A N N U A L R E P O R T
F I E L D T O C O N S U M E R
2016
2016 ANNUAL REPORT 2 0 1 6 A N N U A L R E P O R T | F I E L D T O C O N S U M E R
2016 ANNUAL REPORTFIELD TO CONSUMER N
W
MAP & T IMEL INE
E
AGI BRAZIL
S
AGI RUSSIA
AGI UKRAINE
1996
FO U N D E D
1997 B ATC O
1998 W H E AT H E A R T
2000 W E S T F I E L D
2004
A G I , I P O
2005
G R A I N G U A R D
2006 H I R O L L E R
2007
T W I S T E R , U N I O N I R O N
2010
T R A M C O
2011
A I R L A N C O
2014
R E M
2015 W E S T E E L , P T M , F R A M E , V I S ,
2016
E N T R I N G E R , N U V I S I O N , M M S , YA R G U S
2017 M F S , Y O R K , S T O R M O R , B R O W N I E ,
H U TC H I N S O N , M AY R AT H , N E C O , S E N T I N E L
2016 ANNUAL REPORTFIELD TO CONSUMER AG I
FO U N D E D I N 1 9 9 6
AGI is a leading manufacturer
of grain and fertilizer handling,
storage and conditioning
equipment. Our brands are
amongst the most recognized
in global agriculture in both
Commercial and Farm sectors.
We have manufacturing
facilities in Canada, the United
States, the United Kingdom,
Brazil, Italy and South Africa
and distribute our products
globally.
The AGI catalog includes
food process and conveyance
equipment, design,
manufacturing, installation
and maintenance. Our product
catalog includes portable
handling equipment (augers,
belt conveyors, grain vacs),
permanent handling systems
(bucket elevators, enclosed
belt conveyors, structural)
and storage and conditioning
systems (bins/silos, aeration
and drying) that service the
grain, fuel biomass and
fertilizer industries for on-farm
and commercial operations.
CEO’S MESSAGE
2016 Annual Report: CEO Message
The AGI story is one of change and growth. 2016 marks 20 years of
steady and consistent growth in product lines, geographies, capabilities,
people, sales and profitability. 2016 was also a year of momentum.
Our pace of change and growth increased significantly throughout the
year as we completed five acquisitions, sold two non-core businesses,
launched our largest organic growth project in Brazil, and adapted our
global organization to accommodate our increased scale and velocity
of change. All of this on top of a long list of other strategic projects
completed throughout AGI.
Scale and velocity, two themes that resonated with us in 2016, two
themes that ultimately resulted in record sales and adjusted EBITDA in
all four quarters. Scale and velocity together create momentum which,
of course, can be positive or negative. In 2016, the contribution from
our teams created significant, positive, sustainable momentum across
our entire business. The momentum created in 2016 is the result of
the hard work of great people across AGI. Our team grew substantially
in 2016 and we are very pleased and proud to welcome our new team
members to the AGI family. It is ultimately this expanding group of
dedicated AGI team members working on twenty-five production floors,
and the sales teams and functional support groups around the world
that determine our success going forward, and are responsible for
creating and maintaining our lasting momentum.
While we celebrated our 20-year anniversary in 2016, AGI became a
public company in 2004 with an IPO share price of $10. Since that date,
we have returned $338 million to our shareholders in dividends and
substantially grown our book value and market value while fulfilling
our objective to become a leading provider of equipment and services
to grain producers, traders and processors. We have had steady
growth in sales, growing from $63 million in 2004 to $532 million in
2016 resulting in a CAGR of almost 20% over the 12 years since our
IPO. Our growth in net income and book value have grown less quickly,
with CAGR’s of 8% and 9%, respectively, and our focus going forward
is to smooth and increase both metrics. Our adjusted EBITDA number,
a useful reflection of our core earning power, has grown at a 16%
CAGR since 2004 to a record $100 million in 2016 – 30% higher than
our previous record. These metrics are strong for a small company
subject to both the normal growing pains as well as the nuances of
being an agriculture company susceptible to swings in weather and
the corresponding impact on our regional markets. Our urgency for
change and growth is to minimize the impact of regional weather and
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2016 ANNUAL REPORTFIELD TO CONSUMER crop events by having exposure to the total investment in the vast global
agriculture infrastructure. We believe that our urgency to change and
grow will allow us to sustain and improve our growth metrics.
through disciplined management, dealt with season to season changes
while also maintaining our long-term commitment to our markets and
customers.
We frequently use adjusted EBITDA in our reporting because, as
mentioned, we believe it provides a useful representation of the core
earning power of our business. I want to assure you that we are
focused on core cash generation and use the adjusted numbers for
perspective and to make comparisons between periods more relevant.
Each year tends to have many moving pieces but FX has been a sizeable
adjustment in many years as we account for hedging contracts and
the impact of translation. These hedging contracts have been both
positive and negative over the years however we had substantial FX
hedging losses in 2015 and 2016 as the USD jumped to current levels
from a band much closer to par when the hedges were put in place. We
have made changes to our hedging policies to reduce the use of long
dated forward positions and we expect to substantially reduce these FX
adjustments going forward.
There has been some talk of stock based compensation throughout
North American markets recently. Stock based compensation is a key
part of our culture as we encourage everyone in our business to have
a sense of ownership in our business. People fundamentally behave
differently as owners. We include stock based compensation in our
adjusted EBITDA to best reflect earnings power. While there are many
moving pieces, our goal is to minimize the adjustments going forward,
and, as always, we will include a table detailing our adjustments.
As of the end of 2016 we had twenty-five operating teams at the
businesses within AGI. Our culture is based on decentralized leadership
combined with a structure meant to encourage entrepreneurial
management of our businesses. This culture and structure is only
possible with great people and leaders across the twenty-five groups.
In 2016, our leaders and employees did a fantastic job while dealing with
a tough year in agriculture in many areas around the world. We had
fantastic results from businesses in both our Farm and Commercial
groups. Of course, there were some businesses that saw reductions
in results due to the softness in the US farm market, however these
businesses remained focused on customers, products and service and,
Toward the end of 2015, we formally reorganized our business to have
a Farm group and a Commercial group. This structure is meant to be
very simple, and is based on providing value to our customers. How and
what we sell to grain producers on the Farm side is different than how
we best serve our Commercial customers who are moving that grain
from the farm gate to end markets. Each AGI group must focus on
adding value for our customers. A very simple concept that is often so
difficult to put in place and execute on in any business. We like simple,
we like to add value, and we believe this structure had a material
impact on building the momentum we saw in 2016 and will contribute
significantly to our performance going forward.
All five of our 2016 acquisitions were on the Commercial side of our
business, providing balance to the sizeable investment we made in
Westeel in 2015, which resides in our Farm group. We made substantial
progress in building our fertilizer equipment platform. The additions
of NuVision, Mitchell Mill Systems (Mitchell), and Yargus transformed
our capabilities in fertilizer markets, positioning AGI as the leading
provider in North America with unique, turnkey, design, manufacture,
build capabilities for fertilizer facilities in Canada. We now have
industry leading technology and products for handling and blending
fertilizer. Fertilizer is a planting story and grain is a harvesting story,
the combination of the two intrinsically linked markets brings material
diversification to our demand drivers and cash flow profile. We have
enormous growth potential in the fertilizer space globally as grain
producers adopt precision agriculture technologies which facilitate
very sophisticated use of all inputs. We will continue to invest in this
platform and grow from a predominantly North American base to a
diversified global business. We were very lucky to have VIS, NuVision,
Mitchell, and Yargus join AGI to form our fertilizer platform and we
never forget the trust that the founders of these companies have placed
in AGI to carry on the goals, culture and legacy of these businesses.
The other two 2016 acquisitions were international businesses that
expanded our reach to new markets and customers globally. In early
Lastly, we are excited about the enormous potential for continued
growth in AGI. AGI has grown from a focus on portable grain handling
equipment 20 years ago to now being active in fertilizer, seed, grain,
feed and food processing equipment. We are building and executing
on strategies to grow in all five of these segments to continue to
diversify, stabilize and build on our momentum. We now define our
addressable markets as “Field to Consumer” as our growth has linked
and created opportunities from the nutrients plants require, the seed
being planted, to the feed and food being consumed by animals and
people. The equipment required to facilitate the handling, conveyance,
storage, treating and processing of the millions of tons of seed, fertilizer
and grain is truly enormous and forms the critical backbone of the
global infrastructure required to feed the world’s population. This is a
theme that we will speak to frequently going forward as we expand our
horizons and pursue our core growth and diversification strategy.
On behalf of the entire AGI team and Board of Directors we thank you,
our shareholders, for the continued support.
Tim Close, Director, President and Chief Executive Officer
2016, we purchased the remaining 49% of Frame to bring 100% of
this business and team into AGI. Frame is a grain bin manufacturer
based in Italy and through this business we are selling into over
fifteen incremental countries. Frame has performed very well and is
positioned to continue to grow as we combine our other product lines
and utilize Italy as a hub for managing our growth into Europe, the
Middle East, North Africa and Asia. We are also very excited about our
entry into Brazil in 2016. We purchased a relatively small company that
brought us new products and a team of people with expertise in this
complicated market. Immediately after closing our deal with Entringer
we started building a greenfield manufacturing facility as our base in
Brazil. This facility has been coming together throughout 2016 and 2017
and is on track for our scheduled commissioning in the second half of
2017. We assembled a team from across our businesses to bring best
practices and decades of experience to this ambitious project. This team
has done a fantastic job to plan and execute this engineering intensive
project and has positioned AGI for decades of growth and success in
South America. Brazil has a massive corn and soybean crop that is
growing every year and is placing enormous stress on the country’s
logistics infrastructure, resulting in significant problems that start with
crop losses in transport, cascade to long delays in delivering the crop
to domestic and international customers, and result in lost revenue and
profit for our customers. We believe that there is incredible opportunity
for Brazil to invest in, modernize and expand the nation’s seed,
fertilizer, grain, and feed infrastructure to eliminate losses and realize
the full potential of this agriculture based country.
As we move into 2017, we are working to maintain and build on the
positive momentum we have across AGI. We are making substantial
investments in our people and structure in every region and business
because we know that investing in our people always pays off. A major
component of our investment is focused on recognizing the importance
of engineering across everything we do as designers and manufacturers
of the equipment that forms the critical global infrastructures that
facilitate the daily, global flow of bulk agriculture products. Engineering
is at the heart of AGI and we are investing in the people and structure
to ensure that our experience and expertise is translated into the
confidence and value that our customers require.
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2016 ANNUAL REPORTFIELD TO CONSUMER MANAGEMEN T’S
DISCUSSION & ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) should be read
in conjunction with the audited consolidated comparative financial
statements and accompanying notes of Ag Growth International
Inc. (“AGI”, the “Company”, “we”, “our” or “us”) for the year ended
December 31, 2016. 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 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 information. Please refer to the
cautionary language under the heading “Risks and Uncertainties” and
“Forward-Looking Information” in this MD&A and in our most recently
filed Annual Information Form.
SUMMARY OF RESULTS
A 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]
Year Ended December 31
Trade sales (1)(2)
Adjusted EBITDA (1)(2)(3)
Adjusted EBITDA % (1)(4)
Profit (loss)
Diluted profit (loss) per share
Adjusted profit (1)
Diluted adjusted profit per share (1)(5)
2016
$
2015
$
546,616
100,429
18.4%
19,306
1.29
36,545
2.44
438,910
73,337
16.7%
(25,229)
(1.81)
32,490
2.33
(1) See “Non-IFRS Measures”.
(2) See “Basis of Presentation”.
(3) See “Adjusted EBITDA”.
(4) Adjusted EBITDA as a percentage of Trade Sales.
(5) See “Diluted profit per share and Diluted adjusted profit per share” below in Summary of Results.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
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2016 ANNUAL REPORTFIELD TO CONSUMER BATCO
19 9 7
Batco was established in
1992 and manufactures belt
conveyors used in storage and
handling of seed, grain and
fertilizer. These conveyors are
ideal where gentle handling
of the product is required.
Batco also produces custom
conveyor solutions.
Trade sales and adjusted EBITDA were at record levels in 2016 as AGI
continued to diversify its geographic and end market exposure through
strategic acquisitions in Canada, the U.S., Brazil and Europe. AGI’s
increased market presence in North America and offshore allowed the
Company to benefit from an active Canadian Farm market, robust North
American demand for Commercial grain handling equipment and strong
demand for grain storage in Europe, Middle East and Africa (“EMEA”).
Adjusted EBITDA from divisions acquired in 2015 and 2016 was $39.1
million (2015 - $8.4 million). Excluding acquisitions, AGI’s adjusted
EBITDA decreased 6% as strength in the North American Commercial
market was offset by a soft U.S. Farm market and lower international
Commercial project sales. Profit and profit per share increased
significantly over 2015 due largely to the higher adjusted EBITDA, a
smaller loss on foreign exchange and a $9.2 million unrealized gain on
the Company’s equity compensation swap.
BASIS OF PRESENTATION
Trade sales and adjusted EBITDA in both 2015 and 2016 exclude the
results of former AGI divisions Applegate and Mepu as a strategic
review of these assets resulted in their sale in 2016. See “Disposition of
Applegate and Mepu Operations”.
To allow for improved comparability between 2015 and 2016, certain
metrics including trade sales and adjusted EBITDA have been presented
both before and after results from acquisitions made in 2015 and 2016.
See “Acquisitions”.
TRADE SALES
(SEE “NON-IFRS MEASURES” AND “BASIS OF PRESENTATION”)
[thousands of dollars]
Excluding acquisitions
Canada
US
International
SUBTOTAL EXCLUDING ACQUISITIONS
Acquisitions
Canada
US
International
SUBTOTAL ACQUISITIONS
TOTAL TRADE SALES
Year Ended December 31
2016
$
2015
$
87,708
187,925
35,034
310,667
150,443
18,718
66,788
235,949
546,616
77,112
188,154
84,979
350,245
60,834
6,087
21,744
88,665
438,910
Trade sales in Canada, excluding acquisitions, increased over 2015
as a strong Canadian Farm market resulted in higher sales of grain
handling and aeration equipment while sales of Commercial handling
equipment benefited from an expanding commercial infrastructure
in Canada. Total trade sales in Canada increased significantly over
the prior year as demand for Westeel storage equipment returned to
more traditional levels following the 2015 drought. In addition, AGI
significantly increased its presence in the fertilizer sector in 2016 and
trade sales reflect strong demand for the design, equipment fabrication
and installation of fertilizer handling and storage facilities.
In the United States, trade sales excluding acquisitions were flat
compared to 2015 as strong demand for Commercial grain handling
equipment offset the impact of a soft U.S. Farm market. Sales of grain
handling equipment into the U.S. Farm market declined for the second
consecutive year however the pace of decline appears to be slowing and
new orders in recent months may indicate a modest return in demand.
The increase in U.S. sales from acquisitions primarily relate to higher
sales of grain storage bins as well as sales of handling equipment and
installation services in the food and fertilizer sectors.
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2016 ANNUAL REPORTFIELD TO CONSUMER
AGI’s international sales, excluding acquisitions, decreased significantly
against a strong 2015 comparative. Large project sales declined
due to a lower backlog entering 2016 and because several customer
commitments failed to materialize early enough to impact 2016 results.
AGI’s international project backlog is currently well above that of the
prior year due to recent project commitments. Total international sales
in 2016 were roughly flat compared to the prior year as Frame product
sales in EMEA and elsewhere offset lower revenue derived from large
project sales.
See also “Outlook”.
GROSS MARGIN
(SEE “NON-IFRS MEASURES” AND “BASIS OF PRESENTATION”)
AGI excluding acquisitions
Acquisitions
CONSOLIDATED
Year Ended December 31
2016
%
39.7
28.2
34.7
2015
%
36.5
24.2
34.0
Strong gross margins in 2016 were achieved despite a decrease in
sales of higher margin Farm equipment. Efficient labour utilization, the
procurement of steel in advance of steel price increases, the positive
impact of a weaker Canadian dollar and strong Commercial operating
margins all contributed. Gross margins from divisions acquired in 2015
and 2016 were slightly below longer term expectations due in part to
compressed gross margins at Brazilian-based Entringer in the months
following its acquisition that were subsequently addressed through
improved pricing discipline and an increased focus on labour costs.
ADJUSTED EBITDA
(SEE “NON-IFRS MEASURES” AND “BASIS OF PRESENTATION”)
DILUTED PROFIT PER SHARE AND DILUTED ADJUSTED
PROFIT PER SHARE
[thousands of dollars]
Year Ended December 31
Excluding Acquisitions
Acquisitions
CONSOLIDATED
2016
$
61,323
39,106
100,429
2015
$
64,927
8,410
73,337
Adjusted EBITDA increased significantly compared to 2015 due largely
to strategic acquisitions in the grain and fertilizer equipment sectors
in North America and overseas. Adjusted EBITDA benefited from a
strong Canadian Farm market and robust North American demand for
Commercial equipment, offset by weakness in the U.S. Farm market
and a decrease in large international project sales. As a percentage
of sales, adjusted EBITDA increased compared to 2015 as strong
Commercial margins and results from acquisitions more than offset the
impact of lower sales of high margin Farm handling equipment.
[thousands of dollars]
Year Ended December 31
EBITDA (1)
Loss on foreign exchange (2)
Share Based Compensation
Cost (recovery) for related Assets under review (3)
Allowance for net Receivables (4)
Gain on Financial Instruments (5)
M&A expenses
Contingent consideration (6)
(Gain) loss on sale of PP&E
ADJUSTED EBITDA (1)
2016
$
83,663
14,070
6,891
122
682
(9,210)
3,018
1,307
(114)
100,429
2015
$
28,396
31,322
3,004
(273)
2,280
0
5,405
0
3,203
73,337
(1) See “Non-IFRS Measures”.
(2) See “Impact of Foreign Exchange”.
(3) See “Disposition of Applegate and Mepu Operations”.
(4) In 2016 AGI cancelled a U.S. based distributor and recorded a net expense related to the fair value of inventory
returned. 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.
(5) See “Equity Compensation Hedge”.
(6) Non-cash expense related to the present value amortization of contingent consideration liabilities.
Diluted profit per share in 2016 was $1.29 (2015 – loss of $1.81). The
significant increase is largely due to higher adjusted EBITDA, a smaller
loss on foreign exchange and a $9.2 million unrealized gain on the
Company’s equity compensation swap. Profit per share in 2015 and 2016
has been significantly impacted by the items below:
[thousands of dollars]
Profit (loss) as reported
Diluted per share as reported
Loss on foreign exchange
Assets under review
Asset Impairment
Allowance for net Receivables
M&A expenses
Contingent consideration expense
Gain on financial instruments
Loss on sale of PP&E
Adjusted profit (1)
Diluted adjusted profit per share (1)
(1) See “Non-IFRS Measures”.
ACQUISITIONS
Yargus (November 21, 2016)
Year Ended December 31
2016
$
2015
$
19,306
1.29
14,070
(353)
7,839
682
3,018
1,307
(9,210)
(114)
36,545
2.44
(25,229)
(1.81)
31,322
15,509
0
2,280
5,405
0
0
3,203
32,490
2.33
Yargus is a manufacturer of material handling equipment used
primarily in commercial fertilizer applications. The acquisition
of Yargus substantially expanded AGI’s North American fertilizer
handling platform, both geographically and in terms of service offering.
Yargus has a substantial presence in the U.S., as well as a growing
international presence, both of which are highly complementary to AGI’s
current material handling footprint. Yargus recently made substantial
investments in plant, equipment, personnel, and product development,
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2016 ANNUAL REPORTFIELD TO CONSUMER W H E AT H E A RT
19 9 8
Wheatheart was established
in 1973 and offers an
extensive line of portable
grain augers including
specialized self-propelled
options, grain-handling
accessories, as well as
industry leading fencing
equipment.
and when combined with AGI’s existing divisions, is very well positioned
to compete in both local and international markets. The purchase price
for Yargus was U.S. $43.2 million, which included U.S. $5.2 million
of debt related to its recent building expansion and investment in
equipment that was required to drive Yargus’ next phase of growth.
