at the Mepu and Applegate divisions.
• The loss and loss per share in the fourth quarter of 2014 was
significantly impacted by an expense of $16.9 million related to
the Company’s agreement with the CRA regarding its conversion to
a corporation (see “AGI Conversion – Agreement with CRA”).
• Sales, gain (loss) on foreign exchange, profit, and profit per share
in all periods are impacted by the rate of exchange between
the Canadian and U.S. dollars. The impact was most significant in
2015 and the second half of 2014 due to a rapid weakening of the
Canadian dollar vs. its U.S. counterpart.
Interim period sales and profit historically reflect seasonality. The
second and third quarters are typically the strongest primarily due
to the timing of construction of commercial projects and higher
in-season demand at the farm level. Due to the seasonality of AGI’s
working capital movements, cash provided by operations will typically
be highest in the fourth quarter. The seasonality of AGI’s business
may be impacted by a number of factors including weather and the
timing and quality of harvest in North America.
Fourth Quarter
(thousands of dollars
other than per share data)
Trade sales (1)
Adjusted EBITDA (1)
Net profit (loss)
Diluted profit (loss) per share
Adjusted net profit (1)
Adjusted diluted profit per share (1)
(1) See “Non-IFRS Measures”.
TRADE SALES
three Months ended december 31
2015
$
122,159
12,971
2014
$
92,278
12,997
(21,355)
(19,409)
(1.48)
2,148
0.15
(1.45)
3,677
0.27
(thousands of dollars)
three Months ended december 31
2015
$
35,021
47,925
39,213
122,159
2014
$
24,013
47,517
20,748
92,278
Change
$
11,008
408
18,465
29,881
Change
%
46%
1%
89%
32%
Canada
US
Overseas
TOTAL
westeel OnlY – trade sales
(thousands of dollars)
three Months ended december 31, 2015
Canada
US
International (1)
TOTAL
20,592
829
18,028
39,449
(1) Comprised primarily of sales from Italian subsidiaries PTM and Frame.
GROSS MARGiN
Gross margin as a percentage of sales for the three months ended
December 31, 2015 was 31.1%, (2014 – 30.7%) and excluding
Westeel gross margin in Q4 2015 was 33.5%. Gross margin
percentages remained healthy despite a significant decrease in sales
of higher margin Farm equipment due to management of production
labour expenditures and a weaker Canadian dollar. Historically, gross
margin percentages are low in the fourth quarter of a fiscal year due
to lower sales volumes and preseason sales discounts.
GENERAL AND ADMiNiSTRATiVE ExpENSES
For the three months ended December 31, 2015, general and
administrative expenses, excluding acquisitions, were $19.6 million
or 24% of sales (2014 - $16.7 million and 18%). As a percentage of
sales, general and administrative expenses in the fourth quarter of
a fiscal year are generally higher than the annual percentage due to
seasonally lower sales volumes. The increase from 2014 is largely
due to a $1.0 million increase in third party commissions, primarily
the result of sales mix, and a $0.7 million in increase in salaries that
resulted from bonus accrual and severance adjustments at certain
divisions.
ADjuSTED EbiTDA AND NET EARNiNGS (LOSS)
(thousands of dollars)
Year ended december 31
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Trade sales in North America, excluding Westeel, decreased
significantly in Q4 as demand for Farm equipment was negatively
impacted by slightly elevated dealer inventories, cautious consumer
buying behaviour and an early and dry harvest. Sales of Commercial
equipment increased slightly due largely to strong offshore sales.
ADjuSTED EbiTDA
AGI, excluding Westeel
Westeel
TOTAL
2015
$
2014
$
9,423
3,548
12,971
12,997
N/A
12,997
191919
Adjusted EBITDA for the three months ended December 31, 2015
was $13.0 million (2014 - $13.0 million). The decline from 2014
was primarily the result of a decrease in higher margin Farm sales.
Adjusted EBITDA at Westeel includes a $1.9 million contribution from
its Italian subsidiary, Frame. Prior to October 1, 2015, Frame was
recorded as an investment on AGI’s balance sheet and was excluded
from AGI’s consolidated results since for accounting purposes AGI
could not demonstrate effective control over the subsidiary due to a
number of factors, including lack of Board representation.
For the three months ended December 31, 2015, the Company
reported a net loss of $21.4 million (2014 - $19.4 million), a basic
net loss per share of $1.48 (2014 - $1.45), and a fully diluted net
loss per share of $1.48 (2014 – $1.45). The net loss in Q4 2015
was in large part due to an asset impairment charge and losses
on foreign exchange. The net loss in Q4 2014 was primarily the
result of a write-down of certain tax assets that resulted from the
Company’s agreement with the CRA regarding its 2009 conversion to
a corporation (see “AGI Conversion – Agreement with CRA” under
Deferred Income Taxes). The impact on profit and profit per share of
these items as well as certain other significant items is illustrated
below:
(thousands of dollars
other than per share data)
three Months ended december 31
2015
$
2014
$
Profit (loss) as reported
(21,355)
(19,409)
Diluted profit (loss) per share as reported
(1.48)
(1.45)
Non-cash CRA settlement
Loss on foreign exchange
M&A Activity
Non-cash loss on impairment of assets
Loss on sale of property, plant and equipment
Allowance for bad debt (2)
ADjuSTED pROfiT (1)
DiLuTED ADjuSTED pROfiT pER SHARE (1)
0
16,889
9,034
699
13,439
6
325
2,148
0.15
5,147
642
0
408
0
3,677
0.27
cash Flow and Liquidity
(thousands of dollars)
Year ended december 31
2015
$
2014
$
Profit (loss) before income taxes
(22,120)
36,199
Add charges (deduct credits) to operations not
requiring a current cash payment:
Depreciation / amortization
Translation loss on FX
Non-cash interest expense
Share based compensation
Non-cash impairment of available-for-sale
investment
Defined benefit pension plan
Non-cash Investment tax credit
Non-cash impairment of Mepu and Applegate
assets
Dividends on share based compensation
Loss (gain) on sale of assets
Net change in non-cash working capital
balances related to operations:
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Customer deposits
Provisions
Income tax paid
CASH pROViDED by OpERATiONS
17,668
11,721
30,360
11,644
3,090
3,004
0
272
(412)
14,143
(962)
3,154
48,197
3,211
4,516
1,100
0
0
0
0
(522)
67,869
39,048
(25,688)
8,881
(11,835)
2,076
(23,571)
7,056
1,549
(441)
4,508
(6,106)
319
35,039
(39,243)
(2,613)
(8,014)
80,623
20,612
(1) See “Non-IFRS Measures”.
(2) In 2015 the Company recorded a provision related to the net balance owing from an
international customer that related to sales invoiced primarily in 2013.
Cash provided by operations for the year ended December 31, 2015
increased compared to 2014 largely due to higher cash flow related to
collection of accounts receivable and inventory utilization.
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202020
WORkiNG CApiTAL REquiREMENTS
Interim period working capital requirements typically reflect the seasonality of the business. AGI’s collections of accounts receivable are
weighted towards the third and fourth quarters. This collection pattern, combined with historically high sales in the third quarter that result
from seasonality, typically lead to accounts receivable levels increasing throughout the year and peaking in the third quarter. Inventory levels
typically increase in the first and second quarters and then begin to decline in the third or fourth quarter as sales levels exceed production. As
a result of these working capital movements, historically, AGI 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. AGI has typically fully repaid its operating line balance by early in the fourth quarter. Requirements for fiscal 2016 are
expected to be generally consistent with historical patterns. Growth in international business may result in an increase in the number of days
accounts receivable remain outstanding and result in increased usage of working capital in certain quarters. Working capital may also be
deployed to secure steel supply and pricing.
CApiTAL ExpENDiTuRES
Maintenance capital expenditures in the year ended December 31, 2015 were $2.3 million (0.5% of trade sales) compared to $4.8 million
(1.2%) in 2014. Management generally anticipates maintenance capital expenditures in a fiscal year to approximate 1.0% - 1.5% of sales.
The acquisition of Westeel is not expected to significantly alter this estimate. Maintenance capital expenditures in 2015 relate primarily
to purchases of manufacturing equipment and building repairs and were funded through cash on hand, bank indebtedness and cash from
operations.
AGI defines maintenance capital expenditures as cash outlays required to maintain plant and equipment at current operating capacity and
efficiency levels. Non-maintenance capital expenditures encompass other investments, including cash outlays required to increase operating
capacity or improve operating efficiency. AGI had non-maintenance capital expenditures of $34.5 million in the year ended December 31,
2015 (2014 - $12.5 million). In 2015, non-maintenance capital expenditures relate primarily to two new commercial grain handling production
facilities in the U.S. that were completed in the fiscal year. Maintenance and non-maintenance capital expenditures are expected to be financed
through bank indebtedness, cash on hand or through the Company’s credit facility (see “Capital Resources”).
CASH bALANCE
The Company’s cash balance at December 31, 2015 was $58.2 million (2014 - $25.3 million). The higher cash balance in 2015 compared to the
prior year is in part related to the Company’s issuance of convertible debentures on September 29, 2015 that, after repayment of long-term
debt, added approximately $22 million to the Company’s cash balance.
contractual obligations
(thousands of dollars)
2013 Debentures
2014 Debentures
2015 Debentures
Long-term debt
Finance lease
Operating leases
TOTAL ObLiGATiONS
Total
$
86,250
51,750
75,000
149,600
1,386
9,918
373,904
2016
$
0
0
0
34,600
209
2,475
37,284
2017
$
0
0
0
0
1,177
1,895
3,072
2018
$
86,250
0
0
0
0
1,475
87,725
2019
$
0
51,750
0
50,000
0
1,045
2020+
$
0
0
75,000
65,000
0
3,028
102,795
143,028
The 2013, 2014 and 2015 Debentures relate to the aggregate principal amount of the Debentures (see “Convertible Debentures” below) and
long-term debt is comprised of a revolver facility, term debt and non-amortizing notes (see “Capital Resources”).
capital Resources
CASH
Cash and cash equivalents at December 31, 2015 were $58.2 million (2014 - $25.3 million).
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DEbT fACiLiTiES
Series A Notes
Swing Line
Swing Line
Revolver
Revolver
Term Loan A
Term Loan B
Series B Notes
TOTAL SENiOR DEbT
Currency
Maturity
USD
CAD
USD
CAD
USD
CAD
CAD
CAD
2016
2019
2019
2019
2019
2019
2022
2025
Total
facility
34,600
20,000
6,920
105,000
62,280
50,000
40,000
25,000
343,800
Amount
Drawn
34,600
0
0
0
0
50,000
40,000
25,000
149,600
interest
Rate
6.80%
4.10%
5.00%
4.10%
5.00%
3.84%
4.32%
4.44%
interest
Fixed
Floating
Floating
Floating
Floating
Fixed
Fixed
Fixed
The Company has a credit facility (the “Credit Facility”) with a syndicate of Canadian chartered banks that includes committed revolver facilities
of $105.0 million and U.S. $45.0 million. The Company’s Term Loans A and B are with the same chartered banks with which it has the Credit
Facility. Amounts drawn under the facility bear interest at BA plus 2.50% per annum based on performance calculations. The Company has also
issued US $25.0 million and CAD $25.0 million aggregate principal amount secured notes through a note purchase and private shelf agreement
(the “Series A and Series B Notes”). The Series A and B Notes are non-amortizing. AGI is subject to certain financial covenants, including a
maximum leverage ratio and a minimum debt service ratio, and is in compliance with all financial covenants.
CONVERTibLE DEbENTuRES
Debentures (2009)
In 2009 the Company issued $115 million aggregate principal amount of convertible unsecured subordinated debentures (the “2009
Debentures”) at a price of $1,000 per 2009 Debenture. In December 2013 the Company announced its intention to redeem the 2009 Debentures
effective January 20, 2014. In January 2014, holders of $19.0 million principal amount of the 2009 Debentures exercised the conversion option
and were issued 422,897 common shares. The Company redeemed all remaining outstanding 2009 Debentures on January 20, 2014.
Debentures (2013)
In December 2013 the Company issued $86.2 million aggregate principal amount of convertible unsecured subordinated debentures (the “2013
Debentures”) at a price of $1,000 per 2013 Debenture. The 2013 Debentures bear interest at an annual rate of 5.25% payable semi-annually on
June 30 and December 31. Each 2013 Debenture is convertible into common shares of the Company at the option of the holder at a conversion
price of $55.00 per common share. The maturity date of the 2013 Debentures is December 31, 2018.
On and after December 31, 2016 and prior to December 31, 2017, the 2013 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, 2017, the 2013 Debentures may be redeemed, in
whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest.
On redemption or at maturity, the Company may, at its option, subject to regulatory approval and provided that no event of default has occurred,
elect to satisfy its obligation to pay the principal amount of the 2013 Debentures, in whole or in part, by issuing and delivering for each $100
due that number of freely tradeable common shares obtained by dividing $100 by 95% of the volume weighted average trading price of the
common shares on the TSX for the 20 consecutive trading days ending on the fifth trading day preceding the date fixed for redemption or the
maturity date, as the case may be. Any accrued and unpaid interest thereon will be paid in cash. The Company may also elect, subject to any
required regulatory approval and provided that no event of default has occurred, to satisfy all or part of its obligation to pay interest on the 2013
Debentures by delivering sufficient freely tradeable common shares to satisfy its interest obligation.
The 2013 Debentures trade on the TSX under the symbol AFN.DB.A.
Debentures (2014)
In December 2014 the Company issued $51.8 million aggregate principal amount of extendible convertible unsecured subordinated debentures
(the “2014 Debentures”) at a price of $1,000 per 2014 Debenture. The 2014 Debentures bear interest at an annual rate of 5.25% payable
222222
semi-annually on June 30 and December 31. Each 2014 Debenture
is convertible into common shares of the Company at the option of
the holder at a conversion price of $65.57 per common share.
On and after December 31, 2017 and prior to December 31, 2018,
the 2014 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, 2018, the 2014
Debentures may be redeemed, in whole or in part, at the option of the
Company at a price equal to their principal amount plus accrued and
unpaid interest.
On redemption or at maturity, the Company may, at its option, subject
to regulatory approval and provided that no event of default has
occurred, elect to satisfy its obligation to pay the principal amount of
the 2014 Debentures, in whole or in part, by issuing and delivering
for each $100 due that number of freely tradeable common shares
obtained by dividing $100 by 95% of the volume weighted average
trading price of the common shares on the TSX for the 20 consecutive
trading days ending on the fifth trading day preceding the date fixed
for redemption or the maturity date, as the case may be. Any accrued
and unpaid interest thereon will be paid in cash. The Company may
also elect, subject to any required regulatory approval and provided
that no event of default has occurred, to satisfy all or part of its
obligation to pay interest on the 2014 Debentures by delivering
sufficient freely tradeable common shares to satisfy its interest
obligation.
The 2014 Debentures trade on the TSX under the symbol AFN.DB.B.
Debentures (2015)
In September 2015 the Company issued $75 million aggregate
principal amount of extendible convertible unsecured subordinated
debentures (the “2015 Debentures”) at a price of $1,000 per 2015
Debenture. The 2015 Debentures bear interest at an annual rate of
5.00% payable semi-annually on June 30 and December 31. Each
2015 Debenture is convertible into common shares of the Company at
the option of the holder at a conversion price of $60.00 per common
share. The maturity date of the 2015 Debentures is December 31,
2020.
On and after December 31, 2018 and prior to December 31, 2019,
the 2019 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, 2019, the 2015
Debentures may be redeemed, in whole or in part, at the option of the
Company at a price equal to their principal amount plus accrued and
unpaid interest.
On redemption or at maturity, the Company may, at its option, subject
to regulatory approval and provided that no event of default has
occurred, elect to satisfy its obligation to pay the principal amount of
the 2015 Debentures, in whole or in part, by issuing and delivering
for each $100 due that number of freely tradeable common shares
obtained by dividing $100 by 95% of the volume weighted average
trading price of the common shares on the TSX for the 20 consecutive
trading days ending on the fifth trading day preceding the date fixed
for redemption or the maturity date, as the case may be. Any accrued
and unpaid interest thereon will be paid in cash. The Company may
also elect, subject to any required regulatory approval and provided
that no event of default has occurred, to satisfy all or part of its
obligation to pay interest on the 2015 Debentures by delivering
sufficient freely tradeable common shares to satisfy its interest
obligation.
The 2015 Debentures trade on the TSX under the symbol AFN.DB.C.
common shares
The following number of common shares were issued and
outstanding at the dates indicated:
December 31, 2013
Share issues under Dividend Reinvestment Plan
(The “DRIP”)
Shares issued on Conversion of 2009 Debentures
December 31, 2014
Shares issues to partially finance acquisition
of Westeel (1)
Shares issued under DRIP
Shares issued under 2012 SAIP
Shares issued on exercise of DDCP grants
December 31, 2015
Shares issued under DRIP in January and February
2016
MARCH 10, 2016
# Common Shares
12,628,291
114,439
422,897
13,165,627
1,112,050
132,165
169,592
10,934
14,590,368
34,280
14,624,648
(1) Subscription receipts issued in November 2014 converted into common shares upon
completion of the acquisition of Westeel.
A total of 465,000 common shares are available for issuance under
the Company’s Share Award Incentive Plan (the “2012 SAIP”). As
at December 31, 2015, a total of 263,000 restricted Share Awards
(“RSUs”) and 110,000 performance Share Awards (“PSUs”) have been
granted.
A total of 54,572 deferred grants of common shares have been
granted under the Company’s Director’s Deferred Compensation Plan
and 18,436 common shares have been issued.
A total of 3,607,415 common shares are issuable on conversion of the
outstanding 2013, 2014 and 2015 Debentures.
AGI’s common shares trade on the TSX under the symbol AFN.
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Dividends
In the year ended December 31, 2015 AGI declared dividends to
shareholders of $33.6 million (2014 - $31.5 million). AGI’s policy is
to pay monthly dividends. The Company’s Board of Directors reviews
financial performance and other factors when assessing dividend
levels. An adjustment to dividend levels may be made at such time
as the Board determines an adjustment to be appropriate. Dividends
in a fiscal year are typically funded entirely through cash from
operations, although due to seasonality dividends may be funded on
a short-term basis by the Company’s operating lines, and through the
DRIP. Dividends in the year ended December 31, 2015 were financed
$5.2 million by the DRIP (2014 – $5.1 million) and the remainder
was financed from cash on hand and cash from operations or bank
indebtedness.
Funds from operations and Payout Ratio
Funds from operations (“FFO”), 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 maintenance capital expenditures
and adjusted for gains or losses on the sale of property, plant &
equipment. The objective of presenting this measure is to provide
a measure of free cash flow. The definition excludes changes in
working capital as they are necessary to drive organic growth and
have historically been financed by the Company’s operating facility
(See “Capital Resources”). Funds from operations should not be
construed as an alternative to cash flows from operating, investing,
and financing activities as a measure of the Company’s liquidity and
cash flows. Funds from operations can be reconciled to cash provided
by operating activities as follows:
The Company’s payout ratio in the year ended December 31, 2015
was negatively impacted by M&A transaction costs of $5.4 million.
Excluding these costs would have resulted in a payout ratio of 74%
and an adjusted payout ratio of 62%.
Financial Instruments
fOREiGN ExCHANGE CONTRACTS
Risk from foreign exchange arises as a result of variations in
exchange rates between the Canadian and the U.S. dollars and to a
lesser extent to variations in exchange rates between the Euro and
the Canadian dollar. AGI has entered into foreign exchange contracts
with three Canadian chartered banks to partially hedge its foreign
currency exposure and as at December 31, 2015, had outstanding the
following foreign exchange contracts:
fORWARD fOREiGN ExCHANGE CONTRACTS
Settlement
Dates
face Amount
uSD (000’s)
Average Rate
CAD
CAD Amount
(000’s)
2016 – Q1
2016 – Q2
2016 – Q3
2016 – Q4
2017 – Q1
17,500
23,500
33,500
26,000
9,000
1.17
1.18
1.18
1.18
1.25
20,408
27,660
39,453
30,773
11,216
The fair value of the outstanding forward foreign exchange contracts
in place as at December 31, 2015 was a loss of $21.8 million.
Consistent with prior periods, the Company has elected to apply
hedge accounting for these contracts and the unrealized loss has
been recognized in other comprehensive income.
(thousands of dollars)
Year ended december 31
iNTEREST RATE SWApS
Cash provided by operating activities
Change in non-cash working capital
Maintenance CAPEX
Gain (loss) on sale of assets
fuNDS fROM OpERATiONS (1)
pAyOuT RATiO
Dividends to shareholders
pAyOuT RATiO (1)
ADjuSTED pAyOuT RATiO
Dividends to shareholders
Dividends paid under DRIP
Dividends paid in cash
ADjuSTED pAyOuT RATiO (1)
(1) See “Non-IFRS Measures”.
2015
$
80,623
(35,039)
(2,252)
(3,154)
40,178
33,593
84%
33,593
(5,252)
28,341
71%
2014
$
20,612
39,243
(4,828)
522
55,549
31,476
57%
31,476
(5,127)
26,349
47%
The Company has entered into interest rate swap contracts to
manage its exposure to fluctuations in interest rates.
Currency Maturity
Total
facility
(000’s)
Amount
of Swap
(000’s)
fixed
Rate
Term Loan A
Term Loan B
CAD
CAD
2019
2022
50,000
50,000
3.84%
40,000
40,000
4.32%
The fair value of the interest rate swap contracts in place as at
December 31, 2015 was a loss of $2.0 million. The Company has
elected to apply hedge accounting for these contracts and the
unrealized loss has been recognized in other comprehensive income.
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critical accounting estimates
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses
during the period. By their nature, these estimates are subject to
a degree of uncertainty and are based on historical experience and
trends in the industry. Management reviews these estimates on an
ongoing basis. While management has applied judgment based on
assumptions believed to be reasonable in the circumstances, actual
results can vary from these assumptions. It is possible that materially
different results would be reported using different assumptions.
AGI 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. AGI’s accounting
policies are described in the notes to its December 31, 2015 audited
financial statements.
ALLOWANCE fOR DOubTfuL ACCOuNTS
Due to the nature of AGI’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.
