Rogers Sugar
Annual Report 2017

Plain-text annual report

A NATURAL ADDITION TO OUR FAMILY 2017 ANNUAL REPORT TOTAL DIVIDEND (thousand of $) OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP TOTAL Fiscal 2017 Fiscal 2016 — — — — 8,460 8,458 — — — — 8,459 8,449 — — — — 8,460 8,443 — — — — 9,517 34,896 8,446 33,796 PER SHARE DIVIDEND ($) OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP TOTAL Fiscal 2017 Fiscal 2016 — — — — 0.09 0.09 — — — — 0.09 0.09 — — — — 0.09 0.09 — — — — 0.09 0.09 0.36 0.36 TABLE OF CONTENT 01 Sweeteners Redefined 02 Report from the Chairman 04 Report from the President and CEO 06 The Acquisition of LBMT and its Opportunities 08 Mission & Values 09 Management’s Discussion and Analysis 54 Consolidated Financial Statements 59 Notes to Consolidated Financial Statements 124 Corporate Information 2017 ANNUAL REPORT 01 SWEETENERS REDEFINED The Transformation of Rogers Sugar Inc. Since its foundation in 1888, Rogers Sugar Inc. (“Rogers”) was strictly a sugar company. Recognizing Canadians are looking for more choices when it comes to sugar and sweeteners, Rogers has been bringing to the market a line of innovative sweeteners. Now the time is ripe for the company to tap into a completely new source of sweetener: enter the strategic acquisition of L.B. Maple Treat Corporation (“LBMT”), which is a completely natural path for a sugar company. 2014 2015 2016 Rogers launches a line of products including Stevia is among the finalists at the Two new launches this year, Organic Canadian Grand Prix New Product Coconut Sugar and Smart Sweetener Hot Chocolate, Iced Tea, Award TM. The same year, we also Blend, further solidify Rogers’ agave and stevia. added Food Service offering. diversified line of sweeteners. 2017: The Acquisition of L.B. Maple Treat In the summer of 2017, Rogers announced its acquisition of LBMT, one of the world’s largest branded and private label maple syrup bottling and distribution companies. This acquisition is a definite game changer and fits perfectly with Rogers’ long-term strategy to continue to build and invest in natural sweetener businesses and products. More on page 6 02 2017 ANNUAL REPORT TO MY FELLOW SHAREHOLDERS Report from the Chairman On behalf of the Board of Directors, I would first like to thank Mr. Stuart Belkin, my predecessor as Chairman, for his outstanding contribution and leadership over the last twenty years on the Board of Directors of Rogers Sugar Inc. (“Rogers” or the “Corporation”) and Lantic Inc. (“Lantic”). I would also like to thank the Board and past Chair for their confidence and support in electing me on February 1, 2017 as the Chairman of Rogers. I am very pleased to have their confidence and support as we embark on this new path of adding new natural sweetener platforms and opportunities for future growth to our heritage business. This vision, which is shared by Rogers’ executive leadership team, has resulted in significant work and the addition of material new businesses to our platform. With this backdrop in mind, I am pleased to report that, excluding acquisition costs, the financial results for fiscal 2017 surpassed last year’s results and delivered another year of volume growth and increased earnings for Rogers. Fiscal 2017 will most definitely be remembered for the strategic acquisition of L.B. Maple Treat (“LBMT”) in August 2017 which has given Rogers an immediate global leadership position in a complimentary natural sweetener category. We see the maple syrup business bringing sales growth, synergies, broader customer solutions and product innovation to Rogers. We believe that the maple syrup bottling industry will continue to consolidate around a handful of global players who will bring innovation, greater awareness and new usage opportunities for this truly unique Canadian sweetener. Aligned with this belief, we were excited to announce, in November 2017, the addition of another maple syrup business, Decacer, to our portfolio. This new acquisition brings a best in class operation as well as new and unique products to Rogers’ portfolio which will allow us to truly fulfill our future vision for this new and exciting product platform. Looking at the results of the sugar business, year-over-year volume was approximately 19,200 metric tonnes greater than in fiscal 2016. A significant portion of this improvement was attributable to the liquid and export segments, both of which benefited from the start of shipments with two customers with three-year contracts announced last year. 2017 ANNUAL REPORT 03 Excluding costs related to the acquisition of LBMT, the adjusted acqui sition, excluding closing adjustments, was funded by earnings before interest and taxes (“Adjusted EBIT”) was $69.5 amend ing and increasing its credit availability under the revolving million, representing a $2.9 million improvement over last year. As credit facility to $275 million. LBMT was acquired very late in fiscal 2017, its contribution to the consolidated Adjusted EBIT only amounted to $0.8 million. In the Finally, I would also like to thank all of our employees for their 2018 fiscal year, it will contribute for a full 12 months. efforts and commitment to strengthen the Corporation and all of our shareholders for their ongoing commitment to Rogers. We Overall, results included some challenges mostly relating to the are always guided by our obligation to both ensure and enhance Taber operations. A large crop and challenging beet storage the value of your investment. We thank you for the trust and the conditions in the January and February 2017 period, the latter continued support you have accorded us. part of the slicing campaign, led to operational inefficiencies and poorer than expected sugar extraction. On behalf of the Board of Directors, Rogers paid quarterly dividends of $0.09 per share for a yearly total of $0.36 per share. Rogers’ free cash flow of $40.6 million represented a distribution ratio of 85% of the declared dividend for fiscal 2017 of $34.9 million. The Board of Directors will continue to assess the appropriateness of the level of the dividend based Dallas Ross on performance and on the outlook for the business. The Board Chairman views sustainable returns to shareholders and maintenance of the dividend as a strategic priority. November 22, 2017 With the Fourth series convertible unsecured subordinated debentures (“Fourth series debentures”) coming due on April 30, 2017 and the acquisition of LBMT, Rogers has been very active on the financing front. Rogers, through its subsidiary Lantic, took advantage of lower interest rates to repay its Fourth series debentures at maturity and increased its financing under its revolving credit facility. In addition, on July 28, 2017, Rogers completed a public offering consisting of subscription receipts converted into 11,730,000 common shares for gross proceeds of $69.2 million. As part of the offering, the Corporation issued $57.5 million of sixth series 5.0% convertible unsecured subordinated debentures (“Sixth series debentures”), maturing December 31, 2024. Finally, the remainder of this $160.3 million 04 2017 ANNUAL REPORT A NATURAL ADDITION TO OUR FAMILY Report from the President and CEO The completion of our 2017 fiscal year provides a great opportunity to measure our performance, celebrate our successes, understand our weaknesses and establish new goals for improvement in fiscal 2018. Without a doubt, fiscal 2017 will be looked upon as a transformational year for Lantic Inc. (“Lantic”) as we boldly stepped outside our traditional sugar refining and processing business and acquired L.B. Maple Treat Corporation (“LBMT”), a business with a global leadership position in maple syrup. This acquisition was aligned with our stated strategy of acquiring adjacent natural sweetener businesses that will add growth, diversity and scale to our core sugar business. Before commenting on the past year, I wanted to briefly share some perspective on our plans and actions with respect to LBMT. Realizing the potential of the new acquisition will require that we maintain a balance of effort on running our core business, whilst working with the new LBMT management team to standardize and integrate common work streams, preserve core capabilities and leverage best practices within the maple syrup business and across the enterprise. From a business systems perspective, a key enabler to achieve our goals will be the use of an enterprise IT platform, an undertaking we will complete by the first quarter of calendar 2018. The integration of functional resources has already advanced and will be further developed with the completion of the IT integration. At this point, the Sales and Marketing team is the most advanced, while initial collaboration and coordination has also started in Finance, HR, and Supply Chain. Due to the uniqueness of the maple syrup operations and syrup procurement activities, these functions will not directly integrate in Lantic’s functional equivalent. That being said, the sharing of best practices and the optimization of LBMT manufacturing and syrup procurement capabilities across the three newly amalgamated operations of our maple syrup bottling business will nonetheless remain an important work stream. Looking at the results of the sugar business, we saw year-over-year volume growth of approximately 2.8% or approximately 19,200 metric tonnes greater than in fiscal 2016. When looking at the results by market segment, we saw the liquid business volume increase by approximately 17,800 metric tonnes, reflecting the start of a new three year contract. We also observed excellent growth in the export shipments of approximately 6,200 metric tonnes higher than the prior year. The consumer sales also realized a small increase of approximately 600 metric tonnes, year-on-year, mostly attributable to timing. Finally, the industrial sales ended the year with a slight decrease of approximately 5,400 metric tonnes, or approximately 1%, after an extended period of demand growth over the past two years. 2017 ANNUAL REPORT 05 As a result of the acquisition of LBMT, the Company will now report require more patience and perseverance. These negotiations are two operating segments, namely, Sugar and Maple products. complex and time consuming but when successful, can have a The Sugar segment ended the year at $99.8 million in adjusted meaningful impact on our business. gross margins, an increase of $3.7 million when compared to last year. The increase in gross margin related to volume growth, Lastly, a good opportunity and a more targeted ACQUISITION was partially offset by higher per unit production cost from our STRATEGY have led to the successful purchase of LBMT. With a operating plants. On a per metric tonne basis, the adjusted gross goal of diversifying our portfolio, the maple syrup industry quickly margin was $143.76 per metric tonnes, compared to $142.43 per became a very attractive acquisition platform. With LBMT, we can metric tonne in fiscal 2017. LBMT contributed positively to the now leverage our strong customer relationships and generate consolidated Adjusted EBIT by adding $2.4 million in Adjusted growth. Looking at some of the underlying facts surrounding the EBITDA since its acquisition by Lantic on August 5, 2017. maple syrup category helps to underscore why we are so pleased with this addition to our product portfolio. Maple syrup will offer I want to use this opportunity to discuss and share our progress a sizeable growth opportunity and our strategy will be focused on our three core business strategies of Operational Excellence, on building awareness and new distribution points for this unique Market Access and Acquisitions. The best way to appreciate the natural sweetener. With more sophisticated users and food importance of our strategies is to understand how they impact processors, the opportunity lies in expanding the use of maple some core issues that our business faces, including but not limited syrup from a traditional breakfast topping into baking, cooking to, minimal volume growth, high energy costs exacerbated by and food processing applications. Without a doubt, maple syrup new carbon tax levies and restricted export opportunities due to has an abundance of potential for growth, having the majority of the presence of import tariffs in many countries. Together, these the world’s supply of this unique natural sweetener harvested in realities offer little opportunity for profit appreciation and when our own backyard, which makes it a truly special opportunity for combined with inflation, can actually erode our profitability over Lantic. Our vision for the business is to leverage our acquisition time. strategy to transform our business from a sugar refiner/producer to a more holistic natural sweetener provider with a product With this context in mind, it is easier to appreciate the importance portfolio that delivers value to our customers as well as annual of our focus on OPERATIONAL EXCELLENCE and why it is growth. targeted at lowering costs and improving system reliability. Although capital investment is a large part of this effort, it is not Pursuing our strategies and achieving success will require hard the only response. Challenging current practices and paying work, perseverance, team work, a common purpose and a greater attention to details will also lead to reduction in costs. continuous improvement mindset. Reaching our vision for the Capital investment has also evolved to include a more significant future will certainly not always follow a straight line but when proportion being directed towards projects that increase energy difficult decisions will need to be made, we will turn to our values efficiency, reduce waste, increase automation and reduce safety for guidance. risks in the workplace. Our overall objective is to generate earnings from our operational excellence efforts in order to offset Finally I would like to take this opportunity to thank our Lantic and flat market growth by delivering meaningful cost savings. our new LBMT employees for all their contributions in fiscal 2017 as well as for their upcoming support for fiscal 2018 as we work Our MARKET ACCESS STRATEGY takes several forms, the together towards building an evolving and exciting business that most dynamic one is our efforts to build strong relationships delivers long-term growth and value for our shareholders. and new business in markets where trade agreements exist and where we have an established foothold. We actively monitor and leverage trusted relationships to participate opportunistically when a temporary change in market conditions provide a trading opportunity. Providing responsive, flexible and reliable execution when these conditions present themselves, has John Holliday strengthened our position and led to more repeat business. The President and Chief Executive Officer second component of this strategy relates to the negotiation of new or the modernization of existing trade agreements which November 22, 2017 06 2017 ANNUAL REPORT A NATURAL PATHWAY The Acquisition of LBMT and Its Opportunities The acquisition of LBMT for $160.3 million allows Rogers to diversify into the large and growing maple syrup market, a natural sweetener, with one of the leaders in the industry. This new platform will provide Rogers with opportunities to grow organically and leverage sales and operational gains. For the trailing twelve month period ended March 31, 2017, LBMT generated $154 million in revenue and $18.4 million1 in Adjusted Pro Forma EBITDA, which includes approximately $2.9 million of recent customer and operational gains. Our Facilities ROGERS LBMT 1. Head Office and Cane Refinery VANCOUVER, BC 2. Beet Plant TABER, AB 3. Distribution Centre and Blending Facility TORONTO, ON 4. Administrative Office and Cane Refinery MONTREAL, QC 5. Head Office — Bottling Plant, Eastern Sales and Distribution GRANBY, QC 6. Bottling Plant, Warehousing and Shipping SAINT-HONORÉ-DE- SHENLEY, QC 7. Botting Plant, Warehousing and Shipping WEBSTERVILLE, VT 8. Warehousing, Distribution and Shipping BURNABY, BC 1 8 2 6 5 4 3 7 Strategic and Complementary Fit • Market leadership with significant organic and acquisition growth opportunities. • Favorable market growth trends in Canada and Internationally. • Extensive supply chain and distribution network. • Complement Rogers’ retail, food service and industrial relationships. 1 Calculated as adjusted pro-forma EBITDA of $15.5 million for the last twelve months ended March 31, 2017 plus recent customer and operational gains of $2.9 million for a total of $18.4 million, excluding projected one-time costs 2017 ANNUAL REPORT 07 LBMT Product Categories Syrups and Spreads Candies and Cookies Gourmet Line Coffees / Teas LBMT Split by Distribution Channel LBMT Split by Geography Private Labels vs. Branded Products 15% Other 40% Club 15% Other 15% Branded Products 45% Retail/ Mass 15% Canada 50% U.S. 20% Europe 85% Private Label On November 20, 2017 – Rogers announced the acquisition by LBMT of Decacer Inc., a major bottler and distributor of branded and private label maple syrup and maple sugar based in Dégelis, Québec, for $40 million, from the Levasseur Family. Decacer will broaden our maple syrup operations and expand our product offering, including a unique maple sugar dehydration technology. 08 2017 ANNUAL REPORT MISSION & VALUES How They Positively Affect Our Community Our values are the cornerstone for our non-financial priorities. They help guide our decision making and raise the bar for the expectations of our leadership. Over time, our goal is to continually reassess our delivery on these values and embrace the prioritized opportunities for continuous improvement. In fiscal 2017, we want to highlight our value of Community and share some of the broad range of initiatives we have seen within our business. Our commitment to community is recognition of the valuable resources each community brings to us and a heartfelt desire to give back to those in our neighbourhoods that are less fortunate than us. Our Community involvement takes the form of donations, volunteering and fundraising. In fiscal 2017 we donated in excess of $200,000 to local initiatives that met our established criteria. Our volunteer initiatives were driven by local committees who worked with management and hourly employees to target initiatives that helped those less fortunate. These efforts included volunteer hours at food banks, the purchase, preparation and delivery of food baskets, the purchase and wrapping of Christmas toys for young children and lastly, time spent volunteering and sponsoring charity fundraisers such as ones organized by the Union Gospel Mission in Vancouver and the Chic Resto Pop in Montreal, which together, helped realize in excess of $70,000 in funding for these two important charitable organizations. 9 MANAGEMENT’S DISCUSSION AND ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS For the years ended September 30, 2017 and October 1, 2016 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS10 T his Management’s Discussion and Analysis (“MD&A”) of Rogers Sugar Inc.’s (“Rogers” or the “Corporation”) audited consolidated financial statements for the years ended September 30, 2017 and October 1, 2016 should be read the non-GAAP financial measures of other companies having the same or similar businesses. We strongly encourage investors to review the audited consolidated financial statements and publicly filed reports in their entirety, and not to rely on any single financial in conjunction with the audited consolidated financial statements measure. and related notes for the years ended September 30, 2017 and October 1, 2016. The Company’s MD&A and consolidated financial We use these non-GAAP financial measures in addition to, and in statements are prepared using a fiscal year which typically consists conjunction with, results presented in accordance with IFRS. These of 52 weeks, however, every five years, a fiscal year consists of 53 non-GAAP financial measures reflect an additional way of viewing weeks. The fiscal years ended September 30, 2017 and October 1, aspects of the operations that, when viewed with the IFRS results 2016 both consist of 52 weeks, while the fiscal year ended and the accompanying reconciliations to corresponding IFRS October 3, 2015 included 53 weeks. financial measures, may provide a more complete understanding of factors and trends affecting our business. All financial information contained in this MD&A and audited consolidated financial statements are prepared in accordance with The following is a description of the non-GAAP measures used by International Financial Reporting Standards (“IFRS”). All amounts the Company in the MD&A: are in Canadian dollars unless otherwise noted, and the term “dollar”, as well as the symbol “$”, designate Canadian dollars • Adjusted gross margin is defined as gross margin adjusted for: unless otherwise indicated. > “the adjustment to cost of sales”, which comprises of the mark-to-market gains or losses on sugar futures, Rogers’s audited consolidated financial statements have been foreign exchange forward contracts and embedded approved by its Board of Directors upon the recommendation derivatives (and natural gas futures contracts for prior of its audit committee prior to release. This MD&A is dated years up to and including fiscal 2016) as shown in the November 22, 2017. notes to the consolidated financial statements and the cumulative timing differences as a result of mark-to- Additional information relating to Rogers, Lantic Inc. (“Lantic”), market gains or losses on sugar futures, foreign exchange L.B. Maple Treat Corporation and Highland Sugarworks Inc. forward contracts and embedded derivatives (and natural (“Highland”) (together referred as “LBMT”), including the annual gas futures for prior years up to and including fiscal 2016) information form, quarterly and annual reports, management as described below; and proxy circular, short form prospectus and various press releases > “the amortization of transitional balance to cost of sales issued by Rogers is available on the Rogers’s website at for cash flow hedges”, which is the transitional marked- www.rogerssugarinc.com or on the Canadian Securities to-market balance of the natural gas futures outstanding Administrators’ System for Electronic Document Analysis and as of October 1, 2016 amortized over time based on Retrieval (“SEDAR”) website at www.sedar.com. Information their respective settlement date until all existing natural contained in or otherwise accessible through our website does not gas futures have expired, as shown in the notes to the form part of this MD&A and is not incorporated into the MD&A by consolidated financial statements. reference. NON-GAAP MEASURES • Adjusted EBIT is defined as EBIT adjusted for the adjustment to cost of sales, the amortization of transitional balances to In analyzing results, we supplement the use of financial measures cost of sales for cash flow hedges. that are calculated and presented in accordance with IFRS with a number of non-GAAP financial measures. A non-GAAP financial • Adjusted EBITDA is defined as adjusted EBIT adjusted to add measure is a numerical measure of a company’s performance, back depreciation and amortization expenses. financial position or cash flow that excludes (includes) amounts, or is subject to adjustments that have the effect of excluding (including) • Adjusted net earnings is defined as net earnings adjusted amounts, that are included (excluded) in most directly comparable for the adjustment to cost of sales, the amortization of measures calculated and presented in accordance with IFRS. transitional balances to cost of sales for cash flow hedges, the Non-GAAP financial measures are not standardized; therefore, amortization of transitional balance to net finance costs and it may not be possible to compare these financial measures with the income tax impact on these adjustments. Amortization Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 11 of transitional balance to net finance costs is defined as the losses and previous integration of acquired businesses. transitional marked-to-market balance of the interest rate swaps outstanding as of October 1, 2016, amortized over time • Adjusted pro forma EBITDA assuming the LBMT Integration based on their respective settlement date until all existing Gains and the RSI Integration Gains is defined as the interest rate swaps agreements