The transaction was completed at similar metrics to AGI’s recent North
American acquisitions.
Mitchell Mill Systems (July 18, 2016)
Mitchell is a manufacturer of material handling equipment used
in grain, fertilizer, animal feed, food processing, and industrial
applications. Mitchell is recognized for its extensive design, fabrication
and installation expertise and the company’s product offering includes
conveyor systems, bucket elevators, screw conveyors, and drag
conveyors. The transaction was completed at similar metrics to AGI’s
recent North American acquisitions. The financial consideration is
comprised of a fixed amount payable upon closing, and a contingent
amount payable over three years based on the achievement of EBITDA
targets. The amount payable upon close was funded from cash on hand
and AGI’s revolving credit facility.
Brazil. As expected, Last Twelve Months’ (“LTM”) EBITDA continues to
be negative in part due to low gross margins in the months following
acquisition that were subsequently addressed through improved
pricing discipline and an increased focus on labour costs. The Company
acquired Entringer for cash consideration of R$30 million. Subsequent
to year-end, an agreement in principle has been reached with the
vendors of Entringer that will modify the provisions of the share
purchase agreement and, among other conditions, will eliminate the
potential for an earn-out.
VIS (November 30, 2015)
VIS is a Winnipeg-based manufacturer of material handling equipment
used in the fertilizer, feed and grain sectors. VIS provides AGI with new
capability and experience in the planning, design and manufacture of
high throughput industrial fertilizer handling equipment. AGI acquired
VIS for cash consideration of $10.0 million and contingent consideration
of $5.0 million. In the third quarter of 2016 the vendors of VIS joined
AGI’s senior management team and the contingent consideration
amount was guaranteed, and as at March 15, 2017 the balance has been
paid in full. The purchase price was funded from AGI’s cash balance.
NuVision (April 1, 2016)
Westeel (May 20, 2015)
NuVision designs, manufactures, installs, and maintains fertilizer
blending and handling facilities throughout Western Canada. The
final purchase price will be based on five times NuVision’s average
EBITDA for the financial years 2015, 2016, 2017 and 2018, with a
maximum purchase price of $26 million. Terms of the transaction
included payment of $12 million upon closing with additional amounts
payable annually based on achieved EBITDA in 2016, 2017 and 2018. All
payments under the agreement are payable 50% in cash and 50% in AGI
equipment and the cash amount payable upon closing was funded from
AGI’s cash balance.
Entringer (March 9, 2016)
Entringer is a Brazilian based manufacturer of grain bins, bucket
elevators, dryers and cleaners. Founded in 1988 and strategically
located in Brazil’s Sao Paulo province, Entringer provides AGI with
a measured entry into the rapidly expanding agricultural sector in
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-. AGI acquired the 49% minority interest
in Frame in the second quarter of 2016 for cash consideration €6.0
million.
The purchase price for Westeel was $205 million, net of cash acquired
and a redundant manufacturing plant. The acquisition was financed
through the issuance of common shares, convertible unsecured
subordinated debentures and long-term debt.
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2016 ANNUAL REPORTFIELD TO CONSUMER IMPACT OF FOREIGN EXCHANGE
Sales and Adjusted EBITDA
AGI’s average rate of exchange for 2016 was $1.32 (2015 = $1.27). A
lower Canadian dollar results in an increase in reported trade sales as
U.S. dollar denominated sales are translated into Canadian dollars at
a higher rate. Similarly, a lower Canadian dollar results in increased
costs for U.S. dollar denominated inputs and SG&A expenses. In
addition, a weaker Canadian dollar may result in higher input costs
of certain Canadian dollar denominated inputs, including steel. On
balance, adjusted EBITDA benefits from a weaker Canadian dollar.
CORPORATE OVERVIEW
AGI is a manufacturer of agricultural equipment with a focus on
grain and fertilizer 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., Brazil
and Europe and we sell products globally.
Gains and Losses on Foreign Exchange
OUTLOOK
AGI has entered into forward foreign exchange contracts with the
objective of partially mitigating exposure to currency fluctuations. In
2016, AGI realized losses on maturing foreign exchange contracts
of $14.4 million (2015 - $15.3 million). Based on foreign exchange
contracts outstanding at January 1, 2017, the Company does not
expect to realize losses of a similar magnitude in 2017. The table
below summarizes outstanding foreign exchange contracts. Currency
fluctuations also result in non-cash gains or losses on foreign
exchange. See “Financial Instruments – Foreign exchange contracts”.
FORWARD FOREIGN EXCHANGE CONTRACTS
SETTLEMENT
DATES
FACE AMOUNT USD
(000’s)
AVERAGE RATE
CAD
CAD AMOUNT
(000’s)
2017 – Q1
9,000
$1.25
11,216
AGI’s North American Farm business is comprised primarily of portable
grain handling equipment and Westeel’s storage business. The Farm
market in Canada was very strong in 2016, as Canadian farmers
benefited from a favourable crop mix, the positive economics of a
weak Canadian dollar and a large crop. In general, market participants
expect strength in the Canadian Farm market to continue in 2017. The
Farm market in the U.S., however, has experienced weakness in 2015
and 2016 as a significant drop in corn and soybean prices, without an
immediate corresponding decrease in input costs, resulted in a severe
reduction in farmer net income. In total, AGI’s North American Farm
sales decreased for the second consecutive year in 2016. However, early
signs of a recovery in demand appear to be forming. In the first two
months of fiscal 2017 new orders have increased over 30% compared
to the prior year and current order backlogs are significantly higher
than at the same time in 2016. While it is too early in the crop year
to confidently predict higher demand for Farm equipment in 2017,
management is cautiously optimistic that recent activity is an indicator
of a modest improvement in the North American Farm sector.
AGI’s Commercial business is comprised primarily of high capacity
grain handling and conditioning equipment, larger diameter storage
bins and the design, supply and installation of fertilizer distribution
sites. The demand environment for AGI’s North American Commercial
business remains positive due to the longer-term trend towards higher
crop volumes, the drive towards improved efficiencies in a mature
market, the dissolution of the Canadian Wheat Board and the evolution
of retail fertilizer distribution. Entering 2017, AGI’s North American
backlog for Commercial equipment was higher than at the same time in
2016, however it is expected first quarter sales may be constrained due
to project timing. In general, management anticipates continued strong
demand for North American Commercial equipment in 2017.
Offshore, the commercial infrastructure in many grain producing
and importing countries remains vastly underinvested resulting in
significant global opportunities for AGI’s Commercial business. In 2017
management anticipates an increase in large international project sales
compared to the prior year as delayed customer commitments come to
fruition. In addition, management expects another strong contribution
from its Italian subsidiaries Frame and PTM as backlogs remain high
and quoting activity in EMEA and elsewhere remains robust. Our
international project backlog is well above 2016 levels and we anticipate
that variance will grow as customers commit to larger project sales.
Overall, management anticipates a significant increase in international
sales compared to the prior year.
AGI completed several acquisitions in 2016 and the inclusion of a full
twelve months of results from NuVision (acquired April 2016), Mitchell
(July 2016) and Yargus (November 2016) in 2017 is expected to increase
EBITDA compared to the prior year. In addition, management believes
the combination of these entities has created a market leading fertilizer
platform and accordingly expects to organically grow sales for each of
these businesses.
AGI also acquired Brazilian-based Entringer in March 2016 and soon
after commenced construction of a new production facility to house both
Entringer products and many of AGI’s North American product lines.
Management anticipates the new facility will be in limited production
in the second quarter of 2017 and will be fully commissioned in the
second half of the year. In 2017, the Company will continue to focus
on growing its Farm and Commercial business in Brazil while at the
same time transferring product knowledge from North America to
Brazil and investing in people to prepare for future growth. On balance,
management anticipates adjusted EBITDA in Brazil will be slightly
positive in 2017.
17
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
18
2016 ANNUAL REPORTFIELD TO CONSUMER W E S T F I E L D
2 0 0 0
Established in 1950; today
operating out of a 183,000
square-foot facility in
Rosenort, Manitoba, Westfield
is the leading North American
manufacturer of portable
grain augers.
Demand in 2017 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 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. Consistent with prior periods,
Commercial sales are subject to the timing of customer commitment
and delivery considerations. 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. The Company has mitigated its exposure to
higher input costs though procurement of steel at lower prices, sales
price increases and limiting the length of time commercial quotes
remain valid. However, AGI’s results in 2017 may be impacted by higher
steel prices.
On balance, based on current conditions, management anticipates
sales and adjusted EBITDA in 2017 will exceed 2016 results. Inclusion
of a full twelve months of results from the 2016 acquisitions of
NuVision, Mitchell and Yargus, and anticipated synergies derived from
the creation of a market leading fertilizer platform, are expected to
significantly contribute to sales and EBITDA in 2017. Positive conditions
in Canada are expected to lead to robust demand for portable handling,
aeration and storage equipment. In the U.S., management anticipates a
modest increase in demand for Farm equipment as market conditions
incrementally improve and farmers replace older equipment. Finally,
international sales are expected to benefit from a higher opening
backlog and increased large project sales.
DETAILED OPERATING RESULTS
[thousands of dollars]
Trade sales (1)(2)
Loss on FX
Sales (2)
Cost of inventories (2)
Depreciation / amortization (2)
Cost of sales (2)
General and administrative (2)
M&A expenses
Contingent consideration expense
Depreciation/ amortization (2)
Other operating (income) expenses
Asset Impairment
Finance costs
Finance (income) expenses
Profit (loss) before income taxes
Current income taxes
Deferred income taxes
Profit (loss) for the period from Continuing operations
Profit (loss) from discontinued Operations
Profit (loss) for the period
Profit per share
Basic
Diluted
(1) See “Non-IFRS Measures”.
(2) See “Basis of Presentation”
(3) See Disposition of Applegate and Mepu Operations
Year Ended December 31
2016
$
2015
$
546,616
(15,000)
531,616
356,765
13,667
370,432
99,427
3,018
1,307
8,317
(11,596)
7,839
24,025
(968)
29,815
11,122
(260)
18,953
353
19,306
1.31
1.29
438,910
(24,795)
414,115
289,683
10,166
299,849
84,011
5,405
0
6,351
308
0
18,490
6,312
(6,611)
4,722
(1,613)
(9,720)
(15,509)
(25,229)
(1.81)
(1.81)
DISPOSITION OF APPLEGATE AND MEPU OPERATIONS
A strategic review of the Applegate and Mepu operations commenced
in 2015. As noted under “Basis of Presentation”, results from Mepu and
Applegate have been removed from our calculation of Trade Sales and
Adjusted EBITDA in both 2015 and 2016. In 2016, trade sales
05
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
20
2016 ANNUAL REPORTFIELD TO CONSUMER related to these operations totaled $15.5 million (2015 - $35.4 million)
and adjusted EBITDA was negative $0.5 million (2015 – negative $0.7
million).
ASSETS AND LIABILITIES
[thousands of dollars]
The sale of Mepu in June 2016 resulted in cash proceeds on closing of
$3.1 million and receipt of an additional $3.1 million in the second half
of 2016 upon collection of accounts receivable and receipt of the second
and final payment for inventory. Terms of the sale included a note
receivable of $0.8 million from the purchaser related to the building,
repayable over ten years.
The sale of Applegate in August 2016 resulted in cash proceeds on
closing of $4.1 million and receipt of an additional $1.4 million in the
second half of 2016 upon collection of accounts receivable.
Total assets
Total liabilities
DECEMBER 31,
2016
$
DECEMBER 31,
2015
$
850,151
605,587
745,920
510,765
EXPLANATION OF OPERATING RESULTS
TRADE SALES
(SEE “NON-IFRS MEASURES” AND “BASIS OF PRESENTATION”)
EBITDA AND ADJUSTED EBITDA RECONCILIATION
[thousands of dollars]
[thousands of dollars]
Year Ended December 31
2016
$
2015
$
Profit (loss) from continuing operations
before income taxes
Finance costs
Impairment of assets
Depreciation / amortization in cost of sales
Depreciation / amortization in SG&A expenses
EBITDA (1)
Loss on foreign exchange
Share based compensation
M&A expenses
Contingent consideration
Gain on financial instruments
(Gain) loss on sale of property, plant & equipment
Allowance for net Receivables
Recovery (cost) of related Assets under review
ADJUSTED EBITDA (1)
29,815
24,025
7,839
13,667
8,317
83,663
14,070
6,891
3,018
1,307
(9,210)
(114)
682
122
100,429
(6,611)
18,490
0
10,166
6,351
28,396
31,322
3,004
5,405
0
0
3,203
2,280
(273)
73,337
Adjusted EBITDA as a % of trade sales
18.4%
16.7%
(1) See “Non-IFRS Measures”.
Excluding acquisitions
Canada
US
International
SUBTOTAL EXCLUDING ACQUISITIONS
Acquisitions
Canada
US
International
SUBTOTAL ACQUISITIONS
TOTAL TRADE SALES
CANADA
Trade sales in Canada, excluding acquisitions, increased over 2015 as a
strong Canadian Farm market resulted in higher sales of grain handling
and aeration equipment while sales of Commercial handling equipment
benefited from an expanding commercial infrastructure in Canada.
Total trade sales in Canada increased significantly over the prior year
as demand for Westeel storage equipment returned to more traditional
levels following the 2015 drought. In addition, AGI significantly increased
Year Ended December 31
2016
$
2015
$
87,708
187,925
35,034
310,667
150,443
18,718
66,788
235,949
546,616
77,112
188,154
84,979
350,245
60,834
6,087
21,744
88,665
438,910
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
22
2016 ANNUAL REPORTFIELD TO CONSUMER 2016 ANNUAL REPORTFIELD TO CONSUMER its presence in the fertilizer sector in 2016 and trade sales reflect
strong demand for the design, equipment fabrication and installation
of fertilizer handling and storage facilities.
UNITED STATES
In the United States, trade sales excluding acquisitions were flat
compared to 2015 as strong demand for Commercial grain handling
equipment offset the impact of a soft U.S. Farm market. Sales of grain
handling equipment into the U.S. Farm market declined for the second
consecutive year however the pace of decline appears to be slowing and
new orders in recent months may indicate a modest return in demand.
The increase in U.S. sales from acquisitions primarily relate to higher
sales of grain storage bins as well as sales of handling equipment and
installation services in the food and fertilizer sectors.
INTERNATIONAL
AGI’s international sales, excluding acquisitions, decreased significantly
against a strong 2015 comparative. Large project sales declined
due to a lower backlog entering 2016 and because several customer
commitments failed to materialize early enough to impact 2016 results.
AGI’s international project backlog is currently well above that of the
prior year due to recent project commitments. Total international sales
in 2016 were roughly flat compared to the prior year as Frame product
sales in Europe, the Middle East and Africa (“EMEA”) and elsewhere
offset lower revenue derived from large project sales.
GROSS MARGIN
AGI excluding acquisitions
Acquisitions
CONSOLIDATED
(1) See “Non-IFRS Measures”.
(2) Excludes depreciation and amortization included in cost of sales.
(3) See “Basis of Presentation”
Year Ended December 31
2016
%
39.7
28.2
34.7
2015
%
36.5
24.2
34.0
Strong gross margins in 2016 were achieved despite a decrease in
sales of higher margin Farm equipment. Efficient labour utilization, the
procurement of steel in advance of steel price increases, the positive
impact of a weaker Canadian dollar and strong Commercial operating
margins all contributed. Gross margins from divisions acquired in 2015
and 2016 were slightly below longer term expectations due in part to
compressed gross margins at Brazilian-based Entringer in the months
following its acquisition that were subsequently addressed through
improved pricing discipline and an increased focus on labour costs.
GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses in 2016 were $112.1 million (2015 - $95.8 million).
Excluding acquisitions made in 2015 and 2016, SG&A expenses were
$72.8 million (2015 - $74.1 million). The decrease compared to 2015 is
largely related to the items below:
• Third party commissions decreased $4.1 million compared to 2015
due to sales mix.
• Bad debt expense decreased $2.5 million largely because results in
2015 included a $2.9 million bad debt allowance for an international
customer.
• Salaries and wages in 2016 increased $1.6 million due largely to the
achievement of performance based bonuses.
• Share based compensation in 2016 increased $3.8 million due to the
implementation of a new performance based plan that included a
higher number of participants compared to the plan that expired at
the end of 2015.
• The remaining variance resulted from several offsetting factors with
no individual variance larger than $1.0 million.
G R A I N G U A R D
2 0 0 5
Grain Guard offers fans,
aeration equipment,
specialized ducting and low
temperature heaters for all
grain storage situations.
Grain Guard provides proven
solutions for natural air drying
and conditioning of stored
grain.
25
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
06
2016 ANNUAL REPORTFIELD TO CONSUMER EBITDA AND ADJUSTED EBITDA
OTHER OPERATING EXPENSE (INCOME)
DEFERRED INCOME TAX EXPENSE
[thousands of dollars]
Year Ended December 31
EBITDA (1)
Adjusted EBITDA (1)
2016
$
83,663
100,429
2015
$
28,396
73,337
(1) See the EBITDA and adjusted EBITDA reconciliation table above, “Non-IFRS Measures” and
“Basis of Presentation”.
Adjusted EBITDA increased significantly compared to 2015 due largely
to strategic acquisitions in the grain and fertilizer equipment sectors
both in North America and overseas. Adjusted EBITDA benefited from
a strong Canadian Farm market and robust North American demand
for Commercial equipment, offset by continued weakness in the U.S.
Farm market and a decrease in large international project sales. As
a percentage of sales, adjusted EBITDA increased compared to 2015
as strong Commercial margins and results from acquisitions more
than offset the impact of lower sales of high margin Farm handling
equipment. The increase in EBITDA over 2015 was more significant
due to a smaller loss on foreign exchange and a gain on an equity
compensation derivative in 2016.
FINANCE COSTS
Finance costs in 2016 were $24.0 million (2015 – $18.5 million). The
higher expense in 2016 relates primarily to financing the acquisition of
Westeel in May 2015, 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 in 2016 includes a gain on financial instruments
of $9.2 million that was entered in 2016 (see “Equity Compensation
Hedge”) and in 2016 the Company recorded a gain on the sale of
property, plant & equipment and assets held for sale of $0.1 million
(2015 – loss of $3.2 million).
DEPRECIATION AND AMORTIZATION
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 2016 primarily relates to acquisitions made in 2015 and
2016. Total depreciation and amortization is summarized below:
Depreciation
[thousands of dollars]
Depreciation in cost of sales
Depreciation in G&A
Total Depreciation
Amortization
[thousands of dollars]
Amortization in cost of sales
Amortization in G&A
Total Amortization
Year Ended December 31
2016
$
10,019
904
10,923
2015
$
7,621
567
8,188
Year Ended December 31
2016
$
3,648
7,413
11,061
2015
$
2,545
5,784
8,329
CURRENT INCOME TAX EXPENSE
For the year ended December 31, 2016 the Company recorded current
tax expense of $11.1 million (2015 – $4.7 million). Current tax expense
relates primarily to Ag Growth U.S. and Italy subsidiaries.
PROFIT (LOSS) AND DILUTED PROFIT (LOSS) PER SHARE AND
ADJUSTED DILUTED PROFIT (LOSS) PER SHARE
In 2016 the Company reported profit of $19.3 million (2015 – loss of
$25.2 million), basic profit per share of $1.31 (2015 – loss of $1.81) and
a fully diluted profit per share of $1.29 (2015 – loss of $1.81).
A reconciliation of adjusted profit per share is below:
[thousands of dollars, other than per share data]
Year Ended December 31
2016
$
2015
$
19,306
1.29
14,070
(353)
7,839
3,018
1,307
(9,210)
(114)
682
36,545
2.44
(25,229)
(1.81)
31,322
15,509
0
5,405
0
0
3,203
2,280
32,490
2.33
For the year ended December 31, 2016, the Company recorded deferred
tax recovery of ($0.3) million (2015 –$1.6 million). Deferred tax recovery
in 2016 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 depreciable
assets, intangible assets 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, 2016,
the Company offset $0.5 million of Canadian tax otherwise payable
(2015 - generated new net Canadian tax losses of ($0.7) million).