AGI maintains an allowance for doubtful accounts to reflect expected
credit losses. A considerable amount of judgment is required to
assess the ultimate realization of accounts receivable and these
judgments must be continuously evaluated and updated. AGI is not
able to predict changes in the financial conditions of its customers,
and the Company’s judgment related to the recoverability of accounts
receivable may be materially impacted if the financial condition of the
Company’s customers deteriorates.
VALuATiON Of iNVENTORy
Assessments and judgments are inherent in the determination of the
net realizable value of inventories. The cost of inventories may not
be fully recoverable if they are slow moving, damaged, obsolete, or
if the selling price of the inventory is less than its cost. AGI regularly
reviews its inventory quantities and reduces the cost attributed to
inventory no longer deemed to be fully recoverable. Judgment related
to the determination of net realizable value may be impacted by a
number of factors including market conditions.
GOODWiLL AND iNTANGibLE ASSETS
Assessments and judgments are inherent in the determination of the
fair value of goodwill and intangible assets. Goodwill and indefinite
life intangible assets are recorded at cost and finite life intangibles
are recorded at cost less accumulated amortization. Goodwill
and intangible assets are tested for impairment at least annually.
Assessing goodwill and intangible assets for impairment requires
considerable judgment and is based in part on current expectations
regarding future performance. The classification of assets into cash
generating units requires significant judgment and interpretations
with respect to the integration between assets, the nature of
products, the way in which management allocates resources and
other relevant factors. Changes in circumstances including market
conditions may materially impact the assessment of the fair value of
goodwill and intangible assets.
DEfERRED iNCOME TAxES
Deferred income taxes are calculated based on assumptions related
to the future interpretation of tax legislation, future income tax rates,
and future operating results, acquisitions and dispositions of assets
and liabilities. AGI periodically reviews and adjusts its estimates and
assumptions of income tax assets and liabilities as circumstances
warrant. A significant change in any of the Company’s assumptions
could materially affect AGI’s estimate of deferred tax assets and
liabilities. See “Risks and Uncertainties – Income Tax Matters”.
fuTuRE bENEfiT Of TAx-LOSS CARRyfORWARDS
AGI should only recognize the future benefit of tax-loss carryforwards
where it is probable that sufficient future taxable income can be
generated in order to fully utilize such losses and deductions. We are
required to make significant estimates and assumptions regarding
future revenues and profit, and our ability to implement certain tax
planning strategies, in order to assess the likelihood of utilizing such
losses and deductions. These estimates and assumptions are subject
to significant uncertainty and if changed could materially affect our
assessment of the ability to fully realize the benefit of the deferred
income tax assets. Deferred tax asset balances would be reduced and
additional income tax expense recorded in the applicable accounting
period in the event that circumstances change and we, based on
revised estimates and assumptions, determined that it was no longer
probable that those deferred tax assets would be fully realized. See
“Risks and Uncertainties – Income Tax Matters”.
RETiREMENT bENEfiTS
Provisions for defined benefit post-employment obligations are
calculated by independent actuaries and reviewed by management.
The principal actuarial assumptions and estimates are based on
independent actuarial advice and include the discount rate and other
factors.
Risks and Uncertainties
The risks and uncertainties described below are not the only risks and
uncertainties we face. Additional risks and uncertainties not currently
known to us or that we currently consider immaterial also may impair
operations. If any of the following risks actually occur, our business,
results of operations and financial condition, and the amount of
cash available for dividends could be materially adversely affected.
See also “Risks and Uncertainties” in AGI’s most recent Annual
Information Form, which is available on SEDAR (www.sedar.com).
Industry Cyclicality and General Economic Conditions
Our success depends substantially on the health of the agricultural
industry. The performance of the agricultural industry, including the
grain handling, storage and conditioning business, is cyclical.
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Sales of agricultural equipment generally are related to the health
of the agricultural industry, which is affected by farm income, farm
input costs, debt levels and land values, all of which reflect levels
of agricultural commodity prices, acreage planted, crop yields,
agricultural product demand, including crops used as renewable
energy sources such as ethanol, government policies and government
subsidies. Sales also are influenced by economic conditions, interest
rate and exchange rate levels, and the availability of distributor and
customer financing. Trends in the agricultural industry, such as farm
consolidations, may affect the agricultural equipment market. In
addition, weather conditions, such as floods, heat waves or droughts,
can affect farmers’ buying decisions. Downturns in the agricultural
industry due to these or other factors could vary by market and are
likely to result in decreases in demand for agricultural equipment,
which would adversely affect our sales, growth, results of operations
and financial condition.
To the extent that the agricultural industry declines or experiences
a downturn, this is likely to have a negative impact on the grain
handling, storage and conditioning business, and the business of
AGI. Among other things, the agricultural sector has in recent years
benefited from an increase in crop production and investment in
agricultural infrastructure including outside of North America. To the
extent crop production declines or economic conditions result in a
decrease in agricultural investment including in offshore markets,
this is likely to have a negative impact on the agricultural industry
in those markets and the business of AGI. In addition, if the ethanol
industry declines or experiences a downturn, due to changes in
governmental policies or otherwise, this is may have a negative
impact on the demand for and prices of certain crops which may have
a negative impact on the grain handling, storage and conditioning
industry, and the business of AGI.
Future developments in the North American and global economies
may negatively impact the demand for our products. Management
cannot estimate the level of growth or contraction of the economy
as a whole or of the economy of any particular region or market that
we serve. Adverse changes in our financial condition and results of
operations may occur as a result of negative economic conditions,
declines in stock markets, contraction of credit availability, political
instability or other factors affecting economic conditions generally.
Risk of Decreased Crop Yields
Decreased crop yields due to poor or unusual weather conditions,
natural disasters or other factors are a significant risk affecting AGI.
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
Our products include various materials and components purchased
from others, some or all of which may be subject to wide price
variation. Consistent with industry practice, AGI seeks to manage its
exposure to material and component price volatility by planning and
negotiating significant purchases on an annual basis, and through
the alignment of material input pricing with the terms of contractual
sales commitments. AGI endeavours to pass through to customers,
most, if not all, material and component price volatility. There can
be no assurance, however, that industry conditions will allow AGI
to continue to reduce its exposure to volatility of production costs
by passing through price increases to its customers. A significant
increase in the price of any component or material, such as steel,
could adversely affect our profitability.
Foreign Exchange Risk
AGI’s consolidated financial statements are presented in Canadian
dollars. AGI generates the majority of its sales in U.S. dollars and
the remainder in Canadian dollars and other currencies including
Euros, but a materially smaller proportion of its expenses are
denominated in U.S. dollars and currencies other than the Canadian
dollar. In addition, AGI denominates a portion of its long term
borrowings in U.S. dollars as part of its foreign currency hedging
strategy. Accordingly, fluctuations in the rate of exchange between
the Canadian dollar and principally the U.S. dollar may significantly
impact the Company’s financial results. If the Canadian dollar
strengthens relative to the U.S. dollar, profit and adjusted EBITDA
would decline whereas a weakening of the Canadian dollar relative
to the U.S. dollar would increase profit and adjusted EBITDA. The
Company regularly enters hedging arrangements as part of its foreign
currency hedging strategy to partially mitigate the potential effect
of fluctuating exchange rates. To the extent AGI enters into such
hedging arrangements, it potentially foregoes the benefits that might
result from a weakening of the Canadian dollar relative to the U.S.
dollar or other currencies in which it generate sales and in addition
may realize a loss on its forward foreign exchange contracts to the
extent that the relevant exchange rates are above the contract rates
at the date of maturity of the contracts. Conversely, to the extent that
AGI does not fully hedge its foreign exchange exposure, it remains
subject to the risk that a strengthening Canadian dollar relative to
the U.S. dollar or other currencies in which it generates sales will
adversely affect its financial results, which effects could be material
to its business, prospects and financial condition. See “Impact of
Foreign Exchange” and “Financial Instruments – Foreign exchange
contracts”.
Acquisition and Expansion Risk
AGI 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 in existing
or new markets. There can be no assurance that the Company will
be able to identify, acquire, develop or profitably manage additional
businesses, or successfully integrate any acquired business, products,
or technologies into the business, or increase the scope or change
the nature of operations at existing facilities without substantial
expenses, delays or other operational or financial difficulties. The
Company’s ability to increase the scope or change the nature of
its operations or acquire or develop additional businesses may be
impacted by its cost of capital and access to credit.
Acquisitions and expansions, including the acquisition of
businesses or the development of manufacturing capabilities
outside of North America, may involve a number of special risks
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including diversion of management’s attention, failure to retain key
personnel, unanticipated events or circumstances, unanticipated
market dynamics in new agricultural markets, added political and
economic risk in other jurisdictions, risks associated with new
market development outside of North America, and legal liabilities,
some or all of which could have a material adverse effect on AGI’s
performance. In emerging markets some of these (and other) risks can
be greater than they might be elsewhere. 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 AGI’s results of operations and financial condition.
International Sales and Operations
A portion of AGI’s sales are generated in overseas markets the
majority of which are in emerging markets such as countries in
Eastern Europe, including most significantly Ukraine and also Russia
and Romania, as well as countries in Central and South America,
the Middle East and Southeast Asia. An important component of
AGI’s strategy is to increase its offshore sales and operations in the
future. Sales and operations outside of North America, particularly in
emerging markets, are subject to various additional risks, including:
currency exchange rate fluctuations; foreign economic conditions;
trade barriers; competition with North American and international
manufacturers and suppliers; exchange controls; restrictions on
dividends and the repatriation of funds; national and regional labour
strikes; political risks; limitations on foreign investment; sociopolitical
instability; fraud; risk of trade embargoes and sanctions prohibiting
sales to specific persons or countries; risks of increases in duties;
taxes and changes in tax laws; expropriation of property, cancellation
or modification of contract rights, unfavourable legal climate for the
collection of unpaid accounts; unfavourable political or economic
climate limiting or eliminating support from export credit agencies;
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 AGI’s offshore sales and operations in the
future, which could have a material adverse effect on AGI’s results of
operations and financial condition.
There have also been instances of political turmoil and other
instability in some of the countries in which AGI operates, including
most recently in Ukraine, which has and is currently experiencing
political changes, civil unrest and military action, which are
contributing to significant economic uncertainty and volatility. AGI
continues to closely monitor the political, economic and military
situation in Ukraine, and will seek to take actions to mitigate its
exposure to potential risk events. However, the situation in Ukraine
is rapidly developing and AGI has no way to predict outcome of the
situation. Continued unrest, military activities, or broader-based trade
sanctions or embargoes, should they be implemented, could have a
material adverse effect on our sales in Ukraine and Russia and other
countries in the region, and a material adverse effect on our sales,
growth, results of operations and financial condition.
Anti-Corruption Laws
The Company’s business practices must comply with the Corruption
of Public Foreign Officials Act (Canada) and other applicable similar
laws. These anti-corruption laws generally prohibit companies and
their intermediaries from making improper payments or providing
anything of value to improperly influence government officials
or private individuals for the purpose of obtaining or retaining a
business advantage regardless of whether those practices are
legal or culturally expected in a particular jurisdiction. These risks
can be more acute in emerging markets. Recently, there has been
a substantial increase in the global enforcement of anti-corruption
laws. If violations of these laws were to occur, they could subject us
to fines and other penalties as well as increased compliance costs
and could have an adverse effect on AGI’s reputation, business and
results of operations and financial condition.
Agricultural Commodity Prices, International
Trade and Political Uncertainty
Prices of agricultural commodities are influenced by a variety of
unpredictable factors that are beyond the control of AGI, including
weather, government (Canadian, United States and other) farm
programs and policies, and changes in global demand or other
economic factors. A decrease in agricultural commodity prices
could negatively impact the agricultural sector, and the business
of AGI. New legislation or amendments to existing legislation,
including the Energy Independence and Security Act in the U.S. of
2007 or the 2014 Farm Bill, may ultimately impact demand for the
Company’s products. The world grain market is subject to numerous
risks and uncertainties, including risks and uncertainties related to
international trade and global political conditions.
Competition
AGI experiences competition in the markets in which it operates.
Certain of AGI’s competitors have greater financial and capital
resources than AGI. AGI could face increased competition from newly
formed or emerging entities, as well as from established entities that
choose to focus (or increase their existing focus) on AGI’s primary
markets. As the grain handling, storage and conditioning equipment
sector is fragmented, there is also a risk that a larger, formidable
competitor may be created through a combination of one or more
smaller competitors. AGI may also face potential competition from
the emergence of new products or technology.
Seasonality of Business
The agricultural equipment business is highly seasonal, which
causes our quarterly results and our cash flow to fluctuate during the
year. Our sales historically have been higher in the second and third
calendar quarters compared with the first and fourth quarters and our
cash flow has been lower in the first three quarters of each calendar
year, which 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 AGI’s credit facility will be sufficient
to offset the seasonal variations in AGI’s cash flow.
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Business Interruption
The operation of AGI’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. AGI 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, AGI’s Rosenort facility is located in
an area that is often subject to widespread flooding, and insurance
coverage for this type of business interruption is limited. AGI is not
able to predict the occurrence of business interruptions.
Litigation
In the ordinary course of its business, AGI 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
AGI’s future business, financial condition, and operating results
depend on the continued contributions of certain of AGI’s executive
officers and other key management and personnel, certain of whom
would be difficult to replace.
Labour Costs and Shortages and Labour Relations
The success of AGI’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 AGI 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 AGI will
not unionize in the future. If successful, such an occurrence could
increase labour costs and thereby have an adverse impact on AGI’s
results of operations.
Distribution, Sales Representative and Supply Contracts
AGI typically does not enter into written agreements with its dealers,
distributors or suppliers in North America. As a result, such parties
may, without notice or penalty, terminate their relationship with
AGI at any time. In addition, even if such parties should decide to
continue their relationship with AGI, there can be no guarantee that
the consideration or other terms of such contracts will continue on
the same basis.
AGI often enters into supply agreements with customers outside of
North America. These contracts may include penalties for non-
performance including in relation to product quality, late delivery and
in some cases project assembly services. In addition, contractual
commitments negotiated with foreign customers conducted in
languages other than English may increase the likelihood of disputes
with respect to agreed upon commitments. In the event AGI fails
to perform to the standards of its contractual commitments it could
suffer a negative financial impact which in some cases could be
material.
Availability of Credit
AGI’s credit facility matures on May 19, 2019 and is renewable at the
option of the lenders. There can be no guarantee the Company will be
able to obtain alternate financing and no guarantee that future credit
facilities will have the same terms and conditions as the existing
facility. This may have an adverse effect on the Company, its ability to
pay dividends and the market value of its Common Shares and other
securities. In addition, the business of the Company may be adversely
impacted in the event that the Company’s customers do not have
access to sufficient financing to purchase AGI’s products and services.
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
AGI’s term and operating credit facilities bear interest at rates that
are in part dependent on performance based financial ratios. The
Company’s cost of borrowing may be impacted to the extent that
the ratio calculation results in an increase in the performance based
component of the interest rate. To the extent that the Company
has term and operating loans where the fluctuations in the cost of
borrowing are not mitigated by interest rate swaps, the Company’s
cost of borrowing may be impacted by fluctuations in market interest
rates.
Uninsured and Underinsured Losses
AGI uses its discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining
appropriate insurance coverage on its assets and operations at
a commercially reasonable cost and on suitable terms. This may
result in insurance coverage that, in the event of a substantial loss,
would not be sufficient to pay the full current market value or current
replacement cost of its assets or cover the cost of a particular claim.
AGI obtains insurance for certain of its accounts receivables outside
of North America while assuming a percentage of the risk, most often
10% of the insured amount. In the event that AGI is unable to collect
on its accounts receivables outside of North America, the Company
will incur financial losses related to the uninsured portion.
Income Tax Matters; Tax Consequences of Conversion
Income tax provisions, including current and deferred income
tax assets and liabilities, and income tax filing positions require
estimates and interpretations of income tax rules and regulations of
the various jurisdictions in which AGI operates and judgments as to
their interpretation and application to AGI’s specific situation. The
amount and timing of reversals of temporary differences also depends
on AGI’s future operating results, acquisitions and dispositions
of assets and liabilities. The business and operations of AGI are
complex and AGI has executed a number of significant financings,
acquisitions, reorganizations and business combinations over the
course of its history including the Conversion. The computation of
income taxes payable as a result of these transactions involves many
282828
and could compromise AGI’s and its customers’ and suppliers’
information, exposing AGI to liability that would cause AGI’s business
and reputation to suffer. In the ordinary course of business, AGI
relies upon information technology networks and systems, some of
which are managed by third parties, to process, transmit and store
electronic information, and to manage or support a variety of business
processes and activities, including supply chain, manufacturing,
distribution, invoicing and collection of payments from dealers or
other purchasers of AGI equipment. AGI uses information technology
systems to record, process and summarize financial information and
results of operations for internal reporting purposes and to comply
with regulatory financial reporting, legal and tax requirements.
Additionally, AGI collects and stores sensitive data, including
intellectual property, proprietary business information and the
proprietary business information of AGI’s customers and suppliers,
as well as personally identifiable information of AGI’s customers and
employees, in data centers and on information technology networks.
The secure operation of these information technology networks and
the processing and maintenance of this information is critical to AGI’s
business operations and strategy. Despite security measures and
business continuity plans, AGI’s information technology networks and
infrastructure may be vulnerable to damage, disruptions or shutdowns
due to attacks by hackers or breaches due to employee error or
malfeasance or other disruptions during the process of upgrading or
replacing computer software or hardware, power outages, computer
viruses, telecommunication or utility failures or natural disasters or
other catastrophic events. The occurrence of any of these events
could compromise AGI’s networks, and the information stored there
could be accessed, publicly disclosed, lost or stolen. Any such access,
disclosure or other loss of information could result in legal claims or
proceedings, liability or regulatory penalties under laws protecting
the privacy of personal information, disrupt operations, and damage
AGI’s reputation, which could adversely affect AGI’s business.
Labour Relations
The Westeel workforce is comprised of both unionized and
non-union employees. With respect to those employees that are
covered by collective bargaining agreements, there can be no
assurance as to the outcome of any negotiations to renew such
agreements on satisfactory terms. Failure to renegotiate collective
bargaining agreements could result in strikes, work stoppages or
interruptions, and if any of these events were to occur, they could
have a material adverse effect on AGI’s reputation, operations and
financial performance. If non-unionized employees, whether those of
Westeel or AGI, become subject to collective agreements, the terms
of any new collective agreements would have implications for the
affected operations, and those implications could be material.
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complex factors as well as AGI’s interpretation of and compliance
with relevant tax legislation and regulations. While AGI believes
that its’ existing and proposed tax filing positions are probable
to be sustained, there are a number of existing and proposed tax
filing positions that are or may be the subject of review by taxation
authorities. Therefore, it is possible that additional taxes could be
payable by AGI and the ultimate value of AGI’s income tax assets
and liabilities could change in the future and that changes to these
amounts could have a material adverse effect on AGI and its financial
results.
Leverage, Restrictive Covenants
The degree to which AGI is leveraged could have important
consequences to 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
AGI’s cash flow from operations may need to be dedicated to payment
of the principal of and interest on indebtedness, thereby reducing
funds available for future operations and to pay dividends; (iii) certain
of the borrowings under the Company’s credit facility may be at
variable rates of interest, which exposes AGI to the risk of increased
interest rates; and (iv) AGI may be more vulnerable to economic
downturns and be limited in its ability to withstand competitive
pressures. AGI’s ability to make scheduled payments of principal and
interest on, or to refinance, its indebtedness will depend on its future
operating performance and cash flow, which are subject to prevailing
economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond
its control.
The ability of AGI to pay dividends or make other payments or
advances will be subject to applicable laws and contractual
restrictions contained in the instruments governing its indebtedness,
including the Company’s credit facility and note purchase agreement.
AGI’s credit facility and note purchase agreement contain restrictive
covenants customary for agreements of this nature, including
covenants that limit the discretion of management with respect
to certain business matters. These covenants place restrictions
on, among other things, the ability of AGI 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 AGI to meet certain financial
ratios and financial tests. A failure to comply with these obligations
could result in an event of default which, if not cured or waived,
could permit acceleration of the relevant indebtedness and trigger
financial penalties including a make-whole provision in the note
purchase agreement. If the indebtedness under the credit facility and
note purchase agreement were to be accelerated, there can be no
assurance that the assets of AGI would be sufficient to repay in full
that indebtedness. There can also be no assurance that the credit
facility or any other credit facility will be able to be refinanced.
Information Systems, Privacy and Data Protection
Security breaches and other disruptions to AGI’s information
technology infrastructure could interfere with AGI’s operations
292929
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changes in accounting Policies
and Future accounting changes
Standards issued but not yet effective up to the date of issuance of
the Company’s consolidated financial statements are listed below.
This listing is of standards and interpretations issued, which the
Company reasonably expects to be applicable at a future date.
The Company intends to adopt those standards when they become
effective.
fiNANCiAL iNSTRuMENTS: CLASSifiCATiON
AND MEASuREMENT [“ifRS 9”]
In July 2014, on completion of the impairment phase of the project
to reform accounting for financial instruments and replace IAS 39,
Financial Instruments: Recognition and Measurement, the IASB
issued the final version of IFRS 9, Financial Instruments. IFRS 9
includes guidance on the classification and measurement of financial
assets and financial liabilities, impairment of financial assets
[i.e. recognition of credit losses], and a new hedge accounting model.
Under the classification and measurement requirements for financial
assets, financial assets must be classified and measured at either
amortized cost or at fair value through profit or loss or through OCI,
depending on the basis of the entity’s business model for managing
the financial asset and the contractual cash flow characteristics of the
financial asset. The classification requirements for financial liabilities
are unchanged from IAS 39. IFRS 9 requirements address the problem
of volatility in net earnings arising from an issuer choosing to
measure certain liabilities at fair value and require that the portion
of the change in fair value due to changes in the entity’s own credit
risk be presented in OCI, rather than within net earnings. The new
general hedge accounting model is intended to be simpler and more
closely focus on how an entity manages its risks, replaces the IAS 39
effectiveness testing requirements with the principle of an economic
relationship, and eliminates the requirement for retrospective
assessment of hedge effectiveness. The new requirements for
impairment of financial assets introduce an expected loss impairment
model that requires more timely recognition of expected credit losses.