have expired, as shown in the adjusted pro forma EBITDA assuming the LBMT Integration notes to the consolidated financial statements. Gains, adjusted to include business efficiencies, including procurement cost reductions and Operational Excellence, and • Adjusted gross margin rate per MT is defined as adjusted gross customer gains, as a result of the Rogers integration. margin of the Sugar segment divided by the sales volume of the Sugar segment. • Decacer’s pro forma adjusted EBITDA is defined as earnings before interest expenses, taxes, depreciation and amortization • Adjusted gross margin percentage is defined as the adjusted expense for the twelve-month period ended March 31, 2017, gross margin of the Maple segment divided by the revenues adjusted to take into account non-recurring items identified generated by the Maple product segment. by the Decacer Management, non-recurring items identified by the Company during the course of its due diligence and • Adjusted net earnings per share is defined as adjusted net estimated adjustments required to reflect the going-forward earnings divided by the weighted average number of shares EBITDA run-rate. outstanding. • LBMT adjusted EBITDA is defined as the earnings before changes in non-cash working capital, mark-to-market and interest expenses, taxes and depreciation and amortization derivative timing adjustments, amortization of transitional expenses of the Maple product segment, adjusted for the balances, financial instruments non-cash amount, and includes total adjustment to cost of sales relating to its segment, funds received or paid from the issue or purchase of shares non-recurring expenses and depreciation and amortization and capital expenditures, net of operational excellence capital • Free cash flow is defined as cash flow from operations excluding expenses. expenditures. Free cash flow for fiscal 2017 excludes any funds received or paid as part of the short form prospectus • LBMT’s EBITDA is defined as earnings before interest expenses, offering for subscription receipts and convertible unsecured taxes, depreciation and amortization expenses, business subordinated debentures issued in July 2017. combination related costs, gain on business acquisition and fair value adjustment to purchase price allocation on inventories. In the MD&A, we discuss the non-GAAP financial measures, including the reasons why we believe these measures provide • Adjusted pro forma EBITDA is defined as LBMT’s EBITDA, useful information regarding the financial condition, results of adjusted to include the EBITDA of Highland and Great operations, cash flows and financial position, as applicable. We also Northern from April 1, 2016 until their respective acquisition discuss, to the extent material, the additional purposes, if any, for by LBMT and the expected EBITDA of Sucro-Bec for the which these measures are used. These non-GAAP measures should twelve-month period ended March 31, 2017, as well as certain not be considered in isolation, or as a substitute for, analysis of non-recurring operating expenses. the Company’s results as reported under GAAP. Reconciliations of non-GAAP financial measures to the most directly comparable IFRS • Adjusted pro forma EBITDA assuming the LBMT Integration financial measures are also contained in this MD&A. Gains is defined as the adjusted pro forma EBITDA, adjusted to include any recent customer gains, procurement efficiencies, redistribution of production lines, reduction of maple syrup 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS12 FORWARD-LOOKING STATEMENTS from the shareholders of LBMT, the risks related to the regulatory This report contains Statements or information that are or may be regime governing the purchase and sale of maple syrup in “forward-looking statements” or “forward-looking information” Québec, including the risk that LBMT may not be able to maintain within the meaning of applicable Canadian securities laws. Forward- its authorized buyer status with the Fédération des Producteurs looking statements may include, without limitation, statements Acéricoles du Québec (“FPAQ”) and the risk that it may not be able and information which reflect the current expectations of Rogers, to purchase maple syrup in sufficient quantities, the risk related Lantic and LBMT (together all referred to as “the Company”) with to the production of maple syrup being seasonal and subject to respect to future events and performance. Wherever used, the climate change, the risk related to customer concentration and words “may,” “will,” “should,” “anticipate,” “intend,” “assume,” LBMT’s reliance on private label customers, the risks related to “expect,” “plan,” “believe,” “estimate,” and similar expressions consumer habits and the risk related to LBMT’s business growth, and the negative of such expressions, identify forward-looking substantially relying on exports. statements. Although this is not an exhaustive list, the Company cautions investors that statements concerning the following Although the Corporation believes that the expectations and subjects are, or are likely to be, forward-looking statements: future assumptions on which forward-looking information is based are prices of raw sugar, natural gas costs, the opening of special reasonable under the current circumstances, readers are cautioned refined sugar quotas in the United States (“U.S.”), beet production not to rely unduly on this forward-looking information as no forecasts, growth of the maple syrup industry, anticipated benefit assurance can be given that it will prove to be correct. Forward- of the LBMT acquisition (including expected adjusted EBITDA), looking information contained herein is made as at the date of this the status of labour contracts and negotiations, the level of MD&A and the Corporation does not undertake any obligation future dividends and the status of government regulations and to update or revise any forward-looking information, whether investigations. Forward-looking statements are based on estimates as a result of events or circumstances occurring after the date and assumptions made by the Company in light of its experience hereof, unless so required by law. As of the date of this MD&A, and perception of historical trends, current conditions and expected Management does not anticipate any significant change in the future developments, as well as other factors that the Company expected adjusted EBITDA for LBMT than as presented in the short believes are appropriate and reasonable in the circumstances, but form prospectus dated July 21, 2017. there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause FORWARD-LOOKING INFORMATION IN THIS MD&A actual results or events to differ materially from those anticipated The following table outlines the forward-looking information in such forward-looking statements. Actual performance or results contained in this MD&A, which the Corporation considers could differ materially from those reflected in the forward-looking important to better inform readers about its potential financial statements, historical results or current expectations. These risks performance, together with the principal assumptions used to are referred to in the Company’s Annual Information Form in the derive this information and the principal risks and uncertainties that “Risk Factors” section and include, without limitation: the risks could cause actual results to differ materially from this information. related to the Corporation’s dependence on the operations and assets of Lantic, the risks related to government regulations and foreign trade policies, the risks related to competition faced by EXPECTED ADJUSTED EBITDA FOR LBMT Lantic, the risks related to fluctuations in margins, foreign exchange and raw sugar prices, the risks related to security of raw sugar Principal Assumptions supply, the risk related to weather conditions affecting sugar beets, The expected adjusted EBITDA is the expected earnings before the risks relating to fluctuation in energy costs, the risks that LBMT’s interest expenses, taxes, depreciation and amortization expense for historical financial information may not be representative of future a twelve-month period, adjusted for one-time costs and including performance, the risk that following the acquisition of LBMT on the integration gains. The Corporation estimates annual operating August 5, 2017 (the “Acquisition”), Rogers and Lantic may not be earnings by subtracting from the estimated revenues the budgeted able to successfully integrate LBMT’s business with their current annual operating costs, from which it subtracts budgeted general business and achieve the anticipated benefits of the Acquisition, and administrative expenses. The integration gains include LBMT the risks of unexpected costs or liabilities related to the Acquisition, for fiscal 2018 and RSI integration gains for fiscal 2019. LBMT including that the Representation and Warranty Insurance (“RWI”) integration gains are estimated gains resulting from the three Policy may not be sufficient to cover such costs or liabilities or that acquisitions completed by LBMT since February 2, 2016 and which the Corporation may not be able to recover such costs or liabilities include customer gains, procurement efficiencies, redistribution Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS13 of production lines, reduction of maple syrup losses and previous CONTROLS AND PROCEDURES integration of acquired businesses. RSI integration gains are In compliance with the provisions of Canadian Securities estimated operational gains resulting from the combination of the Administrators’ Regulation 52-109, the Corporation has filed Corporation and LBMT which include business efficiencies and certificates signed by the President and Chief Executive Officer customer gains. (“CEO”) and by the Vice President Finance, in the capacity of an officer performing the function of a Chief Financial Officer (“VP Principal Risks and Uncertainties Finance”) that, among other things, report on: • Historical financial information used to estimate budgeted amounts may not be representative of future results. • their responsibility for establishing and maintaining disclosure controls and procedures and internal control over financial • Variability in LBMT’s performance. reporting for the Company; and • Unexpected administration, selling or distribution • the design and effectiveness of disclosure controls and expenditures. procedures and the design and effectiveness of internal controls over financial reporting. • Uncertainty of successful integration and operational gains. • Other risks relating to the business of LBMT (refer to the “Risk DISCLOSURE CONTROLS AND PROCEDURES Factors” section). The CEO and the VP Finance, have designed the disclosure controls and procedures (“DC&P”), or have caused them to be designed under their supervision, in order to provide reasonable assurance EXPECTED ADJUSTED PRO FORMA EBITDA FOR DECACER (1) that: Principal Assumptions • material information relating to the Company is made known The Decacer’s adjusted pro forma EBITDA is the expected earnings to the CEO and VP Finance by others, particularly during before interest expenses, taxes, depreciation and amortization the period in which the interim and annual filings are being expense for a twelve-month period, adjusted to take into account prepared; and non-recurring items identified by the Decacer Management, non-recurring items identified by the Company during the course • information required to be disclosed by the Company in its of its due diligence and estimated adjustments required to reflect annual filings, interim filings or other reports filed or submitted the going-forward EBITDA run-rate. by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in Principal Risks and Uncertainties securities legislation. • Historical financial information used may not be representative of future results. As at September 30, 2017, an evaluation was carried out, under the supervision of the CEO and the VP Finance, of the design • Variability in Decacer’s performance. and operating effectiveness of the Company’s DC&P. Based on this evaluation, the CEO and the VP Finance concluded that the • Unexpected administration, selling or distribution Company’s DC&P were appropriately designed and were operating expenditures. effectively as at September 30, 2017. • Uncertainty of successful integration and operational gains. (1) See “Subsequent event” section 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 14 INTERNAL CONTROLS OVER FINANCIAL REPORTING CHANGES IN INTERNAL CONTROLS OVER The CEO and VP Finance have also designed internal controls over FINANCIAL REPORTING financial reporting (“ICFR”), or have caused them to be designed There were no changes in the Company’s internal controls over under their supervision, in order to provide reasonable assurance financial reporting during the year that have materially affected, regarding the reliability of financial reporting and the preparation of or are reasonably likely to materially affect, the Company’s internal financial statements for external purposes in accordance with IFRS control over financial reporting. using the framework established in “Internal Control – Integrated Framework (COSO 2013 Framework) published by the Committee of Sponsoring Organizations of the Treadway Commission OVERVIEW (COSO)”. As at September 30, 2017, an evaluation was carried out, Rogers is a corporation incorporated under the Canada Business under the supervision of the CEO and the VP Finance, of the design Corporations Act, which holds all of the common shares and and operating effectiveness of the Company’s ICFR. Based on that subordinated notes of Lantic Inc. (“Lantic”). evaluation, they have concluded that the design and operation of the Company’s internal controls over financial reporting were The following chart illustrates the structural relations between effective as at September 30, 2017. shareholders, debenture holders, Rogers, Lantic Capital Inc., Rogers’s operating company, Lantic and its subsidiaries, namely In designing and evaluating such controls, it should be recognized LBMT and Highland. that, due to inherent limitations, any controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may not prevent or detect misstatements. Projections of any evaluations of SHAREHOLDERS DEBENTURE HOLDERS effectiveness to future periods are subject to the risk that controls ROGERS SUGAR INC. may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Additionally, management is obliged to use judgement in evaluating controls and procedures. Common Shares and Subordinated Notes (100%) LANTIC INC. LANTIC CAPITAL INC. LIMITATION ON SCOPE OF DESIGN The Company has limited the scope of its DC&P and ICFR to exclude controls, policies and procedures of LBMT and its subsidiary acquired not more than 365 days before the last day of the period covered by the annual filing. The Company elected to exclude it from the scope of certification as allowed by NI 52-109. The Company intends to perform such testing within one year of acquisition. The chart below presents the summary financial information Common Shares and Subordinated Notes (100%) L.B. MAPLE TREAT CORPORATION Common Shares (100%) HIGHLAND SUGARWORKS INC. 2 Classic Shares Governance Agreement included in the Corporation’s consolidated financial statements for Rogers is governed by not less than three, nor more than seven the excluded business: (In thousands of dollars, unaudited) Statement of Financial Position Total assets Statement of Comprehensive Income Total revenue Results from operating activities directors who are appointed annually at the annual general meeting of the shareholders of Rogers. As of the date of this MD&A, there LBMT $ were six directors. The directors are responsible for, among other things: acting for, 254,056 voting on behalf of and representing Rogers as a shareholder and 26,666 948 noteholder of Lantic; maintaining records and providing reports to the shareholders; supervising the activities and managing the investments and affairs of Rogers; and effecting payments of dividends to shareholders. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 15 Communication with shareholders on matters relating to the In fiscal 2017, the domestic refined sugar market was comparable Company is primarily the responsibility of the Administrator, to last fiscal year. Lantic, through its Chief Executive Officer and Vice-President Finance. Regular meetings and discussions are held between these The industrial segment is the largest segment accounting for individuals and industry analysts, brokers, institutional investors, as approximately 60% of all shipments. The industrial segment is well as other interested parties. comprised of a broad range of food processing companies that serve both the Canadian and American markets. These processors An Audit Committee of Rogers exists and is composed of three are able to take the relative advantage of a weaker Canadian dollar directors, all of whom are independent and unrelated. and lower value of the #11 world raw sugar prices, compared to #16 raw sugar prices used as the basis for pricing in the U.S. market, to expand sales into export markets. These sales are not subject to LANTIC duty tariffs that apply to sugar. Production Facilities In the consumer market segment, a wide variety of products are Lantic is the largest refined sugar producer in Canada, with annual offered under the Lantic and Rogers brand names. This segment has nominal production capacity of approximately 1,000,000 metric remained stable during the last several years. Our marketing efforts tonnes. Lantic operates cane refineries in Montréal, Québec and continue to focus on building volume through market share growth Vancouver, British Columbia, and a sugar beet factory in Taber, and expansion of our brand with the development of new specialty Alberta. products and alternate sweetener solutions. In fiscal 2017, Lantic has been able to reap the rewards of the two new products that With total sales volume of approximately 600,000 to 700,000 were launched in the year prior. Coconut sugar has won the Product metric tonnes per year, Lantic has ample capacity to meet all of the Year™ award – the world’s largest consumer-voted award for current volume requirements. None of the production facilities product innovation, which currently operates in 40 countries and is currently operate at full capacity. Lantic is the only sugar producer recognized globally. Equally, the Smart Sweetener Blend has also with operating facilities across Canada. The strategic location of been honoured as one of the finalists in the recent Canadian Grand these facilities confers operating flexibility and the ability to service Prix New Product Awards™. Beside the prestige associated with all customers across the country efficiently and on a timely basis. the awards, the external accolades also affirm Lantic’s aspirational goal to broaden its market and product offering and become Lantic also operates a custom blending operation in Toronto recognized as a market leader in natural sweetener solutions. What which blends high sugar containing products, as well as non-sugar started out as small new product initiatives have now translated products, for manufacturing and food processing companies. into additional sales volume and is fueling our resolve to continue Blends can be sold in retail format, aimed directly at consumers, as to innovate and launch new product offerings for our customers. well as totes, geared to the industrial market. The total capacity of To further enhance the website users’ experience, we will also be this plant is approximately 30,000 metric tonnes per year. integrating the corporate website with the consumer website giving Lantic also operates a full service rail truck transfer and distribution centre in Toronto. Our Products a single point of portal entry for all our customers and consumers. The liquid market segment is comprised of core users whose process or products require liquid sucrose and another customer group that can substitute liquid sucrose with high fructose corn All Lantic operations supply high quality white sugar as well as syrup (“HFCS”). The purchasing patterns of substitutable users are a broad portfolio of specialty products which are differentiated largely influenced by the absolute price spread between HFCS and by colour, granulation, and raw material source. We are also liquid sugar. Increasingly, other considerations, such as ingredient committed to responding to the evolving needs of our customers labeling could also bear some influence on the purchasing decision. through innovative packaging and supply chain solutions, as well as The liquid segment grew during the current fiscal year as a result customized product specifications. of a large bottler substituting HFCS for sucrose, which benefited Sales are focused in three specific market segments: industrial, consumer, and liquid products. The domestic market represents more than 90% of the Company’s total volume. Lantic. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS16 Lantic’s Taber plant is the only beet sugar factory in Canada and is incentive as the price of raw sugar increases. As a consequence, therefore the only producer of Canadian origin sugar. As such, this the Company is exposed to fluctuations in the #11 world raw sugar plant is the sole participant in an annual Canadian-specific quota to price for all domestic beet sugar volume sold against the #11 world the U.S. of 10,300 metric tonnes. In addition, there is a 7,090 metric raw sugar prices, which is approximately 70,000 metric tonnes. The tonne U.S. global refined sugar quota, which opens and is usually Company can use a pre-hedge strategy to mitigate the fluctuation filled on a first-come first-served pro-rata basis on October 1st of risks, which is explained below in the section “Use of Financial every year. The Montréal and Vancouver cane operations and the Derivatives for Hedging”. Taber beet factory can all participate in this global quota. Sales to the U.S. under both the Canadian-specific and the U.S. global quotas Pricing are typically made at above average margins as U.S. pricing reflects In fiscal 2017, the price of raw sugar fluctuated between U.S. agricultural and price support and typically exceeds Canadian 12.74 cents per pound and U.S. 23.90 cents per pound and closed pricing, which is derived from #11 world raw sugar pricing. In fiscal at U.S. 14.10 cents per pound at the end of the fiscal year, which 2017, favourable market conditions also allowed the Company to was 8.90 cents lower than the closing value at October 1, 2016. complete some additional volume of sales of specialty sugars over Price variation during the year was similar to fiscal 2016 when raw and above these two quotas, on a high tier (duty paid) basis. These sugar prices fluctuated between U.S. 12.61 and U.S. 24.10 cents favourable conditions occur when the spread between #11 world per pound. After two consecutive deficit years, the global sugar raw sugar prices and U.S. refined sugar prices widens combined market returned to a surplus in 2017 driven by increased output in with the devaluation of the Canadian dollar more than fully offset India, the European Union, Thailand and Centre-South Brazil. the U.S. import duties. With its broad and diversified production platform, the Company is well positioned to take advantage of such The price of refined sugar deliveries from the Montréal and opportunistic sales. The Company pays close attention to these Vancouver raw cane facilities is directly linked to the price of the market spreads and when appropriate, leverages a well-developed #11 world raw sugar market on the ICE. All sugar transactions are customer network to commercialize these opportunities. economically hedged, thus eliminating the impact of volatility in world raw sugar prices. This applies to all refined sugar sales made By-products relating to beet processing and cane refining activities by these plants. Liquid sales to HFCS substitutable customers are are sold in the form of beet pulp, beet and cane molasses. Beet normally priced against competing HFCS prices and are historically pulp is sold domestically and to export customers for livestock feed. the lowest margin sales for the Company. The production of beet molasses and cane molasses is dependent on the volume of sugar processed through the Taber, Montréal and Whereas higher #11 world raw sugar values may have the effect Vancouver plants. Our Supply of reducing the competitiveness of the liquid business versus HFCS, the opposite holds true for our beet operation. In Taber, the raw material used to produce sugar is sugar beets, for which The global supply of raw sugar is ample. Over the last several years, a fixed price, plus a scaled incentive on higher raw sugar values, Lantic has purchased most of its raw sugar from Central and South is paid by Lantic to the Growers. As a result, Lantic benefits from, America for its Montréal and Vancouver cane refineries. All raw or alternatively, absorbs some of the changes associated with cane sugar purchases are hedged on the Intercontinental Exchange fluctuations in world raw sugar prices for all volume sold, excluding (“ICE”) #11 world raw sugar market. This hedging eliminates gains non U.S. export volume. or losses from raw sugar price fluctuations, and thus helps Lantic avoid the effects of volatility in the world raw sugar market. In fiscal 2015, the Company entered into a four-year agreement with the Alberta Sugar Beet Growers (the “Growers”) for the supply of sugar beets to the Taber beet plant. The 2017 crop, which will be harvested in the fall and processed in fiscal 2018, is the third one under this contract. Any shortfall in beet sugar production related to crop problems is replaced by refined cane sugar from the Vancouver refinery, which acts as a swing capacity refinery. The contract with the Growers stipulates a fixed price for all beet sugar derived from the beets processed in addition to a scaled World raw sugar cane prices Cents per pound — yearly averages (September 1995 to September 2017) 30 25 20 15 10 5 0 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 Source: #11 ICE Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS17 Operations gas contract eliminates incremental energy costs relating to service Employees are key to our success and employee safety is interruptions as a result of cold winter conditions. continuously at the forefront of our priorities. Each of the Company’s manufacturing operations incorporates occupational health and Production reliability is also critical to the success of our operations. safety components in its annual planning which are reviewed weekly Every year, each plant makes considerable investments in preventive by senior management and quarterly by the Board of Directors. maintenance and repairs, thus maintaining their efficient working For our refinery operations, labour remains the largest cost item. Our operating plants’ labour agreements have staggered expiry dates. The Vancouver and Toronto bargaining agreements will expire at the end of February 2018 and June 2018, respectively, and negotiations will start in the new calendar year. Energy is our second largest operating expense. We use large amounts of natural gas in our refineries. We have a hedging strategy in place with futures contracts to mitigate the impact of large fluctuations in natural gas prices. With a continued weakness in natural gas prices, Lantic added some hedged positions for fiscal 2018 through 2022 at prices equal to or lower than fiscal 2017’s average price. We will continue to closely monitor the natural gas market in order to reduce volatility and maintain an overall market competitiveness. Lantic’s forward hedging policy mitigates but does not fully eliminate the impact of year-over-year trends in natural gas prices. Provincial application of some form of carbon tax has been increasingly important across Canada. The Company’s two cane refineries and its beet factory are subject to an additional levy pertaining to gas emissions, the latter having started on January 1, 2017. This new trend could increase the overall energy costs for the Company. order and competitiveness. Lantic invested $14.0 million in “Stay in Business and Safety” capital projects for plant reliability, product security, information systems and environmental requirements. The amount spent in the current year is slightly lower than last year due to a higher spending level in operational excellence projects. However, the Company is spending an increased amount on stay in business and safety capital projects when compared to recent fiscal years due to the start of more significant projects being undertaken, more specifically, in Montréal and in Vancouver. “Operational Excellence”, or return on investment capital projects, forms the balance of the fiscal year spend. In fiscal 2017, operational excellence capital expenditures amounted to $3.3 million, of which, $2.1 million was spent on an energy saving project at the Montréal refinery that started in fiscal 2016 and will be completed in the first half of fiscal 2018. In addition, $0.7 million was spent on the installation of a palletizing station in Taber, which will also be completed in fiscal 2018. The remaining spending was invested in various smaller projects. These investments are undertaken because of operational savings to be realized when such projects are completed. The Taber beet sugar processing facility was established in 1950. Since fiscal 2015, the Montréal refinery has operated under a firm Over the past few years, the Company has been actively working on gas contract as opposed to an interruptible gas contract as was the solutions to reduce the air emissions footprint of the Taber facility case previously. Fiscal 2017’s firm gas contract was the third year and in 2015 embarked on a more comprehensive solution. However, of a five-year contract, terminating in November 2019. This firm the implementation of the new carbon tax starting in 2017 by the Natural gas price continuation chart (January 2003 to September 2017) 16 14 12 10 8 6 4 2 0 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 Source: NYMEX Government of Alberta, together with further changes in emission standards, required a complete overhaul of the planned solution. For the 2017 beet harvesting season, the Taber facility obtained from Alberta Environment and Parks a variance for non-compliance of air emission standards valid until May 2018. The Company is currently evaluating various scenarios which would allow the facility to be fully compliant on air emission standards for the 2019 beet harvesting season. To achieve this objective, the Company will need to commit significant capital expenditures starting in the first half of fiscal 2018. Early estimates of the net investment required to remediate the non-compliance range between $15 million and $25 million. The investment required for this project would be considered as one-time and incremental to the ongoing capital expenditure program. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 18 The Company is fully committed to continuous improvement then combines with the water absorbed by the tree’s roots and in and to the competitive supply of quality and safe products that the spring, when temperatures rise, the sweet sap in the trunk and meet or surpass customer and legislative requirements. Customer roots expands, creating pressure inside the tree to ultimately to satisfaction is achieved and maintained by a qualified and motivated push sap out of the maple tree. workforce that is accountable and responsible for all aspects of quality and food safety. By understanding and responding to The sap generally travels from the trees by gravity and pumping evolving needs and expectations, we are well positioned with through a system of tubing attached to the trees by small nicks respect to ever changing requirements such as the Global Food and connected to larger conveyance tubes that are themselves Safety Initiative, currently the universal benchmark for food safety connected to the sugar shack, where it is ultimately boiled into and consumer protection. maple syrup. As a result of this commitment and focus, we are pleased to report Global Supply and Demand that the Food Safety System Certification 22000 (“FSSC 22000”) is Canada remains the largest producer of maple syrup, with over in place at each of our three production facilities. 77% of the world’s production. The U.S. is the only other major producing country in the world, producing approximately 22% Furthermore, our blending facility is also certified under the FSSC of the global supply. Québec represented 71% of the world’s 22000 standard, thereby demonstrating our commitment to production in 2016. provide quality and safe products for our customers. The plant is already registered as a Canadian Food Inspection Agency (“CFIA”) Regulatory Regime in Québec dairy establishment, which allows Lantic to pursue dry dairy blends There are approximately 7,300 commercial-scale maple syrup for both the domestic and export markets. We are committed to producers in Québec. The maple syrup producers in Québec are increasing blending volume in both the industrial and retail sectors, represented by the FPAQ, a body created in 1966 to support the including non-sugar containing blends. interests of maple syrup producers and to ensure a “level playing field”. The FPAQ generally regulates the buying and selling of bulk maple syrup. LBMT On August 5, 2017, the Company acquired from Champlain Financial The FPAQ, in its capacity as bargaining and sales agent for Corporation Inc. 100% of LBMT, for approximately $160.3 million, the producers of maple syrup in Québec as well as the body in addition to closing adjustments of approximately $9.2 million. empowered to regulate and organize the production and marketing LBMT is one of the world’s largest branded and private label maple of maple syrup, and the bulk buyers of maple syrup, represented by syrup bottling and distribution companies. The acquisition of LBMT the Conseil de l’industrie de l’érable (the Maple Industry Council) will allow the Company to diversify into the large and growing entered into the Marketing Agreement, which is expected to be market of maple syrup, a natural sweetener, with one of the leaders renewed on an annual basis. in the industry. This new platform will provide the Company with opportunities to grow organically, leverage sales and administrative Producers of maple syrup in Québec are required to operate within gains, and investigate other potential acquisitions in that segment. the framework provided for by the Marketing Act. Pursuant to the Marketing Act, producers, including producers of maple syrup, Overview of the Maple Syrup and Maple Products Industry can take collective and organized control over the production Maple syrup is fundamentally organic and gluten-free. Maple and marketing of their products (i.e. a joint plan). Moreover, the syrup is increasingly viewed as a healthy alternative to traditional Marketing Act empowers the marketing board responsible for sweeteners. Maple syrup is extracted mainly from two types of administering a joint plan, that is the FPAQ in the case of maple maple trees: sugar maple and red maple. The biggest concentration syrup, with the functions and role otherwise granted to the Régie of maple trees is located in Québec, New Brunswick, Ontario, des marchés agricoles et alimentaires du Québec, the governing Vermont, Maine and New Hampshire. body created by the Government of Québec to regulate, among other things, the agricultural and food markets in Québec. As part The production of maple syrup takes place over a period of 6 to of its regulating and organizing functions, the FPAQ may establish 8 weeks during the months of March and April of each year. The arrangements to maintain fair prices for all producers and may syrup takes its origin from the sap which is collected from the maple manage production surpluses and their storage to offer security of tree. Through photosynthesis, sugar maple and red maple convert supply and price stability of maple syrup. the starch stored during the warmer seasons into sugar. This sugar Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 19 Pursuant to the Sales Agency Regulation, the FPAQ is responsible The FPAQ Strategic Reserve for the marketing of bulk maple syrup in Québec. Therefore, any In 2002, the FPAQ set up a strategic maple syrup reserve in order to container that contains 5L or more of maple syrup must be marketed mitigate production fluctuations imputable to weather conditions through the FPAQ as the exclusive selling agent for the producers. and prevent such fluctuations from causing maple syrup prices to Bulk maple syrup may be sold to the FPAQ or to “authorized spike or drop significantly. The reserve was initially established to buyers” accredited by the FPAQ. Maple syrup producers may sell set aside a production quantity equivalent to half of the then annual unsold inventory to the FPAQ before July of each year. The FPAQ demand. Each year, the FPAQ may organize a sale of a portion of then arranges for the sale of such unsold inventory to industrial its accumulated reserve. This allows bottlers to respond to supply and authorized buyers. In Québec, 85% of the total production of shortages in the event of a poor harvest or unplanned growth maple syrup is sold to the FPAQ or the authorized buyers, leaving and demand. As at December 31, 2016, the FPAQ had over 77 only approximately 15% of the total production being sold directly million pounds of bulk maple syrup in its strategic reserve, which by the producers to consumers or grocery stores. The authorized represents approximately half of the annual global consumption. buyer status is renewed on an annual basis. Regime Outside of Québec Pursuant to the Marketing Agreement, authorized buyers must pay Outside of Québec, the maple syrup industry is generally organized a minimum price to the FPAQ for any maple syrup purchased from through producer-based organizations or associations, which the producers. The price is fixed on an annual basis and depends promote maple syrup in general and its industry and serve as the on the grade of the maple syrup. In addition, a premium is added official voice for maple syrup producers with the public. to the minimum price for any organic maple syrup. Pursuant to the Marketing Agreement, authorized buyers must buy maple Authorized Buyer Status and Relationship with the FPAQ syrup from the FPAQ in barrels corresponding to the “anticipated LBMT is an authorized buyer with the FPAQ. An authorized buyer volume”. The anticipated volume must be realistic and in line with is authorized to receive maple syrup in bulk (i.e. in barrels) directly volumes purchased in previous years. from Québec maple syrup producers. LBMT is an active member of Quality Control the Conseil de l’industrie de l’érable (the Maple Industry Council), which represents approximately 60 authorized buyers in negotiating In Québec, maple syrup delivered in barrels is systematically the Marketing Agreement with the FPAQ. inspected by an independent company. Every year, ACER Division Inspection Inc. verifies, inspects and grades over 200,000 barrels LBMT has a relationship with more than 1,400 maple syrup producers, of maple syrup. This inspection system ensures a high quality mainly in Québec and Vermont. Most of these producers sell 100% control on maple syrup that is produced and sold in Québec. of their production to LBMT. Through its strong relationship with Pursuant to the quality control process set up by the FPAQ, the such producers, LBMT was able to develop a leading position in verification, inspection and grading is performed at the FPAQ plant certified organic maple syrup. in Laurierville, Québec, or at authorized buyers’ facilities. Operating Facilities The quality control system established by the FPAQ also facilitates LBMT currently operates two plants in Québec, namely, in Granby the certification of Québec maple syrup as “organic”, as it provides and in St-Honoré-de-Shenley, and one in Websterville, Vermont, the ability to trace maple syrup back to the origin maple farm. and nine operating lines allocated amongst the three plants, and The Quota System including one can-filling line in St-Ferdinand, Québec, which is outsourced by LBMT to a third party. LBMT is the owner of the In 2004, the FPAQ adopted a policy with respect to production and St-Honoré facilities. marketing quotas which resulted in an annual production volume allocated to each maple syrup business. The main objective of The Granby and Websterville facilities are both subject to a lease the policy is to adjust the supply of maple syrup in response to which will expire on October 31, 2019 and August 25, 2021, consumer demand, and more specifically, to stabilize selling prices respectively. for producers and, ultimately, the buying price for consumers, foster investments in the maple industry and maintain a steady number of Storage Facilities and Distribution Centres maple producing businesses in operation, regardless of their size. LBMT uses a distribution centre in Burnaby, British Columbia and owns a bulk maple syrup storage facility in St-Robert-Bellarmin, Québec. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS20 Products USE OF FINANCIAL DERIVATIVES FOR HEDGING LBMT’s products are comprised of the following: bottled maple syrup, bulk maple syrup and ancillary or derived maple products. Accounting Measurement Bottled maple syrup is packaged in a variety of ways and sizes, provide the Company’s adjusted earnings, is inconsistent with the including bottles, plastic jugs and the traditional cans. Bottled Company’s IFRS financial information. The following reflects the maple syrup is available in all commercial grades and in organic and determination of adjusted results of the Company. The following description of how financial derivatives are used to non-organic varieties. The majority of the maple syrup is purchased from Québec producers and is bottled at LBMT’s plants in Granby Sugar or in St-Honoré-de-Shenley, Québec or in Websterville, Vermont. In order to protect itself against fluctuations in the world raw sugar LBMT’s bottled maple syrup is sold under a variety of brands, market, the Company follows a rigorous hedging program for all including Uncle Luke’s™, L.B. Maple Treat™, Great Northern™, purchases of raw cane sugar and sales of refined sugar. Sucro-Bec™ and Highland Sugarworks™. Bulk maple syrup is mainly sold in containers of 4L or 17L, barrels trades in U.S. dollars. One can trade sugar futures forward for a and totes in size to foodservice retailers as well as other wholesalers. period of three years against four specific terminals per year Bulk maple syrup is also sold for industrial use for bottling or for (March, May, July and October). The terminal values are used to use in food production, and privately under the L.B. Maple Treat™ determine the price settlement upon the receipt of a raw sugar The #11 world raw sugar market is only traded on the ICE, which brand. vessel or the delivery of sugar to the Company’s customers. The ICE rules are strict and are governed by the New York Board of Maple derived products include maple butter, maple sugar and Trade. Any amount owed, due to the movement of the commodity flakes, maple cookies, maple taffy and other maple candies. Maple being traded, has to be settled in cash the following day (margin products are mainly sold under the L.B. Maple Treat™ and Highland call payments/receipts). Sugarworks™ brands. Operations For the purchasing of raw sugar, the Company enters into long-term supply contracts with reputable raw sugar suppliers (the “Seller”). LBMT employs a total of approximately 160 employees in its These long-term agreements will, amongst other things, specify facilities in Québec and Vermont and in its distribution centre in the yearly volume (in metric tonnes) to be purchased, the delivery British Columbia. Approximately 60 of LBMT’s employees, namely period of each vessel, the terminal against which the sugar will be in the LBMT division in Granby, Québec, are under a collective priced, and the freight rate to be charged for each delivery. The bargaining agreement, which is currently scheduled to expire in price of raw sugar will be determined later by the Seller, based 2023. upon the delivery period. The delivery period will correspond to the terminal against which the sugar will be priced. The single most important costs to the operation of LBMT is related to the syrup, representing more than 80% of its cost of sales. The selling of refined sugar by the Company is also done under the #11 world raw sugar market. When a sales contract is negotiated Maple syrup production and bottling is a low-risk process from the with a customer, the sales contract will determine the period of the standpoint of food safety and quality assurance processes. This contract, the expected delivery period against specific terminals being said, world food standards are extremely important to us. and the refining margin and freight rate to be charged over and above the value of the sugar. The price of the sugar is not yet LBMT’s bottling plants are HACCP certified, CFIA inspected, determined but needs to be fixed by the customer prior to delivery. BRC certified, Kosher certified, Halal certified, QAI and Ecocert The customer will make the decision to fix the price of the sugar Canada certified organic. LBMT is subject to numerous audits and when he feels the sugar market is favourable against the sugar certification bodies where it continues to exceed performance terminal, as per the anticipated delivery period. requirements. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 21 Inefficiencies could occur and small gains or losses could be incurred The Company does not have any volume under the pre-hedge on hedged transactions. Every year, the Company estimates sales program for fiscal 2018. patterns against the receipt of sugar deliveries. Any discrepancies in these estimates may result in small gains or losses on hedged Natural Gas transactions. As an example, a customer may be taking more or less The Board of Directors of Lantic approved an energy hedging sugar than determined under its contract and small gains or losses policy to mitigate the overall price risks in the purchase of natural may be incurred as a result on the hedged transactions. gas. The Company mitigates the impact of the above by reviewing on The Company purchases between 3.0 million gigajoules and a daily basis the total hedged position to determine that, in total, 3.5 million gigajoules of natural gas per year for use in its refining all sugar transactions are hedged. The Company also prepares a operations. To protect against large and unforeseen fluctuations, hedged transaction report by terminal periods to determine that the Company can hedge forward up to 90% of its estimated usage there are no straddles within each terminal period. In the event that over the next 12 months and lower percentages of its estimated a straddle position exists due to circumstances discussed above, the usage on a longer term basis. The Company will hedge close to Company will immediately correct the straddle and record any gain its maximum level allowed if natural gas prices are below a certain or loss incurred in correcting the straddled position. In addition, percentage of the prior year’s average price and therefore lock in if a customer is late in taking delivery of its “priced” sugar, and if year-over-year savings. the Company needs to roll forward the un-drawn quantity to the following terminal period, the Company can invoice the customer These gas hedges are unwound in the months that the commodity for all costs incurred in rolling forward the un-drawn volume. is used in the operations, at which time any gains or losses incurred are then recognized for the determination of adjusted gross The Board of Directors authorized the Company to have a trading margins and earnings. book to trade outright sugar futures, options, spreads and white-raw differentials to a limit of 25,000 metric tonnes. It was also Variation Margins (Margin Calls) agreed that a report on all activities would be reviewed quarterly For all hedged sugar positions on the futures market, the Company at each Board meeting and that all trading book activities would must settle with the commodity broker on the following day any be discontinued if trading losses of $250,000 were accumulated gains or losses incurred on the net hedged position, based on the in any given year. Any mark-to-market gains or losses on any open trading values at closing of the day. These daily requirements are positions of the trading book at year end, as well as gains or losses called “margin calls.” on any liquidated positions of the trading book are recognized in the Company’s adjusted earnings. When sugar prices are on the rise, the Company’s raw sugar Beet Sugar suppliers will normally price in advance large quantities of sugar to benefit from these higher prices. On the other hand, the Company’s As noted, the Company purchases sugar beets from the Growers customers will only price forward small quantities, hoping for under a fixed price formula plus a scale incentive when raw sugar a downward correction in the marketplace. This will result in the values exceed a certain price level. Except for sales to the U.S., Company having a “short” paper position. As the price of sugar under the export quota, to HFCS-substitutable accounts, and for continues to rise, the Company has to pay margin calls on a regular other export opportunities, all other sales are made using the same basis. These margin calls are paid back to the Company when the formula as cane sugar, following the #11 world raw sugar price. price of sugar declines or upon receipt or delivery of sugar. The Board of Directors authorized the Company to hedge forward up to 70% of the Taber sales to be made under the raw sugar formula as long as a beet sugar contract was signed with the Growers for those years. This was done to allow the Company to benefit from a sudden rise in the raw sugar market. Any gains earned (if a sales contract is entered at a lower raw value) or losses incurred (if a sales contract is entered at a higher raw value) when those positions are unwound, are recognized in the period when that quantity of beet sugar is delivered. This is referred to as the Taber pre-hedge. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS22 Foreign Exchange LANTIC LBMT Raw sugar costs for all sales contracts are based on the U.S. dollar. Certain export sales of maple syrup are denominated in U.S. The Company also buys natural gas in U.S. dollars. In addition, dollars. In order to mitigate against the movement of the Canadian sugar export sales and some Canadian sugar sales are denominated dollar versus the U.S. dollars, LBMT enters into foreign exchange in U.S. dollars. hedging contracts with certain customers. These foreign exchange hedging contracts are unwound when the money is received from In order to protect itself against the movement of the Canadian the customer, at which time any gains or losses incurred are then dollar versus the U.S. dollar, the Company, on a daily basis, recognized for the determination of adjusted gross margins and reconciles all of its exposure to the U.S. dollar and will hedge the earnings. Foreign exchange gains or losses on any unhedged sales net position against various forward months, estimated from the contracts are recorded when realized. date of the various transactions. SELECTED FINANCIAL INFORMATION The following is a summary of selected financial information of Rogers’ consolidated results for the 2017, 2016 and 2015 fiscal years. The Company’s fiscal year ends on the Saturday closest to the end of September. All references to 2017, 2016 and 2015 represent the fiscal years and fourth quarter ended September 30, 2017, October 1, 2016 and October 3, 2015. The financial results for fiscal 2017 include those of LBMT since its acquisition on August 5, 2017. It should be noted that fiscal 2015 had 53 weeks of operations, compared to 52 weeks in fiscal 2017 and 2016. The additional week had a positive impact of approximately 2% of total sales volume, revenues, adjusted gross margin and adjusted net earnings. See “Non-GAAP measures” section. The Company’s audited consolidated financial statements were prepared under IFRS and the Company’s functional and reporting currency is the Canadian dollar. (In thousands of dollars, except volume and per share information) Total volume Sugar (metric tonnes) Maple syrup (pounds) Total revenues Gross margin Results from operating activities (“EBIT”) Net finance costs Income tax expense Net earnings Net earnings per share: Basic Diluted Dividends per share Fourth Quarter Fiscal Year 2017 2016 2017 2016 2015 183,397 187,179 694,465 675,224 658,812 5,764,000 $ n/a $ 5,764,000 $ 192,984 161,733 682,517 22,631 10,138 3,360 2,764 4,014 0.04 0.04 0.09 32,418 24,472 2,227 5,792 16,453 0.18 0.16 0.09 77,298 41,031 10,218 8,907 21,906 0.23 0.22 0.36 n/a $ 564,411 128,223 98,598 9,612 23,407 65,579 0.70 0.64 0.36 n/a $ 541,545 76,295 44,470 11,931 8,506 24,033 0.26 0.26 0.36 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 23 CONSOLIDATED RESULTS OF OPERATIONS (See “Adjusted results” section). In fiscal 2016, a mark-to-market Aligned with our strategic priorities, Rogers targeted acquisition of gain of $2.8 million and $32.1 million was recorded for the fourth new businesses during fiscal 2017. The culmination of efforts resulted quarter and year-to-date, respectively, resulting in gross margins of in the acquisition of LBMT on August 5, 2017 for approximately $32.4 million and $128.2 million for their respective period. $160.3 million, subject to closing adjustments of approximately $9.2 million. This new platform will provide the Company with Results from operating activities (“EBIT”) opportunities to grow organically, leverage sales and administrative EBIT is defined as earnings before interest and taxes. For the fourth gains, and investigate other potential acquisitions in that segment. quarter of fiscal 2017 EBIT amounted to $10.1 million compared Results from the LBMT operations are included in the consolidated to $24.5 million last year. As mentioned above, the gross margin results of operations since its acquisition date. As a result of the does not reflect the economic results from operating activities acquisition, Rogers now has the following two operating segments: which had a negative impact of $8.2 million for the quarter- Sugar and Maple products. Total revenues over-quarter variation in mark-to-market of derivative financial instruments. In addition, a combination of poor plant performance and reduction in volume during the current quarter, combined with Revenues for the current quarter amounted to $193.0 million, an a one-time non-cash income in the same quarter last year, resulted increase of $31.3 million versus the comparable quarter last year. in a decrease in EBIT. Finally, the Company incurred $1.9 million in The improvement is mainly attributable to $26.7 million of revenues acquisition costs relating to the transaction to acquire LBMT, which generated by LBMT since its acquisition and higher sugar selling contributed $0.9 million in EBIT since its acquisition. values. Year-to-date, revenues were $682.5 million compared to million to $41.0 million. Most of the negative variance when $564.4 million for fiscal 2016, an increase of $118.1 million. The compared to fiscal 2016 is explained by the mark-to-market variation improvement in revenues when compared to fiscal 2016 is due of derivative financial instruments, which resulted in a reduction of mainly to the sugar segment, whereby the increase in volume, $58.0 million in EBIT. In addition, LBMT’s acquisition costs for the combined with higher sugar selling values, both contributed full year represent $2.5 million in additional administration and Fiscal 2017 results from operating activities decreased by $57.6 positively to the increase in revenues in addition to the $26.7 million selling expenses. of revenues generated by LBMT during the current fiscal year. Net finance costs Gross margin Net finance costs consisted of interest paid under the revolving Gross margin of $22.6 million for the quarter and $77.3 million year- credit facility, as well as interest expense on the convertible to-date does not reflect the economic margin of the Company, as unsecured subordinated debentures and other interest. It also it includes a loss of $5.4 million and $26.0 million for the fourth includes a mark-to-market gain or loss on the interest swap quarter of fiscal 2017 and year-to-date, respectively, for the mark- agreements. to-market of derivative financial instruments as explained below The net finance costs breakdown is as follows: Fourth Quarter Fiscal Year (In thousands of dollars) Interest expense on convertible unsecured subordinated debentures Interest on revolving credit facility Amortization of deferred financing fees Other interest expense Net change in fair value of interest rate swap agreements Net finance costs 2017 $ 1,469 1,245 209 521 (84) 3,360 2016 $ 1,621 580 206 — (180) 2,227 2017 $ 5,813 3,474 781 521 (371) 10,218 2016 $ 6,446 2,545 826 — (205) 9,612 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 24 The LBMT’s acquisition was partly funded by the issuance of the Year-to-date, net finance costs, excluding the net change in fair 5.0% Sixth series convertible unsecured subordinated debentures value of swap agreements, were $0.8 million higher than fiscal 2016 (the “Sixth series debentures”) of $57.5 million. In addition, due to the increased borrowings under the revolving credit facility, approximately $48.7 million was funded from a drawdown under the issuance of the Sixth series debentures and the increases in the revolving credit facility. The Sixth series debentures were issued interest rates during the fourth quarter of fiscal 2017, somewhat on July 28, 2017 and will mature on December 31, 2024. offset by the repayment of the Fourth series debentures in the third quarter of the current fiscal year. The interest expense on the convertible unsecured subordinated debentures, for the current quarter, decreased by approximately Starting on October 2, 2016, interest rate swap agreements were $0.2 million, when compared to the same period last year. The designated as effective cash flow hedging instruments and as a additional interest on the Sixth series debentures was more than result, mark-to-market adjustments are now recorded in other offset by the repayment of the $50.0 million 5.7% Fourth series comprehensive income. The transitional balances, representing convertible unsecured subordinated debentures (the “Fourth the mark-to-market value recorded as of October 1, 2016, will series debentures”) on May 1, 2017. The Fourth series debentures be subsequently removed from other comprehensive income were repaid by borrowing under Lantic’s revolving credit facility on when each of the fixed interest rate tranches will be liquidated, April 28, 2017 for the equivalent amount. in other words, when the fixed interest rate is paid. As a result, in the current quarter and year-to-date, the Company removed The increase in revolving credit facility is explained by the additional a gain of $0.1 million and $0.4 million, respectively from other drawdown of approximately $51.0 million on August 4, 2017 for the comprehensive income and recorded a gain of the same amount acquisition of LBMT as well as the additional drawdown to repay in net finance costs. For the comparative periods of fiscal 2016, the the Fourth series debentures. The increases in interest rates during Company recorded a mark-to-market gain of $0.2 million for the the quarter also had a negative impact when compared to the fourth quarter and for the full year. The transitional balance relating same period last year. to interest rate swap agreements will be fully depleted in fiscal 2020. See “Adjusted results” section. The other interest expense pertains mainly to interest payable to the FPAQ on syrup purchases, in accordance with its payment terms. Taxation The income tax expense (recovery) is as follows: (In thousands of dollars) Current Deferred Income tax expense Fourth Quarter Fiscal Year 2017 $ (2,353) 5,117 2,764 2016 $ 5,398 394 5,792 2017 $ 13,198 (4,291) 8,907 2016 $ 14,214 9,193 23,407 The variation in current and deferred tax expense, quarter-over-quarter and year-over-year, is consistent with the decrease in earnings before taxes in fiscal 2017. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 25 Deferred income taxes reflect temporary differences, which result charged to the consolidated statement of earnings. In addition, primarily from the difference between depreciation claimed for the derivative financial instruments pertaining to foreign exchange tax purposes and depreciation amounts recognized for financial forward contracts on maple syrup sales were marked-to-market reporting purposes, employee future benefits and derivative as at September 30, 2017 and also charged to the consolidated financial instruments. Deferred income tax assets and liabilities statement of earnings. The unrealized gains/losses related to are measured using the enacted or substantively enacted tax rates natural gas futures and interest rate swaps are accounted for in anticipated to apply to income in the years in which temporary other comprehensive income. The amount recognized in other differences are expected to be realized or reversed. The effect of a comprehensive income is removed and included in net earnings change in income tax rates on future income taxes is recognized in under the same line item in the consolidated statement of earnings income in the period in which the change occurs. and comprehensive income as the hedged item, in the same Net earnings period that the hedged cash flows affect net earnings, reducing earnings volatility related to the movements of the valuation of Net earnings for the fourth quarter of fiscal 2017 were $4.0 million these derivatives hedging instruments. The transitional marked- compared to $16.5 million for fiscal 2016. As mentioned above, the to-market balances outstanding as of October 1, 2016 will be gross margin does not reflect the economic results from operating amortized over time based on their settlements until all existing activities. During the quarter, in addition to the negative gross natural gas futures and all existing interest rate swaps agreements margin variance of $9.8 million explained above, the Company have expired. incurred $1.1 million and $1.9 million in additional finance costs and in acquisition costs, respectively. LBMT’s contribution to net The Company sells refined sugar to some clients in U.S. dollars. earnings was minimal for the quarter. Prior to October 1, 2016, these sales contracts were viewed as having an embedded derivative if the functional currency of the Net earnings for fiscal 2017 were $21.9 million compared to customer was not U.S. dollars, the embedded derivative being $65.6 million for fiscal 2016 a variance of $43.7 million. The decrease the source currency of the transaction. The embedded derivatives in net earnings is mostly explained by the after tax impact of the were marked-to-market at each reporting date, with the unrealized decline in gross margin, mostly attributed to the mark-to-market of gains/losses charged to the unaudited condensed consolidated derivative financial instruments. The tax adjusted acquisition costs interim statement of earnings with a corresponding offsetting of LBMT also had a negative impact on the net earnings for fiscal amount charged to the unaudited condensed consolidated 2017. Adjusted results statement of financial position. As of October 2, 2016, the U.S. dollars of these sales contract will no longer be considered as being an embedded derivative as it was determined that the U.S. dollar is In the normal course of business, the Company uses derivative commonly used in Canada. This change in estimate will be applied financial instruments consisting of sugar futures, foreign exchange prospectively, as a result, only the embedded derivatives relating forward contracts, natural gas futures and interest rate swaps. to sales contracts outstanding as of October 1, 2016 will continue For fiscal 2016, all derivative financial instruments were marked- to be marked-to-market every quarter until all the volume on these to-market at each reporting date, with the unrealized gains/ contracts has been delivered. losses charged to the consolidated statement of earnings. As of October 2, 2016, the Company adopted all the requirements Management believes that the Company’s financial results are of IFRS 9 (2014) Financial Instruments. As a result, the Company more meaningful to management, investors, analysts and any has designated as effective hedging instruments its natural gas other interested parties when financial results are adjusted by futures and its interest rate swap agreements entered into in the gains/losses from financial derivative instruments and from order to protect itself against natural gas prices and interest rate embedded derivatives. These adjusted financial results provide a fluctuations as cash flow hedges. Derivative financial instruments more complete understanding of factors and trends affecting our pertaining to sugar futures and foreign exchange forward contracts business. This measurement is a non-GAAP measurement. See continue to be marked-to-market at each reporting date and are “Non-GAAP measures” section. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS26 Management uses the non-GAAP adjusted results of the operating performance and comparing such performance to past results. company to measure and to evaluate the performance of the Management also uses adjusted gross margin, adjusted EBIT and business through its adjusted gross margin, adjusted EBIT and adjusted net earnings when discussing results with the Board of adjusted net earnings. In addition, management believes that these Directors, analysts, investors, banks and other interested parties. measures are important to our investors and parties evaluating our See “Non-GAAP measures” section. The results of operations would therefore need to be adjusted by the following: Income (loss) (In thousands of dollars) Mark-to-market on: Sugar futures contracts Natural gas futures contracts Foreign exchange forward contracts Embedded derivatives Total mark-to-market adjustment on derivatives Cumulative timing differences Adjustment to cost of sales Amortization of transitional balance to cost of sales for cash flow hedges Total adjustment to costs of sales (1) (1) See “Non-GAAP measures” section. Fourth Quarter Fiscal Year 2017 $ (1,313) — (1,042) 272 (2,083) (4,172) (6,255) 852 (5,403) 2016 $ 3,571 (1,382) (636) 779 2,332 471 2,803 — 2,803 2017 $ 2016 $ (9,311) 10,562 — (861) 254 (9,918) (19,061) (28,979) (2,460) 2,298 (2,322) 8,078 23,974 32,052 3,018 — (25,961) 32,052 The fluctuations in mark-to-market adjustment on derivatives As previously mentioned, starting on October 2, 2016, natural are due to the price movements in #11 world raw sugar, foreign gas futures were designated as an effective cash flow hedging exchange movements and natural gas prices variations. See instrument and as a result, mark-to-market adjustments are now “Non-GAAP measures” section. recorded in other comprehensive income. The transitional balances, representing the mark-to-market value recorded as of October 1, Cumulative timing differences, as a result of mark-to-market gains 2016, will be subsequently removed from other comprehensive or losses, are recognized by the Company only when sugar is sold income when the natural gas futures will be liquidated, in other to a customer and previously, to October 1, 2016, when natural words, when the natural gas is used. As a result, in fiscal 2017, gas was used. The gains or losses on sugar and related foreign the Company removed a gain of $0.9 million and $3.0 million from exchange paper transactions are largely offset by corresponding other comprehensive income and recorded a gain of the same gains or losses from the physical transactions, namely sale and amount in cost of sales for the fourth quarter and year-to-date, purchase contracts with customers and suppliers. See “Non-GAAP respectively. The transitional balance relating to natural gas futures measures” section. will be fully depleted in fiscal 2020. See “Non-GAAP measures” section. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 27 The above described adjustments are added or deducted to the the consolidated results for the comparable quarter last year. Year- mark-to-market results to arrive at the total adjustment to cost of to-date, the total cost of sales adjustment is a loss of $26.0 million sales. For the fourth quarter of the current year, the total cost of sales to be added to the consolidated results compared to a gain of adjustment is a loss of $5.4 million to be added to the consolidated $32.1 million to be deducted from the consolidated results for the operating results versus a gain of $2.8 million to be deducted from comparable period last year. See “Non-GAAP measures” section. The following is a table showing the adjusted consolidated results (non-GAAP) without the above mark-to-market results: Consolidated results Fourth Quarter Fiscal Year (In thousands of dollars, except per share information) Gross margin as per financial statements Adjustment as per above 2017 $ 22,631 6,255 Amortization of transitional balance to cost of sales as per above (852) Adjusted gross margin (1) EBIT as per financial statements Adjustment as per above 28,034 10,138 6,255 Amortization of transitional balance to cost of sales as per above (852) Adjusted EBIT (1) Net earnings as per financial statements Adjustment to cost of sales as per above Amortization of transitional balance to cost of sales as per above Amortization of transitional balance to net finance costs Adjustment for mark-to-market of net finance costs Income taxes on above adjustments Adjusted net earnings (1) Net earnings per share basic, as per financial statements Adjustment for the above Adjusted net earnings per share basic (1) (1) See “Non-GAAP measures” section. 15,541 4,014 6,255 (852) (84) — (1,395) 7,938 0.04 0.04 0.08 2016 $ 32,418 (2,803) — 29,615 24,472 (2,803) — 21,669 16,453 (2,803) — — (180) 793 14,263 0.18 (0.03) 0.15 2017 $ 77,298 28,979 (3,018) 103,259 41,031 28,979 (3,018) 66,992 21,906 28,979 (3,018) (371) — (6,782) 40,714 0.23 0.19 0.42 2016 $ 128,223 (32,052) — 96,171 98,598 (32,052) — 66,546 65,579 (32,052) — — (205) 8,581 41,903 0.70 (0.25) 0.45 Adjusted gross margin the segmented information section. Year-to-date, adjusted gross Adjusted gross margin for the quarter was $28.0 million versus margin was $103.3 million, an improvement of $7.1 million. The $29.6 million for the comparable period last year. During the additional sales volume from the Sugar segment combined with current quarter, LBMT contributed $3.4 million of adjusted gross LBMT’s adjusted margin contribution since the acquisition date, margin. However, the benefit from the acquisition was more than mostly explain the year-over-year increase. offset by a reduction in the Sugar segment as explained later in 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 28 Results from operating activities costs for LBMT during the current quarter. Without the acquisition Adjusted EBIT for the fourth quarter of fiscal 2017 was $15.5 million costs, adjusted EBIT was $17.4 million versus $21.7 million for the compared to $21.7 million, a decrease of $6.2 million. In addition comparable period last year, a decrease of $4.3 million. to the reduction in adjusted gross margin, administration and selling expenses as well as distribution costs were higher than the Year-to-date, adjusted EBIT of $67.0 million was $0.4 million above comparable quarter, due mainly to LBMT’s administrative and selling fiscal 2016. However, excluding the acquisition costs of $2.5 million, expenses and distribution costs of $2.6 million since August 5, adjusted EBIT was $69.5 million or $2.9 million improvement versus 2017. In addition, the Company incurred $1.9 million in acquisition last year. Segmented information Following the acquisition of LBMT, the Company has two distinct segments, namely, refined sugar and by-products, together referred to as the “Sugar” segment and maple syrup and derived products, together referred to as the “Maple products” segment. The following is a table showing the key results by segments: Consolidated results Fourth Quarter (In thousands of dollars) Fiscal 2017 Revenues Gross margin Administration and selling expenses Distribution costs Results from operating activities Addition to property, plant and equipment and intangible assets Non-GAAP results: Total adjustment to the cost of sales (1) Adjusted Gross Margin (1) Adjusted results from operating activities (1) Fiscal 2016 Revenues Gross margin Administration and selling expenses Distribution costs Results from operating activities Addition to property, plant and equipment and intangible assets Non-GAAP results: Total adjustment to the cost of sales (1) Adjusted Gross Margin (1) Adjusted results from operating activities (1) (1) See “Non-GAAP measures” section. Sugar $ Maple Products $ Total $ Sugar $ Fiscal Year Maple Products $ Total $ 166,318 26,666 192,984 655,851 26,666 682,517 19,041 7,400 2,451 9,190 3,590 1,948 694 948 22,631 9,348 3,145 10,138 73,708 23,655 9,970 40,083 3,590 1,948 694 948 77,298 25,603 10,664 41,031 6,903 64 6,967 17,306 64 17,370 5,567 24,608 14,757 $ 161,733 32,418 5,659 2,287 24,472 6,166 (2,803) 29,615 21,669 (164) 5,403 3,426 28,034 784 15,541 $ 161,733 32,418 5,659 2,287 24,472 26,125 99,833 66,208 $ 564,411 128,223 19,636 9,989 98,598 6,166 14,766 (2,803) (32,052) 29,615 21,669 96,171 66,546 $ — — — — — — — — — (164) 25,961 3,426 103,259 784 66,992 $ — — — — — — — — — $ 564,411 128,223 19,636 9,989 98,598 14,766 (32,052) 96,171 66,546 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 29 Results from operation by segment Sugar Revenues Volume (MT) Revenues ($000’s) Fourth Quarter Fiscal Year 2017 183,397 166,318 2016 187,179 161,733 2017 694,465 655,851 2016 675,224 564,411 The total Canadian nutritive sweetener market, which includes both increase is mainly explained by the start at the end of October 2016 refined sugar and HFCS, was stable in fiscal 2017. We also estimate of a new long-term contract with a HFCS substitutable customer in that per capita sugar consumption remained stable during the year. Western Canada. However, some of the positive variance was offset by modest temporary volume losses in Eastern Canada against The Company’s total sugar deliveries for the fourth quarter of fiscal HFCS and liquid sucrose competition. 