Through the use of these attributes and since the date of Conversion
a cumulative amount of $38.2 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, 2016, the balance
sheet asset related to these unused attributes was $16.8 million.
EFFECTIVE TAX RATE
[thousands of dollars]
Current tax expense
Deferred tax expense
TOTAL TAX
Profit (loss) before taxes
Total tax %
Profit as reported
Diluted profit per share as reported
Loss on foreign exchange
Assets under review
Asset Impairment
M&A expenses
Contingent consideration expense
Gain on financial instruments
Loss on sale of PP&E
Allowance for net Receivables
Adjusted profit (1)
Year Ended December 31
Diluted adjusted profit per share (1)
2016
$
2015
$
(1) See “Non-IFRS Measures”.
11,122
(260)
10,862
30,168
36.0%
4,722
(1,613)
3,109
(22,120)
(14.1%)
The total tax percentage in 2015 and to a much lesser extent in 2016
was impacted by items that were expensed for accounting purposes but
were not deductible for tax purposes. These include non-cash losses
on foreign exchange. See “Diluted profit per share and Diluted adjusted
profit per share”.
27
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
28
2016 ANNUAL REPORTFIELD TO CONSUMER
SELECTED ANNUAL INFORMATION
[thousands of dollars, other than per share data]
Twelve Months Ended December 31
2016
$
2015
$
2014(2)
$
• Sales, gain (loss) on foreign exchange, profit and profit 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
relative to its U.S. counterpart.
414,115
400,145
Sales
EBITDA (1)
Adjusted EBITDA (1)
Profit (loss) from continuing operations
Basic profit (loss) per share from
continuing operations
Fully diluted profit (loss) per share
from continuing operations
531,616
83,663
100,429
18,953
1.29
1.27
28,396
73,337
(9,720)
(0.70)
(0.70)
Profit (loss)
19,306
(25,229)
Basic profit (loss) per share
Fully diluted profit (loss) per share
Funds from operations (1)
Payout ratio (1)
Dividends declared per common share
Total assets
Total long-term liabilities
1.31
1.29
52,888
67%
2.40
850,151
480,821
(1.81)
(1.81)
37,791
89%
2.40
745,920
358,742
(1) See “Non-IFRS Measures”.
(2) As reported other than items specifically noted with results from continuing operations.
60,470
78,228
35,278
2.69
2.64
4,100
0.31
0.31
55,549
57%
2.40
447,116
123,415
The following factors impact comparability between years in the table
above:
• The acquisitions of Vis, Westeel, Entringer, NuVision, Mitchell and
Yargus significantly impact information in the table above. See
“Acquisitions”.
• Profit and 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.
• Profit and profit per share in 2014 were significantly impacted by an
expense of $16.9 million related to the Company’s agreement with
the CRA regarding its conversion to a corporation.
QUARTERLY FINANCIAL INFORMATION
[thousands of dollars other than per share data and exchange rate]:
AVG USD / CAD
FX RATE
SALES
PROFIT
BASIC PROFIT
PER SHARE
DILUTED PROFIT
PER SHARE
PROFIT
BASIC PROFIT
PER SHARE
DILUTED PROFIT
PER SHARE
2016
FROM CONTINUING OPERATIONS
TOTAL
1.38
1.29
1.34
1.32
1.32
111,723
140,837
158,680
120,376
6,257
4,245
12,952
(4,501)
531,616
18,953
$0.43
$0.29
$0.87
($0.30)
$1.29
$0.42
$0.28
$0.84
($0.30)
$1.27
5,697
5,285
13,034
(4,710)
19,306
$0.39
$0.36
$0.88
($0.32)
$1.31
$0.38
$0.35
$0.85
($0.32)
$1.29
AVG USD / CAD
EXCHANGE RATE
SALES
2015(1)
PROFIT /
(LOSS)
BASIC
PROFIT (LOSS)
PER SHARE
DILUTED
PROFIT (LOSS)
PER SHARE
1.23
87,259
(3,409)
($0.26)
($0.26)
1.24
122,396
8,173
$0.60
$0.58
1.30
125,590
(8,638)
($0.60)
($0.60)
1.33
114,239
(21,355)
($1.48)
($1.48)
1.27
449,484
(25,229)
($1.81)
($1.81)
Q1
Q2
Q3
Q4
YTD
Q1
Q2
Q3
Q4
YTD
(1) As reported.
29
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
30
2016 ANNUAL REPORTFIELD TO CONSUMER H I RO L L E R
2 0 0 6
Hi Roller© manufactures a
line of premier commercial
enclosed, dust-tight
and self reloading conveyors,
designed for installation
in grain handling facilities,
soy and corn processing
operations and industrial
operations.
The following factors impact the comparison between periods in the
table above:
TRADE SALES
[thousands of dollars]
• AGI’s acquisition of Westeel (Q2 2015), VIS (Q4 2015), Entringer
(Q1 2016), NuVision (Q2 2016), Mitchell (Q3 2016) and Yargus (Q4
2016) significantly impacts comparisons to prior periods of assets,
liabilities and operating results. See “Acquisitions”.
• 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.
• 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.
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]
Three Months Ended December 31
Trade sales (1)
Adjusted EBITDA (1)
Profit (loss)
Diluted profit (loss) per share
Adjusted profit (1)
Diluted adjusted profit per share (1)
(1) See “Non-IFRS Measures”.
2016
$
2015
$
126,430
18,226
(4,710)
($0.32)
4,440
$0.30
114,768
14,068
(21,355)
($1.48)
3,546
$0.25
Excluding acquisitions
Canada
US
International
SUBTOTAL EXCLUDING ACQUISITIONS
Acquisitions
Canada
US
International
SUBTOTAL ACQUISITIONS
TOTAL TRADE SALES
Three Months Ended December 31
2016
$
17,592
40,840
5,925
64,357
36,805
9,293
15,975
62,073
126,430
2015
$
13,039
41,789
19,139
73,967
21,944
829
18,028
40,801
114,768
Trade sales in Canada, excluding acquisitions, increased over 2015
as a strong Canadian Farm market resulted in higher sales of grain
handling and aeration equipment. Total trade sales in Canada increased
significantly over the prior year as demand for Westeel storage
equipment returned to more traditional levels following the 2015
drought. In addition, AGI significantly increased its presence in the
fertilizer sector in 2016.
In the United States, trade sales excluding acquisitions were flat
compared to 2015 as strong demand for Commercial grain handling
equipment offset the impact of a soft U.S. Farm market. The increase
in U.S. sales from acquisitions are primarily the result of higher sales
of grain storage bins as well as sales of handling equipment and
installation services into the food and fertilizer sectors.
AGI’s international sales, excluding acquisitions, decreased significantly
against a strong 2015 comparative. Large project sales declined as
several customer commitments failed to materialize early enough
to impact 2016 results. International trade sales from acquisitions
decreased against a very strong 2015 comparative due largely to timing
of Frame shipments.
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M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
32
2016 ANNUAL REPORTFIELD TO CONSUMER
GROSS MARGIN
Gross margin as a percentage of sales for the three months ended
December 31, 2016 was 34.0%, (2015 – 34.2%) and excluding
acquisitions was 32.2% (2015 – 31.1%). Gross margin percentages
remained healthy despite a decrease in sales of higher margin Farm
equipment due to production efficiencies and Commercial product
mix. Historically, gross margin percentages are lower 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, 2016, general and
administrative expenses, excluding acquisitions, were $20.0 million
(2015 - $21.2 million). 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 decrease from 2015 is largely due to a $2.8 million
decrease in third party commissions, primarily the result of sales mix,
and a $0.9 million increase in share based compensation expense. The
remaining variance resulted from several offsetting factors with no
individual variance larger than $0.5 million.
ADJUSTED EBITDA AND PROFIT (LOSS)
[thousands of dollars]
Three months Ended December 31
ADJUSTED EBITDA
AGI, excluding acquisitions
Acquisitions
TOTAL
2016
$
2015
$
10,541
7,685
$18,226
10,191
3,877
$14,068
Adjusted EBITDA for the three months ended December 31, 2016
was $18.2 million (2015 - $14.1 million). The increase from 2015 was
primarily the result of contributions from acquisitions made in 2015 and
2016.
For the three months ended December 31, 2016, the Company reported
a net loss of $4.7 million (2015 - $21.4 million), a basic net loss per
share of $0.32 (2015 - $1.48), and a fully diluted net loss per share
of $0.32 (2015 – $1.48). Profit per share in 2015 and 2016 has been
significantly impacted by the items below:
CASH FLOW AND LIQUIDITY
[thousands of dollars]
[thousands of dollars, other than per share data]
Three Months Ended December 31
Year Ended December 31
2016
$
2015
$
2016
$
2015
$
Profit before income taxes from continuing operations
29,815
(6,611)
Profit (loss) as reported
($4,710)
($21,355)
Diluted profit (loss) per share as reported
Assets under Review
Loss on foreign exchange
Non- cash Asset impairment
M&A Activity
Contingent Consideration expense
Gain on financial Instruments
(Gain) loss on sale of property, plant and equipment
Allowance for bad debt
Adjusted profit (1)
Diluted adjusted profit per share (1)
(1) See “Non-IFRS Measures”.
LIQUIDITY AND CAPITAL RESOURCES
($0.32)
209
6,932
5,526
1,185
367
(4,050)
(1,701)
682
$4,440
$0.30
($1.48)
14,837
9,034
0
699
0
0
6
325
$3,546
$0.25
AGI’s financing requirements are subject to variations due to the
seasonal and cyclical nature of its business. 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. Internally generated funds
are supplemented when necessary from external sources, primarily the
Credit Facility, to fund the Company’s working capital requirements,
capital expenditures and dividends. The Company believes that the debt
facilities and debentures described under “Capital Resources”, together
with available cash and internally generated funds, are sufficient to
support its working capital, capital expenditures, dividends and debt
service requirements.
Add charges (deduct credits) to operations
not requiring a current cash payment:
Depreciation/Amortization
Translation (gain) loss on FX
Non-cash interest expense
Share based compensation
Defined benefit pension plan
Non-cash movement in derivative Instruments
Non-cash Investment tax credit
Impairment charge
Dividends receivable on equity swap
Dividends on share based compensation
Contingent Consideration
Loss (gain) on sale of assets
Cash provided by operations before non-cash
working capital changes and income taxes
21,984
(4,864)
4,363
6,891
208
(9,210)
(68)
7,839
(100)
(55)
(1,712)
(114)
54,977
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
(net of discontinued operations)
6,707
6,753
(4,211)
(777)
(7,871)
(862)
(261)
(9,720)
44,996
16,517
30,360
3,090
3,004
272
0
(412)
0
0
(962)
0
3,203
48,461
39,048
8,291
2,076
(23,571)
7,056
1,549
34,449
(2,613)
80,297
33
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
34
2016 ANNUAL REPORTFIELD TO CONSUMER
U N I O N I RO N
2 0 0 7
Founded in 1852, Union Iron
offers material handling and
storage equipment
for use in the commercial
and industrial markets
including: temporary grain
storage, bucket elevators,
drag conveyors and structural
equipment. Union Iron’s HSI
line offers capacities up to 250
mtph (10,000 bph) for large
farms and small commercial/
industrial facilities.
Cash provided by operations decreased compared to the prior year
largely because of the collection in 2015 of insurance proceeds related
to an amount receivable from an international customer in the amount
of U.S. $19.1 million. In addition, cash provided by operations in 2015
benefited from higher customer deposits from international customers.
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.
Requirements for 2017 are expected to be generally consistent with
historical patterns however recent acquisitions have had the effect
of increasing working capital requirements in Q4 and Q1. 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 2016 were $3.8 million (0.7% of
trade sales) compared to $2.3 million (0.5%) in 2015. Management
generally anticipates maintenance capital expenditures in a fiscal year
to approximate 1.0% - 1.5% of sales. Maintenance capital expenditures
in 2016 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 $36.6 million in 2016 (2015 - $34.5
million). In 2016, non-maintenance capital expenditures relate primarily
to equipment purchases, facility upgrades and the construction of
AGI’s production facility in Brazil. In 2016, a total of $25 million was
expended on the Brazil facility and management estimates an additional
$25 million will be required to complete the project. Non-maintenance
capital expenditures in 2017 are expected to include the purchase of
a currently rented manufacturing facility in Italy for $9 million as well
as expenditures on warehousing and manufacturing equipment of
approximately $15 million.
Maintenance and non-maintenance capital expenditures in 2017 are
expected to be financed through bank indebtedness, cash on hand or
through the Company’s credit facility (see “Capital Resources”).
CONTRACTUAL OBLIGATIONS
[thousands of dollars]
TOTAL
2017
2018
2019
2020
2021+
2013 Debentures
2014 Debentures
2015 Debentures
86,250
51,750
75,000
Long-term debt
208,989
86,250
Finance lease
Operating leases
1,732
8,291
353
2,221
1,046
1,769
Due to vendor
17,191
16,415
51,750
110,422
142
1,256
75,000
130
917
98,567
61
2,128
776
Contingent
considerations
Purchase
obligations (1)
20,224
4,023
9,163
7,038
16,442
16,442
Total obligations
485,869
39,454
98,228
170,608
76,047
101,532
(1) Net of deposit.
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”).
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06
2016 ANNUAL REPORTFIELD TO CONSUMER
CAPITAL RESOURCES
CASH
The Company’s cash balance at December 31, 2016 was $2.8 million
(2015 - $58.2 million). The decrease in cash is partially the result of a
September 2015 debenture issuance that increased the company’s cash
balance at December 31, 2015.
DEBT FACILITIES
[thousands of dollars]
CURRENCY
MATURITY
TOTAL
FACILITY
(CAD)
AMOUNT
DRAWN
INTEREST
RATE (2)
Operating Facility
Operating Facility
Revolver (1)
USD Revolver
Term Loan A (1)
Term Loan B (1)
Series B Notes
Series C Notes
CAD
USD
CAD
USD
CAD
CAD
CAD
USD
2019
2019
2019
2019
2019
2022
2025
2026
20,000
9,390
80,000
91,304
50,000
40,000
25,000
33,568
0
0
51,023
9,399
50,000
40,000
25,000
33,568
4.10%
5.00%
3.73%
4.50%
3.60%
4.32%
4.44%
3.70%
TOTAL
349,262
208,990
(1) Interest rate fixed via interest rate swaps. See “Interest Rate Swaps”.
(2) As at December 31, 2016.
The Company has a credit facility (the “Credit Facility”) with a syndicate
of Canadian chartered banks that includes committed revolver facilities
of $80.0 million and U.S. $68.0 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 LIBOR plus
1.50% to LIBOR plus 3.00%, prime plus 0.2% to prime plus 1.75%, BA
plus 1.50% to BA plus 3.0%, or 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
B and Series C Notes”). The Series B and C 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.
common shares to satisfy its interest obligation.
The 2013 Debentures trade on the TSX under the symbol AFN.DB.A.
CONVERTIBLE DEBENTURES
Debentures (2013)
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
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
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 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.
37
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
38
2016 ANNUAL REPORTFIELD TO CONSUMER Debentures (2015)
COMMON SHARES
In September 2015 the Company issued $75 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. 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.
The following number of common shares were issued and outstanding
at the dates indicated:
December 31, 2015
Shares issued under EAIP
Shares issued under DRIP
December 31, 2016
Share issuance in February 2017
Shares issued under DRIP in January and February 2017
MARCH 15, 2017
# COMMON SHARES
14,590,368
47,269
144,006
14,781,643
1,150,000
14,669
15,946,312
A total of 915,000 common shares are available for issuance under the
Company’s Equity Award Incentive Plan (the “EAIP”). As at December
31, 2016, a total of 321,000 restricted Share Awards (“RSUs”) have been
granted and 213,000 remain outstanding. As at December 31, 2016,
367,131 performance Share Awards (“PSUs”) have been granted and
247,500 remain outstanding.
A total of 63,642 deferred grants of common shares have been granted
under the Company’s Directors’ 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.
On February 15, 2017, the Company issued 1,150,000 common shares
at a price of $55.10 per share to raise gross proceeds of approximately
$63 million.
AGI’s common shares trade on the TSX under the symbol AFN.
DIVIDENDS
In 2016 AGI declared dividends to shareholders of $35.3 million (2015 -
$33.6 million). AGI’s policy is to pay monthly dividends. The Company’s
Board of Directors reviews financial performance and other factors
39
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
40
2016 ANNUAL REPORTFIELD TO CONSUMER
41
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
M A N A G E M E N T ’ S D I S C U S S I O N & A N A L Y S I S
42
2016 ANNUAL REPORTFIELD TO CONSUMER T R A M CO
2 0 1 0
Founded in 1967, TRAMCO
manufactures premier bulk
material handling equipment
primarily for the grain and
oilseed processing industry.
TRAMCO’s European
manufacturing facility
supplies the EU with European
spec equipment.
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 2016 were financed $5.2 million by
the DRIP (2015 – $5.2 million) and the remainder was financed from
cash on hand and cash from operations or bank indebtedness.
FUNDS FROM OPERATIONS AND PAYOUT RATIO
In 2016 management adjusted its calculation of funds from operations
as described below. The change was made to simplify the calculation
and provide readers with a clearer measure of FFO. The comparative
percentages in the table below have been restated to reflect the change
in definition.
Funds from operations (“FFO”), defined under “Non-IFRS Measures”,
is adjusted EBITDA less cash taxes, cash interest expense, realized
losses on foreign exchange and maintenance capital expenditures.
The objective of presenting this measure is to provide a measure of
free cash flow. The definition excludes changes in working capital as
they are necessary to drive organic growth and have historically been
financed by the Company’s operating facility (See “Capital Resources”).
Funds from operations should not be construed as an alternative to
cash flows from operating, investing, and financing activities as a
measure of the Company’s liquidity and cash flows.
[thousands of dollars]
Adjusted EBITDA
Interest expense
Non-cash interest
Cash taxes
Maintenance CAPEX
Realized loss on FX contracts
FUNDS FROM OPERATIONS
Dividends
PAYOUT RATIO
Year Ended December 31
2016
$
2015
$
100,429
(24,025)
4,363
(9,720)
(3,751)
(14,408)
52,888
35,297
67%
73,337
(18,490)
3,090
(2,613)
(2,252)
(15,281)
37,791
33,593
89%
The Company’s payout ratio has been negatively impacted by realized
losses on foreign exchange contracts. Excluding these losses, the
Company’s payout ratio for in 2016 was 52% (2015 – 63%). See “Foreign
exchange contracts”.
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, 2016, 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)
2017 – Q1
9,000
$1.25
11,216
The fair value of the outstanding forward foreign exchange contracts
in place as at December 31, 2016 was a loss of $0.9 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.
INTEREST RATE SWAPS
The Company has entered into interest rate swap contracts to manage
its exposure to fluctuations in interest rates.
CURRENCY
MATURITY
AMOUNT OF
SWAP (000’S)
FIXED(2)
RATE
Term Loan A
Term Loan B
Revolver (1)
CAD
CAD
USD
2019
2022
2020
50,000
40,000
51,023
3.59%
4.32%
3.73%
(1) USD $38.0 million converted at the rate of exchange at December 31, 2016.
(2) With performance adjustments.
05
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44
2016 ANNUAL REPORTFIELD TO CONSUMER
The fair value of the interest rate swap contracts in place as at
December 31, 2016 was a loss of $0.7 million. The Company has elected
to apply hedge accounting for these contracts and the unrealized loss
has been recognized in other comprehensive income.
EQUITY COMPENSATION HEDGE
On March 18, 2016, the Company entered an equity swap agreement
with a financial institution to manage the cash flow exposure due to
fluctuations in its share price related to the EAIP. Pursuant to this
agreement, the financial institution has agreed to pay the Company
the total return of the defined underlying common shares which
includes both the dividend income they may generate and any
capital appreciation. In return, the Company has agreed to pay the
Counterparty a funding cost calculated daily based on floating rate
option [CAD-BA-COOR] plus a spread of 2.0% and any administrative
fees or expenses which are incurred by the counterparty directly. As
at December 31, 2016, the equity swap agreement covered 500,000
common shares of the Company at a price of $34.10 and the agreement
matures on March 22, 2019.