IAS 39 impairment requirements are based on an incurred loss model
where credit losses are not recognized until there is evidence of a
trigger event. IFRS 9 is effective for annual periods beginning on or
after January 1, 2018 with early application permitted. The Company
is currently evaluating the impact of adopting this standard on its
consolidated financial statements.
REVENuE fROM CONTRACTS WiTH CuSTOMERS
[“ifRS 15”]
IFRS 15, Revenue from Contracts with Customers, issued by the IASB
in May 2014, is applicable to all revenue contracts and provides a
model for the recognition and measurement of gains or losses from
sales of some non-financial assets. The core principle is that revenue
is recognized to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or
services. The standard will also result in enhanced disclosures about
revenue, provide guidance for transactions that were not previously
addressed comprehensively [for example, service revenue and
contract modifications] and improve guidance for multiple element
arrangements. IFRS 15 is effective for annual periods beginning on or
after January 1, 2018 and is to be applied retrospectively, with earlier
adoption permitted. Entities will transition following either a full or
modified retrospective approach. The Company is currently evaluating
the impact of the above standard on its consolidated financial
statements.
AMENDMENTS TO iAS 1, pRESENTATiON
Of fiNANCiAL STATEMENTS
On December 18, 2014 the IASB issued amendments to IAS 1 as
part of its major initiative to improve presentation and disclosure in
financial reports [the “Disclosure Initiative”]. The amendments are
effective for annual periods beginning on or after January 1, 2016.
Early adoption is permitted. These amendments will not require any
significant change to current practice, but should facilitate improved
financial statements disclosures. The Company is currently evaluating
the impact of adopting this standard on its consolidated financial
statements.
AMENDMENTS TO iAS 19, DEfiNED bENEfiT pLANS,
EMpLOyEE CONTRibuTiONS
On November 21, 2013, the IASB issued amendments to IAS 19
to clarify how an entity should account for contributions made by
employees or third parties to defined benefit plans, based on whether
those contributions are dependent on the number years of service
provided by the employee.
For contributions that are independent of the number of years of
service, the entity may either recognize the contributions as a
reduction in the service cost in the period in which the related service
is rendered, or to attribute them to the employees’ periods of service
using the projected unit credit method, whereas for contributions
that are dependent on the number of years of service, the entity is
required to attribute them to the employees’ periods of service.
These amendments are effective January 1, 2016, and the Company
is currently evaluating the impact of this new pronouncement
and does not anticipate it will have a significant impact on its
consolidated financial statements.
Disclosure controls and Procedures
and Internal controls
Disclosure controls and procedures are designed to provide
reasonable assurance that all relevant information is gathered and
reported to senior management, including AGI’s Chief Executive
Officer and Chief Financial Officer, on a timely basis so that
appropriate decisions can be made regarding public disclosure.
Management of AGI 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, or caused them to be designed under their supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the financial statements for external
purposes in accordance with IFRS.
303030
The Company acquired Westeel on May 20, 2015 (see “Westeel
Acquisitions”) and Vis (see “GJ Vis Holdings Inc. Acquisition”) on
November 30, 2015. Management has not completed its review
of internal controls over financial reporting or disclosure controls
and procedures for this newly acquired operations. 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 accuracy and completeness of Westeel’s and
Vis’ financial information. The following is the summary financial
information pertaining to Westeel and Vis that were included in
Ag Growth’s consolidated financial statements for the year ended
December 31, 2015:
(thousands of dollars)
Revenue
Profit
Current assets1
Non-current assets1
Current liabilities1
Non-current liabilities1
Westeel
$
87,312
2,275
74,923
208,363
257,526
22,493
Vis
$
1,353
196
5,901
13,123
17,154
1,674
Note 1 - Balance sheet as at December 31, 2015
There have been no material changes in AGI’s internal controls over
financial reporting that occurred in the three-month period ended
December 31, 2015, that have materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over
financial reporting.
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”, “adjusted payout ratio”, “trade sales”, “adjusted profit”, and
“diluted adjusted profit per share”. A non-IFRS financial measure
is a numerical measure of a company’s historical performance,
financial position or cash flow that excludes (includes) amounts, or is
subject to adjustments that have the effect of excluding (including)
amounts, that are included (excluded) in the most directly comparable
measures calculated and presented in accordance with IFRS. Non-
IFRS financial measures are not standardized; therefore, it may not be
possible to compare 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.
In this MD&A, we discuss the non-IFRS financial measures, including
the reasons that we believe that these measures 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 this
MD&A.
Management believes that the Company’s financial results may
provide a more complete understanding of factors and trends
affecting our business and be more meaningful to management,
investors, analysts and other interested parties when certain
aspects of our financial results are adjusted for the gain (loss) on
foreign exchange and other operating expenses and income. These
measurements are non-IFRS measurements. Management uses the
non-IFRS adjusted financial results and non-IFRS financial measures
to measure and evaluate the performance of the business and when
discussing results with the Board of Directors, analysts, investors,
banks and other interested parties.
References to “EBITDA” are to profit before income taxes, finance
costs, depreciation, amortization and asset impairment charges.
References to “adjusted EBITDA” are to EBITDA before the
Company’s gain or loss on foreign exchange, gains or losses on
the sale of property, plant & equipment, non-cash share based
compensation expenses and expenses related to corporate
acquisition activity. 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.
References to “trade sales” are to sales net of the gain or loss on
foreign exchange. Management cautions investors that trade sales
should not replace sales as an indicator of performance. References
to “gross margin” are to trade sales less cost of sales net of the
depreciation and amortization included in cost of sales.
References to “funds from operations” are to cash flow from
operating activities before the net change in non-cash working capital
balances related to operations and stock-based compensation, less
maintenance capital expenditures and adjusted for the gain or loss on
the sale of property, plant & equipment. Management believes that,
in addition to cash provided by (used in) operating activities, funds
from operations provide a useful supplemental measure in evaluating
its performance.
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labour and services and the value of Entringer’s business and assets
and liabilities assumed pursuant to the acquisition. 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, weather
patterns, crop planting, crop yields, crop conditions, the timing
of harvest and conditions during harvest, seasonality, industry
cyclicality, volatility of production costs, agricultural commodity
prices, the cost and availability of capital, currency 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. These factors should be considered
carefully, and readers should not place undue reliance on the
Company’s forward-looking statements. There can be no assurance
that any of the anticipated benefits of the Entringer acquisition will
be realized. 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 AGI, including AGI’s most recent
Annual Information Form, is available on SEDAR (www.sedar.com).
References to “payout ratio” are to dividends declared as a
percentage of funds from operations. References to “adjusted payout
ratio” are to declared dividends paid in cash as a percentage of funds
from operations.
References to “adjusted profit” and “diluted adjusted profit per
share” are to profit for the period and diluted profit per share for the
period adjusted for the non-cash CRA settlement, losses on foreign
exchange, transaction costs, non-cash loss on available-for-sale
investment and gain on sale of property, plant and equipment.
In addition, this MD&A includes certain financial information
relating to Entringer, which is prepared in accordance with Brazilian
generally accepted accounting principles (“Brazilian GAAP”), which
differ in some material respects from IFRS, and accordingly may
not be comparable to the financial statements of AGI or other
Canadian public companies. In the case of the Entringer financial
information, references to “normalized EBITDA” are to Entringer’s
unaudited earnings before income taxes, finance costs, depreciation
and amortization and include certain normalization adjustments
including owner/manager compensation structure and related party
transactions. Management believes that, in addition to sales, profit
or loss and cash flows from operating, investing, and financing
activities, normalized EBITDA is a useful supplemental measure in
evaluating a company’s performance. Normalized EBITDA is not a
financial measure recognized by IFRS or Brazilian GAAP and does not
have standardized meanings prescribed by IFRS or Brazilian GAAP.
Management cautions investors that normalized EBITDA should not
replace sales or profit or loss as indicators of performance, or cash
flows from operating, investing, and financing activities as a measure
of a company’s liquidity and cash flows. AGI’s method of calculating
normalized EBITDA may differ from the methods used by other
issuers.
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 our business and strategy, including our
outlook for our financial and operating performance including our
expectations for adjusted sales and EBITDA, and with respect to our
ability to achieve the expected benefits of the Entringer acquisition,
the anticipated impact of the Entringer acquisition on our business
and the timing thereof and our estimate of the costs of a new facility
in Brazil and the timing of completion thereof. Such forward-looking
statements reflect our current beliefs and are based on information
currently available to us, including certain key expectations and
assumptions concerning anticipated grain production in our market
areas, financial performance, business prospects, strategies,
product pricing, regulatory developments, tax laws, the sufficiency
of budgeted capital expenditures in carrying out planned activities,
political events, currency exchange rates, the cost of materials,
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consoLIDateD
FInancIaL
statements
To the Shareholders of
Ag Growth international inc.
We have audited the accompanying consolidated financial statements
of Ag Growth international inc., which comprise the consolidated
statements of financial position as at December 31, 2015 and 2014,
and the consolidated statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for the years then
ended, and a summary of significant accounting policies and other
explanatory information.
MANAGEMENT’S RESpONSibiLiTy fOR THE
CONSOLiDATED fiNANCiAL STATEMENTS
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with
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.
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AuDiTORS’ RESpONSibiLiTy
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, 2015 and
2014, and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting
Standards.
Winnipeg, Canada
March 9, 2016
Chartered Professional Accountants
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
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consolidated statements
of financial position
ASSETS [note 22]
LiAbiLiTiES
(in thousands of canadian dollars)
as at december 31
(in thousands of canadian dollars)
as at december 31
2015
$
2014
$
CuRRENT ASSETS
CuRRENT LiAbiLiTiES
Cash and cash equivalents [note 15]
58,234
25,295
Accounts payable and accrued liabilities [note 24]
Cash held in trust [note 6[a]]
Accounts receivable [note 17]
Inventory [note 18]
Prepaid expenses and other assets [note 32[a]]
Income taxes recoverable
250
73,524
98,722
2,790
916
250
Customer deposits
86,764
Dividends payable
71,031
6,852
3,375
Current portion of contingent consideration
[note 6[c]]
Acquisition, transaction and financing costs
payable
234,436
193,567
Other financial liabilities [note 6[b]]
2015
$
2014
$
47,721
21,461
2,883
2,687
1,846
9,017
4,472
35,460
12,864
2,633
—
2,266
—
93
—
1,036
—
49,176
6,550
3,829
152,023
113,975
112,331
28,949
800
1,976
671
—
197,585
79,433
1,177
3,191
—
2,290
32,938
12,072
349,998
502,021
123,415
237,390
Income taxes payable
Subscription receipts commission payable
[note 6[b]]
Current portion of long-term debt [note 22]
34,600
Current portion of obligations under
finance lease [note 22[e]]
209
—
—
Current portion of derivative instruments [note 27]
20,577
6,618
Short-term debt [note 22[d]]
Provisions [note 19]
165,687
164,081
163,781
900
234
3,930
84
99,612
71,356
75,618
900
—
3,812
—
498,697
251,298
6,606
2,251
739,739
447,116
NON-CuRRENT LiAbiLiTiES
Long-term debt [note 22]
Due to vendor [note 7]
Contingent consideration [note 6 [c]]
Convertible unsecured subordinated
debentures [note 23]
Obligations under finance lease [note 22 [e]]
Derivative instruments [note 27]
Deferred tax liability [notes 26]
TOTAL LiAbiLiTiES
See accompanying notes
NON-CuRRENT ASSETS
Property, plant and equipment,
net [notes 9 and 32[a]]
Goodwill [note 11]
Intangible assets, net [note 10]
Available-for-sale investment [note 14]
Other assets [note 25]
Income taxes recoverable
Deferred tax asset [note 26]
Assets held for sale [note 13]
TOTAL ASSETS
See accompanying notes
363636
SHAREHOLDERS’ EquiTy [note 20]
(in thousands of canadian dollars)
as at december 31
2015
$
2014
$
244,840
184,771
42,560
14,838
6,912
10,193
(66,787)
237,718
3,135
12,954
(5,972)
209,726
739,739
447,116
Common shares
Accumulated other comprehensive
income
Equity component of convertible
debentures
Contributed surplus
Deficit
TOTAL SHAREHOLDERS’ EquiTy
TOTAL LiAbiLiTiES AND
SHAREHOLDERS’ EquiTy
See accompanying notes
On behalf of the Board of Directors:
bill Lambert
Director
David A. White, CA, iCD.D
Director
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consolidated statements of income
consolidated statements
of comprehensive income
(in thousands of canadian dollars)
Year ended december 31
pROfiT (LOSS) fOR THE yEAR
OTHER COMpREHENSiVE
iNCOME (LOSS)
Items that may be reclassified
subsequently to profit or loss
Change in fair value of derivatives
designated as cash flow hedges
Losses on derivatives designated as
cash flow hedges recognized in net
earnings in the current period
Actuarial gains on defined benefit plan
Exchange differences on translation
of foreign operations
Income tax relating to items that may
be reclassified
OTHER COMpREHENSiVE iNCOME
fOR THE yEAR
TOTAL COMpREHENSiVE iNCOME
fOR THE yEAR
See accompanying notes
2015
$
(25,229)
2014
$
4,100
(28,746)
(9,159)
13,886
216
4,743
—
38,378
14,712
3,988
1,177
27,722
11,473
2,493
15,573
(in thousands of canadian dollars,
except per share amounts)
Year ended december 31
SALES
Cost of goods sold [note 8[d]]
GROSS pROfiT
ExpENSES
Selling, general and
administrative [note 8[e]]
Other operating expense (income) [note 8[a]]
Impairment of available-for-sale
investment [note 14]
Impairment charge [note 16]
Finance costs [note 8 [c]]
Finance expense [note 8 [b]]
pROfiT (LOSS) bEfORE iNCOME TAxES
Income tax expense (recovery) [note 26]
Current
Deferred
pROfiT (LOSS) fOR THE yEAR
pROfiT (LOSS) pER
SHARE - bASiC [note 30]
pROfiT (LOSS) pER
SHARE - DiLuTED [note 30]
See accompanying notes
2015
$
449,484
330,445
119,039
102,665
253
—
13,439
18,490
6,312
141,159
(22,120)
4,722
(1,613)
3,109
(25,229)
(1.81)
(1.81)
2014
$
400,145
276,538
123,607
73,781
(1,305)
1,100
—
11,450
2,382
87,408
36,199
4,757
27,342
32,099
4,100
0.31
0.31
383838
consolidated statements
of changes in shareholders’ equity
(in thousands of canadian dollars)
AS AT jANuARy 1, 2015
Profit (loss) for the year
Common
shares
$
184,771
—
Other comprehensive income (loss) —
Share-based payment
transactions [notes 20 and 21]
Dividend reinvestment plan
[notes 20[d] and [e]]
5,695
5,252
Dividends to shareholders [note 20] —
Dividend reinvestment
plan costs [notes 20[d] and [e]]
Dividends on share-based
compensation awards
Dividends on subscription receipt
Share issuance related to
Westeel acquisition [note 6[b]]
AS AT DECEMbER 31, 2015
See accompanying notes
(16)
—
—
49,138
244,840
Equity
component
of convertible
debentures
$
Contributed
surplus
$
3,135
12,954
—
—
—
—
—
—
—
—
—
—
—
(2,761)
—
—
—
—
—
—
—
Cash flow
hedge
reserve
$
foreign
currency
reserve
$
(6,545)
21,383
—
—
(10,813)
38,378
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Deficit
$
(5,972)
(25,229)
—
—
—
(33,593)
—
—
(881)
(1,112)
—
Defined
benefit
plan
reserve
$
—
—
157
—
—
—
—
—
—
—
—
Total
equity
$
209,726
(25,229)
27,722
2,934
5,252
(33,593)
3,777
(16)
(881)
(1,112)
49,138
6,912
10,193
(66,787)
(17,358)
59,761
157
237,718
Issuance of 2015 convertible unsecured
subordinated debentures [note 23] —
3,777
C
O
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S
O
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I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
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T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
393939
consolidated statements
of changes in shareholders’ equity
(in thousands of canadian dollars)
AS AT jANuARy 1, 2014
Profit for the year
Common
shares
$
158,542
—
Other comprehensive income (loss) —
Share-based payment
transactions [notes 20 and 21]
Dividend reinvestment plan
[notes 20[d] and [e]]
749
5,127
Dividends to shareholders [note 20] —
Dividend reinvestment
plan costs [notes 20[d] and [e]]
Dividends on share-based
compensation awards
(16)
—
Equity
component
of convertible
debentures
$
Contributed
surplus
$
8,240
4,984
—
—
—
—
—
—
—
—
—
4,210
—
—
—
—
Redemption of 2009 convertible unsecured
subordinated debentures 20,369
AS AT DECEMbER 31, 2014
184,771
(5,105)
3,135
3,760
12,954
See accompanying notes
Retained
earnings
(deficit)
$
21,847
4,100
—
—
—
(31,476)
—
(443)
—
Cash flow
hedge
reserve
$
(3,306)
—
(3,239)
foreign
currency
reserve
$
6,671
—
14,712
—
—
—
—
—
—
—
—
—
—
—
—
Total
equity
$
196,978
4,100
11,473
4,959
5,127
(31,476)
(16)
(443)
19,024
(5,972)
(6,545)
21,383
209,726
C
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S
O
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D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
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T
404040
consolidated statements
of cash flows
(in thousands of canadian dollars)
Year ended december 31
(in thousands of canadian dollars)
Year ended december 31
OpERATiNG ACTiViTiES
pROfiT (LOSS) bEfORE iNCOME
TAxES fOR THE yEAR
Add (deduct) items not affecting cash
Depreciation of property,
plant and equipment
Amortization of intangible assets
Impairment of available-for-sale
investment
Translation loss on foreign exchange
Non-cash component of interest expense
Share-based compensation expense
Impairment charge
Loss on sale of property,
plant and equipment
Gain on disposal of asset held for sale
Employer contribution to defined
benefit plan
Defined benefit plan expense
Non-cash investment tax credit
Dividends on share-based compensation
Net change in non-cash working capital
balances related to operations [note 15]
Income tax paid
CASH pROViDED by OpERATiNG
ACTiViTiES
See accompanying notes
2015
$
2014
$
2015
$
2014
$
iNVESTiNG ACTiViTiES
(22,120)
36,199
Acquisition of property, plant and equipment
(39,646)
(17,373)
Acquisition of product line
—
(13,144)
Acquisition of Westeel, net of cash acquired
[note 6[b]]
Acquisition of Vis [note 6[c]]
Changes to deposits related to property,
plant and equipment
(205,993)
(10,000)
—
—
2,252
(2,252)
Transfer to cash held in trust and restricted cash —
(250)
Proceeds from sale of property,
plant and equipment
Proceeds from disposal of asset held for sale
Development and purchase of
intangible assets
Transaction costs paid and payable
3,557
1,147
(2,511)
(420)
48
2,400
(1,721)
3,231
CASH uSED iN iNVESTiNG ACTiViTiES
(251,614)
(29,061)
fiNANCiNG ACTiViTiES
Repayment of long-term debt
(63,394)
Repayment of obligation under finance leases (36)
(3)
—
9,058
8,610
—
30,360
3,090
3,004
14,143
3,200
(46)
(245)
517
(412)
(962)
6,781
4,940
1,100
11,644
3,211
4,516
—
583
(1,105)
—
—
—
—
Redemption of convertible unsecured
subordinated debentures, net
—
(95,861)
174,731
—
48,197
67,869
Issuance of long-term debt
Proceeds from short-term debt
—
49,176
35,039
(39,243)
(2,613)
(8,014)
80,623
20,612
Issuance of convertible unsecured
subordinated debentures
Common share issuance
Subscription receipts commission payable
71,491
51,766
(1,036)
—
—
—
Subscription receipts financing costs
(123)
(1,934)
Dividends paid in cash [note 20[d]]
(29,453)
(26,349)
Dividend reinvestment plan costs incurred
(16)
(16)
CASH pROViDED by (uSED iN)
fiNANCiNG ACTiViTiES
NET iNCREASE (DECREASE) iN CASH
AND CASH EquiVALENTS
DuRiNG THE yEAR
203,930
(74,987)
32,939
(83,436)
Cash and cash equivalents, beginning of year 25,295
108,731
CASH AND CASH EquiVALENTS,
END Of yEAR
Supplemental cash flow information
Interest paid [note 20[d]]
See accompanying notes
58,234
25,295
15,739
7,870
C
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S
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I
D
A
T
E
D
F
I
N
A
N
C
I
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A
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E
M
E
N
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S
2
0
1
5
A
N
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P
O
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414141
C
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S
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D
F
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notes to consolidated
financial statements
(in thousands of Canadian dollars, except
where otherwise noted and per share data)
december 31, 2015
1 | organization
The consolidated financial statements of Ag Growth International
Inc. [“Ag Growth Inc.”] for the year ended December 31, 2015 were
authorized for issuance in accordance with a resolution of the
directors on March 9, 2016. Ag Growth International Inc. is a listed
company incorporated and domiciled in Canada, whose shares are
publicly traded at the Toronto Stock Exchange. The registered office
is located at 198 Commerce Drive, Winnipeg, Manitoba, Canada.
2 | operations
Ag Growth Inc. conducts business in the grain handling, storage 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 “AGI” 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”].
The Company adopted IFRS 8 on January 1, 2015. There was no
material impact other than disclosure to the Company’s consolidated
financial statements as a result of the adoption of these standards
and amendments.
bASiS Of pREpARATiON
The consolidated financial statements are presented in Canadian
dollars, which is also the functional currency of the parent company,
Ag Growth Inc. All values are rounded to the nearest thousand.
They are prepared on the historical cost basis, except for derivative
financial instruments and available-for-sale investment, 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,
except for the following adopted subsequent to the acquisition of
Westeel [note 6[b]].
Employee benefits
Certain employees are covered by defined benefit pension plans and
certain former employees are also entitled to other post-employment
benefits such as medical and life insurance. The Company’s defined
benefit plan asset (obligation) is actuarially calculated by a qualified
actuary at the end of each annual reporting period using the
projected unit credit method and management’s best estimates of
the discount rate, the rate of compensation increase, retirement
rates, termination rates, mortality rates and expected growth rate of
health care costs. The discount rate used to value the defined benefit
obligation for accounting purposes is based on the yield on a portfolio
of high-quality corporate bonds denominated in the same currency
with cash flows that match the terms of the defined benefit plan
obligations. Past service costs (credits) arising from plan amendments
are recognized in operating income in the year that they arise. The
actuarially determined net interest costs on the net defined benefit
plan obligation are recognized in interest cost for the defined benefit
plan. Actual post-employment benefit costs incurred may differ
materially from management estimates.