2017 decreased by approximately 3,800 metric tonne versus the comparable period last year but significantly improved on a year- Exports decreased by approximately 3,600 metric tonnes for the over-year basis by approximately 19,200 metric tonnes. current quarter, mainly explained by timing of the Canada specific U.S. quota deliveries, which was mostly sold in the first half of the The industrial market segment decreased by approximately 5,700 current year, as opposed to fairly evenly throughout fiscal 2016. An metric tonnes and 5,400 metric tonnes for the last quarter and year- additional contributing factor to the weaker quarter was a reduction to-date, respectively. The weak fourth quarter results are mostly in U.S. high tier opportunistic sales versus the comparative period due to timing and to a lesser extent, lower demand from existing last year. For the full year, exports were approximately 6,200 customers. The industrial segment experienced an improvement in metric tonnes higher than last year. Exports also benefited from volume starting in the second quarter of fiscal 2016 but has tapered additional volume driven by a three year agreement with a Mexican off during the second half of the current fiscal year. customer, which started at the beginning of the current fiscal year. The incremental volume to Mexico was somewhat offset by a small Total consumer volume decreased for the current quarter by reduction in U.S. high tier sales when compared to the prior fiscal approximately 400 metric tonnes compared to the same period last year. year while the volume for the twelve months of fiscal 2017 resulted in an increase of approximately 600 metric tonnes versus fiscal The increase in revenues for the fourth quarter of fiscal 2017 and 2016. The variation for the quarter and year-to-date is mainly due year-to-date versus the comparable periods last year is mainly to timing in customers’ retail promotions. explained by an increase in the weighted average raw sugar values in Canadian dollars, since the cost of raw sugar for all domestic When compared to last fiscal year, liquid volume ended the year sales is passed on to the Company’s customers. at approximately 5,900 metric tonnes and 17,800 metric tonnes higher than the fourth quarter and fiscal year, respectively. The 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 30 Gross margin Two major factors impact gross margins: the selling margin of the products and operating costs. Gross margin Fourth Quarter Fiscal Year (In thousands of dollars, except per metric tonne information) Gross margin Total adjustment to cost of sales (1) (2) Adjusted gross margin Gross margin per metric tonne Adjusted gross margin per metric tonne 2017 $ 19,041 5,567 24,608 103.82 134.18 2016 $ 32,418 (2,803) 29,615 173.19 158.22 2017 $ 73,708 26,125 99,833 106.14 143.76 2016 $ 128,223 (32,052) 96,171 189.90 142.43 (1) See “Non-GAAP measures” section. (2) See “Adjusted results” within the consolidated results of operation section and “Segmented information” section. Gross margin of $19.0 million for the quarter and $73.7 million Year-to-date, adjusted gross margin improved when compared to year-to-date does not reflect the economic margin of the sugar last year and amounted to $99.8 million, an increase of $3.7 million segment, as it includes a loss of $5.6 million and $26.1 million for versus fiscal 2016. Adjusted gross margin for the previous year the fourth quarter of fiscal 2017 and year-to-date, respectively, for includes a non-cash pension charge of $1.8 million for committed the mark-to-market of derivative financial instruments as explained future pension plan upgrades to one of the Company’s defined above. In fiscal 2016, a mark-to-market gain of $2.8 million and benefit pension plans following the agreement with the Montréal $32.1 million was recorded for the fourth quarter and year-to-date, unionized employees. Without this adjustment, the Company’s respectively, resulting in gross margins of $32.4 million and $128.2 adjusted gross margin would have been $1.9 million higher million for their respective period. than last year. The benefits from higher sales volume and higher by-product revenues were partially offset by the inefficiencies and We will therefore comment on adjusted gross margin results. additional costs incurred in the fourth quarter of the current year. Further reducing the positive variance is approximately $0.8 million Adjusted gross margin for the quarter was $24.6 million compared in additional costs incurred in fiscal 2016 relating to a six-day work to $29.6 million for the same quarter last year, representing stoppage at the Montréal refinery. a decrease of $5.0 million. The decrease is explained by a combination of factors. The Taber beet plant contributed On a per metric tonne basis, the current year’s adjusted gross negatively to the adjusted gross margin as a result of higher margin was $143.76 per metric tonne as opposed to $142.43 per cost of raw material, higher maintenance costs, lower by-product metric tonne for the comparable period last year. Excluding the revenues attributable to timing and to consulting fees incurred on a non-cash pension expense, the fiscal 2016 adjusted gross margin project to explore air emission reduction. These items attributable rate would have been $145.10 per metric tonne, resulting in a to the Taber plant accounted for more than half of the negative decrease of $1.34 per metric tonne in fiscal 2017. variance quarter-over-quarter. In addition, the Montréal refinery had some operating inefficiencies during the current quarter, due Included in gross margin and adjusted gross margin is $3.1 million to defective operating supplies used within the refining process. and $12.5 million of depreciation expense in cost of sales for These operating deficiencies combined with a lower sales volume the fourth quarter and year-to-date, respectively, as opposed to and to a one-time non-cash income of $0.6 million recorded in last $2.9 million and $11.7 million for the comparable periods last year. year’s comparable quarter for pension upgrades, all negatively contributed to adjusted gross margin. As a result, the current quarter’s adjusted gross margin rate was $134.18 per metric tonne as compared to $158.22 per metric tonne in fiscal 2016, a decrease of $24.04 per metric tonne. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 31 Other expenses (In thousands of dollars) Administration and selling expenses Distribution costs Fourth Quarter Fiscal Year 2017 $ 7,400 2,451 2016 $ 5,659 2,287 2017 $ 23,655 9,970 2016 $ 19,636 9,989 Administration and selling expenses for the fourth quarter of fiscal administrative and selling expenses is explained by acquisition 2017 were $1.7 million higher than the comparable period last costs recorded in the current fiscal year amounting to $2.5 million, year due to a charge of $1.9 million incurred relating to the LBMT additional employee benefits incurred in the first half of the current acquisition. Year-to-date, administration and selling expenses year, slightly offset by a reduction in costs related to the work increased by $4.0 million compared to the prior year. In fiscal 2016, stoppage of fiscal 2016. the Company completed the termination of the Salaried Plan, with the settlement and transfer of the defined benefit pension liabilities Included in administration and selling expenses are $0.2 million to an insurance company. The settlement process resulted in the and $0.6 million of depreciation and amortization expenses for the reversal of a non-cash accrual of $1.2 million against administration fourth quarter and year-to-date, respectively, which is comparable and selling expenses, pertaining to the deficit outstanding as at to last year’s respective periods. October 1, 2016. Excluding the impact of the settlement of the Salaried Plan, administration and selling expenses were $2.8 million Distribution expenses for the quarter were approximately higher than the comparable period last year. The increase in $0.2 million higher than last year but comparable year-over-year. Results from operating activities Fourth Quarter Fiscal Year (In thousands of dollars) Results from operating activities Adjusted results from operating activities 2017 $ 9,190 14,757 2016 $ 24,472 21,669 2017 $ 40,083 66,208 2016 $ 98,598 66,546 The results from operating activities for fiscal 2017 of $9.2 million Adjusted results from operating activities for the fourth quarter of and $40.1 million for the fourth quarter and year-to-date, $14.8 million were $6.9 million lower than the comparable period respectively, do not reflect the adjusted results from operating year. The decrease is mainly explained by additional operating activities of the Company, as they include gains and losses from costs in Taber and Montréal, lower sales volume and higher the mark-to-market of derivative financial instruments, as well as administrative and selling costs, as explained above. Year-to-date, timing differences in the recognition of any gains and losses on the adjusted results from operating activities were slightly lower than liquidation of derivative instruments. We will therefore comment on last year at $66.2 million. The positive impact of additional sales adjusted results from operating activities. volume and higher by-product revenues were offset by additional costs incurred at the plant level during the last quarter of the current year and additional administration and selling expenses, as explained above. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 32 Maple products Revenues Volume (pounds) Revenues ($000’s) Fourth Quarter Fiscal Year 2017 2016 2017 2016 5,764,000 26,666 — — 5,764,000 26,666 — — Revenues for the fourth quarter and the fiscal year represent revenues generated since August 5, 2017. Gross margin Two major factors impact gross margins: the selling margin of the products and operating costs. Gross margin Fourth Quarter Fiscal Year (In thousands of dollars, except adjusted gross margin rate information) Gross margin Total adjustment to cost of sales (1) (2) Adjusted gross margin Gross margin percentage Adjusted gross margin percentage 2017 $ 3,590 (164) 3,426 13.5% 12.8% 2016 $ — — — — — 2017 $ 3,590 (164) 3,426 13.5% 12.8% 2016 $ — — — — — (1) See “Non-GAAP measures” section. (2) See “Adjusted results” within the consolidated operating results section and “Segmented information” section. Gross margin of $3.6 million for the quarter and year-to-date does not reflect the economic margin of the Maple products segment, as it includes a gain of $0.2 million for the mark-to-market of derivative financial instruments on foreign exchange contracts. We will therefore comment on adjusted gross margin results. Since the acquisition by Lantic on August 5, 2017, adjusted gross margin for the quarter and therefore, year-to-date was $3.4 million, representing an adjusted gross margin percentage of 12.8%. However, included in cost of sales, is an amount of $0.7 million due to an increase in value of the finished goods inventory at the date of acquisition. Under IFRS, all inventory of finished goods upon acquisition is valued at the estimated selling price less the sum of the costs of disposal, and a reasonable profit allowance for the selling effort of the acquirer which results in, lower selling margins when the acquired inventory is sold. As at September 30, 2017, there was no finished goods inventory remaining that existed as at the acquisition date. Without this adjustment, adjusted gross margin would have been $4.1 million or 15.4% of revenues. Included in gross margin and adjusted gross margin is $0.1 million in depreciation expense. Other expenses Other expenses (In thousands of dollars) Administration and selling expenses Distribution costs Fourth Quarter Fiscal Year 2017 $ 1,948 694 2016 $ — — 2017 $ 1,948 694 2016 $ — — Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 33 Administration and selling expenses of $1.9 million include $0.4 million in amortization of intangible assets, $0.2 million in consulting fees, as a result of the acquisition, and $0.2 million in one-time non-recurring costs. Distribution expenses were $0.7 million since the acquisition date. Results from operating activities Fourth Quarter Fiscal Year (In thousands of dollars) Results from operating activities Adjusted results from operating activities 2017 $ 948 784 2016 $ — — 2017 $ 948 784 2016 $ — — The above results from operating activities reflect the earnings before interest and taxes of LBMT since the acquisition. Adjusted results In the normal course of business, the Company uses derivative financial instruments consisting of foreign exchange forward contracts, which are marked-to-market at each reporting date with the unrealized gains/losses charge to the consolidated statement of earnings. In addition, the acquisition by Lantic of LBMT has resulted in expenses that do not reflect the economic performance of the operation of LBMT. Finally, certain non-cash items and non-recurring expenses also had a negative impact on the results from operating activities. As such Management believes that the Maple products segment’s financial results are more meaningful to management, investors, analysts, and any other interested parties when financial results are adjusted for the above mentioned items. The results of operations would therefore need to be adjusted by the following: (In thousands of dollars) Results from operating activities Total adjustment to cost of sales (1) (2) Adjusted results from operating activities Non-recurring expenses: Acquisition costs incurred Other one-time non-recurring items Inventory bump up on finished goods inventories Depreciation and amortization LBMT Adjusted EBITDA (1) (2) Fourth Quarter 2017 2016 $ 948 (164) 784 211 195 670 491 2,351 $ — — — — — — — — Fiscal Year 2017 $ 948 (164) 784 211 195 670 491 2,351 2016 $ — — — — — — — — (1) See “Non-GAAP measures” section. (2) See “Adjusted results” within the consolidated operating results section and “Segmented information” section. Subsequent event On November 18, 2017 the Company acquired 100% of 9020-2292 Québec Inc. (“Decacer”), a company operated under the “Decacer” trade name for $40.0 million, subject to post-closing adjustments. Decacer has one bottling plant in Dégelis, Québec. This acquisition, combined with the acquisition of LBMT, allows us to create a solid platform and to broaden the Company’s maple syrup operations and expand its product offering, including a unique maple sugar dehydration technology as well as enhancing the potential for additional synergies The acquisition was funded by a drawdown under the Company’s existing $275.0 million revolving credit facility. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 34 Summary of Quarterly Results The following is a summary of selected financial information of the consolidated financial statements and non-GAAP measures of the Company for each of the quarters of fiscal 2017 and 2016: QUARTERS 2017 2016 (In thousands of dollars, except for volume and per share information) First Second Third Fourth First Second Third Fourth Sugar Volume (MT) 168,376 168,723 173,969 183,397 156,926 161,638 169,481 187,179 Maple products volume (Lbs) Total revenues Gross margin EBIT Net earnings — $ — $ — 5,764,000 $ $ — $ — $ — $ — $ 159,604 163,566 166,363 192,984 130,090 133,988 138,600 161,733 28,176 16,605 9,886 22,631 38,564 20,520 36,721 32,418 20,596 8,784 1,513 10,138 32,590 12,900 28,636 24,472 13,552 4,788 (448) 4,014 22,071 7,672 19,383 16,453 Gross margin rate per MT (1) 167.34 98.42 56.83 103.82 245.75 126.95 216.67 173.19 Gross margin percentage (2) — — — 13.5% — — — — Per share Net earnings Basic Diluted Non-GAAP Measures 0.14 0.14 0.05 0.05 — — 0.04 0.04 0.23 0.21 0.08 0.08 0.21 0.19 0.18 0.16 Adjusted gross margin 29,115 23,267 22,843 28,034 25,834 20,366 20,356 29,615 Adjusted EBIT 21,535 15,446 14,470 15,541 19,860 12,746 12,271 21,669 Adjusted net earnings 14,118 9,628 9,030 7,938 12,751 7,630 7,259 14,263 Adjusted gross margin rate per MT (1) Adjusted gross margin percentage (2) Adjusted net earnings per share 172.92 137.90 131.31 134.18 164.63 126.00 120.11 158.22 — — — 12.8% — — — — Basic Diluted 0.15 0.14 0.10 0.10 0.10 0.10 0.08 0.08 0.14 0.13 0.08 0.08 0.08 0.08 0.15 0.14 (1) Gross margin rate per MT and Adjusted gross margin rate per MT pertains to the Sugar segment only. (2) Gross margin percentage and Adjusted gross margin percentage pertains to the Maple products segment only Historically the first quarter (October to December) of the fiscal year is the best quarter for adjusted gross margins and adjusted net earnings due to the favourable sales mix associated with an increased proportion of consumer sales during that period of the year. At the same time, the second quarter (January to March) historically has the lowest volume as well as an unfavourable customer mix, resulting in lower revenues, adjusted gross margins and adjusted net earnings. The increase in revenues for the fourth quarter of fiscal 2017 is explained by the benefit from the LBMT acquisition since August 5, 2017. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 35 Financial condition Liquidity (In thousands of dollars) 2017 2016 2015 Total assets 833,922 585,198 551,929 Total non-current liabilities 342,682 214,685 260,196 $ $ $ The increase in total assets in the current fiscal year is mainly explained by the inclusion of LBMT’s total assets as at September 30, 2017, representing $254.1 million. The increase in total asset between fiscal 2016 and 2015 is explained by higher trade and other receivables as well as inventories. The #11 world raw sugar price increased during fiscal 2016 when compared to fiscal 2015, which had an impact on trade receivables and inventories. In addition, the Taber beet factory started its campaign mid-September, which also Cash flow generated by Lantic is paid to Rogers by way of dividends and return of capital on the common shares and by the payment of interest on the subordinated notes of Lantic held by Rogers, after taking a reasonable reserve for capital expenditures, debt reimbursement and working capital. The cash received by Rogers is used to pay administrative expenses, interest on the convertible debentures, income taxes and dividends to its shareholders. Lantic had no restrictions on distributions of cash arising from the compliance of financial covenants for the year. (In thousands of dollars) 2017 2016 $ $ Cash flow from operating activities 55,135 66,672 contributed to higher inventory levels. Cash flow from financing activities 147,272 (51,629) Non-current liabilities for fiscal 2017 also increased during the current year as a result of the additional drawdown under the revolving credit facility to repay the Fourth series debentures as well as to partially fund the LBMT acquisition. In addition, the Sixth series debentures were issued on July 28, 2017, therefore increasing Cash flow from investing activities (186,583) (15,156) Effect of changes in exchange rate on cash (37) — Net increase (decrease) in cash and cash equivalents 15,787 (113) the overall non-current liabilities compounded by the fact that the Cash flow from operating activities was $55.1 million in fiscal Fourth series debentures were presented as current in fiscal 2016. 2017, as opposed to $66.7 million in fiscal 2016. The decrease Somewhat reducing the negative variance is a decrease in the of $11.5 million was due to a decrease in earnings before income employee benefits balance of $13.8 million due mainly to a change taxes of $58.2 million, as well as an increase in interest and income in actuarial assumptions as at September 30, 2017. The non-current taxes paid of $1.2 million and $7.6 million, respectively. Offsetting liabilities of fiscal 2016 decreased when compared to the previous a significant portion of the negative variance is a positive working year due mainly to the Fourth series debentures becoming current capital variation year-over-year of $54.0 million and a reduction in as they were maturing within twelve months of fiscal year ended pension plan contributions of $1.9 million. It should be noted that October 1, 2016. In addition, borrowings under the long-term the acquisition of the working capital of LBMT is shown in investing revolving credit facility also decreased. This is somewhat offset by activities and therefore, only the working capital variation between increases in employee benefits and deferred tax liabilities. the acquisition date and September 30, 2017 is presented as part On an annual basis, a goodwill impairment calculation is performed with the aim of ensuring that the fair value of the Company’s The variation in cash flow from financing activities of $198.9 million operating segments is more than their respective carrying value. is attributable to the variation in the revolving credit facility of There was no impairment in fiscal 2017 analysis or for any of the $127.0 million, the issuance of the Sixth series debentures of of the cash flow from operating activities. previous two years. $54.8 million, the issuance of common shares of $66.0 million, the latter two elements, net of issuance costs. Finally, the repayment of the Fourth series debentures for $49.6 million somewhat reduced the positive variation from financing activities. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 36 The cash outflow from investing activities increased compared In order to provide additional information, the Company believes to fiscal 2016 by $171.4 million due mainly to the acquisition of it is appropriate to measure free cash flow that is generated by LBMT for $169.3 million. Also contributing to the negative variation the operations of the Company. Free cash flow is defined as cash is greater capital spending during the current year as a result of flow from operations excluding changes in non-cash working various major projects undertaken or completed during the year, capital, mark-to-market and derivative timing adjustments, financial resulting in an increase of $2.1 million. instruments’ non-cash amounts, funds received or paid from the issue or purchase of shares and investment capital expenditures. Free cash flow is a non-GAAP measure. Free cash flow is as follows: (In thousands of dollars) Fourth Quarter 2017 $ 2016 $ 2017 $ Fiscal Year 2016 $ 2015 $ Cash flow from operations 68,959 20,498 55,135 66,672 55,485 Adjustments: Changes in non-cash working capital (55,741) 3,049 (26,305) 27,703 (11,407) Mark-to-market and derivative timing adjustments Amortization of transitional balances Financial instruments non-cash amount Capital expenditures Operational excellence capital expenditures Stock options exercised Purchase and cancellation of shares Deferred financing charges Free cash flow (1) Declared dividends (1) See “Non-GAAP measures” section. 