RELATED PARTIES
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 $0.2 million during the
year ended December 31, 2016 [2015 – $2.3 million], and $6,000 is
included in accounts payable and accrued liabilities as at December 31,
2016. These transactions are measured at the exchange amount and
were incurred during the normal course of business.
Salthammer Inc. provides consulting services to the Company and a
Director of AGI is the owner of Salthammer Inc. The total cost of these
consulting services related to an international plant expansion project
were $48,000 during the year ended December 31, 2016 [2015 – nil]
and $9,000 is included in accounts payable and accrued liabilities as at
December 31, 2016.
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, 2016 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
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2016 ANNUAL REPORTFIELD TO CONSUMER 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”.
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.
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.
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
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 , economic conditions or
sociopolitical factors 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 affect 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. Poor or unusual weather conditions and
natural disasters may be exacerbated by the effects of climate change.
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 affect 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
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2016 ANNUAL REPORTFIELD TO CONSUMER 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.
Acquisition and Expansion Risk
AGI has historically expanded its operations by increasing the scope or
changing the nature of operations at existing facilities and by acquiring
or developing additional businesses, products and technologies in
existing and new markets. There can be no assurance that the Company
will continue to be able to identify, acquire, develop or profitably
manage additional businesses, or successfully integrate any acquired
business, products, or technologies into AGI’s 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 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. There is a risk that some
or all of the expected benefits will fail to materialize, or may not occur
within the time periods anticipated by management. The realization of
some or all of such benefits may be affected by a number of factors,
many of which are beyond the control of AGI.
The challenges involved in the integration of acquired businesses may
include, among other things, the following:
• the necessity of coordinating both geographically disparate and
geographically overlapping organizations;
• integration of information technology systems and resources;
• integrating the acquired business into AGI’s accounting system and
adjusting AGI’s internal control environment to cover the operations
of the acquired business;
• performance shortfalls relative to expectations at one or both of the
businesses as a result of the diversion of management’s attention to
the acquisition; and
• unplanned costs required to integrate the businesses and achieve
synergies.
Further, actual cost synergies, the expenses required to realize the
cost synergies and the sources of the cost synergies anticipated in
connection with acquisitions could differ materially from management’s
estimates. In light of these significant uncertainties, an investor should
not place undue reliance on the estimated cost synergies.
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 including Brazil,
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
A I R L A N C O
2 0 1 1
AIRLANCO is a world
class manufacturer of air
management equipment.
Specializing in the design
of custom solutions for a
wide range of industries.
AIRLANCO air filtration
systems help companies meet
OSHA, EPA and other
clean air guidelines.
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2016 ANNUAL REPORTFIELD TO CONSUMER 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, AGI has no way to predict outcome of the situation in Ukraine.
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.
as U.S. support for existing treaty and trade relationships with other
countries, including Canada. In particular, increased protectionism in
the U.S. and the proposal to implement a “border adjustment tax” that
would result in unfavorable tax treatment for goods imported to the U.S.
could, if implemented, have a significant impact on Canadian companies
that export goods to the U.S. President Trump has also communicated
his desire to renegotiate the terms of the North America Free Trade
Agreement (“NAFTA”). Implementation by the U.S. of new legislative or
regulatory regimes or revisions to NAFTA could impose additional costs
on the Company, decrease U.S. demand for the Company’s products or
otherwise negatively impact the Company, which may have a material
adverse effect on the Company’s business, financial condition and
operations.
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
Potential Changes resulting from the 2016 U.S. Presidential Election
As a result of the 2016 U.S. presidential election and the related change
in political agenda, coupled with the transition of administration, there
is uncertainty as to the position the United States will take with respect
to world affairs and events. This uncertainty may include issues such
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 affect the agricultural sector, and the business of AGI. New
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2016 ANNUAL REPORTFIELD TO CONSUMER 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 affect 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.
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.
Seasonality of Business
Labour Costs and Shortages
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 affect 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.
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
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.
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.
Operating Hazards
AGI’s revenue is dependent on the continued operation of its facilities.
The operation of facilities involves risks, including the failure or
substandard performance of equipment, natural disasters, suspension
of operations and new governmental statutes, regulations, guidelines
and policies. AGI’s operations are also subject to various hazards
incidental to the production, use, handling, processing, storage and
transportation of certain hazardous materials. These hazards can cause
fatal personal injury, severe damage to and destruction of property and
equipment and environmental damage. There can be no assurance that
as a result of past or future operations, there will not be claims of injury
by employees or members of the public due to exposure, or alleged
exposure, to these materials. There can be no assurance as to the
actual amount of these liabilities or their timing.
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
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. 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’ existing and proposed tax filing
positions are probable to be sustained, there are a number of existing
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2016 ANNUAL REPORTFIELD TO CONSUMER S TO R M
2 0 1 3
The STORM (Seed Treatment
Optimized Rate Metering)
is an innovation in seed
treatment equipment,
delivering precision seed
treatment application
in a convenient, efficient
and integrated system. The
STORM is specifically
designed to maximize the
return and take the guesswork
out of the seed treatment
application process.
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.
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/
or note purchase agreements 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 indebtedness of the Company 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 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.
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 agreements 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 agreements
contain a number of financial covenants that will require AGI to meet
certain financial ratios and financial tests. A failure to comply with
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,
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2016 ANNUAL REPORTFIELD TO CONSUMER 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
AGI’s 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 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.
Environmental
Due to the nature of its operations, AGI is subject to environmental
laws relating to, among other things, air emissions, the management of
contaminants and wastes (including the generation, handling, storage,
transportation, treatment and disposal of contaminants and wastes),
discharges to water and the remediation of environmental impacts.
No assurance can be given that all environmental liabilities have been
determined or accurately quantified, that AGI is not responsible for a
material environmental condition not known to it, or that environmental
laws and regulations will not change or be enforced in the future in
a manner that will have an adverse effect on the business, financial
condition or results of operations of AGI.
Intellectual Property
to our products and businesses. Certain of these patents, trademarks,
trade names and brand names are an important part of our business,
and their loss could have a material adverse effect on us.
Climate Change
AGI recognizes climate change as an important environmental issue
facing society. Accordingly, AGI is committed to responsibly managing
the regulatory and physical impacts of climate change on its business.
It is impracticable to predict with certainty the impact of climate
change or the regulatory responses to it, on our business although
we recognize that they could be significant. The most direct impacts
are likely to be an increase in energy costs, which would increase
our operating costs and an increase in the costs of the products we
purchase from others. In addition, increased energy costs for our
customers could impact demand for our products. It is too soon for
us to predict with any certainty the ultimate impact of additional
regulation, either directionally or quantitatively, on our overall business,
results of operations or financial condition. Furthermore, the potential
physical impacts of climate change on our facilities, suppliers and
customers and therefore on our operations are highly uncertain and
will be particular to the circumstances in various geographical regions.
These may include long-term changes in temperature levels and water
availability. These potential physical effects may adversely impact the
demand for our products and the cost, production, sales and financial
performance of our operations.
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”]
We own and have licenses to the rights under a number of domestic and
foreign patents, trademarks, trade names and brand names relating
In July 2014, on completion of the impairment phase of the project to
reform accounting for financial instruments and replace IAS 39,
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2016 ANNUAL REPORTFIELD TO CONSUMER 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 FVTPL or through other comprehensive income, 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 other comprehensive income, rather than within net earnings. The
new general hedge accounting model is intended to be simpler and
more closely focused 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.
LEASES [“IFRS 16”]
In January 2016, the IASB released IFRS 16, Leases, to replace the
previous leases Standard, IAS 17, Leases, and related Interpretations.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract,
the customer [lessee] and the supplier [lessor]. IFRS 16 eliminates the
classification of leases as either operating leases or finance leases and
introduces a single lessee accounting model. IFRS 16 also substantially
carries forward the lessor accounting requirements. Accordingly, a
lessor continues to classify its leases as operating lease or finance
leases, and to account for those two types of leases differently.
IFRS 16 will be effective for the Company’s fiscal year beginning on
January 1, 2019, with earlier application permitted only if the Company
applies IFRS 15. The Company has not yet assessed the impact of the
adoption of this standard on its consolidated financial statements.
SHARE-BASED PAYMENT [“IFRS 2”]
In June 2016, the IASB issued amendments to IFRS 2, Share-based
Payment, clarifying how to account for certain types of share-based
payment transactions. The amendments provide requirements on the
accounting for the effects of vesting and non-vesting conditions on the
measurement of cash-settled share-based payments, share-based
payment transactions with a net settlement feature for withholding tax
obligations and a modification to the terms and conditions of a share-
based payment that changes the classification of the transaction from
cash-settled to equity-settled. The amendments apply for annual
periods beginning on or after January 1, 2018. The Company is currently
evaluating the impact of the amendments to IFRS 2 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.
In 2016 AGI acquired Entringer, NuVision, Mitchell and Yargus. See
“Acquisitions”. Management has not completed its review of internal
controls over financial reporting or disclosure controls and procedures
for these 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 the financial information of Entringer, NuVision,
Mitchell and Yargus. The following is the summary financial information
pertaining to VIS, Entringer, NuVision and Mitchell that were included in
AGI’s consolidated financial statements for the year December 31, 2016:
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2016 ANNUAL REPORTFIELD TO CONSUMER [thousands of dollars]
ENTRINGER
$
NUVISION
$
MITCHELL
$
YARGUS
$
Revenue
Profit (loss)
Current assets 1
Non-current assets 1
Current liabilities 1
Non-current liabilities 1
6,811
(1,975)
7,467
40,403
6,348
0
16,217
1,074
5,929
20,890
16,360
0
9,382
(176)
8,834
24,457
11,816
153
6,750
(329)
12,522
64,197
15,654
593
Note 1 - Balance sheet as at December 31, 2016
There have been no material changes in AGI’s internal controls over
financial reporting that occurred in the three-month period ended
December 31, 2016, 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”,
“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 impairment charges related
to discontinued operations. 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, gains or losses on financial instruments,
non-cash contingent consideration expenses, provisions related to the
cancellation of a U.S. distributor and an international customer, and
expenses related to corporate acquisition activity. Adjusted EBITDA
excludes the results of former AGI divisions Applegate and Mepu as the
previously announced strategic review of these assets resulted in their
sale in 2016. 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. Trade sales
exclude the results of former AGI divisions Applegate and Mepu as the
previously announced strategic review of these assets resulted in their
sale in 2016.
References to “funds from operations” are to adjusted EBITDA less
cash taxes, cash interest expense, realized losses on foreign exchange
and maintenance capital expenditures. Management believes that, in
addition to cash provided by (used in) operating activities, funds from
operations provide a useful supplemental measure in evaluating its
performance.
References to “payout ratio” are to dividends declared 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.
FORWARD-LOOKING INFORMATION
This MD&A contains forward-looking information within the meaning
of applicable securities laws that reflect our expectations regarding
the future growth, results of operations, performance, business
prospects, and opportunities of the Company. Forward-looking
information 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 information in this MD&A includes information relating
to our business and strategy, including our outlook for our financial
and operating performance including our expectations for sales and
adjusted EBITDA, industry demand and market conditions, and with
respect to our ability to achieve the expected benefits of the recent
acquisitions and the contribution therefrom. Such forward-looking
information reflects 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, labour and services and
the value of businesses and assets and liabilities assumed pursuant to
the recent acquisitions. Forward-looking information involve significant
risks and uncertainties. A number of factors could cause actual
results to differ materially from results discussed in the forward-
looking information, including changes in international, national and
local macroeconomic and 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, the availability of credit
for customers, competition and AGI’s failure to achieve the expected
benefits of its recent acquisitions. 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 Information. We cannot assure readers
that actual results will be consistent with these forward-looking
information and we undertake no obligation to update such information
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).
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2016 ANNUAL REPORTFIELD TO CONSUMER 2016 ANNUAL REPORTFIELD TO CONSUMER CO N S O L I DAT E D
F I N A N C I A L S TAT E M E N T S
Ag growth international Inc. | December 31, 2016
AUDITORS’ RESPONSIBILITY
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, 2016 and 2015,
and the consolidated statements of income (loss), 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.
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
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66
2016 ANNUAL REPORTFIELD TO CONSUMER of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Ag Growth International
Inc. as at December 31, 2016 and 2015, and its financial performance
and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Winnipeg, Canada
March 14, 2017
Chartered Professional Accountants
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS [Note 23]
[in thousands of Canadian dollars]
CURRENT ASSETS
Cash and cash equivalents [note 16]
Cash held in trust [note 6]
Accounts receivable [note 18]
Inventory [note 19]
Prepaid expenses and other assets
Due from vendor [note 6]
Current portion of note receivable [note 7]
Income taxes recoverable
NON-CURRENT ASSETS
Property, plant and equipment, net [notes 10 and 34[a]]
Goodwill [note 12]
Intangible assets, net [note 11]
Available-for-sale investment [note 15]
Other assets [note 27]
Note receivable [note 7]
Income taxes recoverable
Derivative instruments [note 29]
Deferred tax asset [note 28]
Assets held for sale [note 14]
TOTAL ASSETS
As at December 31
2016
$
2015
$
2,774
5,093
81,033
99,479
7,734
342
82
738
58,234
250
73,524
98,722
2,790
—
—
916
197,275
234,436
209,457
227,450
197,215
165,687
170,262
163,781
900
382
725
4,079
9,289
231
900
234
—
3,930
—
84
649,728
504,878
3,148
6,606
850,151
745,920
As at December 31
2016
$
2015
$
251,698
244,840
56,027
6,912
16,940
42,560
6,912
10,193
(87,013)
(69,350)
244,564
235,155
850,151
745,920
LIABILITIES AND SHAREHOLDERS’ EQUITY
SHAREHOLDERS’ EQUITY [Note 21]
[in thousands of Canadian dollars]
As at December 31
[in thousands of Canadian dollars]
CURRENT LIABILITIES
Accounts payable and accrued liabilities [note 26]
Customer deposits
Dividends payable
Current portion of contingent consideration [note 6]
Due to vendor [note 6]
Acquisition, transaction and financing costs payable
Other financial liabilities [note 6[b]]
Income taxes payable
Current portion of long-term debt [note 23]
Current portion of obligations under finance lease [note 24]
Current portion of derivative instruments [note 29]
Provisions [note 20]
NON-CURRENT LIABILITIES
Long-term debt [note 23]
Due to vendor [note 8]
Contingent consideration [note 6]
2016
$
2015
$
64,402
22,428
2,956
4,023
16,415
262
—
6,411
—
353
862
6,654
47,721
21,461
2,883
2,687
1,114
732
9,017
4,472
34,600
209
20,577
6,550
124,766
152,023
206,849
112,331
776
16,201
800
1,976
Convertible unsecured subordinated debentures [note 25]
201,210
197,585
Obligations under finance lease [note 24]
Derivative instruments [note 29]
Deferred tax liability [note 28]
TOTAL LIABILITIES
1,379
715
53,691
480,821
605,587
1,177
3,191
41,682
358,742
510,765
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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2016 ANNUAL REPORTFIELD TO CONSUMER CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
[in thousands of Canadian dollars,
except per share amounts]
Year Ended December 31
[in thousands of Canadian dollars]
Year Ended December 31
2016
$
2015
$
[in thousands of Canadian dollars]
COMMON
SHARES
$
EQUITY
COMPONENT
OF CONVERTIBLE
DEBENTURES
$
CONTRIBUTED
SURPLUS
$
DEFICIT
$
CASH FLOW
HEDGE
RESERVE
$
FOREIGN
CURRENCY
RESERVE
$
DEFINED
BENEFIT PLAN
RESERVE
$
TOTAL
EQUITY
$
SALES
Cost of goods sold [note 9[d]]
GROSS PROFIT
EXPENSES
Selling, general and administrative [note 9[e]]
Other operating expense (income) [note 9[a]]
Impairment charge [notes 14 and 17]
Finance costs [note 9[c]]
Finance expense (income) [note 9[b]]
Profit (loss) before income taxes
Income tax expense (recovery) [note 28]
Current
Deferred
Profit (loss) from continuing operations
2016
$
2015
$
531,616
370,432
414,115
299,849
112,069
(11,596)
7,839
24,025
(968)
95,767
308
—
18,490
6,312
131,369
120,877
29,815
(6,611)
11,122
(260)
10,862
18,953
4,722
(1,613)
3,109
(9,720)
Profit (loss) for the year
19,306
(25,229)
OTHER COMPREHENSIVE INCOME (LOSS)
161,184
114,266
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
Exchange differences on translation of foreign operations
Income tax effect on cash flow hedges
Other comprehensive income (loss) from discontinued
operations [note 7]
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit plan
Income tax effect on defined benefit plan
OTHER COMPREHENSIVE INCOME FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
8,409
(28,746)
13,781
13,886
(2,849)
(5,992)
(143)
38,378
4,047
12
13,206
27,577
357
(96)
261
13,467
32,773
216
(59)
157
27,734
2,505
Profit (loss) from discontinued operations, net of tax [note 7]
353
(15,509)
PROFIT (LOSS) FOR THE YEAR
19,306
(25,229)
See accompanying notes
Profit (loss) per share from continuing operations [note 32]
Basic
Diluted
Profit (loss) per share from discontinued operations [note 32]
Basic
Diluted
Profit (loss) per share [note 32]
Basic
Diluted
See accompanying notes
1.29
1.27
0.02
0.02
1.31
1.29
(0.70)
(0.70)
(1.11)
(1.11)
(1.81)
(1.81)
AS AT JANUARY 1, 2016
Profit for the year
Other comprehensive income (loss)
Share-based payment transactions [notes 21 and 22]
Dividend reinvestment plan [notes 21[d] and [e]]
Dividends to shareholders [note 21]
Dividends on share-based compensation awards
244,840
6,912
10,193
(69,350)
(17,358)
59,761
—
—
1,640
5,218
—
—
—
—
—
—
—
—
—
—
6,747
—
—
—
19,306
—
—
—
—
—
(35,297)
(1,672)
16,198
(2,992)
—
—
—
—
—
—
—
—
157
—
261
—
—
—
—
235,155
19,306
13,467
8,387
5,218
(35,297)
(1,672)
AS AT DECEMBER 31, 2016
251,698
6,912
16,940
(87,013)
(1,160)
56,769
418
244,564
AS AT JANUARY 1, 2015
Change in accounting policy [note 3]
Loss for the year
Other comprehensive income (loss)
Share-based payment transactions [notes 21 and 22]
Dividend reinvestment plan [notes 21[d] and [e]]
Dividends to shareholders [note 21]
Issuance of 2015 convertible unsecured
subordinated debentures [note 25]
Dividend reinvestment plan costs [notes 21[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
COMMON
SHARES
$
184,771
—
—
—
5,695
5,252
—
—
(16)
—
—
49,138
244,840
EQUITY
COMPONENT
OF CONVERTIBLE
DEBENTURES
$
CONTRIBUTED
SURPLUS
$
DEFICIT
$
CASH FLOW
HEDGE
RESERVE
$
FOREIGN
CURRENCY
RESERVE
$
DEFINED
BENEFIT PLAN
RESERVE
$
3,135
12,954
(5,972)
(6,545)
21,383
TOTAL
EQUITY
$
209,726
(2,563)
(25,229)
—
—
—
—
—
—
—
—
—
3,777
—
—
—
—
—
—
—
(2,761)
—
—
—
—
—
—
—
(2,563)
(25,229)
—
—
—
(33,593)
—
—
(881)
(1,112)
—
—
—
—
—
(10,813)
38,378
157
27,722
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,934
5,252
(33,593)
3,777
(16)
(881)
(1,112)
49,138
6,912
10,193
(69,350)
(17,358)
59,761
157
235,155
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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
70
2016 ANNUAL REPORTFIELD TO CONSUMER CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
INVESTING ACTIVITIES
[in thousands of Canadian dollars]
Year Ended December 31
[in thousands of Canadian dollars]
Profit (loss) from continuing operations
before income taxes for the year
Add (deduct) items not affecting cash
Depreciation of property, plant and equipment
Amortization of intangible assets
Translation loss (gain) on foreign exchange
Non-cash component of interest expense
Share-based compensation expense
Impairment charge
Loss (gain) on sale of property, plant and equipment
Gain on disposal of asset held for sale
Employer contribution to defined benefit plan
Dividends receivable on equity swap
Defined benefit plan expense
Non-cash movement in derivative instruments
Non-cash investment tax credit
Dividends on share-based compensation
Contingent consideration
Acquisition of Westeel, net of cash acquired [note 6[b]]
—
(205,993)
Acquisition of Yargus, net of cash acquired [note 6[g]]
(53,195)
2016
$
2015
$
29,815
(6,611)
Acquisition of property, plant and equipment
Acquisition of Entringer, net of cash acquired [note 6[d]]
Acquisition of NuVision [note 6[e]]
Acquisition of Mitchell [note 6[f]]
Acquisition of European subsidiary [note 6[b]]
10,923
11,061
(4,864)
4,363
6,891
7,839
(98)
(16)
(419)
(100)
627
(9,210)
(68)
(55)
(1,712)
54,977
8,188
8,329
30,360
3,090
3,004
—
3,249
(46)
(245)
—
517
—
(412)
(962)
—
Acquisition of Vis [note 6[c]]
Changes to deposits related to property,
plant and equipment
Transfer to cash held in trust and restricted cash
Proceeds from sale of property, plant and equipment
Proceeds from disposal of assets held for sale
Proceeds from disposal of business [note 7]
Development and purchase of intangible assets
Transaction costs paid and payable
CASH USED IN INVESTING ACTIVITIES
FROM CONTINUING OPERATIONS
48,461
See accompanying notes
Year Ended December 31
2016
$
2015
$
(40,203)
(10,981)
(6,000)
(16,300)
(8,775)
(39,398)
—
—
—
—
—
—
(5,093)
665
1,202
7,209
(2,938)
4,744
—
(10,000)
2,252
—
3,557
1,147
—
(2,346)
(420)
(129,665)
(251,201)
Net change in non-cash working capital balances related
to continuing operations [note 16]
Income tax paid
CASH PROVIDED BY OPERATING ACTIVITIES
FROM CONTINUING OPERATIONS
See accompanying notes
(261)
34,449
(9,720)
(2,613)
44,996
80,297
FINANCING ACTIVITIES
[in thousands of Canadian dollars]
Repayment of long-term debt
Repayment of obligation under finance leases
Issuance of long-term debt
Costs related to issuance of long-term debt
Issuance of convertible unsecured subordinated debentures
Common share issuance
Subscription receipts commission payable
Subscription receipts financing costs
Dividends paid in cash [note 21[d]]
Dividend reinvestment plan costs incurred
CASH PROVIDED BY FINANCING ACTIVITIES
FROM CONTINUING OPERATIONS
Net increase (decrease) in cash and cash equivalents
from continuing operations
Net decrease in cash and cash equivalents from
discontinued operations [note 7]
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS DURING THE YEAR
Cash and cash equivalents, beginning of year
CASH AND CASH EQUIVALENTS, END OF YEAR
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid
See accompanying notes
Year Ended December 31
2016
$
2015
$
(33,507)
(63,394)
(353)
(36)
93,821
174,731
(194)
—
—
—
—
—
71,491
51,766
(1,036)
(123)
(30,079)
(29,453)
—
(16)
29,688
203,930
(54,981)
33,026
(479)
(87)
(55,460)
32,939
58,234
2,774
25,295
58,234
19,903
15,739
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2016 ANNUAL REPORTFIELD TO CONSUMER R E M
2 0 1 4
REM has lead the grain
vacuum industry over the last
40 years. REM produces top
of the line, quiet, efficient,
high capacity GrainVacs with a
broad line of accessories.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars, except where otherwise noted and per share data]
December 31, 2016
1. ORGANIZATION
The consolidated financial statements of Ag Growth International
Inc. [“Ag Growth Inc.”] for the year ended December 31, 2016 were
authorized for issuance in accordance with a resolution of the directors
on March 14, 2017. Ag Growth International Inc. is a listed company
incorporated and domiciled in Canada, whose shares are publicly traded
on 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”].