The fair values of plan assets are deducted from the defined
benefit plan obligations to arrive at the net defined benefit plan
asset (obligation). When the plan has a net defined benefit asset,
the recognized asset is limited to the present value of economic
benefits available in the form of future refunds from the plan or
reductions in future contributions to the plan [the “asset ceiling”].
If it is anticipated that the Company will not be able to recover the
value of the net defined benefit asset, after considering minimum
funding requirements for future service, the net defined benefit asset
is reduced to the amount of the asset ceiling. When the payment in
the future of minimum funding requirements related to past service
would result in a net defined benefit surplus or an increase in a
surplus, the minimum funding requirements are recognized as a
liability to the extent that the surplus would not be fully available as
a refund or a reduction in future contributions.
Remeasurements including actuarial gains and losses and the
impact of any minimum funding requirements are recognized through
other comprehensive income and subsequently reclassified from
accumulated other comprehensive income to retained earnings.
Current employee wages and benefits are expensed as incurred.
pRiNCipLES Of CONSOLiDATiON
The consolidated financial statements include the accounts of Ag
Growth Inc. and its wholly owned subsidiaries, Ag Growth Industries
Partnership, AGX Holdings Inc., Ag Growth Holdings Corp., AGI Alpha
Holdings Corp., AGI Bravo Holdings Corp., Westfield Distributing
(North Dakota) Inc., Hansen Manufacturing Corp. [“Hi Roller”], Union
Iron Inc. [“Union Iron”], Applegate Trucking Inc., Applegate Livestock
Equipment, Inc. [“Applegate”], Airlanco Inc. [“Airlanco”], Tramco,
Inc. [“Tramco”], Tramco Europe Limited, Euro-Tramco B.V., Ag Growth
Suomi Oy, Mepu Oy [“Mepu”], AGI Comercio de Equipamentos E
Montagens Ltda, AGI Latvia Inc., Westeel Canada Inc. [“Westeel”],
GJ Vis Holdings Inc. [“Vis”], GJ Vis Properties Inc., GJ Vis Enterprises
Inc., Westeel EMEA S.L. and 42337133 S.R.L. as at December 31,
2015. Subsidiaries are fully consolidated from the date of acquisition,
it being the date on which AGI 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
424242
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.
Goodwill is initially measured at cost, being the excess of the cost
of the business combination over AGI’s share in the net fair value of
the acquiree’s identifiable assets, liabilities and contingent liabilities.
Any negative difference is recognized directly in the consolidated
statements 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 AGI’s cash generating units
[“CGUs”] that are expected to benefit from the synergies of the
combination, irrespective of whether other assets and liabilities of
the acquiree are assigned to those CGUs. Where goodwill forms
part of a CGU and part of the operating unit is disposed of, the
goodwill associated with the operation disposed of is included in the
carrying amount of the operation when determining the gain or loss
on disposal of operation. If the Company reorganizes its reporting
structure in a way that changes the composition of one or more CGUs
to which goodwill has been allocated, the goodwill is reallocated to
the units affected. Goodwill disposed of or reallocated 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 allocated to a new CGU compared to the part remaining
in the old organizational structure.
fOREiGN CuRRENCy TRANSLATiON
Each entity in AGI 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 AGI
entities at their respective functional currency rates prevailing at
the date of the transaction.
Monetary items are translated at the functional currency spot
rate as of the reporting date. Exchange differences from monetary
items are recognized in the consolidated statements of income.
Non-monetary items that are not carried at fair value are translated
using the exchange rates as at the dates of the initial transaction.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value is
determined.
The assets and liabilities of foreign operations are translated into
Canadian dollars at the rate of exchange prevailing at the reporting
date and their consolidated statements of 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 statements of income.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying 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. AGI 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 recognized in
the consolidated statements of income as an expense when incurred.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of the assets as follows:
Buildings and building components
Manufacturing equipment
Computer hardware
Leasehold improvements
Equipment under finance leases
Furniture and fixtures
Vehicles
20 – 60 years
10 – 20 years
5 years
Over the lease period
10 years
5 – 10 years
4 – 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 derecognition of the asset is included in the
consolidated statements of income when the asset is derecognized.
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 taken on construction in progress
until the asset is placed in use. Amounts representing direct costs
incurred for major overhauls are capitalized and depreciated over the
estimated useful life of the different components replaced.
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434343
LEASES
The determination of whether an arrangement is, or contains, a lease
is based on whether fulfillment of the arrangement is dependent on
the use of a specific asset or assets or the arrangement conveys a
right to use the asset.
Finance leases, which transfer to AGI substantially all the risks and
benefits incidental to ownership of the leased item, are capitalized
at the commencement of the lease at the fair value of the leased
property or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between finance charges
and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are
recognized in finance costs in the consolidated statements of income.
Leased assets are depreciated over the useful life of the asset.
However, if there is no reasonable certainty that AGI 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.
Operating lease payments are recognized as an expense in the
consolidated statements of income on a straight-line basis over
the lease term.
bORROWiNG COSTS
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time, which AGI considers to be 12 months or more, to get ready
for its intended use or sale, are capitalized as part of the cost of the
respective assets. All other borrowing costs are expensed in the
period they occur.
iNTANGibLE ASSETS
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets 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 amortization and any accumulated impairment
losses. The useful lives of intangible assets are assessed as either
finite or indefinite. Intangible assets with finite useful lives are
amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be
impaired. The amortization method and amortization period of an
intangible asset with a finite useful life is reviewed at least annually.
Changes in the 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 statements 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
AGI 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 demos and prototypes
are recorded at cost as internally generated intangible assets.
Amortization of the internally generated intangible assets begins
when the development 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.
Finite life intangible assets are amortized on a straight-line basis over
the estimated useful lives of the related assets as follows:
Patents
Distribution networks
Demos and prototypes
Order backlog
Non-compete agreement
Software
4 – 10 years
8 – 25 years
3 – 15 years
3 – 6 months
7 years
8 years
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 and are recognized in the
consolidated statements of income when the asset is derecognized.
iMpAiRMENT Of NON-fiNANCiAL ASSETS
AGI 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, AGI estimates the asset’s
recoverable amount. The recoverable amount of goodwill as well
as intangible assets not yet available for use is estimated at least
annually on December 31. The recoverable amount is the higher of an
asset’s or CGU group’s fair value less costs to sell and its value in use.
Value in use is determined by discounting estimated future cash
flows using a pre-tax 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 taken into account, if available. If no such
transactions can be identified, an appropriate valuation model
is used. The recoverable amount of assets that do not generate
independent cash flows is determined based on the CGU group to
which the asset belongs.
AGI bases its impairment calculation on detailed budgets and
forecast calculations that are prepared separately for each of AGI’s
CGU groups to which the 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.
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An impairment loss is recognized in the consolidated statements
of income if an asset’s carrying amount or that of the CGU group
to which it is allocated is higher than its recoverable amount.
Impairment losses of a CGU group are first charged against the
carrying value of the goodwill balance included in the CGU group
and then against the value of the other assets, in proportion to
their carrying amount. In the consolidated statements of income,
the impairment losses are recognized in those expense categories
consistent with the function of the impaired asset.
For assets other than goodwill, an assessment is made at each
reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have
decreased. If such indication exists, AGI estimates the asset’s or CGU
group’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 group in prior years. Such a reversal is recognized in the
consolidated statements 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 group to which the goodwill relates. Where
the recoverable amount of the CGU group 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 group 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 original maturity
of three months or less when purchased are considered to be cash
equivalents. For the purpose of the consolidated statements of cash
flows, cash and cash equivalents consist of cash and money market
funds, net of outstanding bank overdrafts.
iNVENTORy
Inventory is comprised of raw materials and finished goods. Inventory
is valued at the lower of cost and net realizable value, using a
first-in, first-out basis. For finished goods, costs include all direct
costs incurred in production, including direct labour and materials,
freight, directly attributable manufacturing overhead costs based
on normal operating capacity and property, plant and equipment
depreciation.
Inventories are written down to net realizable value when the cost
of inventories is estimated to be unrecoverable due to obsolescence,
damage or declining selling prices. Net realizable value is the
estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary
to make the sale. When the circumstances that previously caused
inventories to be written down below cost no longer exist, 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
AGI classifies its financial assets as [i] financial assets at fair value
through profit or loss, [ii] loans and receivables or [iii] available-for-
sale, and its financial liabilities as either [i] financial liabilities at fair
value through profit or loss [“FVTPL”] or [ii] other financial liabilities.
Derivatives are designated as hedging instruments in an effective
hedge, as appropriate. Appropriate classification of financial assets
and liabilities is determined at the time of initial recognition or when
reclassified in the consolidated statements of financial position.
All financial instruments are recognized initially at fair value plus, in
the case of investments and liabilities not at fair value through profit
or loss, directly attributable transaction costs. Financial instruments
are recognized on the trade date, which is the date on which AGI
commits to purchase or sell the asset.
Financial assets at fair value through profit or loss
Financial assets at FVTPL include financial assets classified as held-
for-trading and financial assets designated upon initial recognition
at FVTPL. Financial assets are classified as held-for-trading if they
are acquired for the purpose of selling or repurchasing in the near
term. This category includes cash and cash equivalents and derivative
financial instruments entered into that are not designated as hedging
instruments in hedge relationships as defined by IAS 39.
Financial assets at FVTPL are carried in the consolidated statements
of financial position at fair value with changes in the fair value
recognized in finance income or finance costs in the consolidated
statements of income.
AGI has currently not designated any financial assets upon initial
recognition as FVTPL.
Derivatives embedded in host contracts are accounted for as separate
derivatives and recorded at fair value if their economic characteristics
and risks are not closely related to those of the host contracts and the
host contracts are not held-for-trading. These embedded derivatives
are measured at fair value with changes in fair value recognized in
the consolidated statements of income. Reassessment only occurs
if there is a change in the terms of the contract that significantly
modifies the cash flows that would otherwise be required.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
Assets in this category include receivables. Loans and receivables
are initially recognized at fair value plus transaction costs. They are
subsequently measured at amortized cost using the effective interest
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method less any impairment. The effective interest amortization
is included in finance income in the consolidated statements of
income. The losses arising from impairment are recognized in the
consolidated statements of income in finance costs.
Available-for-sale financial investments
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.
After initial measurement, available-for-sale financial investments
are subsequently measured at fair value with unrealized gains or
losses recognized as other comprehensive income in the available-
for-sale reserve 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 statements of income and removed
from the available-for-sale reserve.
For a financial asset reclassified out of the available-for-sale category,
any previous gain or loss on that asset that has been recognized
in equity is amortized to profit or loss over the remaining life of
the investment using the effective interest method. Any difference
between the new amortized cost and the expected cash flows is also
amortized over the remaining life of the asset using the effective
interest method. If the asset is subsequently determined to be
impaired, then the amount recorded in equity is reclassified to the
consolidated statements of income.
Derecognition
A financial asset is derecognized when the rights to receive cash
flows from the asset have expired or when AGI has transferred its
rights to receive cash flows from the asset.
Impairment of financial assets
AGI assesses at each reporting date whether there is any objective
evidence that a financial asset or a group of financial assets is
impaired. A financial asset is deemed to be impaired if, and only if,
there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset
[an incurred “loss event”] and that loss event has an impact on the
estimated future cash flows of the financial asset or the group of
financial assets that can be reliably estimated.
Trade receivables and other assets that are not assessed for
impairment individually are assessed for impairment on a collective
basis. Objective evidence of impairment includes the Company’s past
experience of collecting payments as well as observable changes in
national or local economic conditions.
For financial assets carried at amortized cost, AGI 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 AGI determines that no objective evidence of impairment exists
for an individually assessed financial asset, it includes the asset in
a group of financial assets with similar credit risk characteristics
and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment
loss is, or continues to be, recognized are not included in a collective
assessment of impairment.
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 value of the estimated future cash flows is
discounted at the financial asset’s original effective interest rate.
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 be accrued on the reduced
carrying amount and is accrued using the rate of interest used to
discount the future cash flows for the purpose of measuring the
impairment loss. The interest income is recorded as part of finance
income in the consolidated statements of income.
Loans and receivables, together with the associated allowance, are
written off when there is no realistic prospect of future recovery.
If, in a subsequent year, the amount of the estimated impairment
loss increases 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 available-for-sale financial investments, AGI assesses at
each reporting date whether there is objective evidence that an
investment or a group of investments is impaired. In the case of
equity investments classified as available-for-sale, objective evidence
would include a significant or prolonged decline in the fair value of
the 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 consolidated statements of income – is removed
from other comprehensive income and recognized in the consolidated
statements of income. Impairment losses on equity investments
are not reversed through the consolidated statements 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 cumulative
loss measured as the difference between the amortized cost and
the current fair value, less any impairment loss on that investment
previously recognized in the consolidated statements 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 statements
464646
of income, the impairment loss is reversed through the consolidated
statements 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
consolidated statements of income.
contract is entered into and are subsequently remeasured at fair
value. Derivatives are carried as financial assets when the fair value
is positive and as financial liabilities when the fair value is negative.
AGI analyzes all of its contracts, of both a financial and non-financial
nature, to identify the existence of any “embedded” derivatives.
Embedded derivatives are 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.
Any gains or losses arising from changes in the fair value of
derivatives are recorded directly in the consolidated statements of
income, except for the effective portion of cash flow hedges, which is
recognized in other comprehensive income.
AGI has not designated any financial liabilities upon initial recognition
as FVTPL.
For the purpose of hedge accounting, hedges are classified as:
OTHER fiNANCiAL LiAbiLiTiES
Financial liabilities are measured at amortized cost using the
effective interest rate method. Financial liabilities include long-
term debt issued, which is initially measured at fair value, which
is the consideration received, net of transaction costs incurred, net
of equity component. Transaction costs related to the long-term
debt instruments are included in the value of the instruments and
amortized using the effective interest rate method. The effective
interest expense is included in finance costs in the consolidated
statements of income.
Derecognition
A financial liability is derecognized when the obligation under the
liability is discharged or cancelled or expires.
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 derecognition of the original liability and
the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the consolidated statements of
income.
Interest income
For all financial instruments measured at amortized cost, interest
income or expense is recorded using the effective 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 the financial asset or liability. Interest income is included
in finance income in the consolidated statements of income.
DERiVATiVE iNSTRuMENTS AND HEDGE ACCOuNTiNG
AGI uses derivative financial instruments such as forward currency
contracts and interest rate swaps to hedge its foreign currency
risk and interest rate risk. Such derivative financial instruments are
initially recognized at fair value on the date on which a derivative
• 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, AGI formally designates
and documents the hedge relationship to which AGI wishes to apply
hedge accounting and the risk management objective and strategy
for undertaking the hedge. The documentation includes identification
of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess the
effectiveness of changes in the hedging instrument’s fair value in
offsetting the exposure to changes in the cash flows attributable to
the hedged risk. Such hedges are expected to be highly effective in
achieving offsetting changes in cash flows and 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
The effective portion of the gain or loss on the hedging instrument
is recognized directly as other comprehensive income in the cash
flow hedge reserve, while any ineffective portion is recognized
immediately in the consolidated statements of income in other
operating income or expenses. Amounts recognized as other
comprehensive income are transferred to the consolidated statements
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 non-financial asset or liability.
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If the forecast transaction or firm commitment is no longer expected
to occur, the cumulative gain or loss previously recognized in
equity is transferred to the consolidated statements of income. If
the hedging instrument expires or is sold, terminated or exercised
without replacement or rollover, or if its designation as a hedge is
revoked, any cumulative gain or loss previously recognized in other
comprehensive income remains in other comprehensive income until
the forecast transaction or firm commitment affects profit or loss.
AGI uses primarily forward currency contracts as hedges of its
exposure to foreign currency risk in forecast transactions and firm
commitments.
OffSETTiNG Of fiNANCiAL iNSTRuMENTS
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated statements of financial position if,
and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis,
or to realize the assets and settle the liabilities simultaneously.
fAiR VALuE Of fiNANCiAL iNSTRuMENTS
Fair value is the estimated amount that AGI 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 techniques that are
recognized by market participants. Such techniques may include using
recent arm’s length market transactions, reference to the current fair
value of another instrument that is substantially the same, discounted
cash flow analysis or other valuation models.
pROViSiONS
Provisions are recognized when AGI 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 and a reliable estimate can be made of
the amount of the obligation. Where AGI expects some or all of a
provision to be reimbursed, for example under an insurance 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 consolidated statements 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.
484848
pROfiT (LOSS) pER SHARE
The computation of profit (loss) per share is based on the weighted
average number of shares outstanding during the period. Diluted
profit (loss) per share is computed in a similar way to basic profit
(loss) per share except that the weighted average shares outstanding
are increased to include additional shares assuming the exercise of
share options, share appreciation rights and convertible debt options,
if dilutive.
REVENuE RECOGNiTiON
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to AGI and the revenue can be reliably
measured, regardless of when the 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. AGI assesses its revenue
arrangements against specific criteria in order to determine if it
is acting as principal or agent. With the exception of third-party
services, AGI has concluded that it is acting as a principal in all of
its revenue arrangements. The following specific recognition criteria
must also be met before revenue is recognized:
Sale of goods
Revenue from the sale of goods is in general recognized when
significant risks and rewards of ownership are transferred to the
customer. AGI generally recognizes revenue when products are
shipped, free on 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 time product is shipped, as noted above.
AGI applies layaway sales or bill and hold sales accounting in specific
situations provided all appropriate conditions are met as of the
reporting date.
Third-party services
AGI from time to time enters into arrangements with third-party
providers to provide services for AGI’s customers. Where AGI acts
as agent, the revenue and costs associated with these services are
recorded on a net basis and disclosed under other operating income.
iNCOME TAxES
AGI and its subsidiaries are generally taxable under the statutes of
their country of incorporation.
Current income tax assets and liabilities for the current and prior
period are measured at the amount expected to be recovered from
or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively
enacted at the reporting date in the countries where AGI operates
and generates taxable income. Current income tax relating to items
recognized directly in equity is recognized in equity and not in the
consolidated statements of income (loss). 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.
AGI follows the liability method of accounting for deferred taxes.
Under this method, income tax liabilities and assets are recognized
for the estimated tax consequences attributable to the temporary
differences between the carrying value of the assets and liabilities on
the consolidated financial statements and their respective tax bases.
Deferred tax liabilities are recognized for all taxable temporary
differences, except:
• Where the deferred tax liability arises from the initial recognition
of goodwill or of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects
neither the accounting profit nor the taxable profit or loss.
• In respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary
differences, carryforward of unused tax losses, to the extent that it
is probable that taxable profit will be available against which the
deductible temporary differences and the carryforward of unused tax
losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part
of the deferred tax asset to be utilized. Unrecognized deferred tax
assets are reassessed at each reporting date and are recognized to
the extent that it has become probable that future taxable profits will
allow the deferred tax asset to be recovered. Deferred tax assets and
liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realized or the liability is settled, based
on tax rates [and tax laws] that have been enacted or substantively
enacted at the reporting date.
Deferred tax items are recognized in correlation to the underlying
transaction either in the consolidated statements of income, other
comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally
enforceable right exists to offset current tax assets against current
income tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Tax benefits acquired as part of a business combination, but not
satisfying the criteria for separate recognition at that date, would be
recognized subsequently if information about facts and circumstances
changed. The adjustment would either be treated as a reduction to
goodwill if it occurred during the measurement period or in profit or
loss, when it occurs subsequent to the measurement period.
Indefinite life intangible assets are measured on an “on sale” basis
for tax purposes.
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Sales tax
Revenue, expenses and assets are recognized net of the amount
of sales tax, except where the sales tax incurred on a purchase of
assets or services is not recoverable from the taxation authority,
in which case the sales tax is recognized as part of the cost of
acquisition of the asset or as part of the expense item as applicable
and where receivables and payables are stated with the amount of
sales tax included.
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 statements of financial position.
SHARE-bASED COMpENSATiON pLANS
Employees of AGI may receive remuneration in the form of share-
based payment transactions, whereby employees render services and
receive consideration in the form of equity instruments [equity-settled
transactions, share award incentive plan and directors’ deferred
compensation plan] or cash [cash-settled transactions]. 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.
The cumulative expense recognized for equity-settled transactions
at each reporting date until the vesting period reflects the extent
to which the vesting period has expired and AGI’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 statements 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 surplus are reversed and credited to shareholders’
equity. The amount of cash, if any, received from participants is also
credited to shareholders’ equity.
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 is recognized for any modification that increases
the total fair value of the share-based payment transaction, or is
otherwise beneficial to the employee as measured at the 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
cancelled award, and designated as a replacement award on the date
that it is granted, the cancelled and new awards are treated as if they
were a modification of the original award.
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. This fair value
is expensed over the period until the vesting date, with recognition
of a corresponding liability. The liability is remeasured to fair value
at each reporting date up to and including the settlement date, with
changes in fair value recognized in the consolidated statements of
income in the line of the function the respective employee is
engaged in.
pOST-RETiREMENT bENEfiT pLANS
AGI contributes to retirement savings plans subject to maximum
limits per employee. AGI accounts for such defined contributions as
an expense in the period in which the contributions are required to
be made. Certain of AGI’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,
AGI 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.
RESEARCH AND DEVELOpMENT ExpENSES
Research expenses, net of related tax credits, are charged to the
consolidated statements of income in the period they 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 cost of the asset and is released to
the consolidated statements of income (loss) over the expected useful
life in a consistent manner with the depreciation method for the
relevant assets.
iNVESTMENT TAx CREDiTS
Federal and provincial investment tax credits are accounted for as
a reduction of the cost of the related assets or expenditures in the
year in which the credits are earned and when there is reasonable
assurance that the credits can be used to recover taxes.
505050
4 | significant accounting judgments,
estimates and assumptions
The preparation of the consolidated financial statements requires
management to make judgments, estimates and assumptions that
affect the reported amounts of assets, liabilities, income, expenses
and the disclosure of contingent liabilities. The estimates and related
assumptions are based on previous experience and other factors
considered reasonable under the circumstances, the results of which
form the basis of making the assumptions about carrying values of
assets and liabilities that are not readily apparent from other sources.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying
amount of the asset or liability affected in future periods.