6,255 (936) (3,829) (8,760) 1,038 93 — (469) 6,610 9,517 (2,983) — 727 (7,116) 544 — — — 14,719 8,445 28,979 (3,389) (32,257) 10,755 — — 278 (2,155) (6,414) (17,303) (15,156) (11,439) 3,344 521 — (629) 40,631 34,896 835 — (727) (90) 44,825 33,796 772 — (14) (90) 37,648 33,856 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 37 Free cash flow for the fourth quarter of 2017 was $6.6 million An amount of $0.1 million and $0.5 million was received during compared to $14.7 million for the same period year, a decrease the quarter and year-to-date, respectively, following the exercise of of $8.1 million. The decrease is mainly explained by a reduction share options by certain executives of the Company. There was no in adjusted EBITDA (See “Non-GAAP measures” section in the exercise of options last year. MD&A) of $5.4 million and an increase in capital expenditures, net of operational excellence capital expenditures of $1.1 million. In fiscal 2016, Rogers purchased and cancelled a total of 178,600 Furthermore, income taxes and interest paid were $1.1 million and common shares under the normal course issuer bid (“NCIB”) for a $0.9 million higher, respectively. Finally, deferred financing charges total cash consideration of $0.7 million. incurred were higher for the current quarter versus last year by $0.5 million. Financing charges are paid when a new debt financing is completed and such charges are deferred and amortized over the term of that Free cash flow for fiscal 2017 was $4.2 million lower than the debt. The cash used in the year to pay for such fees is therefore not previous year mainly explained by an increase in income taxes available and as a result is deducted from free cash flow. During and interest paid of $7.6 million and $1.2 million, respectively, and the quarter, an amount of $0.5 million was paid to amend the additional payments of deferred financing charges of $0.5 million. revolving credit facility, while $0.6 million was spent year-to-date. Somewhat offsetting the negative free cash flow variance is an This compares to $0.1 million in the prior fiscal year. increase in adjusted EBITDA (See “Non-GAAP measures” section in the MD&A) of $1.7 million, a decrease in pension plan contributions The Company declared a quarterly dividend of 9.0 cents per of $1.9 million and lower capital expenditures, net of operational common share, for a total amount of approximately $8.5 million excellence capital expenditures of $0.4 million. Finally, a positive per quarter, except for the fourth quarter of fiscal 2017, which cash flow of $1.2 million from share issuances as a result of stock amounted to approximately to $9.5 million due to the issuance of options exercised versus shares repurchased in the prior year also common shares pursuant to the offering made under a short term contributed to reduce the negative variance. prospectus in July 2017. Capital expenditures, net of operational excellence expenditures, Changes in non-cash operating working capital represent year- were slightly lower in fiscal 2017 but higher for the fourth quarter of over-year movements in current assets, such as accounts receivable the current year due to timing. and inventories, and current liabilities, such as accounts payables. Movements in these accounts are due mainly to timing in the Operational excellence capital expenditures are $0.5 million and collection of receivables, receipts of raw sugar and payment $2.5 million higher for the quarter and year-to-date, respectively, of liabilities. Increases or decreases in such accounts are due to when compared to the same periods last fiscal year. This year’s timing issues and therefore do not constitute free cash flow. Such operational excellence capital expenditures comprised of two increases or decreases are financed from available cash or from the major projects. The first one relates to a $3.0 million capital energy Company’s available credit facility of $275.0 million. Increases or saving project, which started in fiscal 2016 at the Montréal refinery decreases in bank indebtedness are also due to timing issues from and will be completed in fiscal 2018. The second project pertains to the above and therefore do not constitute available free cash flow. an investment project to install a palletizing station in Taber, which will result in labour savings. The total commitment is $1.3 million The combined impact of the mark-to-market and financial and should be completed in fiscal 2018. Free cash flow is not instruments non-cash amount of $1.5 million and $25.9 million for reduced by operational excellence capital expenditures, as these the current quarter and fiscal year, respectively do not represent projects are not necessary for the operation of the plants, but are cash items as these contracts will be settled when the physical undertaken because of the substantial operational savings that are transactions occur, which is the reason for the adjustment to free realized once the projects are completed. cash flow. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS38 Contractual obligations The following table identifies the outstanding contractual obligations of the Company as at year-end, and the effects such obligations are expected to have on liquidity and cash flow over the next several years: (In thousands of dollars) Revolving credit facility Interest on convertible debentures Interest based on swap agreement Finance lease obligations Operating leases Purchase obligations Other long-term liabilities Derivative financial instruments Total $ 170,000 16,244 7,206 178 5,946 57,281 5,291 (6,853) 255,293 Less than 1 year $ 1 to 3 years 4 to 5 years After 5 years $ $ 20,000 50,000 100,000 3,163 1,701 56 1,988 57,281 4,703 (38,146) 50,746 6,613 4,459 122 2,702 — 588 16,689 81,173 4,312 1,046 — 1,068 — — 14,604 121,030 — — $ — 2,156 — — 188 — — — 2,344 — — Purchase obligations (in MT) 1,708,000 487,000 1,221,000 Purchase obligations (in pounds) 1,500,000 1,500,000 — On July 28, 2017, the Company issued $57.5 million 5.0% Sixth The funds from the Accordion borrowings were used to repay series debentures in order to partially fund the acquisition of LBMT. the Fourth series debentures. Finally, on August 3, 2017, the The fifth and sixth series convertible debentures, in the amount of Company amended its existing revolving credit facility to partially $60.0 million and $57.5 million, respectively, maturing in December fund the acquisition of LBMT. The available credit was increased 2018 and December 2024, have been excluded from the above by $75.0 million by drawing additional funds under the accordion table due to the holders’ conversion option and the Company’s feature embedded in the revolving credit facility (“Additional option to satisfy the obligations at redemption or maturity in Accordion Borrowings”). As a result of the amended revolving credit shares. Interest has been included in the above table to the date facility and the Additional Accordion Borrowings, the Company has of maturity. a total of $275.0 million of available working capital from which it can borrow at prime rate, LIBOR rate or under bankers’ acceptances, In fiscal 2013, Lantic entered into a five-year credit agreement of plus 20 to 250 basis points, based on achieving certain financial $150.0 million effective June 28, 2013, replacing the $200.0 million ratios. Certain assets of the Company, including trade receivables, credit agreement that expired on the same date. In addition, on inventories and property, plant and equipment have been pledged April 25, 2017, the Company borrowed an additional amount of as security for the revolving credit facility, including some of the $50.0 million by drawing a portion of the funds available under assets of LBMT. The maturity date of the amended revolving credit an accordion feature embedded in its revolving credit facility facility is June 28, 2022, except for a $50.0 million portion, which (“Accordion borrowings”). The Accordion borrowings carry the will expire on December 31, 2018. At September 30, 2017, a total same terms and conditions as the $150.0 million revolving credit of $170.0 million had been borrowed under this facility, of which, facility described above, except that it will mature on December 31, $20.0 million was presented as current. 2018. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 39 In order to fix the interest rate on a substantial portion of the expected drawdown of the revolving credit facility, the Company enters into interest rate swap agreements. Since June 28, 2013, a number of interest rate swap agreements were put in place. The following table provides the outstanding swap agreements as at September 30, 2017 as well as their respective value, interest rate and time period: Fiscal year contracted Date Total value Fiscal 2013 Fiscal 2014 Fiscal 2015 Fiscal 2017 Fiscal 2017 Fiscal 2017 June 28, 2016 to June 28, 2018 – 2.09% June 30, 2014 to June 28, 2019 – 2.09% June 28, 2018 to June 28, 2020 – 1.959% May 29, 2017 to June 28, 2022 – 1.454% September 1, 2017 to June 28, 2022 – 1.946% June 29, 2020 to June 29, 2022 – 1.733% $ 30,000 10,000 30,000 20,000 30,000 30,000 The interest payments that will be incurred on the future borrowings to its forward refined sugar sales. The Company attempts to related to this swap agreement are reflected in the contractual meet this objective by entering into futures contracts to reduce obligations table above. its exposure. Such financial instruments are used to manage the Company’s exposure to variability in fair value attributable to the Finance and operating lease obligations relate mainly to the leasing firm commitment purchase price of raw sugar. of various mobile equipment and the premises of the blending operations in Toronto and the LBMT operations. The Company has hedged all of its exposure to raw sugar price risk movement through March 2020. Purchase obligations represent all open purchase orders as at year-end and approximately $43.1 million for sugar beets that will At September 30, 2017, the Company had a net short sugar position be harvested and processed in fiscal 2018 but exclude any raw sugar of $0.6 million in net contract amounts with a current net positive priced against futures contracts. LBMT has $2.5 million remaining contract value of $0.9 million. This short position represents the to pay related to an agreement to purchase approximately offset of a smaller volume of sugar priced with customers than $4.0 million (1.5 million pounds) of maple syrup from the FPAQ. In purchases priced from suppliers. order to secure bulk syrup purchases, the Company issued a letter of guarantee for an amount of $12.5 million in favor of the FPAQ. The Company uses futures contracts and swaps to help manage its The letter of guarantee expires on February 28, 2018. natural gas costs. At September 30, 2017, the Company had $35.0 million in natural gas derivatives, with a current contract value of A significant portion of the Company’s sales are made under fixed- $28.8 million. price, forward-sales contracts, which extend up to three years. The Company also contracts to purchase raw cane sugar substantially The Company’s activities, which result in exposure to fluctuations in advance of the time it delivers the refined sugar produced from in foreign exchange rates, consist of the purchasing of raw sugar, the purchase. To mitigate its exposure to future price changes, the the selling of refined sugar and Maple products and the purchasing Company attempts to manage the volume of refined sugar sales of natural gas. The Company manages this exposure by creating contracted for future delivery in relation to the volume of raw cane offsetting positions through the use of financial instruments. These sugar contracted for future delivery, when feasible. instruments include forward contracts, which are commitments to buy or sell at a future date, and may be settled in cash. The Company uses derivative instruments to manage exposures to changes in raw sugar prices, natural gas prices and foreign The credit risk associated with foreign exchange contracts arises exchange. The Company’s objective for holding derivatives is to from the possibility that counterparties to a foreign exchange minimize risk using the most efficient methods to eliminate or contract in which the Company has an unrealized gain, fail to reduce the impacts of these exposures. perform according to the terms of the contract. The credit risk is much less than the notional principal amount, being limited at any To reduce price risk, the Company’s risk management policy is to time to the change in foreign exchange rates attributable to the manage the forward pricing of purchases of raw sugar in relation principal amount. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 40 Forward foreign exchange contracts have maturities of less than substantial portion of the payments due to the Growers is made. three years and relate mostly to the U.S. currency, and from time LBMT also has seasonal working capital requirements. Although to time, the Euro currency. The counterparties to these contracts the syrup inventory is received during the third quarter of the fiscal are major Canadian financial institutions. The Company does not year, its payment terms with the FPAQ requires cash payment in anti cipate any material adverse effect on its financial position the first half of the fiscal year. The Company has sufficient cash and resulting from its involvement in these types of contracts, nor does availability under its line of credit to meet such requirements. it anticipate non-performance by the counterparties. At September 30, 2017, the Company had a net $40.9 million in approved for completing capital expenditures presently in progress. Future commitments of approximately $6.3 million have been foreign currency forward contracts with a current contract value of $42.3 million. The Company also has funding obligations related to its employee future benefit plans, which include defined benefit pension plans. As part of its normal business practice, the Company also enters As at September 30, 2017, all of the Company’s registered defined into multi-year supply agreements with raw sugar processors for benefit pension plans were in a deficit position. The total accounting raw cane sugar. Contract terms will state the quantity and estimated deficit was estimated at approximately $39.2 million. In fiscal 2014, delivery schedule of raw sugar. The price is determined at specified the Company approved the termination of the Salaried Plan as periods of time before such raw sugar is delivered based upon of December 31, 2014. During the first quarter of fiscal 2016, the the value of raw sugar as traded on the ICE #11 world raw sugar Company completed the termination process by transferring the market. At September 30, 2017, the Company had commitments obligation to an insurance company. As of September 30, 2016, to purchase a total of 1,708,000 metric tonnes of raw sugar, of there was no further obligation for the Company towards the which approximately 286,000 metric tonnes had been priced, for a Salaried Plan. The Company performed actuarial evaluations for total dollar commitment of $122.7 million. two of its three remaining pension plans as of December 31, 2016 and January 1, 2017. As mentioned above, the Company has been actively working on solutions to reduce the air emissions footprint of the Taber Subsequent to year end, the Alberta Treasury Board and Finance facility. The facility obtained from Alberta Environment and Parks approved an amendment to the Alberta Hourly Plan. The result a variance for non-compliance of air emission standards valid until of this amendment is the elimination of the reserve for future May 2018. The Company is currently evaluating various scenarios supplements, and investment earnings accumulated thereon, which would allow the facility to be fully compliant on air emission effective January 1, 2017. The Company will recognize the impact standards for the 2019 beet harvesting season. To achieve this of this amendment during its next fiscal year, which will reduce total objective, the Company expects to undertake significant capital pension plan expense by approximately $1.5 million. expenditures starting in the first half of fiscal 2018. Early estimates of the net investment required to remediate the non-compliance, The Company monitors its pension plan assets closely and follows range between $15 million and $25 million. strict guidelines to ensure that pension fund investment portfolios are diversified in line with industry best practices. Nonetheless, The Company has no other off-balance sheet arrangements. pension fund assets are not immune to market fluctuations and, Capital resources as a result, the Company may be required to make additional cash contributions in the future. In fiscal 2017, cash contributions As mentioned above, Lantic entered into a five-year credit to defined benefit pension plans decreased by approximately agreement of $150.0 million effective June 28, 2013, which has $1.6 million to $3.3 million. In total, the Company expects to incur been amended in fiscal 2017 to extend the maturity to June 28, cash contributions of approximately $4.0 million for fiscal 2018 2022 as well as to increase its borrowing capacity by requesting the relating to employee defined benefit pension plans. For more Accordion borrowings and the Additional Accordion Borrowings for information regarding the Company’s employee benefits, please the of a total of $125.0 million, of which $50.0 million will mature refer to Note 22 of the audited consolidated financial statements. of December 31, 2018. At September 30, 2017, $170.0 million had been drawn from the working capital facility and $17.0 million in Cash requirements for working capital and other capital cash was also available. expenditures are expected to be paid from available cash resources and funds generated from operations. Management believes that The Taber beet operation requires seasonal working capital in the the unused credit under the revolving facility is adequate to meet first half of the fiscal year, when inventory levels are high and a any future cash requirements. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS41 OUTSTANDING SECURITIES time prior to maturity, and cannot be redeemed prior to December On August 5, 2017, Rogers acquired 100% of LBMT, for 31, 2020. On or after December 31, 2020 and prior to December approximately $160.3 million (the “Transaction”), subject to closing 31, 2022, the sixth series debentures may be redeemed by the adjustments of approximately $9.2 million. As part of the financing, Company only if the weighted average trading price of the share, on July 28, 2017, a public offering was completed consisting of for 20 consecutive trading days, is at least 125% of the conversion subscription receipts converted to 11,730,000 common shares price of $8.26. Subsequent to December 31, 2022, the Sixth series upon closing of the Transaction for gross proceeds of $69.2 million. debentures are redeemable at a price equal to the principal amount thereof plus accrued and unpaid interest. In addition, a total of 96,500 common shares were issued in fiscal 2017 pursuant to the exercise of share options by certain On December 16, 2011, the Company issued $60.0 million of fifth executives for a total cash consideration of $0.5 million. Moreover, series 5.75% convertible unsecured subordinated debentures (“fifth some holders of the Fourth series debentures converted an amount series debentures”), maturing December 31, 2018, with interest of $0.4 million into 66,922 common shares. payable semi-annually in arrears on June 30 and December 31 of As such, a total of 105,743,582 shares were outstanding as at be converted at the option of the holder at a conversion price of each year, starting June 29, 2012. The fifth series debentures may September 30, 2017. $7.20 per share (representing 8,333,333 shares) at any time prior to maturity, and cannot be redeemed prior to December 31, 2014. On In November 2015, the Company received approval from the or after December 31, 2014 and prior to December 31, 2016, the Toronto Stock Exchange to proceed with another NCIB whereby the fifth series debentures may be redeemed by the Company only if Company may purchase up to 500,000 common shares. The NCIB the weighted average trading price of the share, for 20 consecutive commenced on December 1, 2015 and continued until November trading days, is at least 125% of the conversion price of $7.20. 