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, assets held for sale 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.
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 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
and mortality rates. 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.
Current employee wages and benefits are expensed as incurred.
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2016 ANNUAL REPORTFIELD TO CONSUMER
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”], Westeel USA
LLC, Tramco, Inc. [“Tramco”], Tramco Europe Limited, Euro-Tramco
B.V., Ag Growth Suomi Oy, Ag Growth Scandinavia, AGI Comercio de
Equipamentos E Montagens Ltda, AGI Latvia Inc., Westeel Canada Inc.
[“Westeel”], G.J. Vis Holdings Inc. [“Vis”], G.J. Vis Properties Inc., G.J.
Vis Enterprises Inc., Westeel EMEA S.L., Frame S.R.L., PTM S.R.L.
Entringer Industrial S.A., NuVision Industries Inc., Mitchell Mill Systems
Canada Ltd., Mitchell Mill Systems USA Inc., Yargus Manufacturing, Inc.
and Yargus International Inc. as at December 31, 2016. 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 intercompany balances, income and
expenses and unrealized gains and losses resulting from intercompany
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.
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 or groups of
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 or group of CGUs 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 or group of 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.
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
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
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2016 ANNUAL REPORTFIELD TO CONSUMER 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 are 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 lives of the different components replaced.
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 are
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
5 – 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
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2016 ANNUAL REPORTFIELD TO CONSUMER 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.
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.
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 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.
Financial assets at fair value through profit or loss
Available-for-sale financial investments
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.
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.
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.
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.
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Westeel has offered quality
steel storage systems for
over a century. Westeel’s
comprehensive catalogue
of products includes
on-farm and commercial
grain handling and storage
solutions for today’s
agricultural industry, as well
as storage and containment
systems to meet the needs
of the petroleum, water and
industrial sectors.
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
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2016 ANNUAL REPORTFIELD TO CONSUMER 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 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.
AGI has not designated any financial liabilities upon initial recognition as
FVTPL.
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, interest rate swaps and equity swaps to hedge its foreign
currency risk, interest rate risk and market risk. Such derivative
financial instruments are initially recognized at fair value on the date
on which a derivative 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.
For the purpose of hedge accounting, hedges are classified as 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.
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.
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2016 ANNUAL REPORTFIELD TO CONSUMER AGI uses primarily forward currency contracts as hedges of its exposure
to foreign currency risk in forecast transactions and firm commitments.
is used, the increase in the provision due to the passage of time is
recognized as a finance cost.
OFFSETTING OF FINANCIAL INSTRUMENTS
Warranty provisions
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
Provisions for warranty-related costs are recognized when the product
is sold or service provided. Initial recognition is based on historical
experience.
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:
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2016 ANNUAL REPORTFIELD TO CONSUMER • 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.
Deferred taxes on indefinite-life intangible assets were previously
measured on an “on sale” basis for tax purposes. During the year, the
Company retroactively adopted the IFRIC decision to measure deferred
taxes on these assets based on an income tax rate if recovered through
use.
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
P T M
2 0 1 5
Based in Italy, PTM Technology
is a leader in the design
and manufacturing of grain
handling equipment, including
chain or belt conveyors,
bucket elevators and filters
for intake pits. Its engineered
designs can be customized to
specific projects and PTM’s
highly qualified engineers
have the ability to incorporate
its systems into existing
project layouts.
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2016 ANNUAL REPORTFIELD TO CONSUMER 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.
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.
CHANGE IN ACCOUNTING POLICY
In November 2016, the IFRS interpretations Committee [“the
Committee”] published a summary of its meeting discussion regarding
a request to clarify how an entity determines the expected manner
of recovery of an intangible asset with an indefinite useful life for the
purposes of measuring deferred tax in accordance with IAS 12 Income
Taxes. Although the Committee decided not to add this issue to its
agenda, the Committee noted that an intangible asset with an indefinite
useful life is not a non-depreciable asset because a non-depreciable
asset has an unlimited [or infinite] life, and that indefinite does not
mean infinite. Consequently, the fact that an entity does not amortize
an intangible asset with an indefinite useful life does not necessarily
mean that the entity will recover the carrying amount of that asset only
through sale and not through use. As such, the Company changed its
accounting policy retrospectively for the accounting of deferred tax
on intangible assets with indefinite useful lives to be in line with the
Committee discussions.
The following table summarizes the impact of adopting this change
of accounting policy retrospectively on the consolidated statements
of financial position. The change of accounting policy did not have an
impact on the previously reported consolidated statements of income or
consolidated statements of cash flows.
INCREASE (DECREASE)
Goodwill
Deferred income tax liabilities
Deficit
2016
$
997
977
—
2015
$
6,181
8,744
(2,563)
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.
IMPAIRMENT OF NON-FINANCIAL ASSETS
AGI’s impairment test is based on value in use 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
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activities to which AGI has not yet committed or significant future
investments that will enhance the 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 13.
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.
SHARE-BASED PAYMENTS
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 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
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2016 ANNUAL REPORTFIELD TO CONSUMER 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 [“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 FVTPL or through other comprehensive income, 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 other comprehensive income, rather than within net earnings. The
new general hedge accounting model is intended to be simpler and
more closely focused 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
from cash-settled to equity-settled. The amendments apply for annual
periods beginning on or after January 1, 2018. The Company is currently
evaluating the impact of the amendments to IFRS 2 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.
During 2015, the allocation of the purchase price to acquired assets and
liabilities was finalized. During 2016, the conditions related to the cash
holdback were met and the $250 of cash held in trust was released to
the vendors.
[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:
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.
LEASES [“IFRS 16”]
In January 2016, the IASB released IFRS 16, Leases, to replace the
previous leases Standard, IAS 17, Leases, and related Interpretations.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both parties to a contract,
the customer [lessee] and the supplier [lessor]. IFRS 16 eliminates the
classification of leases as either operating leases or finance leases and
introduces a single lessee accounting model. IFRS 16 also substantially
carries forward the lessor accounting requirements. Accordingly, a
lessor continues to classify its leases as operating lease or finance
leases, and to account for those two types of leases differently.
IFRS 16 will be effective for the Company’s fiscal year beginning on
January 1, 2019, with earlier application permitted only if the Company
applies IFRS 15. The Company has not yet assessed the impact of the
adoption of this standard on its consolidated financial statements.
SHARE-BASED PAYMENT [“IFRS 2”]
In June 2016, the IASB issued amendments to IFRS 2, Share-based
Payment, clarifying how to account for certain types of share-based
payment transactions. The amendments provide requirements on the
accounting for the effects of vesting and non-vesting conditions on the
measurement of cash-settled share-based payments, share-based
payment transactions with a net settlement feature for withholding
tax obligations and a modification to the terms and conditions of a
share-based payment that changes the classification of the transaction
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96
2016 ANNUAL REPORTFIELD TO CONSUMER 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 lease
Purchase consideration
$
13,183
22,281
27,555
868
5,481
42,871
37,600
43,300
1,700
87,083
702
(22,358)
(709)
(1,172)
(4,825)
(27,324)
(3,172)
(1,422)
221,642
increase to goodwill and accounts payable and accrued liabilities, each
in the amount of $426. An additional deferred tax liability of $5,846 was
recorded to reflect the deferred tax liability on indefinite lived intangible
assets as if recovered through use based on the IFRIC decision in 2016.
Included in other liabilities was a put option liability that relates to
Westeel’s European subsidiary. The put option held by the European
subsidiary’s non-controlling shareholders provided 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.
From the date of acquisition, Westeel contributed to the 2015 results
$73,214 of revenue and $1,058 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 $60,806 and profit from
continuing operations in 2015 would have increased by an additional
$3,171.
The impacts on the cash flows on the acquisition of Westeel are as
follows:
The goodwill of $87,083 comprises the value of the assembled
workforce and other expected synergies arising from the acquisition.
Purchase consideration
Less cash acquired
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.
In completing the measurement process, the estimated fair value of
the land and building in Regina, Saskatchewan was decreased based
on a more in-depth review of the condition of the property as at the
date of acquisition. This has resulted in a decrease to property, plant
and equipment and an increase in goodwill, each in the amount of $500
from the period previously reported. Also, a liability was identified
that was not recorded at the acquisition date. This has resulted in an
Less cash acquired with European subsidiary
Purchase consideration transferred
During the three-month period ended June 30, 2016, the allocation of
the purchase price to acquired assets and liabilities was finalized.
Transaction costs related to the Westeel acquisition in the year ended
December 31, 2016 were $88 [2015 – $3,455] and are included in selling,
general and administrative expenses.
For the purposes of funding the purchase price, AGI issued $51.75
$
221,642
(13,183)
(2,466)
205,993
million subscription receipts [the “Subscription Receipts”] and $51.75
million aggregate principal amount extendible convertible unsecured
subordinated debentures [note 25]. The remainder of the purchase price
was funded by the Company through expanded credit facilities [note 23].
to acquisition and should not have been included in the allocation of the
purchase price. This has resulted in a decrease in accounts payable and
accrued liabilities and a decrease in goodwill, each in the amount of
$1,129 from the period previously reported.
Upon the completion of the Westeel acquisition, the Subscription
Receipt holders received one common share of AGI per Subscription
Receipt.
The assets and liabilities of the European subsidiary on the date of
control of October 1, 2015 were recorded in the consolidated financial
statements at their estimated fair values:
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.
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
Accounts payable and accrued liabilities
Purchase consideration
$
2,466
3,417
8,803
1,243
48
228
1,780
1,929
806
2,579
(12,109)
11,190
The goodwill of $2,579 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.
In completing the measurement process, the Company identified certain
non-refundable customer deposits recorded in the purchase price
allocation. These deposits related to projects that were terminated prior
During the three-month period ended December 31, 2016, the allocation
of the purchase price to acquired assets and liabilities was finalized.
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 as at December 31, 2015. During
the three-month period ended June 30, 2016, the Company acquired
the remaining 49% of the European subsidiary for consideration of 6.0
million euros.
Transaction costs related to the European subsidiary acquisition in
the year ended December 31, 2016 were $196 [2015 – $230] 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
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2016 ANNUAL REPORTFIELD TO CONSUMER
F R A M E
2 0 1 5
FRAME is one of Europe’s
leading designers and
manufacturers of
agricultural steel silos
including round and
rectangular hoppers, sweep
and discharge augers,
mechanical handling
equipment ranging from chain
and flight conveyors to bucket
elevators, cleaning, drying and
other equipment associated
with both commercial and
cereal storage systems.
have been recorded in the consolidated financial statements at their
estimated fair values:
Accounts receivable
Inventory
Prepaid expenses and other assets
Income taxes recoverable
Property, plant and equipment
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
3,971
(849)
(832)
(2,098)
13,949
The goodwill of $3,971 comprises the value of the assembled workforce
and other expected synergies arising from the acquisition.
The impacts on the cash flows on the acquisition of Vis are as follows:
Cash paid
Contingent consideration
Due from vendor
Purchase consideration
$
10,000
4,663
(714)
13,949
During the three-month period ended December 31, 2016, the allocation
of the purchase price to acquired assets and liabilities was finalized.
Transaction costs related to the Vis acquisition in the year ended
December 31, 2016 were $124 [2015 – $92] and are included in selling,
general and administrative expenses.
The contingent consideration was 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 was determined using
a 5% discount rate. $2,687 was recorded in current liabilities and $1,976
was recorded in non-current liabilities as at the date of 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.
In November of 2016, $3,000 was paid to the vendors, and in February
2017, the remaining $2,000 was paid to the vendors, which settled the
contingent consideration.
From the date of acquisition, Vis contributed to the 2015 results $1,353
of revenue and $196 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 $13,854 and profit from continuing
operations in 2015 would have increased by an additional $451.
[D] ENTRINGER INDUSTRIAL S.A. [“ENTRINGER”]
Effective March 9, 2016, the Company acquired 100% of the outstanding
shares of Entringer, a Brazilian-based manufacturer of grain bins,
bucket elevators, dryers and cleaners. The acquisition of Entringer
provides a strategic position for AGl’s entry into the expanding
agricultural market in Brazil.
The purchase has been accounted for by the acquisition method with the
results of Entringer included in the Company’s net earnings from the
date of acquisition. The assets and liabilities of Entringer on the date of
acquisition have been recorded in the consolidated financial statements
at their estimated fair values:
05
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100
2016 ANNUAL REPORTFIELD TO CONSUMER Cash and cash equivalents
Accounts receivable
Inventory
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets
Distribution network
Brand name
Goodwill
Accounts payable and accrued liabilities
Income taxes payable
Deferred tax liability
Other liabilities
Purchase consideration
$
—
1,246
748
160
4,123
443
968
8,636
(4,448)
(500)
(94)
(301)
10,981
The goodwill of $8,636 comprises the value of the assembled workforce
and other expected synergies arising from the acquisition.
The fair value of the accounts receivable acquired is $1,246. This
consists of the gross contractual value of $1,496, less the estimated
amount not expected to be collected of $250.
As a result of conditions present at the acquisition date, in January of
2017, the Company reached an agreement in principle with the vendor
whereby, for consideration of $1.6 million, the earn-out provisions
under the share purchase agreement were eliminated and all amounts
due to the vendor were extinguished. From amounts previously
recorded, this agreement in principle resulted in the elimination of the
contingent consideration liability of $2,667, the accrual of a current
liability of $1,639 at December 31, 2016 and a reduction in non-cash
contingent consideration expense of $87.
The purchase price allocation has been updated for the revised
purchase price and the finalization of the fair value of net assets
acquired, resulting in changes to all assumed assets and liabilities, with
the exception of property, plant and equipment.
From the date of acquisition, Entringer contributed to the 2016 results
$6,811 of revenue and $1,975 of net loss. If the acquisition had taken
place as at January 1, 2016, revenue from continuing operations in 2016
would have increased by an additional $1,096 and profit from continuing
operations in 2016 would have decreased by an additional $1,819.
The impacts on the cash flows on the acquisition of Entringer are as
follows:
Cash paid
Due from vendor
Purchase consideration
$
9,342
1,639
10,981
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.
Transaction costs related to the Entringer acquisition in the year ended
December 31, 2016 were $372 [2015 – nil] and are included in selling,
general and administrative expenses.
[E] NUVISION INDUSTRIES INC. [“NUVISION”]
Effective April 1, 2016, the Company acquired 100% of the outstanding
shares of NuVision, a Canadian-based designer and builder of complete
turnkey fertilizer blending plants and material handling facilities. The
acquisition of NuVision provides a significant additional step in AGl’s
strategic entry into the fertilizer sector.
The purchase has been accounted for by the acquisition method with
the results of NuVision included in the Company’s net earnings from the
date of acquisition. The assets and liabilities of NuVision on the date of
acquisition have been recorded in the consolidated financial statements
at their estimated fair values:
101
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102
2016 ANNUAL REPORTFIELD TO CONSUMER
Cash
Accounts receivable
Inventory
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets
Distribution network
Brand name
Order backlog
Goodwill
Accounts payable and accrued liabilities
Customer deposits
Income taxes payable
Deferred tax liability
Purchase consideration
$
56
3,604
1,205
35
492
6,408
3,627
741
11,039
(2,665)
(1,476)
(327)
(2,915)
19,824
The goodwill of $11,039 comprises the value of the assembled
workforce and other expected synergies arising from the acquisition.
The fair value of the accounts receivable acquired is $3,604. This
consists of the gross contractural value of $3,654, less the estimated
amount not expected to be collected of $50.
During the measurement period, the Company identified certain
customer deposits with a corresponding accounts receivable. As a
result, both accounts receivable and customer deposits have been
reduced by $785. The Company recorded a $398 decrease in amounts
due from vendor with an offsetting increase to goodwill. As well, closing
cash of $56 has been added to assets acquired by the Company, and
a $74 liability was identified for third-party contract work that existed
at the date of acquisition, each with one offsetting change to goodwill.
There was an increase of $492 to deferred tax liabilities to reflect
the increased tax rate associated with recovery of indefinite lived
intangibles through use.