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
concerning the future and other key sources of estimation uncertainty
at the reporting date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are described below.
iMpAiRMENT Of fiNANCiAL ASSETS
Assessments about the recoverability of financial assets, including
accounts receivable, require significant judgment in determining
whether there is objective evidence that a loss event has occurred
and estimates of the amount and timing of future cash flows. The
Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability to collect on its trade receivables.
A portion of the Company’s sales are generated in overseas markets,
a significant portion of which are in emerging markets such as
countries in Eastern Europe. Emerging markets are subject to various
additional risks, including: currency exchange rate fluctuations,
economic conditions and foreign business practices. One or more of
these factors could have a material effect on the future collectability
of such receivables. In assessing whether objective evidence of
impairment exists at each reporting period the Company considers
its past experience of collecting payments, historical loss experience,
customer credit ratings and financial data as available, collateral
on amounts owing including insurance coverage from export credit
agencies, as well as observable changes in national or local economic
conditions. Future collections of accounts receivable that differ from
the Company’s current estimates would affect the results of the
Company’s operations in future periods as well as the Company’s
trade receivables and general and administrative expenses, and
amounts may be material.
asset’s performance of the CGU being tested. These calculations
require the use of estimates and forecasts of future cash flows.
Qualitative factors, including market presence and trends, strength
of customer relationships, strength of local management, strength of
debt and capital 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 evaluate goodwill and other non-financial assets could
result in a material change to the results of operations. The key
assumptions used to determine the recoverable amount for the
different CGUs are further explained in note 12.
CGUs are defined as the lowest grouping of integrated assets that
generate identifiable cash inflows that are largely independent of the
cash inflows of other assets or groups of assets. The classification of
assets into CGUs requires significant judgment and interpretations
with respect to the integration between assets, the nature of
products, the way in which management allocates resources and
other relevant factors.
DEVELOpMENT COSTS
Development costs are capitalized in accordance with the accounting
policy described in note 3. Initial capitalization of costs is based on
management’s judgment that technical and economical feasibility is
confirmed, usually when a project has reached a defined milestone
according to an established project management model.
uSEfuL LiVES Of kEy pROpERTy, pLANT AND
EquipMENT AND iNTANGibLE ASSETS
The depreciation method and useful lives reflect the pattern in which
management expects the asset’s future economic benefits to be
consumed by AGI. Refer to note 3 for the estimated useful lives.
fAiR VALuE Of fiNANCiAL iNSTRuMENTS
Where the fair value of financial assets and financial liabilities
recorded in the consolidated statements of financial position
including the determination of the fair value of the Company’s
available-for-sale asset cannot be derived from active markets, it is
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.
iMpAiRMENT Of NON-fiNANCiAL ASSETS
SHARE-bASED pAyMENTS
AGI’s impairment test is based on value in use or fair value less
cost to sell calculations that use a discounted cash flow model.
The cash flows are derived from the forecast for the next five years
and do not include restructuring activities to which AGI has not yet
committed or significant future investments that will enhance the
AGI measures the cost of equity-settled share-based payment
transactions with employees by reference to the fair value of equity
instruments at the grant date, whereas the fair value of cash-
settled share-based payments is remeasured at every reporting
date. Estimating fair value for share-based payments requires
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515151
determining the most appropriate valuation model for a grant of these
instruments, which is dependent on the terms and conditions of the
grant. This also requires determining the most appropriate inputs
to the valuation model including the expected life of the option,
volatility and dividend yield.
iNCOME TAxES
Uncertainties exist with respect to the interpretation of complex
tax regulations, changes in tax laws and the amount and timing
of future taxable income. Given the wide range of international
business relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between the
actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to taxable income
and expenses already recorded. AGI establishes provisions, based
on reasonable estimates, for possible consequences of audits by
the tax authorities of the respective countries in which it operates.
The amount of such provisions is based on various factors, such as
experience of previous tax audits and differing interpretations of tax
regulations by the taxable entity and the responsible tax authority.
Such differences of interpretation may arise on a wide variety of
issues, depending on the conditions prevailing in the respective
company’s domicile. As AGI assesses the probability for litigation
and subsequent cash outflow with respect to taxes as remote, no
contingent liability has been recognized. Deferred tax assets are
recognized for all unused tax losses to the extent that it is probable
that taxable profit will be available against which the losses can be
utilized. Significant management judgment is required to determine
the amount of deferred tax assets that can be recognized, based upon
the likely timing and the level of future taxable profits together with
future tax planning strategies.
ACquiSiTiON ACCOuNTiNG
For acquisition accounting purposes, all identifiable assets, liabilities
and contingent liabilities acquired in a business combination are
recognized at fair value at the date of acquisition. Estimates are used
to calculate the fair value of these assets and liabilities as at the
date of acquisition. Contingent consideration resulting from business
combinations is valued at fair value at the acquisition date as part
of the business combination. Where the contingent consideration
meets the definition of a derivative and, thus, a financial liability,
it is subsequently remeasured to fair value at each reporting date.
The determination of the fair value is based on discounted cash
flows. The key assumptions take into consideration the probability of
meeting each performance target and the discount factor.
5 | standards issued but not yet effective
Standards issued but not yet effective up to the date of issuance of
the Company’s consolidated financial statements are listed below.
This listing is of standards and interpretations issued, which the
Company reasonably expects to be applicable at a future date.
The Company intends to adopt those standards when they become
effective.
fiNANCiAL iNSTRuMENTS: CLASSifiCATiON AND
MEASuREMENT [“ifRS 9”]
In July 2014, on completion of the impairment phase of the project
to reform accounting for financial instruments and replace IAS 39,
Financial Instruments: Recognition and Measurement, the IASB
issued the final version of IFRS 9, Financial Instruments. IFRS 9
includes guidance on the classification and measurement of financial
assets and financial liabilities, impairment of financial assets [i.e.
recognition of credit losses], and a new hedge accounting model.
Under the classification and measurement requirements for financial
assets, financial assets must be classified and measured at either
amortized cost or at fair value through profit or loss or through OCI,
depending on the basis of the entity’s business model for managing
the financial asset and the contractual cash flow characteristics of the
financial asset. The classification requirements for financial liabilities
are unchanged from IAS 39. IFRS 9 requirements address the problem
of volatility in net earnings arising from an issuer choosing to
measure certain liabilities at fair value and require that the portion
of the change in fair value due to changes in the entity’s own credit
risk be presented in OCI, rather than within net earnings. The new
general hedge accounting model is intended to be simpler and more
closely focus on how an entity manages its risks, replaces the IAS 39
effectiveness testing requirements with the principle of an economic
relationship, and eliminates the requirement for retrospective
assessment of hedge effectiveness. The new requirements for
impairment of financial assets introduce an expected loss impairment
model that requires more timely recognition of expected credit losses.
IAS 39 impairment requirements are based on an incurred loss model
where credit losses are not recognized until there is evidence of a
trigger event. IFRS 9 is effective for annual periods beginning on or
after January 1, 2018 with early application permitted. The Company
is currently evaluating the impact of adopting this standard on its
consolidated financial statements.
REVENuE fROM CONTRACTS WiTH CuSTOMERS
[“ifRS 15”]
IFRS 15, Revenue from Contracts with Customers, issued by the IASB
in May 2014, is applicable to all revenue contracts and provides a
model for the recognition and measurement of gains or losses from
sales of some non-financial assets. The core principle is that revenue
is recognized to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or
services. The standard will also result in enhanced disclosures about
revenue, provide guidance for transactions that were not previously
addressed comprehensively [for example, service revenue and
contract modifications] and improve guidance for multiple element
arrangements. IFRS 15 is effective for annual periods beginning on or
after January 1, 2018 and is to be applied retrospectively, with earlier
adoption permitted. Entities will transition following either a full or
modified retrospective approach. The Company is currently evaluating
the impact of the above standard on its consolidated financial
statements.
C
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A
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N
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S
2
0
1
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525252
$
2,257
1,650
120
2,566
1,838
1,266
35
114
3,811
(80)
(319)
(110)
AMENDMENTS TO iAS 1, PRESEnTATIOn OF
FInAnCIAL STATEMEnTS
On December 18, 2014 the IASB issued amendments to IAS 1 as
part of its major initiative to improve presentation and disclosure in
financial reports [the “Disclosure Initiative”]. The amendments are
effective for annual periods beginning on or after January 1, 2016.
Early adoption is permitted. These amendments will not require any
significant change to current practice, but should facilitate improved
financial statements disclosures. The Company is currently evaluating
the impact of adopting this standard on its consolidated financial
statements.
Accounts receivable
Inventory
Property, plant and equipment
Intangible assets
Distribution network
Brand name
Intellectual property
Order backlog
AMENDMENTS TO iAS 19, DEFInED BEnEFIT PLAnS,
EMPLOYEE COnTRIBUTIOnS
Non-compete agreements
Goodwill
On November 21, 2013, the IASB issued amendments to IAS 19
to clarify how an entity should account for contributions made by
employees or third parties to defined benefit plans, based on whether
those contributions are dependent on the number years of service
provided by the employee.
For contributions that are independent of the number of years of
service, the entity may either recognize the contributions as a
reduction in the service cost in the period in which the related service
is rendered, or to attribute them to the employees’ periods of service
using the projected unit credit method, whereas for contributions
that are dependent on the number of years of service, the entity is
required to attribute them to the employees’ periods of service.
These amendments are effective January 1, 2016, and the Company
is currently evaluating the impact of this new pronouncement
and does not anticipate it will have a significant impact on its
consolidated financial statements.
6 | Business combinations
[A] REM GRAiN VAC pRODuCT LiNE
Effective February 3, 2014, the Company acquired the assets related
to the Rem Grain Vac product line [“Grain Vac”]. The acquisition of
Grain Vac provides the Company with a complementary product line.
The purchase has been accounted for by the acquisition method with
the results of Grain Vac included in the Company’s net earnings from
the date of acquisition. The assets acquired and liabilities assumed
of Grain Vac on the date of acquisition have been recorded in the
consolidated financial statements at their estimated fair values as
follows:
Accounts payable and accrued liabilities
Customer deposits
Provisions
puRCHASE CONSiDERATiON
13,148
The goodwill of $3,811 comprises the value of expected synergies
arising from the acquisition. Goodwill is expected to be deductible for
income tax purposes.
From the date of acquisition, Grain Vac contributed to the 2014
results $12,540 of revenue and the impacts on the cash flows as at
December 31, 2014 on the acquisition of Grain Vac is as follows:
Purchase consideration
Local taxes
Cash held in trust
puRCHASE CONSiDERATiON TRANSfERRED
$
13,148
246
(250)
13,144
The acquisition of Grain Vac was an asset purchase, and as such the
Company does not have access to the books and records of Grain
Vac for any periods prior to the acquisition date of February 3, 2014.
Therefore, the impact on revenue and profit of the Company from the
acquisition of Grain Vac at the beginning of 2014 cannot be reported.
The Company has also integrated Grain Vac with one of its divisions.
Therefore, the operating results of Grain Vac cannot be separately
reported from the date of acquisition.
The consideration transferred of $13,144 was paid in cash. The
impact on the cash flow on the acquisition of Grain Vac is as follows:
Transaction costs of the acquisition paid in 2013
Transaction costs of the acquisition paid in 2014
Purchase consideration transferred
NET CASH fLOW ON ACquiSiTiON
$
119
32
13,144
13,295
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535353
As at December 31, 2015, the Company had cash held in trust of $250
[2014 – $250] relating to the acquisition of Grain Vac. Transaction
costs of nil [2014 – $32] are included in selling, general and
administrative costs.
[b] ViCWEST’S WESTEEL DiViSiON
Effective May 20, 2015, the Company acquired substantially all of the
assets of Vicwest’s Westeel Division [“Westeel”], Canada’s leading
provider of grain storage solutions. The acquisition of Westeel
provides the Company with an expanded growth platform within
North America and around the world.
The purchase has been accounted for by the acquisition method with
the results of Westeel included in the Company’s net earnings from
the date of acquisition. The assets acquired and liabilities assumed
of Westeel on the date of acquisition have been recorded in the
consolidated financial statements at their estimated fair values as
follows:
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid expenses and other assets
Investment in European subsidiary
Property, plant and equipment
Intangible assets
Distribution network
Brand name
Order backlog
Goodwill
Other long term assets
Accounts payable and accrued liabilities
Customer deposits
Provisions
Income taxes payable
Deferred tax liability
Other liabilities
Obligations under finance leases
puRCHASE CONSiDERATiON
$
13,183
22,281
27,555
868
5,481
43,371
37,600
43,300
1,700
80,311
702
(21,932)
(709)
(1,172)
(4,825)
(21,478)
(3,172)
(1,422)
221,642
The goodwill of $80,311 comprises the value of the assembled
workforce and other expected synergies arising from the acquisition.
The fair value of accounts receivable acquired is $22,281. This
consists of the gross contractual value of $23,300, less the estimated
amount not expected to be collected of $1,019.
During the year, the Company finalized the fair value of the property,
plant and equipment, resulting in an increase in property, plant
and equipment of $4,192, a decrease in goodwill of $3,068 and an
increase in deferred tax liability of $1,124 from the period previously
reported.
Included in other liabilities is the put option liability. The put
option liability relates to a put option held by the non-controlling
shareholders that provides them an option to put the remaining
minority interest to the Company. Significant judgment was required
to assess the date when the Company gained control over the
European subsidiary and the Company determined that for the
purposes of financial reporting such control was effective as at
October 1, 2015. Factors relevant to this assessment included Board
representation from the Company. The values assigned to both the
investment in the European subsidiary and the put option liability
have been increased by $3,939 and $2,972 respectively as well as
a decrease in goodwill of $967. These increases were due to the
Company’s review of financial information that became available
subsequent to control of the European subsidiary.
From the date of acquisition, Westeel has contributed $73,214 of
revenue and $1,058 of net income to the results of the Company. If
the acquisition had taken place as at January 1, 2015, revenue from
continuing operations in 2015 would have increased by an additional
$60,806 and profit from continuing operations would have increased
by an additional $3,171.
The impacts on the cash flows on the acquisition of Westeel are as
follows:
Purchase consideration
Less cash acquired
Less cash acquired with European subsidiary
puRCHASE CONSiDERATiON TRANSfERRED
$
221,642
(13,183)
(2,466)
205,993
The allocation of the purchase price to acquired assets and liabilities
is preliminary, utilizing information available at the time the
consolidated financial statements were prepared. The final allocation
of the purchase price and the working capital adjustment may change
when more information becomes available.
Costs related to the Westeel acquisition in the year ended December
31, 2015 were $3,455 [2014 – $1,389] and are included in selling,
general and administrative expenses.
For the purposes of funding the purchase price, AGI issued $51.75
million subscription receipts [the “Subscription Receipts”] and $51.75
million aggregate principal amount extendible convertible unsecured
subordinated debentures [note 23]. The remainder of the purchase
price was funded by the Company through expanded credit facilities
[note 22].
Upon the completion of the Westeel acquisition, the Subscription
Receipt holders received one common share of AGI per Subscription
Receipt [note 20].
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545454
Accounts payable and accrued liabilities
puRCHASE CONSiDERATiON
(13,238)
11,190
Income taxes receivable
Property, plant and equipment
The assets and liabilities of the European subsidiary on the date of
control have been recorded in the consolidated financial statements
at their estimated fair values:
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid expenses and other assets
Deferred tax asset
Property, plant and equipment
Intangible assets
Distribution network
Brand name
Order backlog
Goodwill
$
2,466
3,417
8,803
1,243
48
228
1,780
1,929
806
3,708
The goodwill of $3,708 comprises the value of the assembled
workforce and other expected synergies arising from the acquisition.
The fair value of the accounts receivable acquired is $3,417. This
consists of the gross contractual value of $3,517, less the estimated
amount not expected to be collected of $100.
From the date of acquisition, the European subsidiary contributed
to the 2015 results $14,098 of revenue and $1,217 of net income. If
the acquisition had taken place as at January 1, 2015, revenue from
continuing operations in 2015 would have increased by an additional
$17,223 and profit from continuing operations in 2015 would have
increased by an additional $157.
The allocation of purchase consideration to the acquired assets and
liabilities is preliminary, utilizing information available at the time
consolidated financial statements were prepared. The final allocation
may change when more information becomes available.
There was no cash consideration exchanged at the date of control.
The consideration given up or assumed consisted of the fair value
of the previously held 51% interest in the European subsidiary
and the recognition of a financial liability to acquire the remaining
non-controlling interest based on the expected cash outflow which
has been recorded as an other financial liability in the statement of
financial position.
Transaction costs related to the acquisition of the European
subsidiary were $230 [2014 – nil] and are included in selling,
general and administrative expenses.
[C] Gj ViS HOLDiNGS iNC. [“ViS”]
Effective November 30, 2015, the Company acquired 100% of the
outstanding shares of Vis, a manufacturer of commercial fertilizer
and feed handling equipment. The acquisition of Vis provides the
Company with a new capability and experience in the planning,
design and manufacture of high throughput industrial fertilizer
handling equipment.
The purchase has been accounted for by the acquisition method
with the results of Vis included in the Company’s net earnings from
the date of acquisition. The assets and liabilities of Vis on the date
of acquisition have been recorded in the consolidated financial
statements at their estimated fair values:
Accounts receivable
Inventory
Prepaid expenses and other assets
Intangible assets
Distribution network
Brand name
Order backlog
Goodwill
Accounts payable and accrued liabilities
Customer deposits
Deferred tax liability
puRCHASE CONSiDERATiON
$
1,073
2,770
89
46
4,080
2,643
2,473
583
3,545
(847)
(832)
(1,674)
13,949
The goodwill of $3,545 comprises the value of the assembled
workforce and other expected synergies arising from the acquisition.
The fair value of the accounts receivable acquired is $1,073. This
consists of the gross contractual value of $1,123, less the estimated
amount not expected to be collected of $50.
From the date of acquisition, Vis contributed $1,353 of revenue and
$196 of net income to the results of the Company. If the acquisition had
taken place as at January 1, 2015, revenue from continuing operations
in 2015 would have increased by an additional $13,854, and profit from
continuing operations in 2015 would have increased by an additional
$451.
The impacts on the cash flows on the acquisition of Vis are as follows:
Cash paid
Contingent consideration
Working capital adjustment receivable
puRCHASE CONSiDERATiON TRANSfERRED
$
10,000
4,663
(714)
13,949
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A
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E
D
F
I
N
A
N
C
I
A
L
S
T
A
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M
E
N
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S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
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T
555555
The allocation of the purchase price to acquired assets and liabilities
is preliminary, utilizing information available at the time the
consolidated financial statements were prepared. The final allocation
of the purchase price and the working capital adjustment may change
when more information becomes available.
8 | other expenses (income)
[A] OTHER OpERATiNG ExpENSES (iNCOME)
2015
$
2014
$
Costs related to the Vis acquisition in the year ended
December 31, 2015 were $92 [2014 – nil] and are included in selling,
general and administrative expenses.
Net loss (gain) on disposal of
property, plant and equipment
3,200
Net gain on disposal of assets held for sale (46)
The contingent consideration is based on Vis meeting predetermined
earnings targets in 2016 and 2017. A maximum payment of $3,000 in
2016 and $2,000 in 2017 would be required if Vis meets the targets.
The Company believes the likelihood of the maximum payment is
very high. The present value of the contingent consideration has
been determined using a 5% discount rate. $2,687 has been recorded
in current liabilities and $1,976 has been recorded in non-current
liabilities.
Other
[b]
fiNANCE ExpENSES (iNCOME)
Interest income from banks
Loss on foreign exchange
[C]
fiNANCE COSTS
(2,901)
253
(215)
6,527
6,312
(522)
—
(783)
(1,305)
(26)
2,408
2,382
7 | Due to vendor
TRAMCO, iNC. [“TRAMCO”]
In the year ended December 31, 2013, the Company recorded a tax
deduction in regards to the write-off of a receivable outstanding as
at the date of the Tramco acquisition. Per the terms of the purchase
agreement, the tax benefit related to this deduction, net of 15%
which is to the benefit of the Company, is required to be paid to the
vendor of Tramco once the deduction has become statute barred. The
impact of this deduction from taxable income was to reduce current
income tax expense by $118 and income tax payable by $780. The
amount payable to the vendor upon the deduction becoming statute
barred of $800 has been recorded as a long-term liability on the
consolidated statements of financial position.