30, 2016. During fiscal 2016, the Company purchased a total of Subsequent to December 31, 2016, the fifth series debentures are 178,600 common shares under the NCIB in place at the time, for a redeemable at a price equal to the principal amount thereof plus total cash consideration of $0.7 million. All shares purchased were accrued and unpaid interest. cancelled. During the second quarter of fiscal 2017, further to a Special total of 850,000 units to be allocated to key personnel. On January Resolution approved at the shareholders’ meeting of February 1, 1, 2011, the 450,000 options outstanding under the unit option 2017, the Company reduced the stated capital by $100.0 million plan were transferred to a share option plan (the “Share Option and the contributed surplus was increased by the same amount of Plan”) on a one-for-one basis. Between July 2005 and March 2012, On July 1, 2005, the Company reserved and set aside for issuance a $100.0 million. all these options were allocated at different times to executives of the Company. In fiscal 2015, the number of options for common As at November 22, 2017, there were 105,743,582 common shares shares set aside to be allocated to key personnel was increased outstanding. from 450,000 to 4,000,000 common shares. On May 21, 2015, 850,000 share options were granted to the new President and CEO The Fourth series debentures of $49.6 million matured on April 30, of Lantic at a price of $4.59 per common share, representing the 2017 and were repaid by using the Accordion borrowings under average market price for the five business days before the granting the Company’s revolving credit facility. of the options. On December 5, 2016, the Company granted a total On July 28, 2017, the Company issued $57.5 million of sixth series of $6.51 under the share option plan. These shares are exercisable 5.0% convertible unsecured subordinated debentures (“Sixth series to a maximum of twenty percent per year, starting after the first debentures”), maturing December 31, 2024, with interest payable anniversary date of the granting of the options and will expire after semi-annually in arrears on June 30 and December 31 of each a term of ten years. Upon termination, resignation, retirement, year, starting December 31, 2017. The Sixth series debentures may death or long-term disability, all shares granted under the Share of 360,000 share options to certain executives at an exercise price be converted at the option of the holder at a conversion price of Option Plan not vested are forfeited. $8.26 per share (representing 6,961,259 common shares) at any 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS42 In addition, during the first quarter, a Share Appreciation Right of Real Estate, IFRIC 18 Transfer of Assets from Customers, and (“SARs”) was created under the existing Share Option Plan. On SIC 31 Revenue – Barter Transactions Involving Advertising December 5, 2016, a total of 125,000 SARs were issued to an Services. The new standard is effective for years beginning on or executive at an exercise price of $6.51. These SARs are exercisable after January 1, 2018. Earlier application is permitted. twenty percent per year, starting on the first anniversary date of the granting of the SARs and will expire after a term of ten years. The standard contains a single model that applies to contracts Upon termination, resignation, retirement, death or long-term with customers and two approaches to recognizing revenue: disability, all SARs granted under the Share Option Plan not vested at a point in time or over time. The model features a contract- are forfeited. based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and During fiscal 2016, 70,000 share options were forfeited at a price of judgmental thresholds have been introduced, which may affect $5.61 following the retirement of an executive. the amount and/or timing of revenue recognized. CRITICAL ACCOUNTING ESTIMATES not apply to insurance contracts, financial instruments or lease The preparation of the Company’s audited consolidated financial contracts, which fall in the scope of other IFRSs. The new standard applies to contracts with customers. It does statements in conformity with IFRS requires us to make estimates and judgements that affect the reported amounts of assets and The Company intends to adopt IFRS 15 in its consolidated liabilities, net revenue and expenses, and the related disclosures. financial statements for the year beginning on September 30, Such estimates include the valuation of goodwill, intangible 2018. The extent of the impact of adoption of the standard on assets, identified assets and liabilities acquired in business the consolidated financial statements of the Company has not combinations, other long-lived assets, income taxes, the provision yet been determined. for asbestos removal and pension obligations. These estimates and assumptions are based on management’s best estimates and • IFRS 16, Leases: judgments. Management evaluates its estimates and assumptions On January 13, 2016 the IASB issued IFRS 16 Leases. The new on an ongoing basis using historical experience, knowledge of standard is effective for annual periods beginning on or after economics and market factors, and various other assumptions that January 1, 2019. Earlier application is permitted for entities that management believe to be reasonable under the circumstances. apply IFRS 15 Revenue from Contracts with Customers at or Management adjusts such estimates and assumptions when facts before the date of initial adoption of IFRS 16. IFRS 16 will replace and circumstances dictate. Actual results could differ from these IAS 17 Leases. estimates. Changes in those estimates and assumptions are recognized in the period in which the estimates are revised. Refer This standard introduces a single lessee accounting model and to note 2 (d) to the audited consolidated financial statements for requires a lessee to recognize assets and liabilities for all leases more detail. with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a CHANGES IN ACCOUNTING PRINCIPLES AND lease liability representing its obligation to make lease payments. PRACTICES NOT YET ADOPTED A number of new standards, and amendments to standards and This standard substantially carries forward the lessor accounting interpretations, are not yet effective and have not been applied requirements of IAS 17, while requiring enhanced disclosures to in preparing these audited consolidated financial statements. New be provided by the lessors. Other areas of the lease accounting standards and amendments to standards and interpretations that model have been impacted, including the definition of a lease. are currently under review include: Transitional provisions have been provided. • IFRS 15, Revenue from Contracts with Customers: The Company intends to adopt IFRS 16 in its consolidated On May 28, 2014 the IASB issued IFRS 15 Revenue from financial statements for the annual period beginning on Contracts with Customers. IFRS 15 will replace IAS 11 September 29, 2019. The extent of the impact of adoption of Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer the standard on the consolidated financial statements of the Loyalty Programmes, IFRIC 15 Agreements for the Construction Company has not yet been determined. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS43 Additional new standards, and amendments to standards and Similarly, the Montréal facility has a lengthy history of industrial use. interpretations, include: IFRS 2, Classification and Measurement Contamination has been identified on a vacant property acquired of Share-based Payment Transactions, IAS 7, Disclosure Initiative, in 2001, and the Company has been advised that additional soil IAS 12, Recognition of Deferred Tax Assets for Unrealized Losses, and ground water contamination is likely to be present. Given the Annual Improvements to IFRS Standards (2014-2016) Cycle, IFRIC industrial use of the property, and the fact that the Company does 22, Foreign Currency Transactions and Advance Consideration not intend to change the use of that property in the future, the and IFRIC 23 Uncertainty over Income Tax Treatments. The Company does not anticipate any material expenditures being Company intends to adopt these new standards, and amendments required in the short term to deal with this contamination, unless to standards and interpretations, in its consolidated financial off-property impacts are discovered. statements in each of their respective annual period for which they become applicable. The extent of the impact of adoption of these In fiscal 2013, the Company spent $0.7 million to remove an unused new standards, and amendments to standards and interpretations, oil tank. In fiscal 2016, the Company spent $0.6 million to remove has not yet been determined, except for IAS 7, IAS 12 and the contaminated soil under the tank. In fiscal 2017, the Company Annual Improvements to IFRS Standards (2014-2016) Cycle, all of demolished a building structure on the Montréal refinery property. whom, the Company does not expect the amendments to have a Some contaminated soils were then detected on a portion of the material impact on the consolidated financial statements. Refer to now vacant section of this removed structure. Soil remediation of note 3 (s) to the audited consolidated financial statements for more this section is anticipated to occur in fiscal 2018. The Company detail. has recorded a provision under asset retirement obligations for this purpose and the provision is expected to be sufficient. ENVIRONMENT Although the Company is not aware of any specific problems at The Company’s policy is to meet all applicable government its Toronto distribution centre, its Taber plant and any of the LBMT requirements with respect to environmental matters. Except for the properties, no assurance can be given that expenditures will not non-compliance of air emission standards in Taber, management be required to deal with known or unknown contamination at the believes that the Company is in compliance in all material respects property or other facilities or offices currently or formerly owned, with environmental laws and regulations and maintains an open used or controlled by Lantic. dialogue with regulators and the Government with respect to awareness and adoption of new standards. RISK FACTORS As mentioned above, the Company has been actively working The Company’s business and operations are substantially affected on solutions to reduce the air emissions footprint of the Taber by many factors, including prevailing margins on refined sugar and facility. The facility obtained from Alberta Environment and Parks its ability to market sugar competitively, sourcing of raw material a variance for non-compliance of air emission standards valid until supplies, weather conditions, operating costs and government May 2018. The Company is currently evaluating various scenarios programs and regulations. which would allow the facility to be fully compliant on air emission standards for the 2019 beet harvesting season. To achieve this Dependence Upon Lantic objective, the Company expects to undertake significant capital Rogers is entirely dependent upon the operations and assets expenditures starting in the first half of fiscal 2018. Early estimates of Lantic through its ownership of securities of this company. of the net investment required to remediate the non-compliance Accordingly, interest payments to debenture holders and dividends range between $15 million and $25 million. to shareholders will be dependent upon the ability of Lantic and/or LBMT to pay its interest obligations under the subordinated notes With respect to potential environmental remediation of our and to declare and pay dividends on or return capital in respect properties, which could occur in the event of a building demolition of the common shares. The terms of Lantic’s bank and other or a sale, it is worth noting that the Vancouver facility has a lengthy indebtedness may restrict its ability to pay dividends and make history of industrial use, and fill materials have been used on the other distributions on its shares or make payments of principal property in the normal course of business. No assurance can be or interest on subordinated debt, including debt which may be given that material expenditures will not be required in connection held, directly or indirectly, by Rogers, in certain circumstances. In with contamination from such industrial use or fill materials. addition, Lantic may defer payment of interest on the subordinated notes at any given time for a period of up to 18 months. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS44 Integration Related Risks and Operational Gains liabilities. Lantic will not be able to fully claim indemnification from The Acquisition of LBMT is the only acquisition the Corporation the shareholders of LBMT, as the Purchase Agreement contains has concluded in recent history. To effectively integrate LBMT into indemnification limitations applicable to them. Alternatively, Lantic its own business and operations, the Company must establish sought insurance to cover any potential liability under the Purchase appropriate operational, administrative, finance, management Agreement and subscribed to the representation and warranties systems and controls and marketing functions relating to such insurance (“RWI”) Policy, with coverage of up to $16 million and business and operations. This will require substantial attention a deductible of $1.6 million, half of which will be assumed by the from management. This diversion of management attention, as previous shareholders of LBMT. Although Lantic has subscribed to well as any other difficulties which the Company may encounter the RWI Policy which provides for a $16 million coverage, the RWI in completing the transition and integration process, including Policy is subject to certain exclusions. In addition, there may be difficulties in retaining key employees of LBMT, could have a circumstances for which the insurer may elect to limit such coverage material adverse impact on the Company. There can be no or refuse to indemnify Lantic or situations for which the coverage assurance that the Company will be successful in integrating the provided under the RWI Policy may not be sufficient or applicable business and operations of LBMT. and Lantic may have to seek indemnifications from the previous There can be no assurance that management of the Corporation and and Lantic’s inability to claim indemnification from the previous Lantic will be able to fully realize some or all of the expected benefits shareholders of LBMT or the provider of the RWI Policy could have shareholders of LBMT. The existence of any undisclosed liabilities of the acquisition of LBMT. The ability to realize these anticipated a material adverse effect on the Company. benefits will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely No Assurance of Future Performance and efficient manner, as well as on Rogers’ and Lantic’s ability Historic and current performance of the business of the Company to realize growth opportunities and potential operational gains and LBMT may not be indicative of success in future periods. The from integrating LBMT with the Company’s and Lantic’s existing future performance of the business after the acquisition may be business following the acquisition. Even if Rogers and Lantic are influenced by economic downturns and other factors beyond the able to integrate these businesses and operations successfully, this control of the Company. As a result of these factors, the operations integration may not result in the realization of the full benefits of and financial performance of the Company, including LBMT, may the growth opportunities the Company and Lantic currently expect be negatively affected, which may adversely affect the Company’s within the anticipated time frame or at all. There is a risk that some financial results. or all of the expected benefits will fail to materialize, or may not occur within the time periods anticipated by management. The Fluctuations in Margins and Foreign Exchange realization of some or all of such benefits may be affected by a The Company’s profitability is principally affected by its margins on number of factors, such as, but not limited to, weather impact domestic refined sugar sales. In turn, this price is affected by a variety on supply, access to markets, consumer attitudes towards natural of market factors such as competition, government regulations sweeteners, many of which are beyond the control of the Company. and foreign trade policies. The Company, through the Canadian- All of these factors could cause dilution to the Company’s earnings specific quota, normally sells approximately 10,300 metric tonnes per share, decrease or delay the anticipated accretive effect of the of refined sugar per year in the U.S. and also sells beet pulp to acquisition of LBMT or cause a decrease in the market price of the export customers in U.S. dollars. The Company’s Taber sugar sales RSI Shares. in Canada are priced against the #11 world raw sugar market, which trades in U.S. dollars, while the sugar derived from the sugar beets Unexpected Costs or Liabilities Related to the Acquisition is paid for in Canadian dollars to the Growers. Fluctuations in the Although the Company has conducted due diligence in connection value of the Canadian dollar will impact the profitability of these with the acquisition of LBMT, an unavoidable level of risk remains sales. Except for these sales, which currently can only be supplied regarding any undisclosed or unknown liabilities of, or issues by the Company’s Taber beet plant, and sales to the U.S. under concerning, LBMT and its business. Following the acquisition, the other announced specific quotas, most sales are in Canada and Company may discover that it has acquired substantial undisclosed have little exposure to foreign exchange movements. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS45 Fluctuations in Raw Sugar Prices Weather and Other Factors Related to Production Raw sugar prices are not a major determinant of the profitability of Sugar beets, as is the case with most other crops, are affected the Company’s cane sugar operations, as the price at which sugar by weather conditions during the growing season. Additionally, is both purchased and sold is related to the #11 world raw sugar weather conditions during the processing season could affect the price and all transactions are hedged. In a market where world raw Company’s sugar extraction from beets stored for processing. A sugar is tight due to lower production, significant premiums may be significant reduction in the quantity or quality of sugar beets charged on nearby deliveries which would have a negative impact harvested due to adverse weather conditions, disease or other on the adjusted gross margins of the cane operations. The #11 factors could result in decreased production, with negative financial world raw sugar price can, however, impact the profitability of the consequences to Lantic. Company’s beet operations. Sugar derived from beets is purchased at a fixed price, plus an incentive when sugar prices rise over a Regulatory Regime Governing the Purchase and certain level, and the selling price of domestic refined sugar rises Sale of Maple Syrup in Québec or falls in relation to the #11 world raw sugar prices. Producers of maple syrup in Québec are required to operate within the framework provided for by the Marketing Act. Pursuant to the A relatively high world raw sugar price and/or low price of corn Marketing Act, producers, including producers of maple syrup, will also reduce the competitive position of liquid sugar in Canada can take collective and organized control over the production as compared to HFCS which could result in the loss of HFCS and marketing of their products (i.e. a joint plan). Moreover, the substitutable business for Lantic. Security of Raw Sugar Supply Marketing Act empowers the marketing board responsible for administering a joint plan, that is the FPAQ in the case of maple syrup, with the functions and role otherwise granted to the Régie There are over 185 million metric tonnes of sugar produced des marchés agricoles et alimentaires du Québec, the governing worldwide. Of this, more than 55 million metric tonnes of raw cane body created by the Government of Québec to regulate, among sugar is traded on the world market. The Company, through its other things, the agricultural and food markets in Québec. As part cane refining plants, buys approximately 0.6 million metric tonnes of its regulating and organizing functions, the FPAQ may establish of raw sugar per year. Even though worldwide raw supply is much arrangements to maintain fair prices for all producers and may larger than the Company’s yearly requirements, concentration of manage production surpluses and their storage to stabilize the supply in certain countries like Brazil, combined with an increase in pricing of maple syrup. cane refining operations in certain countries, may create tightness in raw sugar availability at certain times of the year. To prevent Pursuant to the Sales Agency Regulation, the FPAQ is responsible any raw sugar supply shortage, the Company normally enters into for the marketing of bulk maple syrup in Québec. Therefore, any long-term supply contracts with reputable suppliers. For raw sugar container that contains 5L or more of maple syrup must be marketed supply not under contract, significant premiums may be paid on through the FPAQ as the exclusive selling agent for the producers. the purchase of raw sugar on a nearby basis, which may negatively Bulk maple syrup may be sold to the FPAQ or to “authorized buyers” impact adjusted gross margins. accredited by the FPAQ. In Québec, 85% of the total production of maple syrup is sold to the FPAQ or the authorized buyers, leaving The availability of sugar beets to be processed in Taber, Alberta only approximately 15% of the total production being sold directly is dependent on a supply contract with the Growers, and on the by the producers to consumers or grocery stores. LBMT is an Growers planting the necessary acreage every year. In the event authorized buyer with the FPAQ. The authorized buyer status is that sufficient acreage is not planted in a certain year, or that the renewed on an annual basis. There is no certainty that LBMT will Company and the Growers cannot agree on a supply contract, be able to maintain its status as an authorized buyer with the FPAQ. sugar beets might not be available for processing, thus requiring Failure by LBMT, the Corporation or Lantic to remain an authorized transfer of products from the Company’s cane refineries to the buyer with the FPAQ will likely affect the capacity to fully supply the Prairie market, normally supplied by Taber. This would increase resale of maple syrup or Maple products and therefore the financial the Company’s distribution costs and may have an impact on the results of the Corporation. adjusted gross margin rate per metric tonne sold. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS46 The FPAQ, in its capacity as bargaining and sales agent for annual demand. Each year, the FPAQ may organize a sale of a the producers of maple syrup in Québec as well as the body portion of its accumulated reserve. There can be no assurance that empowered to regulate and organize the production and marketing LBMT will have access to some of such reserve to offset decreases of maple syrup, and the bulk buyers of maple syrup, represented by in production due to weather conditions or that such reserve will the Conseil de l’industrie de l’érable (the Maple Industry Council) be sufficient to cover a gap in the production in any given year. entered into the Marketing Agreement, which is expected to be Any decrease in production or incapacity to purchase additional renewed on an annual basis. Pursuant to the Marketing Agreement, reserves from the FPAQ may affect LBMT’s supply of its sales of authorized buyers must pay a minimum price to the FPAQ for any maple syrup and other Maple products and, ultimately, its financial maple syrup purchased from the producers. As a result, LBMT’s results. ability to negotiate the purchase price of maple syrup is limited. Moreover, the minimum purchase price that is applicable to the Competition authorized buyers with the FPAQ also restricts LBMT’s ability to For the Sugar segment, the Company faces domestic competition adjust its resale pricing to take into account market fluctuations due from Redpath Sugar Ltd. and smaller regional distributors of both to supply and demand. LBMT’s incapacity to adjust its resale prices foreign and domestic refined sugar. Differences in proximity to upward to take into account any increase in consumer demand may various geographic areas within Canada and elsewhere result in affect the financial outlook of the Corporation. differences in freight and shipping costs, which in turn affect pricing and competitiveness in general. Pursuant to the Marketing Agreement, authorized buyers must buy Maple products from the FPAQ in barrels corresponding to the In addition to sugar, the overall sweetener market also includes: “anticipated volume”. The anticipated volume must be realistic and corn-based sweeteners, such as HFCS, an alternative liquid in line with volumes purchased in previous years. The refusal from sweetener, which can be substituted for liquid sugar in soft drinks the FPAQ to accept the anticipated volume set forth by LBMT or and certain other applications; and non-nutritive, high intensity the failure by LBMT to properly estimate the anticipated volume for sweeteners such as aspartame, sucralose and stevia. Differences in a given year may affect the ability for LBMT to increase its reselling functional properties and prices have tended to define the use of capacity and may have an adverse effect on the Corporation’s these various sweeteners. For example, HFCS is limited to certain future consolidated revenues. applications where a liquid sweetener can be used. Non-nutritive sweeteners are not interchangeable in all applications. The Production of Maple Syrup Being Seasonal and substitution of other sweeteners for sugar has occurred in certain Subject to Climate Change products, such as soft drinks. We are not able to predict the The production of maple syrup takes place over a period of 6 to 8 availability, development or potential use of these sweeteners and weeks during the months of March and April of each year. Maple their possible impact on the operations of the Company. syrup production is intimately tied to the weather as sap only flows when temperatures rise above freezing level during the day For the Maple products segment, LBMT is among the largest and drop below it during the night, such temperature difference branded and private label maple syrup bottling and distributing creating enough pressure to push sap out of the maple tree. Given companies in the world. LBMT has two major competitors in the the sensitivity of temperature in the process of harvesting maple market and also compete against a multitude of smaller bottlers sap, climate change and global warming may have a material and distributing companies. impact on such process as the maple syrup production season may become shorter. Reducing the production season for maple A large majority of LBMT’ revenues are made under the private syrup may also have an impact on the level of production. Such label line. The Corporation anticipates that for a foreseeable future, phenomenon may be witnessed in Québec as well as in the New LBMT’s relationship with its top private label customers will continue England states, such as Vermont and Maine, where substantially all to be key and will continue to have a material impact on its sales. of the world maple syrup is produced. Although the Corporation considers that the relationship with its top private label customers is excellent, the loss of, or a decrease In 2002, the FPAQ set