From the date of acquisition, NuVision contributed to the 2016 results
$16,217 of revenue and $1,074 of net income. If the acquisition had
taken place as at January 1, 2016, revenue from continuing operations
in 2016 would have increased by an additional $4,380 and profit from
continuing operations in 2016 would have increased by an additional
$280.
The impacts on the cash flows on the acquisition of NuVision are as
follows:
Cash paid
Fair value of equipment to be provided to vendor
Contingent consideration
Due from vendor
Purchase consideration
$
6,000
6,000
8,166
(342)
19,824
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.
Transaction costs related to the NuVision acquisition in the year ended
December 31, 2016 were $105 [2015 – nil] and are included in selling,
general and administrative expenses.
The contingent consideration is based on NuVision’s earnings in 2016,
2017 and 2018. Payments totalling $14 million between 2017 through
2019 would be required if NuVision meets the targets. The Company
believes the likelihood of the maximum payment is moderate. The
present value of the contingent consideration was determined using a
5% discount rate. $1,348 was recorded in current liabilities and $6,818
was recorded in non-current liabilities as at the date of acquisition.
[F] MITCHELL MILL SYSTEMS CANADA LTD.
AND MITCHELL MILL SYSTEMS USA
Effective July 18, 2016, the Company acquired 100% of the outstanding
shares of Mitchell Mill Systems Canada Ltd., and its U.S. affiliate
Mitchell Mill Systems USA [collectively, “Mitchell”]. Based in Canada
with a second facility in the U.S., Mitchell manufactures handling
equipment for grain, fertilizer, animal feed, food processing and
industrial applications. The acquisition expands AGl’s commercial
business into eastern Canada and the U.S. and also provides an
expanded product offering.
The purchase has been accounted for by the acquisition method with
the results of Mitchell included in the Company’s net earnings from the
date of acquisition. The assets and liabilities of Mitchell 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
Property, plant and equipment
Intangible assets
Brand name
Distribution network
Order backlog
Goodwill
Accounts payable and accrued liabilities
Customer deposits
Income taxes payable
Deferred tax liability
Purchase consideration
$
6,184
3,319
95
6,923
3,607
6,485
223
7,806
(2,077)
(1,340)
(483)
(4,374)
26,368
The goodwill of $7,806 comprises the value of the assembled workforce
and other expected synergies arising from the acquisition.
The fair value of the accounts receivable acquired is $6,184. This
consists of the gross contractual value of $6,259, less the estimated
amount not expected to be collected of $75.
During the measurement period, a third-party valuation of the U.S.
land and building was completed, resulting in an increase to property,
plant and equipment of $610 with an offsetting decrease to goodwill.
In addition, the estimated fair values of distribution network and order
backlog were decreased by $99 and $997, respectively, based on a
detailed review of the order backlog as at the acquisition date with
offsetting increases to goodwill of $99 and $997, respectively. There
was an increase to deferred tax liability of $412 to reflect an increase in
the tax rate applied to indefinite lived intangibles.
From the date of acquisition, Mitchell contributed to the 2016 results
$9,382 of revenue and $176 of net loss. If the acquisition had taken
place as at January 1, 2016, revenue from continuing operations in
2016 would have increased by an additional $16,450 and profit from
continuing operations in 2016 would have decreased by an additional
$2,589.
The impacts on the cash flows on the acquisition of Mitchell are as
follows:
Cash paid
Due to vendor
Contingent consideration
Working capital adjustment payable
Purchase consideration
$
16,300
500
9,091
477
26,368
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.
Transaction costs related to the Mitchell acquisition in the year ended
December 31, 2016 were $182 [2015 – nil] and are included in selling,
general and administrative expenses.
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2016 ANNUAL REPORTFIELD TO CONSUMER
The contingent consideration is based on Mitchell meeting
predetermined earnings targets in 2017 through 2019. A maximum
payment of $4,200 in 2017, $4,200 in 2018, and $4,800 in 2019 would
be required if Mitchell meets the targets for a total of $13,200. The
Company believes the likelihood of the maximum payment is moderate.
The present value of the contingent consideration was determined using
a 5% discount rate. $3,914 was recorded in current liabilities and $5,177
was recorded in non-current liabilities as at the date of acquisition.
[G] YARGUS MANUFACTURING INC.
Effective November 18, 2016, the Company acquired 100% of the
outstanding shares of Yargus Manufacturing Inc. and selected assets
of the real estate holding company Clark Center Properties Inc.
[collectively “Yargus”]. Based in the U.S., Yargus manufactures handling
equipment for grain, fertilizer, feed, food processing and industrial
applications. The acquisition continues AGl’s commercial business
expansion into the U.S. and also provides an expanded product offering.
The purchase has been accounted for by the acquisition method with
the results of Yargus included in the Company’s net earnings from the
date of acquisition. The assets and liabilities of Yargus 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
Property, plant and equipment
Intangible assets
Brand name
Distribution network
Order backlog
Goodwill
Bank indebtedness
Accounts payable and accrued liabilities
Customer deposits
Deferred revenue
Due to vendor
Capital leases
Notes payable
Deferred tax liability
Purchase consideration
$
2,812
7,226
443
13,120
12,868
6,572
2,556
30,295
(91)
(8,389)
(5,595)
(1,723)
(2,285)
(597)
(98)
1,083
58,197
The goodwill of $30,295 comprises the value of the assembled
workforce and other expected synergies arising from the acquisition.
The fair value of the accounts receivable acquired is $2,812. This
consists of the gross contractual value of $4,164 less the estimated
amount not expected to be collected of $1,352.
From the date of acquisition, Yargus contributed to the 2016 results
$6,750 of revenue and $330 of net loss. If the acquisition had taken
place as at January 1, 2016, revenue from continuing operations in
2016 would have increased by an additional $50,269 and profit from
continuing operations in 2016 would have decreased by an additional
$7,804.
The impacts on the cash flows on the acquisition of Yargus are as
follows:
Purchase consideration
Add: bank indebtedness acquired
Less: cash held in trust
Purchase consideration transferred
$
58,197
91
(5,093)
53,195
adjustments and transactions costs, the Company recognized net
cash proceeds on sale of $3,107. Final closing adjustments will be
recognized as $290, which was received in the fourth quarter of 2016,
and remaining proceeds of $798 will be received as 10 payments of
$105 due annually beginning June of 2017. The present value of these
10 payments has been calculated to be $798.
During the third quarter of 2016, the Company entered into an
agreement with Tarter Tube LLC [“Tarter”] to sell selected assets of
its wholly owned subsidiaries Applegate Livestock Equipment Inc. and
Applegate Trucking Inc. [collectively, “Applegate”]. On August 12, 2016,
the Company completed the sale and, after preliminary customary
adjustments and transaction costs, the Company recognized net cash
proceeds on sale of $4,102.
The financial results attributable to Mepu and Applegate have been
presented as discontinued operations.
The results of discontinued operations for the year ended December 31,
2016 are as follows:
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
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.
SALES
Cost of goods sold
GROSS PROFIT
EXPENSES
Costs related to the Yargus acquisition in the year ended December
31, 2016 were $286 [2015 – nil] and are included in selling, general and
administrative expenses.
Selling, general and administrative
Other operating income
Impairment (recovery)
7. DISCONTINUED OPERATIONS
During the second quarter of 2016, the Company entered into an
agreement with Arskametalli Oy [“Arska”] to sell selected assets
of its wholly owned subsidiary Mepu Oy [“Mepu”]. On June 15, 2016,
the Company completed the sale and, after preliminary customary
PROFIT (LOSS) FROM DISCONTINUED OPERATIONS
FOR THE YEAR
353
(15,509)
2016
$
2015
$
15,509
13,158
2,351
2,938
(36)
(904)
1,998
35,369
30,596
4,773
6,898
(55)
13,439
20,282
105
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
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
106
2016 ANNUAL REPORTFIELD TO CONSUMER
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS) FROM DISCONTINUED OPERATIONS
9. OTHER EXPENSES (INCOME)
2016
$
2015
$
PROFIT (LOSS) FROM DISCONTINUED OPERATIONS
FOR THE YEAR
353
(15,509)
Other comprehensive income
Item that may be reclassified subsequently
to profit or (loss)
Exchange difference on translation of foreign operations
Other comprehensive income (loss) from discontinued
operations for the year
TOTAL COMPREHENSIVE INCOME (LOSS) FROM
DISCONTINUED OPERATIONS FOR THE YEAR
[A] OTHER OPERATING EXPENSE (INCOME)
Net loss (gain) on disposal of property,
plant and equipment
Net gain on disposal of assets held for sale
Gain on equity swap
Other
(143)
(143)
12
12
[B] FINANCE EXPENSE (INCOME)
Interest income from banks
210
(15,497)
Loss (gain) on foreign exchange
CONSOLIDATED STATEMENTS OF CASH FLOWS FROM
DISCONTINUED OPERATIONS FOR THE YEAR
2016
$
(368)
(111)
(479)
2015
$
326
(413)
(87)
Cash flows provided by (used in) from operating activities
Cash flows used in investing activities
Cash flows used in discontinued operations
8. 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 $776 has
been recorded as a long-term liability on the consolidated statements of
financial position.
[C] FINANCE COSTS
Interest on overdrafts and other finance costs
Interest, including non-cash interest,
on debts and borrowings
Interest, including non-cash interest,
on convertible debentures [note 25]
[D] COST OF GOODS SOLD
Depreciation
Amortization of intangible assets
Warranty provision
Cost of inventory recognized as an expense
[E] SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation
Amortization of intangible assets
Minimum lease payments recognized as an operating
lease expense
Transaction costs
Selling, general and administrative
[F] EMPLOYEE BENEFITS EXPENSE
Wages and salaries
Share-based payment transaction expense [note 22]
Pension costs
Included in cost of goods sold
Included in selling general and administrative expense
V I S
2 0 1 5
VIS manufactures bulk
storage and material handling
solutions for the feed,
fertilizer and grain handling
industries. The VIS product
line includes overhead bin
systems, bucket elevators,
drag, belt and screw
conveyors, distributors, gates
and diverter valves. VIS works
together with their clients
on system design to
determine the best selection
of equipment for their
application.
2016
$
2015
$
(98)
(16)
(9,210)
(2,272)
(11,596)
(38)
(930)
(968)
139
9,258
3,249
(46)
—
(2,895)
308
(215)
6,527
6,312
247
7,398
14,628
10,845
24,025
18,490
10,019
3,648
104
356,661
370,432
904
7,413
2,908
4,325
96,519
112,069
7,621
2,545
2,721
286,962
299,849
567
5,784
2,261
5,405
81,750
95,767
128,802
104,933
6,891
3,150
3,004
2,626
138,843
110,563
86,965
51,878
71,475
39,088
138,843
110,563
107
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
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
06
2016 ANNUAL REPORTFIELD TO CONSUMER
10. PROPERTY, PLANT AND EQUIPMENT
LAND
$
GROUNDS
$
BUILDINGS
$
LEASEHOLD
IMPROVEMENTS
$
FURNITURE
AND FIXTURES
$
VEHICLES
$
COMPUTER
HARDWARE
$
MANUFACTURING
EQUIPMENT
$
CONSTRUCTION
IN PROGRESS
$
TOTAL
$
LAND
$
GROUNDS
$
BUILDINGS
$
LEASEHOLD
IMPROVEMENTS
$
FURNITURE
AND FIXTURES
$
VEHICLES
$
COMPUTER
HARDWARE
$
MANUFACTURING
EQUIPMENT
$
CONSTRUCTION
IN PROGRESS
$
TOTAL
$
COST
Balance, January 1, 2016
13,836
3,000
82,787
2,632
Additions
Acquisitions
Disposals
Impairment [note 17]
Discontinued operations
Exchange differences
582
2,126
(87)
—
(412)
33
365
779
—
—
(91)
(40)
907
13,144
(53)
—
(3,082)
(1,167)
Balance, December 31, 2016
16,078
4,013
92,536
DEPRECIATION
Balance, January 1, 2016
Depreciation
Disposals
Impairment [note 17]
Discontinued operations
Exchange differences
Balance, December 31, 2016
—
—
—
—
—
—
—
534
219
—
—
(56)
(9)
688
6,778
2,299
(49)
—
(866)
(76)
8,086
NET BOOK VALUE,
JANUARY 1, 2016
NET BOOK VALUE,
DECEMBER 31, 2016
13,836
2,466
76,009
16,078
3,325
84,450
89
47
(27)
—
—
(17)
2,724
604
257
(5)
—
—
(3)
853
2,028
1,871
2,411
154
38
(19)
—
(135)
(17)
7,707
1,356
2,173
(412)
—
(476)
(19)
4,489
780
208
(140)
—
(480)
(76)
91,978
4,207
6,142
(560)
(2,548)
(4,567)
(2,354)
92
208,932
31,762
—
(189)
—
(52)
(5)
40,203
24,657
(1,487)
(2,548)
(9,295)
(3,662)
COST
Balance, January 1, 2015
Additions
Acquisitions
Classification as held for sale
Disposals
Impairment [note 17]
Exchange differences
6,318
553
10,867
(2,500)
(2,264)
—
862
1,073
1,977
176
(338)
—
—
112
44,286
28,166
17,869
(3,086)
(4,638)
(3,111)
3,301
2,432
10,329
4,781
92,298
31,608
256,799
Balance, December 31, 2015
13,836
3,000
82,787
1,025
195
(5)
—
(108)
(12)
4,222
1,065
(263)
—
(242)
(33)
1,095
4,749
3,026
514
(94)
—
(373)
(50)
3,023
27,056
6,374
(363)
(109)
(3,610)
(500)
28,848
—
—
—
—
—
—
43,245
10,923
(779)
(109)
(5,255)
(683)
— 47,342
1,386
3,485
1,463
64,922
92
165,687
1,337
5,580
1,758
63,450
31,608
209,457
DEPRECIATION
Balance, January 1, 2015
Depreciation
Classification as held for sale
Disposals
Exchange differences
Balance, December 31, 2015
—
—
—
—
—
—
406
143
(41)
—
26
534
5,653
2,115
(528)
(696)
234
6,778
NET BOOK VALUE,
JANUARY 1, 2015
NET BOOK VALUE,
DECEMBER 31, 2015
6,318
667
38,633
13,836
2,466
76,009
2,485
528
62
—
(579)
—
136
2,632
869
216
—
(578)
97
604
1,616
2,028
1,597
413
387
—
(72)
—
86
5,946
543
1,166
—
(120)
—
172
3,677
551
79
(5)
(42)
—
229
2,411
7,707
4,489
843
167
—
(27)
42
3,692
549
—
(102)
83
2,454
467
(5)
(37)
147
1,025
4,222
3,026
754
2,254
1,223
1,386
3,485
1,463
60,601
16,592
17,069
(190)
(1,224)
(4,922)
4,052
91,978
20,642
5,401
(89)
(657)
1,759
27,056
39,959
64,922
8,188
134,171
(9,677)
39,646
4
—
—
—
1,577
47,679
(6,119)
(8,939)
(8,033)
10,527
92
208,932
—
—
—
—
—
34,559
9,058
(663)
(2,097)
2,388
— 43,245
8,188
99,612
92
165,687
109
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
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
110
2016 ANNUAL REPORTFIELD TO CONSUMER DISTRIBUTION
NETWORKS
$
BRAND NAMES
$
PATENTS
$
SOFTWARE
$
ORDER
BACKLOG
$
NON-COMPETE
AGREEMENT
$
DEVELOPMENT
PROJECT
$
DISTRIBUTION
NETWORKS
$
BRAND NAMES
$
PATENTS
$
SOFTWARE
$
ORDER
BACKLOG
$
NON-COMPETE
AGREEMENT
$
DEVELOPMENT
PROJECT
$
AGI regularly assesses its long-lived assets for impairment. As at December 31, 2016 and 2015, 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 2016 or 2015.
11. INTANGIBLE ASSETS
COST
Balance, January 1, 2016
Internal development
Acquired
Impairment [note 17]
Discontinued operations
Exchange differences
Balance, December 31, 2016
AMORTIZATION
Balance, January 1, 2016
Amortization
Impairment [note 17]
Discontinued operations
Exchange differences
Balance, December 31, 2016
NET BOOK VALUE,
DECEMBER 31, 2016
104,544
—
19,913
—
—
(757)
123,700
37,423
6,797
—
—
(535)
43,685
86,526
—
21,071
—
—
(488)
107,109
—
—
—
—
—
—
2,790
53
—
—
—
(37)
2,806
1,550
246
—
—
(29)
1,767
3,332
237
9
—
(151)
(90)
3,337
1,509
594
—
(100)
(72)
1,931
3,128
—
3,521
—
—
(66)
6,583
1,859
2,860
—
—
(43)
4,676
80,015
107,109
1,039
1,406
1,907
114
—
—
—
—
—
114
31
16
—
—
—
47
67
TOTAL
$
207,381
2,938
44,514
(3,007)
(151)
(1,529)
6,947
2,648
—
(3,007)
—
(91)
COST
Balance, January 1, 2015
Internal development
Acquired
Impairment [note 17]
Exchange differences
60,582
—
42,023
(1,763)
3,702
Balance, December 31, 2015
104,544
37,525
—
47,702
(839)
2,138
86,526
—
—
—
—
—
2,559
2,245
30
—
—
201
2,790
1,148
241
—
161
1,550
—
751
(43)
379
3,332
853
517
(32)
171
1,509
35
—
3,089
—
4
3,128
32
1,825
—
2
1,859
30,336
5,475
(1,184)
2,796
37,423
TOTAL
$
108,847
1,760
93,565
(3,564)
6,773
207,381
33,229
8,610
(1,379)
3,140
43,600
5,787
1,730
—
(919)
349
6,947
845
536
(163)
10
1,228
114
—
—
—
—
114
15
16
—
—
31
83
67,121
86,526
1,240
1,823
1,269
5,719
163,781
6,497
250,146
1,228
548
(948)
—
(3)
825
43,600
11,061
(948)
(100)
(682)
52,931
5,672
197,215
AMORTIZATION
Balance, January 1, 2015
Amortization
Impairment [note 17]
Exchange differences
Balance, December 31, 2015
NET BOOK VALUE,
DECEMBER 31, 2015
111
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
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
112
2016 ANNUAL REPORTFIELD TO CONSUMER 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 [2015 – $86,526]
have been classified as indefinite-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 intangible assets, 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, 2016, are net of combined federal and
provincial scientific research and experimental development [“SR&ED”]
tax credits in the amounts of $35 and $106, 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, 2016,
the Company had federal investment tax credit carryforwards in the
amount of $2,324 [2015 – $2,324], federal SR&ED investment tax credit
carryforwards in the amount of $980 [2015 – $935], provincial SR&ED
investment tax credit carryforwards in the amount of $287 [2015 – $232]
and provincial manufacturing or processing tax credits in the amount of
$448 [2015 – $439]; these began expiring in 2015.
Other significant intangible assets are goodwill [note 12] 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.
12. GOODWILL
BALANCE, BEGINNING OF YEAR
Acquisition [note 6]
Impairment [note 17]
Exchange differences
BALANCE, END OF YEAR
13. IMPAIRMENT TESTING
2016
$
2015
$
170,262
57,472
(67)
(217)
71,356
93,745
(414)
5,575
227,450
170,262
The Company performs its annual goodwill impairment test as at
December 31. The recoverable amount of the Company’s group of
CGUs has been determined based on value in use for the year ended
December 31, 2016, using cash flow projections covering a five-year
period. The various pre-tax discount rates applied to the cash flow
projections are between 8.8% and 19.0% [2015 – 12.3% and 14.3%] and
cash flows beyond the five-year period are extrapolated using a 3%
growth rate [2015 – 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 group of 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:
Farm
Goodwill
Intangible assets with indefinite lives
Commercial
Goodwill
Intangible assets with indefinite lives
2016
$
2015
$
130,371
127,964
69,302
68,502
97,079
37,807
42,298
18,024
227,450
170,262
107,109
86,526
The Company had no contractual commitments for the acquisition of
intangible assets as of the reporting date.
Total
Goodwill
Intangible assets with indefinite lives
113
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
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
114
2016 ANNUAL REPORTFIELD TO CONSUMER
KEY ASSUMPTIONS USED IN VALUATION CALCULATIONS
the agricultural industry.