Interest on overdrafts and other finance costs 247
511
Interest, including non-cash interest,
on debts and borrowings
Interest, including non-cash interest,
on convertible debentures [note 23]
[D]
COST Of GOODS SOLD
Depreciation
Amortization of intangible assets
Warranty provision
7,398
2,694
10,845
18,490
8,245
11,450
8,418
2,545
2,721
6,167
554
429
Cost of inventories recognized as an expense 316,761
269,388
[E] SELLiNG, GENERAL AND
ADMiNiSTRATiVE ExpENSES
Depreciation
Amortization of intangible assets
Minimum lease payments
recognized for operating leases
Corporate acquisition activity
Selling, general and administrative
330,445
276,538
640
6,065
2,261
5,405
88,294
102,665
614
4,386
1,662
1,801
65,318
73,781
[f]
EMpLOyEE bENEfiTS ExpENSE
Wages and salaries
116,172
97,851
Share-based payment expense [note 21]
Pension costs
3,004
3,264
4,516
2,283
122,440
104,650
Included in cost of goods sold
80,811
Included in general and administrative expenses 41,629
69,269
35,381
122,440
104,650
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
565656
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
575757
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
9 | Property, plant and equipment
Land
$
Grounds
$
buildings
$
Leasehold
improvements
$
furniture
and
fixtures
$
Vehicles
$
Computer
hardware
$
Manufacturing
equipment
$
Construction
in progress
$
Total
$
COST
balance,
january 1,
2015
Additions
Acquisition of
a subsidiary
Classification
as held for sale
Disposals
Impairment
[note 16]
Exchange
differences
bALANCE,
DECEMbER 31,
2015
DEpRECiATiON
balance,
january 1,
2015
Depreciation
charge for the
year
Classification
as held for sale
Disposals
Exchange
differences
bALANCE,
DECEMbER 31,
2015
2,485
1,597
5,946
3,677
528
413
543
6,318
553
1,073
1,977
44,286
28,166
10,867
176
17,869
(2,500)
(2,264)
—
862
(338)
(3,086)
—
—
(3,111)
112
3,301
(4,638)
(579)
62
—
—
136
387
1,166
—
(72)
—
86
—
(120)
—
172
60,601
16,592
17,069
(190)
(1,224)
(4,922)
8,188
134,171
(9,677)
39,646
4
47,679
—
—
—
(6,119)
(8,939)
(8,033)
4,052
1,577
10,527
551
79
(5)
(42)
—
229
13,836
3,000
82,787
2,632
2,411
7,707
4,489
91,978
92
208,932
—
—
—
—
—
—
406
5,653
869
843
3,692
2,454
20,642
—
34,559
143
2,115
(41)
—
(528)
(696)
26
234
216
—
(578)
97
167
—
(27)
42
549
—
(102)
83
467
(5)
(37)
147
5,401
(89)
(657)
1,759
—
—
—
—
9,058
(663)
(2,097)
2,388
534
6,778
604
1,025
4,222
3,026
27,056
— 43,245
Net book Value,
january 1, 2015 6,318
667
38,633
1,616
754
2,254
1,223
39,959
8,188
99,612
NET bOOk
VALuE,
DECEMbER 31,
2015
13,836
2,466
76,009
2,028
1,386
3,485
1,463
64,922
92
165,687
585858
Land
$
Grounds
$
buildings
$
Leasehold
improvements
$
furniture
and
fixtures
$
Vehicles
$
Computer
hardware
$
Manufacturing
equipment
$
Construction
in progress
$
Total
$
4,798
1,793
(443)
—
170
1,006
43,380
2,375
1,490
6,173
2,996
27
—
—
40
730
(870)
—
1,046
55
—
—
55
90
—
(3)
20
116
—
(412)
69
666
—
(54)
69
54,233
5,750
—
(1,150)
1,768
43
116,494
8,146
17,373
—
—
(1)
(1,313)
(1,619)
3,236
6,318
1,073
44,286
2,485
1,597
5,946
3,677
60,601
8,188
134,171
—
—
—
—
—
—
322
4,326
601
688
3,417
2,085
16,639
—
28,078
79
—
—
5
1,386
232
148
540
(163)
—
104
—
—
36
—
(2)
9
—
(299)
34
375
—
(52)
46
4,021
—
(635)
617
—
—
—
—
6,781
(163)
(988)
851
406
5,653
869
843
3,692
2,454
20,642
— 34,559
COST
balance,
january 1,
2014
Additions
Classification
as held for sale
Disposals
Exchange
differences
bALANCE,
DECEMbER 31,
2014
DEpRECiATiON
balance,
january 1,
2014
Depreciation
charge for the
year
Classification
as held for sale
Disposals
Exchange
differences
bALANCE,
DECEMbER 31,
2014
Net book Value,
january 1, 2014 4,798
684
39,054
1,774
802
2,756
911
37,594
43
88,416
NET bOOk
VALuE,
DECEMbER 31,
2014
6,318
667
38,633
1,616
754
2,254
1,223
39,959
8,188
99,612
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
595959
AGI regularly assesses its long-lived assets for impairment. As at December 31, 2015 and 2014, 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 2014 or 2015.
10 | Intangible assets
COST
balance, january 1, 2015
60,582
37,525
2,559
2,245
Distribution
networks
$
brand
names
$
patents
$
Software
$
Order
backlog
$
Non-compete
agreement
$
Development
projects
$
—
42,023
(1,763)
3,702
—
47,702
(839)
2,138
30
—
—
201
—
751
(43)
379
35
—
3,089
—
4
114
—
—
—
—
5,787
1,730
—
(919)
349
Total
$
108,847
1,760
93,565
(3,564)
6,773
104,544
86,526
2,790
3,332
3,128
114
6,947
207,381
balance, january 1, 2015
30,336
Amortization charge for the year 5,475
—
—
—
—
1,148
241
—
161
853
517
(32)
171
32
1,825
—
2
(1,184)
2,796
37,423
—
1,550
1,509
1,859
67,121
86,526
1,240
1,823
1,269
15
16
—
—
31
83
845
536
(163)
10
33,229
8,610
(1,379)
3,140
1,228
43,600
5,719
163,781
Internal development
Acquired
Impairment [note 16]
Exchange differences
bALANCE,
DECEMbER 31, 2015
AMORTizATiON
Impairment [note 16]
Exchange differences
bALANCE,
DECEMbER 31, 2015
NET bOOk VALuE,
DECEMbER 31, 2015
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
606060
Distribution
networks
$
brand
names
$
patents
$
Software
$
Order
backlog
$
Non-compete
agreement
$
Development
projects
$
COST
balance, january 1, 2014
56,547
34,827
1,203
1,711
Internal development
Acquired
Exchange differences
bALANCE,
DECEMbER 31, 2014
AMORTizATiON
—
2,566
1,469
—
1,838
860
4
1,266
86
—
387
147
60,582
37,525
2,559
2,245
balance, january 1, 2014
Amortization charge for the year
Exchange differences
bALANCE,
DECEMbER 31, 2014
NET bOOk VALuE,
DECEMbER 31, 2014
25,377
3,970
989
30,336
—
—
—
—
873
213
62
1,148
510
290
53
853
30,246
37,525
1,411
1,392
—
—
35
—
35
—
32
—
32
3
—
—
114
—
114
—
15
—
15
99
Total
$
98,672
1,338
6,206
2,631
4,384
1,334
—
69
5,787
108,847
425
420
—
27,185
4,940
1,104
845
33,229
4,942
75,618
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
616161
The Company is continuously working on research and development
projects. Development costs capitalized include the development of
new products and the development of new applications of 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.
Intangible assets include patents acquired through business
combinations, which have a remaining life between two and nine
years. All brand names with a carrying amount of $86,526 [2014
– $37,525] 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 annually. For definite life intangibles, the Company
assesses whether there are indicators of impairment at subsequent
reporting dates as a triggering event for performing an impairment
test.
Intangible assets and research and development expenses for
the year ended December 31, 2015, are net of combined federal
and provincial scientific research and experimental development
[“SR&ED”] tax credits in the amounts of $34 and $100, respectively.
A number of specific criteria must be met in order to qualify
for federal and provincial SR&ED investment tax credits. As at
December 31, 2015, the Corporation had Federal investment tax
credit carryforwards in the amount of $2,324 [2014 – $4,229], Federal
SR&ED investment tax credit carryforwards in the amount of $935
[2014 – $865], Provincial SR&ED investment tax credit carryforwards
in the amount of $232 [2014 – $199] and Provincial manufacturing
or processing tax credits in the amount of $439 [2014 – $425]; these
begin expiring in 2015.
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. The remaining amortization period
for the distribution network ranges from 2 to 20 years.
The Company had no contractual commitments for the acquisition
of intangible assets as of the reporting date.
11 | goodwill
bALANCE, bEGiNNiNG Of yEAR
Acquisition [note 6]
Impairment [note 16]
Exchange differences
bALANCE, END Of yEAR
2015
$
71,356
87,564
(414)
5,575
164,081
2014
$
65,322
3,811
—
2,223
71,356
12 | Impairment testing
The Company performs its annual goodwill impairment test as at
December 31. The recoverable amount of the Company’s CGUs
has been determined based on value in use for the year ended
December 31, 2015, using cash flow projections covering a five-year
period. The various pre-tax discount rates applied to the cash flow
projections are between 12.3% and 14.3% [2014 – 12.6% and 13.2%]
and cash flows beyond the five-year period are extrapolated using
a 3% growth rate [2014 – 3%], which is management’s estimate
of long-term inflation and productivity growth in the industry and
geographies in which it operates.
The Company’s CGUs and goodwill and indefinite life intangible
assets allocated thereto are as follows, which represents how
goodwill and indefinite life intangible assets are monitored by
management:
On-Farm
Goodwill
Intangible assets with indefinite lives
Commercial
Goodwill
Intangible assets with indefinite lives
TOTAL
GOODWiLL
iNTANGibLE ASSETS WiTH
iNDEfiNiTE LiVES
2015
$
2014
$
122,117
68,502
41,964
18,024
42,045
25,986
29,311
11,539
164,081
71,356
86,526
37,525
kEy ASSuMpTiONS uSED iN VALuATiON
CALCuLATiONS
The calculation of value in use or fair value less cost to sell for all the
CGUs is most sensitive to the following assumptions:
• Gross margins;
• 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
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
626262
14 | available-for-sale investment
In fiscal 2009, AGI invested $2 million in a privately held Canadian
farming company [“Investco”]. In conjunction with AGI’s investment,
Investco made a $2 million deposit to AGI for future purchases
of grain handling and storage equipment to support their farming
operations, and AGI was to become a strategic supplier to Investco.
Prior to December 31, 2014, the deposit was fully utilized. AGI
assesses at each reporting period whether there is any objective
evidence that its investment is impaired. In 2014, AGI had concluded
its investment in Investco was impaired based on external
information available and observable conditions, and as a result, AGI
recorded a $1.1 million charge to reflect management’s estimate of
the fair value of its investment in Investco.
15 | cash and cash equivalents/changes
in non-cash working capital
Cash and cash equivalents as at the date of the consolidated
statements of financial position and for the purpose of the
consolidated statements of cash flows relate to cash at banks and
cash on hand. Cash at banks earns interest at floating rates based on
daily bank 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
2015
$
39,048
8,881
2,076
Accounts payable and accrued liabilities
(23,571)
Customer deposits
Provisions
7,056
1,549
2014
$
(25,688)
(11,835)
(441)
4,508
(6,106)
319
35,039
(39,243)
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 Consumer Price Index expectations for the markets
in which AGI operates. Management considers the Consumer
Price Index to be a conservative indicator of the long-term growth
expectations for the agricultural industry.
13 | assets held for sale
In 2010, AGI transferred all production activities from its Lethbridge,
Alberta facility to Nobleford, Alberta. In 2013, AGI transferred all
production activities from its existing Swift Current, Saskatchewan
facility to a new location in Swift Current, Saskatchewan. In 2014,
AGI transferred certain production activities from one facility to
another facility in Winnipeg, Manitoba. AGI concluded that the
land and building in Lethbridge, Alberta and Winnipeg, Manitoba
and the land, grounds, and building at the existing Swift Current,
Saskatchewan facility met the definition of an asset held for sale.
The carrying amounts of the assets presented in the consolidated
statements of financial position solely consist of the land, grounds,
and building. In 2015, AGI acquired Westeel, which included land
and building in Regina, Saskatchewan that met the definition of
assets held for sale. The related carrying amount of $4,100 has been
recorded as assets held for sale. Also in 2015, AGI transferred all
production activities from its existing facility to a new facility, both
located in Decatur, Illinois. AGI concluded that the grounds, building
and selected equipment at the existing Decatur, Illinois facility met
the definition of assets held for sale. The related carrying amount of
$1,356 has been recorded as assets held for sale.
In 2014, the land, grounds and building of the Swift Current,
Saskatchewan facility included in assets held for sale were sold.
In 2015, the land and building of the Lethbridge facility included
in assets held for sale were sold and the related carrying amount
of $1,101 was removed from assets held for sale. As at
December 31, 2015, only the land and building and selected
equipment in Winnipeg, Manitoba, Decatur, Illinois and Regina,
Saskatchewan remain as assets held for sale.
As at December 31, 2015, the land carrying value is $2,944 [2014 –
$589] and the building carrying value is $3,662 [2014 – $1,662].
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
636363
2015
$
1,061
3,563
(142)
(272)
86
2014
$
811
272
(34)
(10)
22
4,296
1,061
2015
$
51,917
46,805
98,722
2014
$
38,552
32,479
71,031
period of the assessment. The movement in the Company’s allowance
for doubtful accounts for the years ended December 31, 2015 and
December 31, 2014 was as follows:
16 | Impairment of mepu and applegate
During 2015, AGI conducted a strategic review regarding operations
in Union City, USA and Yläne, Finland in the fourth quarter of 2015.
Management concluded that these operations were no longer
strategically aligned with the business objectives of AGI and
accordingly determined to exit the businesses by way of divestiture
or disposal. As a result, the Company concluded that certain of
the assets of these CGU’s were impaired and incurred impairment
charges of $13,439 during the fourth quarter of 2015 to reflect the
FVLCS of these assets. These non-cash impairment charges have
been recorded to income.
bALANCE, bEGiNNiNG Of yEAR
Additional provision recognized
Amounts written off during the period as
uncollectible
Amounts recovered during the period
Management’s estimate of the recoverable amount of these assets
was based on external information and observable conditions where
possible, supplemented by internal analysis as required, which falls
within Level 3 of the fair value hierarchy – refer to note 27[c] for
further details related to the determination of fair value.
Exchange differences
bALANCE, END Of yEAR
18 | Inventory
Raw materials
Finished goods
17 | accounts receivable
As is typical in the agriculture sector, AGI 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
overdue amounts and the related allowance for doubtful accounts:
Total accounts receivable
2015
$
2014
$
77,820
87,825
Less allowance for doubtful accounts
(4,296)
(1,061)
TOTAL ACCOuNTS RECEiVAbLE, NET
73,524
86,764
Inventory is recorded at the lower of cost and net realizable value.
During the year ended December 31, 2015, no provisions [2014 – nil]
were expensed through cost of goods sold. There were no write-
downs of finished goods and no reversals of write-downs during the
year, with the exception of $2,556 [2014 – nil] that was included in
the impairment of Mepu and Applegate [note 16].
Of WHiCH
19 | Provisions
Neither impaired nor past due
44,624
60,564
Not impaired and past the due date as follows:
Within 30 days
31 to 60 days
61 to 90 days
Over 90 days
18,745
10,501
5,046
2,835
6,570
5,524
3,103
8,133
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. Assumptions
used to calculate the provision for warranties were based on current
sales levels and current information available about returns.
Less allowance for doubtful accounts
(4,296)
(1,061)
TOTAL ACCOuNTS RECEiVAbLE, NET
73,524
86,764
bALANCE, bEGiNNiNG Of yEAR
Costs recognized
Change in reserve
Amounts charged against provision
bALANCE, END Of yEAR
During 2014 and 2015, accounts receivable in the amount of $29,317
owing from one customer in Ukraine that otherwise would have been
past due were renegotiated and extended to 2015. The accounts
receivable owing from this customer are 90% insured with Export
Development Canada [“EDC”], and the insured amount was collected
from EDC in 2015. The Company has reserved in the allowance for
doubtful accounts $2,942, or 10%, that equals to the uninsured
amount of the accounts receivable.
Trade receivables assessed to be impaired are included as an
allowance in selling, general and administrative expenses in the
2015
$
3,829
6,326
2,580
(6,185)
6,550
2014
$
3,400
4,947
111
(4,629)
3,829
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
646464
20 | equity
[A] COMMON SHARES
[C] ACCuMuLATED OTHER COMpREHENSiVE iNCOME
Accumulated other comprehensive income is comprised of the
following:
Authorized
Unlimited number of voting common shares without par value
Cash flow hedge reserve
issued
14,590,368 common shares
bALANCE, jANuARy 1, 2014
12,613,060
Number
#
Amount
$
158,542
bALANCE, DECEMbER 31, 2014
13,165,627
Settlement of LTIP – vested
shares [note 21[c]]
Convertible unsecured subordinated
debentures [note 23]
Dividend reinvestment plan costs
Dividend reinvestment shares
issued from treasury
Dividend reinvestment plan costs
Dividend reinvestment shares issued
from treasury
Exercise of grants under DDCP [note 21[b]]
Settlement of 2012 SAIP obligation
Dividends on 2012 SAIP
Share issuance related to
Westeel acquisition [note 6[b]]
15,231
749
422,897
—
114,439
—
132,165
10,934
163,678
5,914
20,369
(16)
5,127
184,771
(16)
5,252
396
5,162
137
1,112,050
49,138
bALANCE, DECEMbER 31, 2015
14,590,368
244,840
[b] CONTRibuTED SuRpLuS
bALANCE, bEGiNNiNG Of yEAR
2015
$
12,954
Equity-settled director compensation [note 21[b]] 268
Exercise of grants under DDCP
Dividends on 2012 SAIP
Settlement of 2012 SAIP dividends
Obligation under 2012 SAIP [note 21[b]]
Settlement of 2012 SAIP obligation
(396)
881
(1,066)
2,736
(5,184)
Settlement of LTIP obligation – vested shares —
Redemption of 2009 convertible unsecured
subordinated debentures —
bALANCE, END Of yEAR
10,193
2014
$
4,984
308
—
443
—
4,208
—
(749)
3,760
12,954
The cash flow hedge reserve contains the effective portion of the
cash flow hedge relationships incurred as at the reporting date.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange
differences arising from the translation of the financial statements of
foreign subsidiaries. It is also used to record the effect of hedging net
investments in foreign operations.
Defined benefit plan reserve
The defined benefit plan reserve contains recognized actuarial gains
and losses relating to past employment benefit obligations.
[D] DiViDENDS pAiD AND pROpOSED
In the year ended December 31, 2015, the Company declared
dividends of $33,593 or $2.40 per common share [2014 – $31,476
or $2.40 per common share] and dividends on share compensation
awards of $881 [2014 – $443]. In the year ended December 31, 2015,
132,165 common shares were issued to shareholders from treasury
under the dividend reinvestment plan [the “DRIP”]. In the year ended
December 31, 2015, dividends paid to shareholders were financed
$28,341 [2014 – $26,349] from cash on hand and $5,252 [2014 –
$5,127] by the DRIP.
AGI’s dividend policy is to pay cash dividends on or about the 15th of
each month to shareholders of record on the last business day of the
previous month. The Company’s current monthly dividend rate is $0.20
per common share. Subsequent to December 31, 2015, the Company
paid dividends of $0.20 per common share to shareholders of record
on January 29, 2016 and February 29, 2016.
[E] DiViDEND REiNVESTMENT pLAN
On March 5, 2013, the Company announced the adoption of the
DRIP. Eligible shareholders who elect to reinvest dividends under
the DRIP will initially receive common shares issued from treasury
at a discount of 4% from the market price of the common shares,
with the market price being equal to the volume-weighted average
trading price of the common share on the Toronto Stock Exchange
for the five trading days preceding the applicable dividend payment
date. The Company incurred costs of $16 [2014 – $16] with respect to
implementation of the DRIP.
[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. If a person or a Company,
acting jointly or in concert, acquires [other than pursuant
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
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to an exemption available under the Rights Plan] beneficial ownership
of 20 percent or more of the Common Shares, Rights [other than
those held by such acquiring person which will become void] will
separate from the Common Shares and permit the holder thereof to
purchase that number of Common Shares having an aggregate market
price [as determined in accordance with the Rights Plan] on the
date of consummation or occurrence of such acquisition of Common
Shares equal to four times the exercise price of the Rights for an
amount in cash equal to the exercise price. The exercise price of the
Rights pursuant to the Rights Plan is $150 per Right.
[G] pREfERRED SHARES
On May 14, 2014, the shareholders of AGI approved the creation of
two new classes of preferred shares, each issuable in one or more
series without par value and each with such rights, restrictions,
designations and provisions as the Company’s Board of Directors may,
at any time from time to time determine, subject to an aggregate
maximum number of authorized preferred shares. In particular, no
preferred shares of either class may be issued if:
[i] The aggregate number of preferred shares that would then be
outstanding would exceed 50% of the aggregate number of
common shares then outstanding; or
[ii] The maximum aggregate number of common shares into which
all of the preferred shares then outstanding could be converted
in accordance with their terms would exceed 20% of the
aggregate number of common shares then outstanding; or
[iii] The aggregate number of votes which the holders of all
preferred shares then outstanding would be entitled to cast at
any meeting of the shareholders of the Company [other than
meetings at which only holders of preferred shares are entitled
to vote] would exceed 20% of the aggregate number of votes
which the holders of all common shares then outstanding would
be entitled to cast at any such meeting.
As at December 31, 2015 and December 31, 2014, no preferred
shares were issued or outstanding.
21 | share-based compensation plans
[A] SHARE AWARD iNCENTiVE pLAN [“SAip”]
The 2012 SAlp
On May 11, 2012 the shareholders of AGI approved a Share Award
Incentive Plan [the “2012 SAIP”] which authorizes the Board to grant
Restricted Share Awards [“Restricted Awards”] and Performance
Share Awards [“Performance Awards”] to persons who are officers,
employees or consultants of the Company and its affiliates. Share
Awards may not be granted to Non-Management Directors.
A total of 465,000 common shares are available for issuance under
the 2012 SAIP. At the discretion of the Board, the 2012 SAIP provides
for cumulative adjustments to the number of common shares to be
issued pursuant to Share Awards on each date that dividends are
paid on the common shares. The 2012 SAIP provides for accelerated
vesting in the event of a change in control, retirement, death or
termination without cause.
Each Restricted Award will entitle the holder to be issued the number
of common shares designated in the Restricted Award with such
common shares to be issued as to one-third on each of the third,
fourth and fifth anniversary dates of the date of grant, subject to
earlier vesting in certain events. The Company has an obligation
to settle any amount payable in respect of a Restricted Award by
common shares issued from treasury of the Company.
Each Performance Award requires the Company to deliver to the
holder at the Company’s discretion either the number of common
shares designated in the Performance Award multiplied by a Payout
Multiplier or the equivalent amount in cash after the third and prior to
the fourth anniversary date of the grant. The Payout Multiplier
is determined based on an assessment of the achievement of
pre-defined measures in respect of the applicable period. The Payout
Multiplier may not exceed 200%.
The Company intends to settle the Share Award by common shares.
As at December 31, 2015, 263,000 Restricted Awards and 110,000
Performance Awards have been granted. The Company accounted
for the Share Awards as equity-settled plans. The fair values of the
Restricted Awards and the Performance Awards were based on the
share price as at the grant date and the assumption that there will be
no forfeitures. In addition, the expense of the Performance Awards is
based on the probability of achieving 110% of the Payout Multiplier.
In the year ended December 31, 2015, AGI expensed $2,736 for the
2012 SAIP [2014 – $4,208].
[b] 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 compensation must be taken in
common shares. A Director will not be entitled to receive the common
shares he or she has been granted until a period of three years has
passed since the date of grant or until the Director ceases to be a
Director, whichever is earlier. The Directors’ common shares are fixed
based on the fees eligible to him or her for the respective period and
his or her 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 year ended December 31, 2015, an expense of $268 [2014 –
$308] 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 70,000, subject to adjustment in lieu of dividends, if
applicable. During the year ended December 31, 2015, 7,037 common
666666
shares were granted under the DDCP [2014 – 8,934] and as at
December 31, 2015, a total of 54,572 [2014 – 47,535] common shares
had been granted under the DDCP and 18,436 [2014 – 7,502] common
shares had been issued.
[C] SuMMARy Of ExpENSES RECOGNizED uNDER
SHARE-bASED pAyMENT pLANS
For the year ended December 31, 2015, an expense of $3,004
[2014 – $4,516] was recognized for employee and Director services
rendered.
A summary of the status of the options under the 2012 SAIP is
presented below:
2012 SAip
Restricted
awards
#
performanace
awards
#
OuTSTANDiNG, jANuARy 1, 2014
214,000
110,000
Granted
Forfeited
bALANCE, DECEMbER 31, 2014
Granted
Vested
Forfeited
bALANCE, DECEMbER 31, 2015
28,000
(3,000)
239,000
16,000
—
—
110,000
—
(54,383)
(110,000)
(8,283)
192,334
—
—
There is no exercise price on the 2012 SAIP awards.
A summary of the status of the rights to shares to be issued under the
Long Term Incentive Plan [“LTIP”] is presented below:
OuTSTANDiNG,
bEGiNNiNG Of yEAR
Vested
Forfeited
OuTSTANDiNG, END Of yEAR
2015 Shares
#
2014 Shares
#
—
—
—
—
15,231
(15,231)
—
—
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22 | Long-term debt and obligations
under finance leases
CuRRENT pORTiON Of LONG-TERM DEbT
Short-term debt
Series A secured notes [U.S. dollar denominated]
TOTAL CuRRENT LONG-TERM DEbT
NON-CuRRENT pORTiON Of LONG-TERM DEbT
Series A secured notes [U.S. dollar denominated]
Series B secured notes
Term A secured loan
Term B secured loan
TOTAL NON-CuRRENT LONG-TERM DEbT
Less deferred financing costs
LONG-TERM DEbT
Current portion of obligations under finance leases
Non-current portion of obligations under finance leases
ObLiGATiONS uNDER fiNANCE LEASES
TOTAL iNTEREST-bEARiNG LOANS AND bORROWiNGS
interest rate
%
Maturity
December 31,
2015
$
December 31,
2014
$
6.8
6.8
4.4
3.4
3.4
Euribor +2
Euribor +2
2016
2016
2025
2019
2022
2017
2017
—
34,600
34,600
—
25,000
50,000
40,000
115,000
2,669
112,331
209
1,177
1,386
49,176
—
49,176
29,003
—
—
—
29,003
54
28,949
—
—
—
148,317
78,125
[A] bANk iNDEbTEDNESS
[b] LONG-TERM DEbT
AGI has operating facilities of $20.0 million and U.S. $5.0 million.
The facilities bear interest at prime plus 0.2% to prime plus 1.75%
per annum based on performance calculations. The effective interest
rate during the year ended December 31, 2015 on AGI’s Canadian
dollar operating facility was 3.6% [2014 – 3.0%] and on its U.S. dollar
operating facility was 3.3% [2014 – 3.3%]. As at December 31, 2015,
there was nil [2014 – nil] outstanding under these facilities. The
facilities mature March 19, 2019.
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 ranks 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.
Collateral for the operating facilities ranks 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.
The Series B secured notes were issued on May 22, 2015. The non-
amortizing notes bear interest at 4.4% payable quarterly and mature
on May 22, 2025. Collateral for the Series B secured notes and term
loans ranks pari passu and include a general security agreement over
all assets, first position collateral mortgages on land and buildings,
686868
assignments of rents and leases and security agreements for patents
and trademarks.
The Term A secured loan was issued on May 20, 2015 and matures on
May 19, 2019. The facilities bear interest at BA plus 2.5% per annum
based on performance calculations. Interest on the non-amortizing
loan has been fixed at 3.8% through an interest rate swap contract
[note 27]. Collateral for the Term A loan and secured notes ranks pari
passu and include a general security agreement over all assets, first
position collateral mortgages on land and buildings, assignments of
rents and leases and security agreements for patents and trademarks.
The Term B secured loan was issued on May 20, 2015 and matures on
May 19, 2022. The facilities bear interest at BA plus 2.5% per annum
based on performance calculations. Interest on the non-amortizing
loan has been fixed at 4.3% through an interest rate swap contract
[note 27]. Collateral for the Term B loan and secured notes ranks 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.
AGI has revolver facilities of $105 million and U.S. $45 million. The
facilities bear interest at prime plus 0.2% to prime plus 1.75% per
annum based on performance calculations. The effective interest
rate for the year ended December 31, 2015 on AGI’s Canadian dollar
revolver facility was 4.0% [2014 – 3.0%] and on its U.S. dollar
revolver facility was 5.0% [2014 – 3.3%]. As at December 31, 2015,
there was nil [2014 – nil] outstanding under these facilities. The
facilities mature May 19, 2019.
[C] COVENANTS
AGI 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 AGI to
maintain a debt to earnings before interest, taxes, depreciation and
amortization [“EBITDA”] ratio of less than 3.25 and to provide debt
service coverage of a minimum of 1.0. The covenant calculations
exclude the convertible unsecured subordinated debentures from the
definition of debt. As at December 31, 2015 and December 31, 2014,
AGI was in compliance with all financial covenants.
[D] SHORT-TERM DEbT
The 2014 Debentures were recorded as short-term debt as at
December 31, 2014 as the maturity date of the 2014 Debentures
was June 29, 2015 unless automatically extended upon completion
of AGI’s acquisition of Westeel. During the three-month period
ended June 30, 2015, the acquisition of Westeel was completed,
the maturity date of the 2014 Debentures automatically extended to
December 31, 2019 and the 2014 Debentures were reclassified from
short-term debt to convertible unsecured subordinated debentures.
[E] ObLiGATiONS uNDER fiNANCE LEASE
The Company has a real estate lease that matures on
December 31, 2017. The lease is denominated in Euros and
bears interest at Euribor plus 2%.
23 | convertible unsecured subordinated
debentures
2015
$
213,000
(9,922)
2,193
(7,686)
2014
$
86,250
(4,480)
814
(3,151)
197,585
79,433
Principal amount
Equity component
Accretion
Financing fees, net of amortization
CONVERTibLE uNSECuRED
SubORDiNATED DEbENTuRES
2009 DEbENTuRES
In 2009, the Company issued convertible unsecured subordinated
debentures in the aggregate principal amount of $115 million [the
“2009 Debentures”]. The maturity date of the 2009 Debentures
was December 31, 2014. In January 2014, holders of $19.0 million
principal amount of the 2009 Debentures exercised the conversion
option and were issued 422,897 common shares. The Company
fully redeemed all remaining outstanding 2009 Debentures on
January 20, 2014. In 2014, the Company recorded interest expense
on the 7.0% coupon of $440 and expensed all remaining unamortized
accretion and finance fee balances in the amounts of $937 and $588,
respectively.
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2013 DEbENTuRES
2014 DEbENTuRES
In December 2013, the Company issued $86.3 million aggregate
principal amount of convertible unsecured subordinated debentures [the
“2013 Debentures”] at a price of $1,000 per 2013 Debenture.
The net proceeds of the offering, after payment of the underwriters’
fee of $3.5 million and expenses of the offering of $0.6 million,
were approximately $82.2 million. The 2013 Debentures bear interest
at an annual rate of 5.25% payable semi-annually on June 30
and December 31. The maturity date of the 2013 Debentures is
December 31, 2018.
Each 2013 Debenture is convertible into common shares of the
Company at the option of the holder at any time on the earlier of the
maturity date and the date of redemption of the 2013 Debenture, at a
conversion price of $55.00 per common share being a conversion rate
of approximately 18.1818 common shares per $1,000 principal amount
of 2013 Debentures. No conversion options were exercised during the
year ended December 31, 2015 [year ended December 31, 2014 – nil].
As at December 31, 2015, AGI has reserved 1,568,182 common shares
for issuance upon conversion of the 2013 Debentures.
The 2013 Debentures are not redeemable before December 31, 2016.
On and after December 31, 2016 and prior to December 31, 2017, the
2013 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, 2017, the 2013 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 2013
Debentures by issuing and delivering common shares. The Company
may also elect to satisfy its obligations to pay interest on the 2013
Debentures by delivering common shares. The Company does not
expect to exercise the option to satisfy its obligations to pay the
principal amount or interest by delivering common shares. 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 2013 Debentures, the Company
recorded a liability of $86,250, less related offering costs of $3,847.
The liability component has been accreted using the effective interest
rate method, and during the year ended December 31, 2015, the
Company recorded accretion of $834 [2014 – $822], non-cash interest
expense relating to financing costs of $715 [2014 – $707] and interest
expense of $4,528 [2014 – $4,751]. The estimated fair value of the
holder’s option to convert the 2013 Debentures to common shares in
the total amount of $4,480 has been separated from the fair value of
the liability and is included in shareholders’ equity, net of income tax
of $1,134 and its pro rata share of financing costs of $211.
In December 2014, the Company issued $51.8 million aggregate
principal amount of extendible convertible unsecured subordinated
debentures [the “2014 Debentures”] at a price of $1,000 per 2014
Debenture. The 2014 Debentures bear interest at an annual rate of
5.25% payable semi-annually on June 30 and December 31. The
maturity date of the 2014 Debentures is December 31, 2019.
Each 2014 Debenture is convertible into common shares of the
Company at the option of the holder at any time on the earlier of the
maturity date and the date of redemption of the 2014 Debenture, at a
conversion price of $65.57 per common share being a conversion rate
of approximately 15.2509 common shares per $1,000 principal amount
of 2014 Debentures. No conversion options were exercised during
the year ended December 31, 2015 [2014 – nil]. As at December 31,
2015, AGI has reserved 789,233 common shares for issuance upon
conversion of the 2014 Debentures.
The 2014 Debentures are not redeemable before December 31, 2017.
On and after December 31, 2017 and prior to December 31, 2018, the
2014 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, 2018, the 2014 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 2014
Debentures by issuing and delivering common shares. The Company
may also elect to satisfy its obligation to pay interest on the 2014
Debentures by delivering sufficient common shares. The Company
does not expect to exercise the option to satisfy its obligations to pay
the principal amount or interest by delivering common shares. The
number of 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 2014 Debentures, the Company
recorded a liability of $51,750, less related offering costs of $2,663
and the estimated fair value of the holder’s conversion option. The
liability component has been accreted using the effective interest rate
method, and during the year ended December 31, 2015, the Company
recorded accretion of $378 [2014 – nil], non-cash interest expense
relating to financing costs of $436 [2014 – nil] and interest expense
on the 5.25% coupon of $2,717 [2014 – nil]. The estimated fair value
of the holder’s option to convert the 2014 Debentures to common
shares in the total amount of $2,165 has been separated from the fair
value of the liability and is included in shareholders’ equity, net of
income tax of $557 and its pro rata share of financing costs of $111.
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2015 DEbENTuRES
In September 2015, the Company issued $75.0 million aggregate
principal amount of convertible unsecured subordinated debentures
[the “2015 Debentures”] at a price of $1,000 per 2015 Debenture.
The 2015 Debentures bear interest at an annual rate of 5.00% payable
semi-annually on June 30 and December 31. The maturity date of the
2015 Debentures is December 31, 2020.
Each 2015 Debenture is convertible into common shares of the
Company at the option of the holder at any time on the earlier of the
maturity date and the date of redemption of the 2015 Debenture, at a
conversion price of $60.00 per common share being a conversion rate
of approximately 16.6667 common shares per $1,000 principal amount
of 2015 Debentures. No conversion options were exercised during the
year ended December 31, 2015. As at December 31, 2015, AGI has
reserved 1,250,000 common shares for issuance upon conversion of
the 2015 Debentures.
The 2015 Debentures are not redeemable before December 31, 2018.
On and after December 31, 2018 and prior to December 31, 2019, the
2015 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, 2018, the 2015 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 2015
Debentures by issuing and delivering common shares. The Company
may also elect to satisfy its obligation to pay interest on the 2015
Debentures by delivering sufficient common shares. The Company
does not expect to exercise the option to satisfy its obligations to pay
the principal amount or interest by delivering common shares. The
number of 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 2015 Debentures, the Company
recorded a liability of $75,000, less related offering costs of $3,509
and the estimated fair value of the holder’s conversion option. The
liability component has been accreted using the effective interest rate
method, and during the year ended December 31, 2015, the Company
recorded accretion of $138 [2014 – nil], non-cash interest expense
relating to financing costs of $147 [2014 – nil] and interest expense
on the 5.00% coupon of $1,006 [2014 – nil]. The estimated fair value
of the holder’s option to convert the 2015 Debentures to common
shares in the total amount of $3,277 has been separated from the
fair value of the liability and is included in shareholders’ equity, net
of income tax of $835 and its pro rata share of financing costs of $162.
24 | accounts payable
and accrued liabilities
Trade payables
Other payables
Personnel-related accrued liabilities
Accrued outstanding service invoices
2015
$
22,603
9,882
13,812
1,424
2014
$
17,016
8,346
9,511
587
47,721
35,460
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 | Retirement benefit plans
AGI contributes to group retirement savings plans subject to maximum
limits per employee. The expense recorded during the year ended
December 31, 2015 was $3,264 [2014 – $2,283]. AGI expects to
contribute $4,378 for the year ending December 31, 2016.
AGI 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. AGI is not able to obtain sufficient information
to account for the plan as a defined benefit plan.
On May 20, 2015, AGI acquired Westeel [note 6[b]]. Included in the
acquisition is a defined benefit plan. For the purposes of the following
discussion, beginning of period is defined as May 20, 2015.
The Company has a defined benefit plan providing pension benefits to
certain of its union employees and former employees. The Company
operates the defined benefit pension plan in Canada. The plan is a
flat-dollar defined benefit pension plan, which provides clearly defined
benefits to members based on negotiated benefit rates and years of
credited service. Responsibility for the governance of the plan and
overseeing the plan including investment policy and performance lie
with the Pension and Investment Committee. The Company has set up
a pension committee to assist in the management of the plan and has
also appointed experienced, independent professional experts such as
investment managers and actuaries.
The Company’s defined benefit pension plan will measure the
respective accrued benefit obligation and the fair value of plan assets
at December 31 of each year. Actuarial valuations are performed
annually or tri-annually as required. The Company’s registered defined
benefit plan was last valued on December 31, 2013. The present value
of the defined obligation, and the related current service cost and past
service cost, were measured using the Unit Credit Method.
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The liabilities were not revalued at December 31, 2015. We have
used the same methods and assumptions used at May 20, 2015 for
the purpose of estimating the liabilities at December 31, 2015. The
following assumptions were used to determine the periodic pension
expense and the net present value of the accrued pension obligations:
December 31,
2015
%
May 20,
2015
%
Expected long-term rate of return on plan assets 4.00
Discount rate on benefit costs
Discount rate on accrued pension and
post-employment obligations
Rate of compensation increases
4.00
4.00
n/a
4.00
4.00
4.00
n/a
The weighted average duration of the defined benefit obligation as
of December 31, 2015 is 16.80 years [May 20, 2015 – 17.55 years].
Compensation increases were not included in the valuation of the
accrued pension obligation because the accrued benefit is not a
function of salary. All members receive a fixed benefit rate monthly
for each year of credited service. This same benefit rate is received by
all plan members regardless of salary level.
The following table outlines the key assumptions for 2015 and the
sensitivity of changes in each of these assumptions on the defined
benefit plan obligation. The sensitivity analysis is hypothetical
and should be used with caution. The sensitivities of each key
assumptions have been calculated independently of any changes in
other key assumptions. Actual experience may result in changes in
a number of key assumptions simultaneously. Changes in one factor
may result in changes in another which could amplify or reduce the
impact of such assumptions.
Impact of 0.5% increase/decrease
in discount rate assumption
Impact of 1 year increase/decrease
in life expectancy assumption
increase in
assumption
$
Decrease in
assumption
$
(957)
315
1,079
(323)
The net expense of $517 [2014 – nil] for the period is included in cost
of sales and an expense of nil [2014 – nil] for the period is included
in selling, general and administrative expense in the consolidated
statements of income.
Information about the Company’s defined benefit pension plan, in
aggregate, is as follows:
pLAN ASSETS
December 31,
2015
$
fAiR VALuE Of pLAN ASSETS, bEGiNNiNG Of pERiOD 12,562
Interest income on plan assets
Actual return on plan assets
Employer contributions
Benefits paid
fAiR VALuE Of pLAN ASSETS, END Of pERiOD
ACCRuED bENEfiT ObLiGATiON
298
(387)
245
(272)
12,446
December 31,
2015
$
ACCRuED bENEfiT ObLiGATiON, bEGiNNiNG Of pERiOD 11,860
Current service cost
Interest cost
Actuarial gains from experience adjustments
Benefits paid
ACCRuED bENEfiT ObLiGATiON, END Of pERiOD
NET ACCRuED bENEfiT ASSET
504
311
(191)
(272)
12,212
234
The net accrued benefit asset of $234 is included in other assets in
non-current assets.
The major categories of plan assets for each category are as follows:
December 31, 2015
May 20, 2015
$
Canadian equity securities 3,684
U.S. equity securities
2,178
International equity securities 2,191
Fixed-income securities
4,393
%
29.6
17.5
17.6
35.3
$
3,769
2,261
2,135
4,397
%
30.0
18.0
17.0
35.0
12,446
100.0
12,562
100.0
C
O
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S
O
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I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
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A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
727272
Management’s assessment of the expected returns is based on
historical return trends and analysts’ predictions of the market for the
asset over the life of the related obligation. The actual return on plan
assets was a loss of $387 [2014 – nil].
All equity and debt securities are valued based on quoted prices in
active markets for identical assets or liabilities or based on inputs
other than quoted prices in active markets that are observable for
the asset or liability, either directly [i.e. as prices] or indirectly [i.e.
derived from prices].
The Company’s asset allocation reflects a balance of fixed-income
investments, which are sensitive to interest rates, and equities,
which are expected to provide higher returns and inflation sensitive
returns over the long term. The Company’s targeted asset allocations
are actively monitored and adjusted to align the asset mix with the
liability profile of the plan.
The Company expects to make contributions of $468 [2015 – $245]
to the defined benefit plan in 2016. The actual amount paid may vary
from the estimate based on actuarial valuations being completed,
investment performance, volatility in discount rates, regulatory
requirements and other factors.
Through its defined benefit plan, the Company is exposed to a number
of risks, the most significant of which are detailed below:
ASSET VOLATiLiTy
The plan liability is calculated using a discount rate set with
reference to corporate bond yields; if plan assets under-perform this
yield, this will create a deficit. The plan holds a significant proportion
of equities, which are expected to outperform corporate bonds in the
long-term while contributing volatility and risk in the short-term.
However, the Company believes that due to the long-term nature of
the plan liabilities and the strength of the supporting group, a level
of continuing equity investment is an appropriate element of the
Company’s long term strategy to manage the plan efficiently.
A decrease in corporate fixed-income security yields will increase
plan liabilities, although this will be partially offset by an increase in
the value of the plan’s fixed-income security holdings.
LifE ExpECTANCy
The plan’s obligation is to provide benefits for the life of the member,
so increases in life expectancy will result in an increase in the plan’s
liability.
26 | Income taxes
The major components of income tax expense for the years ended
December 31, 2015 and 2014 are as follows:
CONSOLiDATED STATEMENTS Of iNCOME
CuRRENT TAx ExpENSE
Current income tax charge
DEfERRED TAx ExpENSE (RECOVERy)
2015
$
2014
$
4,722
4,757
Origination and reversal of temporary differences (1,613)
27,342
iNCOME TAx ExpENSE REpORTED iN THE
CONSOLiDATED STATEMENTS Of iNCOME 3,109
32,099
CONSOLiDATED STATEMENTS Of
COMpREHENSiVE iNCOME
2015
$
2014
$
DEfERRED TAx RELATED TO iTEMS CHARGED OR
CREDiTED DiRECTLy TO OTHER COMpREHENSiVE
iNCOME DuRiNG THE pERiOD
Unrealized loss on derivatives
(4,047)
(1,177)
Defined benefit plan reserve
Exchange differences on translation of
foreign operations
iNCOME TAx CREDiTED DiRECTLy
TO OTHER COMpREHENSiVE iNCOME
59
1,895
—
906
(2,093)
(271)
The reconciliation between tax expense and the product of
accounting profit multiplied by the Company’s domestic tax rate for
the years ended December 31, 2015 and 2014 is as follows:
ACCOuNTiNG pROfiT (LOSS) bEfORE
iNCOME TAx
At the Company’s statutory income tax rate
of 26.80% [2014 – 26.60%]
Additional deductions allowed in a
foreign jurisdiction
Tax losses not recognized as a deferred tax asset 1,984
Withholding tax on dividend
Foreign rate differential
Non-deductible SAIP expense
State income tax, net of federal tax benefit
1,652
897
608
251
2015
$
2014
$
(22,120)
36,199
(5,928)
(9)
(259)
9,629
(66)
(619)
624
—
1,747
548
593
Unrealized foreign exchanges loss
3,519
1,398
Derecognition of deferred tax asset due
to CRA settlement
Permanent differences and others
AT THE EffECTiVE iNCOME TAx RATE
(14.05%) [2014 – 88.67%]
—
394
16,889
1,356
3,109
32,099
CHANGE iN fixED-iNCOME SECuRiTy yiELDS
Tax rate changes
C
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S
O
L
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D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
737373
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
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R
E
P
O
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T
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
are presented below:
Inventories
Property, plant and equipment and other assets
Intangible assets
Deferred financing costs
Accruals and long-term provisions
Tax loss carryforwards expiring between 2020 to 2035
Investment tax credits
Canadian exploration expenses
Capitalized development expenditures
Convertible debentures
SAIP liability
Equity impact LTIP
Other comprehensive income
CRA settlement related to investment tax credits
Exchange difference on translation of foreign operations
DEfERRED TAx ExpENSE
Consolidated statements
of financial position
Consolidated statements
of income
2015
$
(90)
(21,115)
(32,833)
(611)
4,238
1,614
(627)
13,218
(1,060)
(2,087)
82
—
6,417
—
—
2014
$
(88)
(14,239)
(14,943)
(261)
2,274
483
(618)
13,952
(905)
(975)
878
—
2,370
—
—
2015
$
2
932
366
350
(1,727)
(1,062)
9
734
155
(273)
796
—
—
—
(1,895)
(1,613)
2014
$
—
1,509
1,741
93
(544)
9,414
(505)
15,224
126
(456)
(571)
312
—
1,905
(906)
27,342
NET DEfERRED TAx ASSETS (LiAbiLiTiES)
(32,854)
(12,072)
REfLECTED iN THE STATEMENT Of fiNANCiAL pOSiTiON AS fOLLOWS
Deferred tax assets
Deferred tax liabilities
DEfERRED TAx ASSETS (LiAbiLiTiES), NET
84
(32,938)
(32,854)
—
(12,072)
(12,072)
747474
RECONCiLiATiON Of DEfERRED TAx
ASSETS (LiAbiLiTiES), NET
2015
$
2014
$
bALANCE, bEGiNNiNG Of yEAR
(12,072)
13,094
Deferred tax recovery (expense) during the
period recognized in profit or loss
CRA settlement related to investment tax
credits recorded in income tax recoverable
1,613
(27,342)
—
1,905
Deferred tax liability setup on business acquisition (23,103)
Deferred tax expense during the period
recognized in shareholders’ equity
(1,385)
—
—
Deferred tax recovery (expense) during the period
recognized in other comprehensive income (loss)
bALANCE, END Of yEAR
2,093
271
(32,854)
(12,072)
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which these
temporary differences, and loss carryforwards become deductible.