The calculation of value in use or fair value less cost to sell for all the
CGUs or group of 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
14. ASSETS HELD FOR SALE
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 was recorded as assets held for
sale. During 2016, the carrying amount of this land and building was
reduced to $2,745.
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.
During 2016, the carrying amount of this grounds, building and selected
equipment was reduced to $403.
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.
Discount rates reflect the current market assessment of the risks
specific to each CGU or group of CGUs. The discount rate was estimated
based on the weighted average cost of capital for the industry. This
rate was further adjusted to reflect the market assessment of any risk
specific to the CGU or group of CGUs for which future estimates of cash
flows have not been adjusted.
In 2016, land and building in Winnipeg, Manitoba included in assets
held for sale were sold and the related carrying amount of $1,150 was
removed from assets held for sale.
As at December 31, 2016, the land carrying value is $1,674 [2015 –
$2,944] and the building carrying value is $1,474 [2015 – $3,662].
Market share assumptions
15. AVAILABLE-FOR-SALE INVESTMENT
These assumptions are important because, as well as using industry
data for growth rates [as noted below], management assesses how
the CGU’s or group of CGUs position, relative to its competitors, might
change over the forecast period.
Growth rate estimates
In fiscal 2009, AGI invested in a privately held Canadian farming
company [“Investco”]. AGI assesses at each reporting period whether
there is any objective evidence that its investment is impaired.
16. CASH AND CASH EQUIVALENTS/CHANGES IN NON CASH
WORKING CAPITAL
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
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
continuing operations is calculated as follows:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Customer deposits
Provisions
2016
$
2015
$
6,707
6,753
(4,211)
39,048
8,291
2,076
(777)
(23,571)
(7,871)
(862)
(261)
7,056
1,549
34,449
17. IMPAIRMENT OF ASSETS
During 2015, AGI conducted a strategic review regarding operations
in Union City, U.S. and Yläne, Finland. 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 CGUs were impaired and incurred
impairment charges of $13,439 during the fourth quarter of 2015 to
reflect the fair value less costs to sell of these assets. These non-cash
impairment charges were recorded to income. 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 29[c] for further details related to the
determination of fair value.
As at December 31, 2016, Mepu and Applegate have been classified as
discontinued operations [note 7]. AGI completed the sale of Mepu on
June 15, 2016 [note 7], and the sale of Applegate on August 12, 2016
[note 7], and accordingly Mepu and Applegate have been classified as
discontinued operations. Based on the terms of the sale of Mepu, the
final impairment amount was $5,228 and as a result, a reversal of the
impairment charge of $1,373 was recorded in the year ended December
31, 2016. Based on the terms of the sale of Applegate, the final
115
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
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
116
2016 ANNUAL REPORTFIELD TO CONSUMER E N T R I N G E R
2 0 1 6
Established in 1988 and
based in Brazil, Entringer is
a leading manufacturer of
grain storage, handling and
conditioning equipment.
Specifically, manufacturing
grain bins, bucket elevators,
dryers and cleaners.
Entringer differentiates itself
by providing cutting edge
products and service that
ensure quality and safety.
impairment amount was $6,713 and as a result, a reversal of the
impairment charge of $125 was recorded in the year ended December
31, 2016. These amounts are included in the consolidated statements of
income from discontinued operations.
In the three-month period ended June 30, 2016, AGI finalized plans
to transfer certain assets from its Nobleford, Alberta production
facility to a facility in Brazil that is currently under construction. An
impairment charge of $2.3 million related to property, plant and
equipment, inventory and intangible assets that were determined to be
obsolete was recorded in the three months ended June 30, 2016 in the
consolidated statements of income. A further $2.5 million related to
equipment, inventory and intangible assets was recorded in the three-
month period ended December 31, 2016 as more obsolete items were
identified during the move.
During 2016, AGI conducted a strategic review regarding operations in
Winnipeg, Manitoba and concluded that one operation was no longer
strategically aligned with the business objectives of AGI and accordingly
determined to exit the business by way of divestiture or disposal. As a
result, the Company concluded that certain of the assets of this CGU
were impaired and incurred impairment charges of $1,320 during the
fourth quarter of 2016 to reflect the fair value less costs to sell of these
assets. These non-cash impairment charges were recorded to income.
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 29[c].
18. 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
Less allowance for doubtful accounts
TOTAL ACCOUNTS RECEIVABLE, NET
OF WHICH
2016
$
2015
$
82,852
(1,819)
81,033
77,820
(4,296)
73,524
Neither impaired nor past due
54,790
44,624
Not impaired and past the due date as follows
Within 30 days
31 to 60 days
61 to 90 days
Over 90 days
Less allowance for doubtful accounts
TOTAL ACCOUNTS RECEIVABLE, NET
13,844
18,745
3,227
2,312
8,679
(1,819)
81,033
5,046
2,835
6,570
(4,296)
73,524
During 2015 and 2016, 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. The accounts receivable
owing from this customer were 90% insured with Export Development
Canada [“EDC”], and the insured amount was collected from EDC in
2015. The Company had reserved in the allowance for doubtful accounts
$2,942, or 10%, that equals to the uninsured amount of the accounts
receivable in 2015 and this amount was subsequently written off in 2016.
Trade receivables assessed to be impaired are included as an allowance
in selling, general and administrative expenses in the period of the
assessment. The movement in the Company’s allowance for doubtful
accounts for the years ended December 31, 2016 and December 31,
2015 was as follows:
BALANCE, BEGINNING OF YEAR
Additional provision recognized
Amounts written off during the year as uncollectible
Exchange differences
BALANCE, END OF YEAR
2016
$
4,296
1,136
(3,598)
(15)
1,819
2015
$
1,061
3,563
(414)
86
4,296
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19. INVENTORY
Raw materials
Finished goods
2016
$
2015
$
54,012
45,467
99,479
51,917
46,805
98,722
Inventory is recorded at the lower of cost and net realizable value.
During the year ended December 31, 2016, no provisions [2015 – 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 $1,218 related to the impairment of inventory from the
Nobleford, Alberta facility and Winnipeg, Manitoba facility [note 17].
20. PROVISIONS
Provisions consist of the Company’s warranty provision. A provision
is recognized for expected claims on products sold based on past
experience of the level of repairs and returns. It is expected that most of
these costs will be incurred in the next financial year. Assumptions used
to calculate the provision for warranties were based on current sales
levels and current information available about returns.
BALANCE, BEGINNING OF YEAR
Costs recognized
Change in reserve
Amounts charged against provision
BALANCE, END OF YEAR
2016
$
2015
$
6,550
4,427
180
(4,503)
6,654
3,829
6,326
2,580
(6,185)
6,550
21. 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
14,781,643 common shares
The cash flow hedge reserve contains the effective portion of the cash
flow hedge relationships incurred as at the reporting date.
SHARES
#
AMOUNT
$
Foreign currency translation reserve
Balance, January 1, 2015
Dividend reinvestment plan costs
Dividend reinvestment shares issued from treasury
Exercise of grants under DDCP [note 22[b]]
Settlement of 2012 EIAP obligation
Dividends on 2012 EIAP
Share issuance related to Westeel acquisition [note 6[b]]
Balance, December 31, 2015
Dividend reinvestment shares issued from treasury
[note 21[e]]
Settlement of 2012 EIAP obligation
Balance, December 31, 2016
13,165,627
184,771
—
132,165
10,934
163,678
5,914
1,112,050
14,590,368
144,006
47,269
(16)
5,252
396
5,162
137
49,138
244,840
5,218
1,640
14,781,643
251,698
[B] CONTRIBUTED SURPLUS
2016
$
2015
$
Balance, beginning of year
10,193
12,954
Equity-settled director compensation [note 22[b]]
Exercise of grants under DDCP
Dividends on 2012 EIAP
Settlement of 2012 EIAP dividends
Obligation under 2012 EIAP [note 22[a]]
Settlement of 2012 EIAP obligation
2015 convertible unsecured subordinated debentures
Balance, end of year
375
—
1,672
(293)
6,517
(1,530)
6
16,940
268
(396)
881
(1,066)
2,736
(5,184)
—
10,193
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.
[D] DIVIDENDS PAID AND PROPOSED
In the year ended December 31, 2016, the Company declared dividends
of $35,297 or $2.40 per common share [2015 – $33,593 or $2.40 per
common share] and dividends on share compensation awards of $1,672
[2015 – $881]. In the year ended December 31, 2016, 144,006 common
shares were issued to shareholders from treasury under the dividend
reinvestment plan [the “DRIP”]. In the year ended December 31, 2016,
dividends paid to shareholders were financed $30,079 [2015 – $28,341]
from cash on hand and $5,218 [2015 – $5,252] 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, 2016, the Company
declared dividends of $0.20 per common share with record dates of
January 31 and February 28.
[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
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common shares on the Toronto Stock Exchange for the five trading days
preceding the applicable dividend payment date. The Company incurred
costs of nil [2015 – $16] with respect to administration of the DRIP.
[iii]
[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 to an
exemption available under the Rights Plan] beneficial ownership of
20% or more of the Common Shares, Rights [other than those held by
such acquiring person, which will become void] will separate from the
Common Shares and permit the holder thereof to purchase that number
of Common Shares having an aggregate market price [as determined
in accordance with the Rights Plan] on the date of consummation or
occurrence of such acquisition of 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]
[ii]
The aggregate number of preferred shares that would then
be outstanding would exceed 50% of the aggregate number of
common shares then outstanding; or
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
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, 2016 and December 31, 2015, no preferred shares
were issued or outstanding.
22. SHARE-BASED COMPENSATION PLANS
[A] EQUITY INCENTIVE AWARD PLAN [“EIAP”]
The 2012 EIAP
On May 11, 2012, the shareholders of AGI approved an Equity Incentive
Award Plan [the “2012 EIAP”], which authorizes the Board to grant
Restricted Awards [“Restricted Awards”] and Performance Awards
[“Performance Awards”] [collectively, the “Awards”] to persons who
are officers, employees or consultants of the Company and its affiliates.
Awards may not be granted to non-management Directors.
On May 5, 2016, the shareholders of AGI approved an amendment to
the 2012 EIAP to increase the number of common shares available
for issuance to 915,000. At the discretion of the Board, the 2012 EIAP
provides for cumulative adjustments to the number of common shares
to be issued pursuant to, or the value of, Awards on each date that
dividends are paid on the common shares. The 2012 EIAP 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.
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2016 ANNUAL REPORTFIELD TO CONSUMER common shares were granted under the DDCP and as at December 31,
2016, a total of 63,642 [2015 – 54,572] common shares had been granted
under the DDCP and 18,436 [2015 – 18,436] common shares had been
issued.
[C] SUMMARY OF EXPENSES RECOGNIZED UNDER SHARE-BASED
PAYMENT PLANS
For the year ended December 31, 2016, an expense of $6,891 [2015 –
$3,004] was recognized for employee and Director services rendered.
A summary of the status of the options under the 2012 EIAP is
presented below:
Outstanding, January 1, 2015
Granted
Vested
Forfeited
Balance, December 31, 2015
Granted
Vested
Forfeited
2012 EIAP
RESTRICTED
AWARDS
#
PERFORMANCE
AWARDS
#
241,000
16,000
(54,383)
(8,283)
194,334
58,000
(34,974)
(4,359)
110,000
9,631
(119,631)
—
—
247,500
—
—
Balance, December 31, 2016
213,001
247,500
There is no exercise price on the 2012 EIAP awards.
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%. As at December 31, 2016, 321,000 Restricted Awards and
367,131 Performance Awards have been granted. The Company has
accounted for the 2012 EIAP as an equity-settled plan. 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. During the year ended December 31, 2016, AGI expensed
$6,517 for the 2012 EIAP [2015 – $2,736].
[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 predetermined minimum 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, 2016, an expense of $375 [2015 –
$268] 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 120,000, subject to adjustment in lieu of dividends, if
applicable. For the year ended December 31, 2016, 9,070 [2015 – 7,037]
N U V I S I O N
2 0 1 6
Based in Western Canada,
NuVision is recognized as
a leader in designing and
building complete turnkey
fertilizer plant material
handling facilities. NuVision’s
industrial services and design
include efficient custom
fabrication and steel services,
CAD design services and CNC
machining.
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06
2016 ANNUAL REPORTFIELD TO CONSUMER 23. LONG-TERM DEBT
CURRENT PORTION OF LONG-TERM DEBT
Series A secured notes [U.S. dollar denominated]
TOTAL CURRENT LONG-TERM DEBT
NON-CURRENT PORTION OF LONG-TERM DEBT
Series B secured notes
Series C secured notes [U.S. dollar denominated]
Term A secured loan
Term B secured loan
Revolver line
U.S. revolver line
Less deferred financing costs
TOTAL NON-CURRENT LONG-TERM DEBT
LONG-TERM DEBT
[A] BANK INDEBTEDNESS
AGI has operating facilities of $20.0 million and U.S. $7.0 million. The
facilities bear interest at prime plus 0.2% to prime plus 1.8% per annum
based on performance calculations.
Collateral for the operating facilities ranks pari passu with the Series
A secured notes and includes a general security agreement over
all assets, first position collateral mortgages on land and buildings,
assignments of rents and leases and security agreements for patents
and trademarks.
[B] LONG-TERM DEBT
The Series A secured notes were issued on October 29, 2009. The non-
amortizing notes bear interest at 6.8% payable quarterly and mature
on October 29, 2016. The Series A secured notes are denominated
in U.S. dollars. Collateral for the Series A secured notes and term
loans ranks pari passu and include a general security agreement over
INTEREST
RATE
%
MATURITY
DECEMBER 31,
2016
$
DECEMBER 31,
2015
$
6.8
4.4
3.7
3.2
3.4
3.0
4.5
2016
2025
2026
2019
2022
2019
2019
—
—
25,000
33,568
50,000
40,000
51,023
9,399
208,990
2,141
206,849
206,849
34,600
34,600
25,000
—
50,000
40,000
—
—
115,000
2,669
112,331
146,931
all assets, first position collateral mortgages on land and buildings,
assignments of rents and leases and security agreements for patents
and trademarks. Upon maturity in October 2016, the Series A secured
notes were refinanced with Series C secured notes from the same
lender. Terms of the Series C secured notes are the same as the Series
A secured notes other than the Series C secured notes bear interest at
3.7% and mature in October 2026.
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,
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 1.5% to BA plus
3.0% per annum based on performance calculations. Interest on the
non-amortizing loan has been fixed at 3.6% through an interest rate
swap contract [note 29]. Collateral for the Term A loan and secured
notes ranks pari passu and includes 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.
Interest on the non-amortizing loan has been fixed at 4.3% through
an interest rate swap contract [note 29]. Collateral for the Term B
loan and secured notes ranks pari passu and includes 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 $80 million and U.S. $68 million. The
facilities bear interest at LIBOR plus 1.5% to LIBOR plus 3.0% and
prime plus 0.2% to prime plus 1.8% per annum based on performance
calculations. As at December 31, 2016, there was $60 million [2015 – nil]
outstanding under these facilities. The facilities mature on May 19, 2019.
Interest on the revolver line has been fixed at 3.7% through an interest
rate swap contract [note 29]. Collateral for the revolving line ranks pari
passu and includes 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.
[C] COVENANTS
AGI is subject to certain financial covenants in its credit facility
agreements that 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, 2016 and December 31, 2015, AGI
was in compliance with all financial covenants.
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2016 ANNUAL REPORTFIELD TO CONSUMER 24. OBLIGATIONS UNDER FINANCE LEASE
25. CONVERTIBLE UNSECURED SUBORDINATED
DEBENTURES
INTEREST
RATE
%
MATURITY
DECEMBER
31, 2016
$
DECEMBER
31, 2015
$
Euribor +2
2018
4.7-6.6
2020-2021
206
147
353
209
—
209
Euribor +2
2018
4.7-6.6
2020-2021
904
475
1177
—
1,379
1,177
1,732
1,386
CURRENT PORTION OF
OBLIGATIONS UNDER
FINANCE LEASE
Real estate lease
Equipment leases
TOTAL CURRENT OBLIGATION
UNDER FINANCE LEASE
NON-CURRENT PORTION OF
OBLIGATIONS UNDER
FINANCE LEASE
Real estate lease
Equipment leases
TOTAL NON-CURRENT
OBLIGATIONS UNDER
FINANCE LEASE
OBLIGATIONS UNDER
FINANCE LEASE
[A] REAL ESTATE LEASE
The Company has a real estate lease that matures on March 1, 2018.
The lease is denominated in euros and bears interest at Euribor plus
2%.
[B] EQUIPMENT LEASE
The Company has leases for material handling and production
equipment that mature between 2020 and 2021. The leases are
denominated in U.S. dollars and Brazilian real and bear interest at rates
between 4.7% and 6.6%.
Principal amount
Equity component
Accretion
Financing fees, net of amortization
2016
$
2015
$
213,000
213,000
(9,922)
4,039
(5,907)
(9,922)
2,193
(7,686)
CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES
201,210
197,585
2013 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, 2016 [year ended December 31, 2015 – nil]. As
at December 31, 2016, 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
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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, 2016, the Company
recorded accretion of $887 [2015 – $834], non-cash interest expense
relating to financing costs of $761 [2015 – $715] and interest expense
of $4,528 [2015 – $4,528]. The residual value assigned to 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 taxes of $1,134
and its pro rata share of financing costs of $211.
2014 DEBENTURES
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, 2016 [year ended December 31, 2015 – nil].
As at December 31, 2016, 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, 2016, the Company recorded
accretion of $401 [2015 – $378], non-cash interest expense relating to
financing costs of $465 [2015 – $436] and interest expense on the 5.25%
coupon of $2,717 [2015 – $2,717]. The residual value assigned to 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 taxes of
$557 and its pro rata share of financing costs of $111.
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.
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, 2016. As at December 31, 2016, 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
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, 2016, the Company recorded
accretion of $558 [2015 – $138], non-cash interest expense relating to
financing costs of $568 [2015 – $147] and interest expense on the 5.00%
coupon of $3,750 [2015 – $1,006]. The residual value assigned to 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 taxes of
$835 and its pro rata share of financing costs of $162.
26. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables
Other payables
Personnel-related accrued liabilities
Accrued outstanding service invoices
2016
$
2015
$
34,978
10,667
15,409
3,348
64,402
22,603
9,882
13,812
1,424
47,721
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 29.
27. RETIREMENT BENEFIT PLANS
AGI contributes to group retirement savings plans subject to maximum
limits per employee. The expense recorded during the year ended
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2016 ANNUAL REPORTFIELD TO CONSUMER The weighted average duration of the defined benefit obligation as of
December 31, 2016 is 17.0 years [December 31, 2015 – 16.8 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 2016 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 assumption
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
$
(996)
342
1,122
(351)
The net expense of $627 [2015 – $517] for the year is included in cost of
sales and an expense of nil [2015 – nil] for the year is included in selling,
general and administrative expense in the consolidated statements of
income.
December 31, 2016 was $3,150 [2015 – $2,626]. AGI expects to
contribute $3,400 for the year ending December 31, 2017.
On May 20, 2015, AGI acquired Westeel [note 6[b]]. Included in the
acquisition was 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 triennially as required. The Company’s registered defined benefit
plan was last valued on December 31, 2016. The present value of the
defined obligation, and the related current service cost and past service
cost, were measured using the Unit Credit Method.