Based on the analysis of taxable temporary differences and future
taxable income, 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
incurred, other than temporary differences in its Finnish operations
of 6,283 Euros [2014 – 2,646 Euros] and its Brazilian operations of
2,764 BRL [2014 – nil]. Accordingly, the Company has recorded a
deferred tax asset for all other deductible temporary differences as at
December 31, 2015 and as at December 31, 2014.
Included in the current year’s income tax expense was $1,652
[2014 – nil] withholding tax paid on the repatriation of surplus from
a subsidiary. As at December 31, 2015, there was no recognized
deferred tax liability [2014 – 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 [2014
– $622].
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 AGI’s specific situation. The amount and timing
of reversals of temporary differences will also depend on AGI’s
future operating results, acquisitions and dispositions of assets and
liabilities. The business and operations of AGI are complex, and
AGI has executed a number of significant financings, acquisitions,
reorganizations and business combinations over the course of its
history. The computation of income taxes payable as a result of
these transactions involves many complex factors, as well as AGI’s
interpretation of and compliance with relevant tax legislation and
regulations. While AGI believes that its tax filing positions are
probable to be sustained, there are a number of tax filing positions
that may be the subject of review by taxation authorities. Therefore,
it is possible that additional taxes could be payable by AGI, and
the ultimate value of AGI’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 2015 or 2014 by the Company to
its shareholders.
27 | Financial instruments and financial
risk management
[A] MANAGEMENT Of RiSkS ARiSiNG fROM
fiNANCiAL iNSTRuMENTS
AGI’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
C
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S
O
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I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
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M
E
N
T
S
2
0
1
5
A
N
N
U
A
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E
P
O
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T
757575
minimize potential adverse effects on the Company’s financial
performance. The Company uses derivative financial instruments
to mitigate certain risk exposures. The Company does not purchase
any derivative financial instruments for speculative purposes. Risk
management is the responsibility of the corporate finance function,
which has the appropriate skills, 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 Board of Directors. The
Audit Committee reviews and monitors the Company’s financial
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 AGI is exposed are
discussed below. Financial instruments affected by market risk
include trade accounts receivable and payable, available-for-sale
investments and derivative financial instruments.
The sensitivity analyses in the following sections relate to the
position as at December 31, 2015 and December 31, 2014.
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 statements of financial position sensitivity relates
to derivatives.
• The sensitivity of the relevant consolidated statements of income
item is the effect of the assumed changes in respective market
risks. This is based on the financial assets and financial liabilities
held at December 31, 2015 and December 31, 2014, including the
effect of hedge accounting.
• The sensitivity of equity is calculated by considering the effect
of any associated cash flow hedges at December 31, 2015 for the
effects of the assumed underlying changes.
Foreign currency risk
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 Euros and as a result, fluctuations in the rate of exchange
between the U.S. dollar, the Euro 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, AGI enters
into foreign exchange forward contracts and denominates a portion
of its debt in U.S. dollars. As at December 31, 2015, AGI’s U.S.
dollar denominated debt totalled $34.6 million [2014 – $29.0 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
January - December 2016
January - December 2017
face value
u.S. $
Average rate
Cdn $
100,500
9,000
1.1771
1.2462
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.
AGI’s sales denominated in U.S. dollars for the year ended
December 31, 2015 were U.S. $231 million, and the total of its cost
of goods sold and its selling, general and administrative expenses
denominated in that currency was U.S. $169 million. Accordingly, a
10% increase or decrease in the value of the U.S. dollar relative to
its Canadian counterpart would result in a $23.1 million increase or
decrease in sales and a total increase or decrease of $16.9 million
in its cost of goods sold and its selling, general and administrative
expenses. In relation to AGI’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 $12.4 million increase or
decrease in the foreign exchange gain and a $15.2 million increase or
decrease to other comprehensive income.
The counterparties 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, 2015, the Company
realized a loss on its foreign exchange contracts of $15.3 million
[2014 – loss of $5.6 million].
C
O
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S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
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767676
The open foreign exchange forward contracts as at December 31, 2015 are as follows:
U.S. dollar contracts
Notional Canadian dollar equivalent
Notional amount of
currency sold
$
109,500
Contract
amount
$
1.1827
Cdn $
equivalent
$
129,509
The open foreign exchange forward contracts as at December 31, 2014 are as follows:
U.S. dollar contracts
Euro contracts
Notional amount of
currency sold
$
127,500
500
Notional Canadian dollar equivalent
Contract
amount
$
1.10
1.52
Cdn $
equivalent
$
139,849
701
unrealized
gain (loss)
$
(21,767)
unrealized
gain (loss)
$
(8,958)
50
The terms of the foreign exchange forward contracts have been
negotiated to match the terms of the commitments. There were no
highly probable transactions for which hedge accounting has been
claimed that have not occurred and no significant element of hedge
ineffectiveness requiring recognition in the consolidated statements
of income.
During 2015, a loss of $1,317 [2014 – nil] arising from hedge
ineffectiveness was recorded through net earnings in foreign
exchange loss (gain). The cash flow hedges of the expected future
sales were assessed to be highly effective and a net unrealized
loss of $21,767, with a deferred tax asset of $6,417 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 AGI 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. AGI’s Series A secured notes, Series B secured notes
and convertible unsecured subordinated debentures outstanding at
December 31, 2015 and December 31, 2014 are at a fixed rate of
interest.
Interest rate swap contracts
On May 22, 2015, the Company entered into interest rate swap
contracts to manage its exposure to fluctuations in interest rates on
its core borrowings. Through these contracts, the Company agreed to
receive interest on notional amounts from the counterparty and pay
interest on the same notional amounts at rates between 3.84% and
4.32%. The notional amounts are $90,000 in aggregate resetting the
last business day of each month. The contracts expire in May 2019
and May 2022.
The interest rate swap contracts are derivative financial instruments
designated as a cash flow hedges and changes in the fair value were
recognized as a component of other comprehensive income to the
extent that it has been assessed to be effective.
The amount of loss recorded in other comprehensive income during
the year ended December 31, 2015 was $2,001 [2014 – nil].
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 AGI’s accounts receivable are with customers in the
agriculture industry and are subject to normal industry credit risks.
A portion of the Company’s sales and related accounts receivable
are also generated from transactions with customers in overseas
markets, several of which are in emerging markets such as
countries in Eastern Europe. It is often common business practice for
international customers to pay invoices over an extended period of
time. Accounts receivable is subject to credit risk exposure and the
carrying values reflect management’s assessment of the associated
maximum exposure to such credit risk. The Company regularly
monitors customers for changes in credit risk. The Company’s credit
exposure is mitigated through the use of credit practices that limit
transactions according to the customer’s credit quality and due to the
accounts receivable being spread over a large number of customers.
Trade receivables from international customers are often insured for
events of non-payment through third-party export insurance. In cases
where the credit quality of a customer does not meet the Company’s
requirements, a cash deposit or letter of credit is received before
goods are shipped.
Assessments about the recoverability of financial assets, including
accounts receivable, require significant judgment in determining
whether there is objective evidence that a loss event has occurred
and estimates of the amount and timing of future cash flows. The
Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability to collect on its trade receivables
which is netted against the accounts receivable on the consolidated
statements of financial position. Emerging markets are subject to
various additional risks including currency exchange rate fluctuations,
foreign economic conditions and foreign business practices. One
or more of these factors could have a material effect on the future
collectability of such receivables. In assessing whether objective
evidence of impairment exists at each reporting period the Company
C
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S
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D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
L
R
E
P
O
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T
777777
considers its past experience of collecting payments, historical loss experience, customer credit ratings and financial data as available, collateral on
amounts owing including insurance coverage from export credit agencies, as well as observable changes in national or local economic conditions.
At December 31, 2015, the Company had one international customer [2014 – one international customer] that accounted for approximately 5% [2014 –
30%] of all receivables owing. The requirement for an impairment provision 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 Company does not
generally hold collateral as security on its accounts receivable but has received collateral from the one international customer in 2015.
The Company does not believe that any single customer group represents a significant concentration of credit risk.
Liquidity risk
Liquidity risk is the risk that AGI will encounter difficulties in meeting its financial liability obligations. AGI manages its liquidity risk through cash
and debt management. In managing liquidity risk, AGI has access to committed short- and long-term debt facilities as well as to equity markets, the
availability of which is dependent on market conditions. AGI believes it has sufficient funding through the use of these facilities to meet foreseeable
borrowing requirements.
The tables below summarize the undiscounted contractual payments of the Company’s financial liabilities as at December 31, 2015 and 2014:
DECEMbER 31, 2015
Trade payables and provisions
Dividends payable
Acquisition, transaction and financing costs payable
Contingent consideration
Other financial liabilities
Term debt
Convertible unsecured subordinated debentures
[include interest]
TOTAL fiNANCiAL LiAbiLiTy pAyMENTS
Total
$
54,271
2,883
1,846
5,000
9,017
176,976
37,906
0 - 6 months
$
6 - 12 months
$
12 - 24 months
$
2 - 4 years
$
After 4 years
$
—
—
—
3,000
9,017
2,914
—
—
—
2,000
—
4,260
—
—
—
—
—
—
—
—
—
—
57,499
74,396
256,202
5,498
506,195
102,404
5,498
20,429
10,995
17,255
155,462
78,750
212,961
153,146
DECEMbER 31, 2014
Bank debt [includes interest]
Trade payables and provisions
Dividends payable
Total
$
85,257
39,289
2,633
Acquisition, transaction and financing costs payable 2,266
Subscription receipts commission payable
Convertible unsecured subordinated debentures
[include interest]
TOTAL fiNANCiAL LiAbiLiTy pAyMENTS
1,036
102,098
232,579
0 - 6 months
$
6 - 12 months
$
12 - 24 months
$
2 - 4 years
$
After 4 years
$
986
30,642
—
—
—
—
2,264
3,250
—
—
—
—
—
—
—
—
—
4,528
35,170
93,042
93,042
—
—
—
—
—
—
—
54,271
2,883
1,846
—
—
53,629
39,289
2,633
2,266
1,036
2,264
101,117
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
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R
E
P
O
R
T
787878
[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:
Carrying amount
$
2015
fair value
$
Carrying amount
$
2014
fair value
$
fiNANCiAL ASSETS
Loans and receivables
Cash and cash equivalents
Cash held in trust
Accounts receivable
Available-for-sale investment
fiNANCiAL LiAbiLiTiES
Other financial liabilities
Interest-bearing loans and borrowings
Trade payables and provisions
Dividends payable
Acquisition transaction and financing costs payable
Contingent consideration
Other financial liabilities
Subscription receipts commission payable
Derivative instruments
Convertible unsecured subordinated debentures
58,234
250
73,524
900
148,317
54,271
2,883
1,846
4,663
9,017
—
23,768
197,585
58,234
250
73,524
900
148,531
54,271
2,883
1,846
4,663
9,017
—
23,768
185,414
25,295
250
86,764
900
78,125
39,289
2,633
2,266
—
—
1,036
8,908
79,433
25,295
250
86,764
900
82,119
39,289
2,633
2,266
—
—
1,036
8,908
74,900
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, acquisition, transaction
and financing costs payable, accounts payable and accrued
liabilities, due to vendor, contingent consideration and other
liabilities approximate their carrying amounts largely due to the
short-term maturities of these instruments.
• The fair value of unquoted instruments and loans from banks is
estimated by discounting future cash flows using rates currently
available for debt on similar terms, credit risk and remaining
maturities.
• The Company enters into derivative financial instruments with
financial institutions with investment grade credit ratings.
Derivatives valued using valuation techniques with market
observable inputs are mainly foreign exchange forward contracts
and one option embedded in each convertible debt agreement. The
most frequently applied valuation 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.
• AGI includes its available-for-sale investment which is in a private
company in Level 3 of the fair value hierarchy as it trades
infrequently and has little price transparency. AGI reviews the fair
value of this investment at each reporting period and when recent
arm’s length market transactions are not available, management’s
estimate of fair value is determined using a market approach
based on external information and observable conditions where
possible, supplemented by internal analysis as required. In 2014,
AGI transferred the available-for-sale investment from Level 2 to
Level 3 as direct observable market data was not available.
[C] fAiR VALuE [“fV”] HiERARCHy
AGI uses the following hierarchy for determining and disclosing the
fair value of financial instruments by valuation technique:
Level 1
The fair value measurements are classified as Level 1 in the FV
hierarchy if the fair value is determined using quoted, unadjusted
market prices for identical assets or liabilities.
C
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S
O
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D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
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R
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P
O
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797979
C
O
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S
O
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I
D
A
T
E
D
F
I
N
A
N
C
I
A
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S
T
A
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E
M
E
N
T
S
2
0
1
5
A
N
N
U
A
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R
E
P
O
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T
Level 2
Fair value measurements that require inputs other than quoted prices in Level 1, and for which all inputs that have a significant effect on the
recorded fair value are observable, either directly or indirectly, are classified as Level 2 in the FV hierarchy.
Level 3
Fair value measurements that require unobservable market data or use statistical techniques to derive forward curves from observable market
data and unobservable inputs are classified as Level 3 in the FV hierarchy.
The FV hierarchy of financial instruments recorded on the consolidated statements of financial position is as follows:
fiNANCiAL ASSETS
Available-for-sale investment
fiNANCiAL LiAbiLiTiES
Interest-bearing loans and borrowings
Contingent consideration
Other financial liabilities
Derivative instruments
Convertible unsecured subordinated debentures
Level 1
$
Level 2
$
2015
Level 3
$
Level 1
$
Level 2
$
2014
Level 3
$
—
—
—
—
—
—
—
900
148,317
—
—
23,768
197,585
—
4,663
9,017
—
—
—
—
—
—
—
—
—
900
78,125
—
—
8,908
79,433
—
—
—
—
—
During the reporting years ended December 31, 2015 and December 31, 2014, there were no transfers between Level 1 and Level 2 fair value
measurements.
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 finance expense.
28 | capital disclosure and management
The Company’s capital structure is comprised of shareholders’ equity and long-term debt. AGI’s objectives when managing its capital structure
are to maintain and preserve its access to capital markets, continue its ability to meet its financial obligations, including the payment of
dividends, and finance future organic growth and acquisitions.
AGI manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the
underlying assets. The Company is not subject to any externally imposed capital requirements other than financial covenants in its credit
facilities and as at December 31, 2015 and December 31, 2014, all of these covenants were complied with [note 22].
The Board of Directors does not establish quantitative capital structure targets for management, but rather promotes sustainable and profitable
growth. Management monitors capital using non-GAAP financial metrics, primarily total debt to the trailing twelve months EBITDA and net debt
to total shareholders’ equity. There may be instances where it would be acceptable for total debt to trailing EBITDA to temporarily fall outside
of the normal targets set by management such as in financing an acquisition to take advantage of growth opportunities or industry cyclicality.
This would be a strategic decision recommended by management and approved by the Board of Directors with steps taken in the subsequent
period to restore the Company’s capital structure based on its capital management objectives.
29 | Related party disclosures
RELATiONSHip bETWEEN pARENT AND SubSiDiARiES
The main transactions between the corporate entity of the Company and its subsidiaries is the providing of cash fundings based on the equity
and convertible debt funds of Ag Growth 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 provides 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 Inc., these inter-company transactions are 100%
eliminated on consolidation.
808080
OTHER RELATiONSHipS
31 | Reportable business segment
Burnet, Duckworth & Palmer LLP provides legal services to the
Company and a Director of AGI is a partner of Burnet, Duckworth
& Palmer LLP. The total cost of these legal services related to a
debenture offering and general matters were $2.3 million during
the year ended December 31, 2015 [2014 – $1.4 million], and $0.2
million is included in accounts payable and accrued liabilities as
at December 31, 2015. These transactions are measured at the
exchange amount and were incurred during the normal course of
business.
COMpENSATiON Of kEy MANAGEMENT
pERSONNEL Of AGi
AGI’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
Share-based payments
2015
$
104
212
5,939
3,004
2014
$
94
173
5,593
4,516
The company manufactures agricultural equipment with a focus on
grain handling, storage and conditioning products. As at December
31, 2015, aggregation of operating segments was applied to
determine that the Company had only one reportable segment. The
primary factors considered in the application of the aggregation
criteria included the similar long-term average gross margins and
growth rates across the segments, the nature of the products
manufactured by the segments all being related to the handling,
storage and conditioning of agricultural commodities, and the
similarity in the production processes of the segments.
The Company operates primarily within three geographical areas:
Canada, United States and International. The following details the
revenues, property, plant and equipment, goodwill, intangible assets
and available-for-sale investment by geographical area, reconciled to
the Company’s consolidated financial statements:
property, plant and
equipment, goodwill,
intangible assets and
available-for-sale
investment
2015
$
2014
$
Revenue
2014
$
2015
$
TOTAL COMpENSATiON pAiD TO kEy
MANAGEMENT pERSONNEL
9,259
10,376
30 | Profit (loss) per share
Profit (loss) per share is based on the consolidated profit (loss)
for the year divided by the weighted average number of shares
outstanding during the year. Diluted profit (loss) per share is computed
in accordance with the treasury stock method and based on the
weighted average number of shares and dilutive share equivalents.
The following reflects the income and share data used in the basic
and diluted profit per share computations:
pROfiT (LOSS) ATTRibuTAbLE TO
SHAREHOLDERS fOR bASiC AND
DiLuTED pROfiT pER SHARE
2015
$
2014
$
(25,229)
4,100
Canada
United States
International
138,085
105,851
352,741
148,139
191,794
216,392
120,479
90,315
119,605
77,902
21,229
9,032
449,484
400,145
494,449
247,486
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 revenue.
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, plant and equipment of nil [2014 – $28,101] for
which deposits of nil [2014 – $10,401] were made.
Basic weighted average number of shares
13,932,082
13,092,279
[b] LETTERS Of CREDiT
Dilutive effect of DDCP
Dilutive effect of RSU
—
—
36,902
231,630
As at December 31, 2015, the Company has outstanding letters of
credit in the amount of $4,802 [2014 – $10,055].
DiLuTED WEiGHTED AVERAGE
NuMbER Of SHARES
pROfiT (LOSS) pER SHARE – bASiC
pROfiT (LOSS) pER SHARE – DiLuTED
13,932,082
13,360,811
(1.81)
(1.81)
0.31
0.31
The 2013, 2014 and 2015 convertible unsecured subordinated
debentures were excluded from the calculation of diluted net profit
per share because their effect is anti-dilutive.
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818181
[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 no more than five
After five years
$
2,475
5,178
2,265
9,918
These leases have a life of between one and nine years, with no
renewal options included in the contracts.
During the year ended December 31, 2015, the Company recognized
an expense of $2,261 [2014 – $1,771] for leasing contracts. This
amount relates only to minimum lease payments.
[D] 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.
33 | subsequent events
Effective March 9, 2016, the Company acquired 100% of the
outstanding shares of Entringer Industrial S.A. [“Entringer”] for cash
consideration of $15.3 million. $10.2 million was paid on acquisition
and the remaining $5.1 million is payable if Entringer achieves
specified earnings targets. The acquisition and related transaction
costs were funded from the Company’s cash balance. Due to the
timing of the acquisition, the allocation of the purchase price has not
yet been finalized.
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828282
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838383
D
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&
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2
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DiRECTORS
Gary Anderson, Director
Tim Close, Director, President and Chief Executive Officer
Janet Giesselman, Director, Compensation & Human Resources Committee Chair
Bill Lambert, Chairman of the Board of Directors
Bill Maslechko, Director
Mac Moore, Director, Governance Committee Chair
David White, CPA, CA, ICD.D, Director, Audit Committee Chair
OffiCERS
Tim Close, President and Chief Executive Officer
Steve Sommerfeld, CPA, CA, Executive Vice President & Chief Financial Officer
Ron Braun, Senior Vice President, Farm
Dan Donner, Senior Vice President, Commercial
Paul Franzmann, CPA, CA, Senior Vice President, Special Projects
Paul Brisebois, Vice President, Farm
Ryan Kipp, Vice President, Legal and General Counsel
Shane Knutson, Vice President, International Sales
Gurcan Kocdag, Vice President, Commercial
Craig Nimegeers, Vice President, Engineering
Nicolle Parker, Vice President, Finance & Information Systems
Craig Wilson, Vice President, Human Resources
Additional information relating to the Company, including
all public filings, is available on SEDAR (www.sedar.com).
848484