The liabilities were revalued at December 31, 2016. We have used the
same methods and assumptions used at December 31, 2015 for the
purpose of estimating the liabilities at December 31, 2016. The following
assumptions were used to determine the periodic pension expense and
the net present value of the accrued pension obligations:
Expected long-term rate of return on plan assets
Discount rate on benefit costs
Discount rate on accrued pension
and post-employment obligations
Rate of compensation increases
2016
%
3.95
3.95
3.95
n/a
2015
%
4.00
4.00
4.00
n/a
Information about the Company’s defined benefit pension plan,
in aggregate, is as follows:
2016
$
2015
$
PLAN ASSETS
Fair value of plan assets, beginning of year
12,446
12,562
Interest income on plan assets
Actual return on plan assets
Employer contributions
Benefits paid
FAIR VALUE OF PLAN ASSETS, END OF YEAR
499
378
419
(727)
13,015
298
(387)
245
(272)
12,446
ACCRUED BENEFIT OBLIGATION
Accrued benefit obligation, beginning of year
12,212
11,860
Current service cost
Interest cost
Actuarial gains from changes in financial assumptions
Actuarial gains from experience adjustments
Benefits paid
ACCRUED BENEFIT OBLIGATION, END OF YEAR
NET ACCRUED BENEFIT ASSET
621
505
105
(83)
(727)
12,633
382
504
311
—
(191)
(272)
12,212
234
The net accrued benefit asset of $382 [2015 – $234] is included in other
assets in non-current assets.
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 gain of $378 [2015 – loss of $387].
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 $235 [2016 – $468] to
the defined benefit plan in 2017. 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:
The major categories of plan assets for each category are as follows:
Asset volatility
DECEMBER 31, 2016
DECEMBER 31, 2015
$
%
$
%
Canadian equity securities
U.S. equity securities
International equity securities
Fixed-income securities
3,930
2,252
2,265
4,568
30.2
17.3
17.4
35.1
3,684
2,178
2,191
4,393
29.6
17.5
17.6
35.3
13,015
100.0
12,446
100.0
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.
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M M S
2 0 1 6
Founded in 1978, Mitchell
Mill Systems manufactures
equipment for use in feed,
grain, pet food, fish food,
fertilizer, seed cleaning
and industrial facilities.
Additionally, Mitchell
fabricates its own line of
material handling
equipment and specialty
systems using light and heavy
gauge, mild and stainless
steel materials.
Change in fixed-income security yields
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 reconciliation between tax expense and the product of accounting
profit multiplied by the Company’s domestic tax rate for the years ended
December 31, 2016 and 2015 is as follows:
2016
$
2015
$
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.
ACCOUNTING PROFIT (LOSS) BEFORE INCOME TAX
30,168
(22,120)
At the Company’s statutory income tax rate of 27%
[2015 – 26.80%]
8,145
(5,928)
28. INCOME TAXES
The major components of income tax expense for the years ended
December 31, 2016 and 2015 are as follows:
CONSOLIDATED STATEMENTS OF INCOME
2016
$
2015
$
Tax rate changes
Additional deductions allowed in a foreign jurisdiction
Tax losses not recognized as a deferred tax asset
Withholding tax on dividend
Foreign rate differential
Non-deductible SAIP expense
State income tax, net of federal tax benefit
Unrealized foreign exchange loss (gain)
Impairment of goodwill
Permanent differences and others
(481)
(600)
1,413
—
1,517
536
496
(776)
18
594
(9)
(259)
1,984
1,652
897
608
251
3,519
—
394
3,109
11,122
4,722
AT THE EFFECTIVE INCOME TAX RATE 36.09%
[2015 – (14.05%)]
10,862
CURRENT TAX EXPENSE
Current income tax charge
DEFERRED TAX RECOVERY
Origination and reversal of temporary differences
(260)
(1,613)
INCOME TAX EXPENSE REPORTED IN THE
CONSOLIDATED STATEMENTS OF INCOME
10,862
3,109
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
DEFERRED TAX RELATED TO ITEMS CHARGED OR
CREDITED DIRECTLY TO OTHER COMPREHENSIVE
INCOME DURING THE PERIOD
Unrealized gain (loss) on derivatives
Defined benefit plan reserve
Exchange differences on translation of foreign operations
INCOME TAX CREDITED DIRECTLY TO OTHER
COMPREHENSIVE INCOME
2016
$
2015
$
5,992
96
(268)
5,820
(4,047)
59
1,895
(2,093)
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136
2016 ANNUAL REPORTFIELD TO CONSUMER The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
RECONCILIATION OF DEFERRED TAX LIABILITIES, NET
CONSOLIDATED
STATEMENTS OF
FINANCIAL POSITION
CONSOLIDATED
STATEMENTS OF
INCOME
2016
$
2015
$
2016
$
2015
$
BALANCE, BEGINNING OF YEAR
Deferred tax recovery during the year
recognized in profit or loss
Deferred tax liability related to change
in accounting policy [note 3]
Inventories
(90)
(90)
—
Property, plant and equipment
and other assets
(21,567)
(21,115)
(1,189)
Intangible assets
(45,638)
(41,577)
(1,621)
2
932
366
350
Deferred tax expense during the period recognized
in shareholders’ equity
Deferred tax recovery (expense) during the period
recognized in other comprehensive income
136
1,057
(1,727)
BALANCE, END OF YEAR
Deferred tax liability setup on business acquisition
(5,325)
(23,103)
2016
$
2015
$
(41,598)
(12,072)
260
1,613
(977)
(8,744)
—
(1,385)
(5,820)
2,093
(53,460)
(41,598)
Deferred financing costs
Accruals and long-term provisions
Tax loss carryforwards expiring
between 2020 to 2035
Investment tax credits
Canadian exploration expenses
(747)
4,106
1,364
(627)
13,143
(611)
4,238
1,614
(627)
13,218
Capitalized development
expenditures
Convertible debentures
SAIP liability
Equity swap
Other comprehensive income
Exchange difference on
translation of foreign operations
DEFERRED TAX EXPENSE
(1,046)
(1,060)
(1,588)
1,223
(2,418)
425
—
(2,087)
82
—
6,417
—
NET DEFERRED TAX LIABILITIES
(53,460)
(41,598)
250
(1,062)
—
75
(14)
(499)
(1,141)
2,418
—
268
9
734
155
(273)
796
—
—
(1,895)
(260)
(1,613)
REFLECTED IN THE STATEMENTS OF FINANCIAL POSITION AS FOLLOWS
Deferred tax asset
Deferred tax liability
231
84
(53,691)
(41,682)
DEFERRED TAX LIABILITIES, NET
(53,460)
(41,598)
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
5,913 euros [2015 – 6,283 euros] and its Brazilian operations of 14,179
BRL [2015 – 2,764]. Accordingly, the Company has recorded a deferred
tax asset for all other deductible temporary differences as at December
31, 2016 and as at December 31, 2015.
Included in the current year’s income tax expense was nil [2015
– $1,652] withholding tax paid on the repatriation of surplus from
a subsidiary. As at December 31, 2016, there was no recognized
deferred tax liability [2015 – 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 [2015 –
$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 2016 or 2015 by the Company to its
shareholders.
29. 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 risk and interest rate risk],
credit risk and liquidity risk. The Company’s overall risk management
program focuses on the unpredictability of financial markets and
seeks to 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, 2016 and December 31, 2015.
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:
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• 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, 2016 and December 31, 2015, 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, 2016 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, 2016, AGI’s U.S. dollar denominated
debt totalled $43.0 million [2015 – $34.6 million] and the Company has
entered into the following foreign exchange forward contracts to sell
U.S. dollars in order to hedge its foreign exchange risk on revenue:
SETTLEMENT DATES
FACE VALUE
U.S. $
AVERAGE RATE
CDN $
January – February 2017
9,000
1.25
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, 2016 were U.S. $199 million, and the total of its cost of goods sold
and its selling, general and administrative expenses denominated
in that currency was U.S. $129 million. Accordingly, a 10% increase
or decrease in the value of the U.S. dollar relative to its Canadian
counterpart would result in a $19.9 million increase or decrease in
sales and a total increase or decrease of $12.9 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 $13.3 million increase or decrease in the
foreign exchange gain and a $1.2 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, 2016, the Company realized a loss on
its foreign exchange contracts of $14.4 million [2015 – loss of $15.3
million].
The open foreign exchange forward contracts as at December 31, 2016
are as follows:
NOTIONAL CANADIAN DOLLAR EQUIVALENT
NOTIONAL
AMOUNT OF
CURRENCY SOLD
$
CONTRACT
AMOUNT
$
CDN $
EQUIVALENT
$
UNREALIZED
GAIN (LOSS)
$
U.S. dollar contracts
9,000
1.2462
11,216
(862)
The open foreign exchange forward contracts as at December 31, 2015
are as follows:
NOTIONAL CANADIAN DOLLAR EQUIVALENT
NOTIONAL
AMOUNT OF
CURRENCY SOLD
$
CONTRACT
AMOUNT
$
CDN $
EQUIVALENT
$
UNREALIZED
GAIN (LOSS)
$
U.S. dollar contracts
109,500
1.1827
129,509
(21,767)
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 there was no significant element
of hedge ineffectiveness requiring recognition in the consolidated
statements of income.
During 2016, a loss of nil [2015 – $1,317] 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 $862, with
a deferred tax asset of $425 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, Series C secured
notes and convertible unsecured subordinated debentures outstanding
at December 31, 2016 and December 31, 2015 are at a fixed rate of
interest.
INTEREST RATE SWAP CONTRACTS
The Company enters 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 based
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on the variable rates from the counterparty and pay interest based on
fixed rates between 3.6% and 4.32%. The notional amounts are $141,023
in aggregate, resetting the last business day of each month. The
contracts expire between 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 open interest rate swap contracts as at December 31, 2016 are as
follows:
Counterparty a funding cost calculated daily based on floating rate
option [CAD-BA-COOR] plus a spread of 2.0% and any administrative
fees or expenses that are incurred by the Counterparty directly.
As at December 31, 2016, the equity swap agreement covered 500,000
common shares of the Company at a price of $34.10, and the agreement
matures on March 22, 2019.
As at December 31, 2016, the unrealized gain on the equity swap was
$9,289 and in the year ended December 31, 2016, the Company has
recorded a gain in the consolidated statements of income of $9,210
[2015 – nil].
NOTIONAL
AMOUNT
$
CONTRACT
RATE
%
UNREALIZED
GAIN (LOSS)
$
CREDIT RISK
Canadian dollar contracts
U.S. dollar contracts
90,000
38,000
3.6-4.3
3.8
(1,078)
363
The open interest rate swap contracts as at December 31, 2015 are as
follows:
NOTIONAL
AMOUNT
$
CONTRACT
RATE
%
UNREALIZED
GAIN (LOSS)
$
Canadian dollar contracts
90,000
3.8-4.3
(2,001)
The amount of loss recorded in other comprehensive income during the
year ended December 31, 2016 was $1,286 [2015 – $2,001].
EQUITY SWAP
On March 18, 2016, the Company entered into an equity swap agreement
with a financial institution to manage the cash flow exposure due to
fluctuations in its share price related to the EIAP.
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.
Pursuant to this agreement, the counterparty has agreed to pay the
Company the total return of the defined underlying common shares,
which includes both the dividend income they may generate and any
capital appreciation. In return, the Company has agreed to pay the
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
YA R G U S
2 0 1 6
Founded in 1968, Yargus
produces custom blending
and conveying equipment
for industrial and fertilizer
applications in a variety
of capacities. The Yargus
equipment line includes
premium batch blending and
material handling for dry
materials including declining
weight systems, tapered
vertical blenders, rotary
drum blenders, towers,
bucket elevators and multiple
conveying options. The Yargus
in-house automation and
engineering team are
continually updating its
extensive product line
in order to meet the needs of
the industry internationally.
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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 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.
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 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, 2016 and 2015:
DECEMBER 31, 2016
Trade payables and provisions
Dividends payable
Due to vendor
Acquisition, transaction and financing costs payable
Contingent consideration
Term debt
Convertible unsecured subordinated debentures [includes interest]
TOTAL
$
0 - 6 MONTHS
$
6 - 12 MONTHS
$
12 - 24 MONTHS
$
2 - 4 YEARS
$
AFTER 4 YEARS
$
71,056
2,956
16,415
262
21,202
249,858
245,208
71,056
2,956
16,415
262
4,015
4,099
5,498
—
—
—
—
—
4,099
5,498
9,597
—
—
—
—
9,190
8,199
97,245
—
—
—
—
7,997
120,298
136,967
—
—
—
—
—
113,163
—
114,634
265,262
113,163
TOTAL FINANCIAL LIABILITY PAYMENTS
609,657
104,301
DECEMBER 31, 2015
Trade payables and provisions
Dividends payable
Due to vendor
Acquisition, transaction and financing costs payable
Contingent consideration
Other financial liabilities
Term debt
Convertible unsecured subordinated debentures [includes interest]
TOTAL FINANCIAL LIABILITY PAYMENTS
TOTAL
$
0 - 6 MONTHS
$
6 - 12 MONTHS
$
12 - 24 MONTHS
$
2 - 4 YEARS
$
AFTER 4 YEARS
$
54,271
2,883
1,114
732
5,000
9,017
176,975
256,203
506,195
54,271
2,883
1,114
732
—
—
37,906
5,498
102,404
—
—
—
—
3,000
9,017
2,914
5,498
20,429
—
—
—
—
2,000
—
4,260
10,995
17,255
—
—
—
—
—
—
—
—
—
—
—
—
57,499
155,462
212,961
74,396
78,750
153,146
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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:
2016
2015
CARRYING AMOUNT
$
FAIR VALUE
$
CARRYING AMOUNT
$
FAIR VALUE
$
FINANCIAL ASSETS
Loans and receivables
Cash and cash equivalents
Cash held in trust
Accounts receivable
Due from vendor
Derivative instruments
Available-for-sale investment
Note receivable
FINANCIAL LIABILITIES
Other financial liabilities
Interest-bearing loans and borrowings
Trade payables and provisions
Dividends payable
Due to vendor
Acquisition, transaction and financing costs payable
Contingent consideration
Other financial liabilities
Derivative instruments
Convertible unsecured subordinated debentures
2,774
5,093
81,033
342
9,289
900
807
208,581
71,056
2,956
16,415
262
20,224
—
1,577
201,210
2,774
5,093
81,033
342
9,289
900
807
208,916
71,056
2,956
16,415
262
20,224
—
1,577
198,150
58,234
250
73,524
—
—
900
—
148,317
54,271
2,883
1,114
732
4,663
9,017
23,768
197,585
58,234
250
73,524
—
—
900
—
148,531
54,271
2,883
1,114
732
4,663
9,017
23,768
185,414
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.
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.
[C] FAIR VALUE [“FV”] HIERARCHY
AGI uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
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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.
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
Derivative instruments
Available-for-sale investment
Note receivable
Assets held for sale
FINANCIAL LIABILITIES
Interest-bearing loans and borrowings
Contingent consideration
Other financial liabilities
Derivative instruments
Convertible unsecured subordinated debentures
LEVEL 1
$
2016
LEVEL 2
$
LEVEL 3
$
LEVEL 1
$
2015
LEVEL 2
$
—
—
—
—
—
—
—
—
—
9,289
—
807
3,148
208,581
—
—
1,577
201,210
—
900
—
—
—
20,224
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
148,317
—
—
23,768
197,585
LEVEL 3
$
—
900
—
—
—
4,663
9,017
—
—
During the reporting years ended December 31, 2016 and December 31, 2015, 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.
30. 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, 2016 and December 31, 2015, all
of these covenants were complied with [note 23[c]].
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.
31. 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 intercompany sales
of inventories and services. Because all subsidiaries are currently 100%
owned by Ag Growth Inc., these intercompany transactions are 100%
eliminated on consolidation.
OTHER RELATIONSHIPS
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 general
matters were $200 during the year ended December 31, 2016 [2015 –
$2,300], and $6 is included in accounts payable and accrued liabilities
as at December 31, 2016. These transactions are measured at the
exchange amount and were incurred during the normal course of
business.
Salthammer Inc. provides consulting services to the Company and a
Director of AGI is the owner of Salthammer Inc. The total cost of these
consulting services related to international plant expansion project
were $48 during the year ended December 31, 2016 [2015 – nil] and $9
is included in accounts payable and accrued liabilities as at December
31, 2016.
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
TOTAL COMPENSATION PAID TO KEY
MANAGEMENT PERSONNEL
2016
$
133
205
6,128
6,891
13,357
2015
$
104
212
5,939
3,004
9,259
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32. 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) from continuing operations
Profit (loss) from discontinued operations
Profit (loss) attributable to shareholders
for basic and diluted profit per share
2016
$
18,953
353
2015
$
(9,720)
(15,509)
19,306
(25,229)
Basic weighted average number of shares
14,708,986
13,932,082
Dilutive effect of DDCP
Dilutive effect of RSU
40,105
211,555
—
—
Diluted weighted average number of shares
14,960,646
13,932,082
Profit (loss) per share from continuing operations
Basic
Diluted
Profit (loss) per share from discontinued operations
Basic
Diluted
Profit (loss) per share
Basic
Diluted
1.29
1.27
0.02
0.02
1.31
1.29
(0.70)
(0.70)
(1.11)
(1.11)
(1.81)
(1.81)
The 2013, 2014 and 2015 Debentures were excluded from the
calculation of diluted profit per share for the years ended December 31,
2016 and 2015 because their effect is anti-dilutive.
On February 15, 2017, the Company issued 1,150,000 common shares
on a “bought deal” basis [note 35].
33. REPORTABLE BUSINESS SEGMENT
The Company manufactures agricultural equipment with a focus on
grain handling, storage and conditioning products. As at December 31,
2016, 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
sales, property, plant and equipment, goodwill, intangible assets and
available-for-sale investment by geographical area, reconciled to the
Company’s consolidated financial statements:
SALES
PROPERTY, PLANT AND EQUIPMENT,
GOODWILL, INTANGIBLE
ASSETS AND AVAILABLE-FOR-SALE
INVESTMENT
2016
$
2015
$
2016
$
2015
$
Canada
United States
International
238,151
191,643
101,822
531,616
137,946
169,445
106,724
414,115
393,931
179,015
62,076
635,022
358,922
120,479
21,229
500,630
The sales 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 sales.
34. COMMITMENTS AND CONTINGENCIES
35. SUBSEQUENT EVENTS
$63 MILLION BOUGHT DEAL EQUITY FINANCING
On January 26, 2017, the Company entered an agreement with a
syndicate of underwriters pursuant to which AGI will issue on a “bought
deal” basis, 1,100,000 common shares at a price of $55.10 per share to
raise gross proceeds of approximately $60 million. Also, the Company
granted the underwriters an over-allotment option, exercisable in whole
or in part for a period expiring 30 days following closing, to purchase
an additional 165,000 common shares at the same offering price. If the
over-allotment option is fully exercised, the total gross proceeds to AGI
would be approximately $70 million.
On February 15, 2017, the Company closed the public offering for
1,150,000 common shares at a price of $55.10 per share, which includes
50,000 common shares issued pursuant to the over-allotment option,
for gross proceeds of approximately $63 million.
The net proceeds of the offering will be used to repay outstanding
indebtedness, to pursue potential acquisition opportunities and for
working capital and general corporate purposes.
[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 $44,062 [2015 – nil] for
which deposits of $27,620 [2015 – nil] were made as at December 31,
2016.
[B] LETTERS OF CREDIT
As at December 31, 2016, the Company has outstanding letters of credit
in the amount of $2,414 [2015 – $4,802].
[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 years
$
2,221
4,657
6,878
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, 2016, the Company recognized an
expense of $2,908 [2015 – $2,261] 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.
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D I R E C TO R S
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
O F F I C E R S
Tim Close, President and Chief Executive Officer
Steve Sommerfeld, CPA, CA, Executive Vice President & Chief Financial Officer
Nicolle Parker, CPA, CMA, Senior Vice President, Finance & Information Systems
Craig Wilson, Senior Vice President, Human Resources
Dan Donner, Senior Vice President, Commercial
George Vis, Vice President, Commercial Operations (North America)
Ron Braun, Senior Vice President, Farm
Paul Brisebois, Vice President, Farm
Shane Knutson, Vice President, International Sales
Gurcan Kocdag, Vice President, Global Manufacturing
Jim Vis, Vice President, Global Engineering
Craig Nimegeers, Vice President, Engineering
Ryan Kipp, Vice President, Legal and General Counsel
Additional information relating to the Company, including all public filings, is available on SEDAR (www.sedar.com).
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D I R E C T O R S & O F F I C E R S
From the left: Gary Anderson, Janet Giesselman, Bill Lambert, Tim Close, Mac Moore, Bill Maslechko, David White
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