up a strategic maple syrup reserve in order to in the amount of business from, such customers, or any default in mitigate production fluctuations imputable to weather conditions payment on their part could significantly reduce LBMT’s sales and and prevent such fluctuations from causing maple syrup prices harm the Company’s operating and financial results. to spike or drop significantly. The reserve was initially established to set aside a production quantity equivalent to half of the then Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS47 Consumer Habits May Change a result of the need to heat the cossettes (sliced sugar beets) to The maple products market, both national and international, has evaporate water from juices containing sugar, and to dry wet beet experienced some important changes over the last few years pulp. Changes in the costs and sources of energy may affect the as maple products are becoming better known and consumer financial results of the Company’s operations. In addition, all natural preferences and consumption patterns have shifted to more natural gas purchased is priced in U.S. dollars. Therefore, fluctuations in products. Maple syrup has typically been used, principally in North the Canadian/U.S. dollar exchange rate will also impact the cost America, as a natural alternative to traditional sweeteners and has of energy. The Company hedges a portion of its natural gas been served on morning meals, such as pancakes, waffles and price exposure through the use of natural gas contracts to lessen other breakfast bakeries for decades. The offer of maple products the impact of fluctuations in the price of natural gas. Provincial has recently expanded to include, among others, maple butter and application of some form of carbon tax has been increasingly maple sugar, flakes and taffy. As a result of evolving customer trends important across Canada. This new trend could increase the overall and the development of new maple products continues, LBMT will energy costs for the Company. need to anticipate and meet these trends and developments in a competitive environment on a timely basis. The failure of LBMT Government Regulations and Foreign Trade Policies to anticipate, identify and react to shifting consumer and retail with regards to Sugar customer trends and preferences through successful innovation and In July 1995, Revenue Canada made a preliminary determination, enhanced production capability could adversely result in reduced followed by a final determination in October 1995, that there demand for its products, which could in turn affect the financial was dumping of refined sugar from the United States, Denmark, performance of the Company. There is also no guarantee that the Germany, the United Kingdom, the Netherlands and the Republic current favourable market trends will continue in the future. of Korea into Canada, and that subsidized refined sugar was being imported into Canada from the European Union (“EU”). Growth of LBMT’s Business Relying Substantially on Exports The Canadian International Trade Tribunal (“CITT”) conducted The size of the global wholesale market for maple syrup is currently an inquiry and on November 6, 1995 ruled that the dumping of estimated at $750 million, the United States being by far the world’s refined sugar from the United States, Denmark, Germany, the largest importer, followed by Japan and Germany. Despite the United Kingdom and the Netherlands as well as the subsidizing increase of sales of maple products that the Canadian market has from the EU was threatening material injury to the Canadian sugar experienced in recent years, the potential for growth of this industry industry. The ruling resulted in the imposition of protective duties largely relies on the international market. Moreover, over the last on these unfairly traded imports. few years, Vermont and Maine have increased their production of maple syrup and have now become competitors of Québec, which Under Canadian laws, these duties must be reviewed every five however remains the largest producer and exporter of maple syrup years. On October 30, 2015, the CITT concluded its fourth review in the world. While LBMT continues to develop its selling efforts of the 1995 finding and issued its decision to continue the finding outside of Canada, including through forming new partnerships against dumped and subsidized sugar from the U.S. and EU for in countries where the maple syrup market is undeveloped, it will another five years. likely face high competition from other bottlers and distributers, including from other Canadian and U.S. companies, for its share The duties on imports of U.S. and EU refined sugar are important of the international market. Such growing competition and the to Lantic and to the Canadian refined sugar industry in general incapacity for LBMT to further develop its selling efforts outside because they protect the market from the adverse effect of unfairly of Canada could adversely affect the Company’s capacity to grow traded imports from these sources. The government support and LBMT’s business and its future results. Furthermore, an incapacity to trade distorting attributes of the U.S. and EU sugar regimes have attract increased attention on maple products or a sudden lack of not materially changed the factors that originally led to the original interest for such products from customers outside of North America CITT decision and the importance of continuing these duties. may affect the Company’s future results. However, there is no assurance that in 2020 these duties will be Operating Costs continued for a further five years. It is also possible that an interim review could be conducted prior to 2020 if there is a material Natural gas represents an important cost in our refining operations. change in circumstances related to the CITT finding. Our Taber beet factory includes primary agricultural processing and refining. As a result, Taber uses more energy in its operations than the cane facilities in Vancouver and Montréal, principally as 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS48 In April 2017, the U.S. President announced the White House Ministers from the TPP countries have continued to meet to work intention to renegotiate and modernize the North American Free towards a TPP11 agreement without the U.S. in an effort to build on Trade Agreement (“NAFTA”) following earlier threats to terminate the TPP negotiated outcomes and advance trade liberalization and the agreement. Negotiations towards a new NAFTA agreement economic integration in the Asia Pacific region. On November 11, were launched in August 2017 in Washington D.C. with successive 2017, Canada along with the Ministers for the other TPP countries rounds in each NAFTA country concluding with round 4 in October, announced that they had reached an agreement on “core 2017, again in Washington D.C. The Canadian Sugar Institute elements” for a Comprehensive and Progressive Agreement for (“CSI”) is advancing Canada’s sugar industry interest in securing TPP (“CPTPP”) while acknowledging that certain issues remained improved U.S. market access for Canadian sugar and SCPs and unresolved. The Government of Canada welcomed the progress addressing outdated quota rules. U.S. quotas and administrative made and will continue to engage on the proposals but has also rules are impacting Canada’s ability to supply the U.S. market and stated that there still are a number of issues that remain outstanding are having a more significant negative impact today in the context of for Canada and that it will not be rushed into an agreement. liberalized U.S.-Mexico sugar trade. Improved export access to the U.S. is essential for our industry to improve capacity utilization and The CPTPP countries are diverse in terms of sugar policies and efficiencies and to continue to support a vibrant food processing trade but collectively may provide an opportunity to advance trade industry in Canada. in refined sugar and SCPs. Lantic and the other Canadian sugar refiner may benefit from new access for SCPs in Japan, Malaysia The Canada-European Union Comprehensive Economic and Trade and Vietnam and may have a more competitive opportunity to Agreement (“CETA”) entered into force provisionally on September supply these markets in the absence of the United States. Given 21, 2017. Over 90% of CETA, including tariff reductions and new the uncertainties regarding conclusion of a CPTPP, the Company quotas, went into effect upon provisional implementation. does not expect any financial benefits from the TPP in fiscal 2018. Provisional implementation of the CETA is expected to have Canada now has free trade agreements in force with more than material financial benefits from exports of SCPs which should 13 countries, however, few beyond the NAFTA and CETA offer contribute to the long term prosperity of Canada’s sugar industry. significant market potential for Canadian sugar and sugar- The SCP volume is set at 30,000 metric tonnes annually from containing products (“SCPs”). There are a number of reasons why 2018 through 2021 and is increasing in 5 year increments to reach these free trade agreements (“FTAs”) have not provided Lantic 51,840 metric tonnes over 15 years. The quota is allocated 90% to with meaningful export gains. In many cases, the FTA country is Canadian refiners on an equal share basis. Access to the EU will be not a logical export market, such as Jordan which is distant from challenging in the early years of implementation given the October Canada and closer to European suppliers or Colombia that is a 1, 2017 reform of the EU sugar regime which has generated large surplus sugar producer and exporter relative to Canada. FTAs substantial surplus sugar supplies. Regardless, the Company with countries such as Honduras, Peru and Panama are also not is committed to ensure maximum utilization of this new export significant markets for high quality Canadian sugar and negotiated opportunity in a well-developed market which will be beneficial to outcomes provide for minimal tariff rate quota quantities. Other the Company in the future. more recent FTAs, including with the Republic of Korea and the Ukraine, excluded refined sugar from tariff improvements. “Rules On February 4, 2016, Canada was among the 12 participating of origin” in almost all FTAs limit Canadian sugar benefits to beet countries of the Trans-Pacific Partnership (“TPP”) to sign an sugar grown in Canada and processed at the Taber beet factory. agreement to liberalize trade in the region. The other TPP countries Some limited opportunities under the Canada-Costa Rica FTA are included Australia, Brunei Darussalam, Chile, Japan, Malaysia, available for both refined beet and cane sugar. Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. On January 23, 2017 the U.S. President signed an executive order to withdraw the U.S. from the 12 nation TPP trade deal. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS49 The CSI will continue to monitor Canada’s exploratory discussions The labour agreement for the Vancouver refinery will expire at the and formal negotiations for any meaningful developments that end of February 2018. Negotiations are expected to start at the may be of value to Canada’s sugar industry while also monitoring beginning of the new calendar year. Finally, the Toronto distribution potential threats. The Company continues to remain concerned centre labour agreement will expire in June 2018. There can be no that the inclusion of refined sugar in Canada’s various regional assurance that new agreements will be reached at each location, or and bilateral negotiations may result in substantial new duty-free that the terms of such future agreements will be similar to the terms imports from these countries, while not providing offsetting export of the current agreements. market opportunities. The real potential for significant, long-term export gains is via a global agreement through the World Trade LBMT’s bottling plant in Granby, Québec is under a collective Organization (“WTO”). However, the WTO Doha round negotiations bargaining agreement, which is currently scheduled to expire in have been on hold since July 2008 with no specific date for May, 2023. conclusion. A modernized NAFTA and CETA provide the best near to medium term prospect of improved export opportunity for the Strikes or lock-outs in future years could restrict the ability of Canadian sugar industry. All of these agreements involve significant the Company to service its customers in the affected regions, input from the CSI and the Canadian sugar refiners to ensure the consequently affecting the Company’s revenues. long-term stability of the Canadian refined sugar industry. Food Safety and Consumer Health Foreign Trade Policies with regards to Maple products The Company is subject to risks that affect the food industry in LBMT’s international operations are also subject to inherent risks, general, including risks posed by accidental contamination, including change in the free flow of food products between product tampering, consumer product liability, and the potential countries, fluctuations in currency values, discriminatory fiscal costs and disruptions of a product recall. The Company actively policies, unexpected changes in local regulations and laws and the manages these risks by maintaining strict and rigorous controls and uncertainty of enforcement of remedies in foreign jurisdictions. In processes in its manufacturing facilities and distribution systems addition, foreign jurisdictions, including the United States, LBMT’s and by maintaining prudent levels of insurance. current and expected largest market, could impose tariffs, quotas, trade barriers and other similar restrictions on LBMT’s international The Company’s facilities are subject to audit by federal health sales and subsidize competing agricultural products. All of these agencies in Canada and similar institutions outside of Canada. risks could result in increased costs or decreased revenues, either The Company also performs its own audits designed to ensure of which could have a material adverse effect on LBMT’s financial compliance with its internal standards, which are generally at, or condition and results of operations. The implementation of CETA higher than, regulatory agency standards in order to mitigate the removes the duties on imported maple syrup which could benefit risks related to food safety. the Company in additional export volume to the EU. Environmental Matters Employee Relations The operations of the Company are subject to environmental The majority of the Lantic’s operations are unionized. regulations imposed by federal, provincial and municipal governments in Canada, including those relating to the During the fiscal year, a five-year labour agreement, expiring in treatment and disposal of waste water and cooling water, air 2022, was reached with the unionized employees of the Taber emissions, contamination and spills of substances. Except for factory. the non-compliance of air emission standards discussed above, management believes that the Company is in compliance in In fiscal 2016, five-year labour agreements were reached with all material respects with environmental laws and regulations. the main unit and with two of the other three smaller units of However, these regulations have become progressively more the unionized employees of the Montréal refinery for which the stringent and the Company anticipates this trend will continue, previous labour agreements expired in February 2016. During the potentially resulting in the incurrence of material costs to achieve current fiscal year, a five-year labour agreement was reached with and maintain compliance. the remaining unit. The new agreements were all agreed upon at competitive rates and will expire at the end of May 2021. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS50 As mentioned above, the Company has been actively working Management and Operation of Lantic on solutions to reduce the air emissions footprint of the Taber The Board of Directors of Lantic is currently controlled by Lantic facility. The facility obtained from Alberta Environment and Parks Capital, an affiliate of Belkorp Industries. As a result, holders of a variance for non-compliance of air emission standards valid until shares have limited say in matters affecting the operations of Lantic; May 2018. The Company is currently evaluating various scenarios if such holders are in disagreement with the decisions of the Board which would allow the facility to be fully compliant on air emission of Directors of Lantic, they have limited recourse. The control standards for the 2019 beet harvesting season. There could not be exercised by Lantic Capital over the Board of Directors of Lantic any assurance that the Alberta Environment and parks will extend may make it more difficult for others to attempt to gain control of the non-compliance variance beyond May 2018, which may result or influence the activities of Lantic and the Company. in significant production disruption, an increase in production and/or fines and other penalties. To achieve this objective, the Company expects to undertake significant capital expenditures OUTLOOK starting in the first half of fiscal 2018. Early estimates of the net In fiscal 2018, we expect the industrial market segment to decrease investment required to remediate the non-compliance range slightly, while the consumer volume should be comparable to fiscal between $15 million and $25 million. There could be no assurance 2017. that the investment of a solution to reduce air emission may not differ materially from the early estimates. The liquid market segment should continue to be strong benefitting from some growth with existing customers, the recapture of some Violation of these regulations can result in fines or other penalties, of the volume loss in fiscal 2017 and the benefit of a full year of which in certain circumstances can include clean-up costs. As supply to a large bottler account in Western Canada. As a result, well, liability to characterize and clean up or otherwise deal with we expect the liquid market segment to surpass fiscal 2017 by contamination on or from properties owned, used or controlled approximately 10,000 metric tonnes. by the Company currently or in the past can be imposed by environmental regulators or other third parties. No assurance can As for the export segment, total volume is anticipated to increase be given that any such liabilities will not be material. slightly due to additional sales to Mexico. Income Tax Matters Overall, we expect total volume to increase by approximately 5,000 The income of the Company must be computed and is taxed in metric tonnes. accordance with Canadian tax laws, all of which may be changed in a manner that could adversely affect the amount of dividends. In fiscal 2018, the Company will benefit from a full year of operations There can be no assurance that taxation authorities will accept the of LBMT. As previously presented in the short form prospectus tax positions adopted by the Company including the determination dated July 21, 2017, we expect LBMT’s Adjusted EBITDA (See of the amounts of federal and provincial income which could “Non-GAAP measures” section of the MD&A) to approximate materially adversely affect dividends. $18.4 million, which includes an increase in sales volume and related selling margins in addition to some operational efficiency The current corporate structure involves a significant amount of gains for a total of approximately $2.9 million. In fiscal 2019, we inter-company or similar debt, generating substantial interest expect additional integration gains of approximately $2.1 million expense, which reduces earnings and therefore income tax to be fully realized by the end of fiscal 2019. Therefore, fiscal 2019 payable at Lantic’s level. There can be no assurance that taxation Adjusted EBITDA for LBMT should amount to approximately $20.5 authorities will not seek to challenge the amount of interest million assuming the realization of all expected integration gains. expense deducted. If such a challenge were to succeed against Lantic, it could materially adversely affect the amount of cash transferred to Rogers for dividend payment. Management believes that the interest expense inherent in the structure is supportable and reasonable in light of the terms of the debt owed by Lantic to Rogers and LBMT to Lantic. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS51 On November 20, 2017, the Company announced the acquisition The harvest and beet slicing campaign started towards the end of of Decacer for $40.0 million, subject to post-closing adjustments. September. This year’s growing conditions were ideal and resulted Decacer’s Adjusted pro forma EBITDA (See “Non-GAAP measures” in a very large crop with strong yield per acre. If current harvesting section) on an annual basis is estimated at $5.1 million. This conditions continue and no significant beet storage issues arise, acquisition, combined with the earlier acquisition of LBMT, allows we fully expect that the current crop should derive approximately us to create a solid platform and to broaden the Company’s maple 120,000 metric tonnes of refined sugar, which is comparable to syrup operations and expand its product offering, including a fiscal 2017’s production volume, even though sugar beet planting unique maple sugar dehydration technology as well as enhancing was reduced by 1,000 acres. the potential for additional operational synergies. We expect energy costs to increase by approximately $1.5 million approximately $2.4 million in fiscal 2018 as a result of the increase in fiscal 2018 as a result of the implementation of the carbon tax in discount rates, as well as to the approval by the Alberta Treasury in Alberta on January 1, 2017. The current carbon tax amounts to Board and Finance of an amendment to the Alberta Hourly Plan. We expect that the total pension plan expense will decrease by $1.011 per gigajoule and will increase to $1.517 per gigajoule on January 1, 2018. As a result of the acquisition of LBMT and Decacer, as well as an expectation that interest rate will rise in fiscal 2018, we anticipate Approximately 65% of fiscal 2018’s natural gas requirements have that interest expense should increase when compared to the been hedged at average prices comparable to those realized in current year. fiscal 2017. In addition, some futures positions for fiscal 2018 to 2022 have also been taken. Some of these positions are at prices higher Labour negotiations with the Vancouver refinery unionized than current market value, but are at the same or better levels than employees for the renewal of the labour contract terminating at those achieved in fiscal 2017. We will continue to monitor natural the end of February 2018 will start at the beginning of the new gas market dynamics with the objective of maintaining competitive calendar 2018. costs and minimizing natural gas cost variances. Capital expenditures for fiscal 2018 are expected to increase compared to this year as the Company intends to spend approximately $6.0 million on operational excellence capital projects. The Company is currently evaluating various scenarios in order to be fully compliant on air emission standards for the 2019 beet harvesting season. To achieve this objective, the Company expects to undertake a significant capital expenditure for this project starting in the first half of fiscal 2018. Early estimates of the net investment required to remediate the non-compliance range between $15 million and $25 million. 2017 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS52 RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Rogers Sugar Inc. and all the information in this annual report pertaining to the Corporation are the responsibility of the Administrator and have been approved by the Board of Directors. The consolidated financial statements have been prepared by the Administrator in accordance with International Financial Reporting Standards by applying the detailed accounting policies set out in the notes to the financial statements. The Administrator is of the opinion that the consolidated financial statements were prepared based on reasonable and material criteria and using justifiable and reasonable estimates. The Administrator has prepared the financial information presented elsewhere in the annual report and has ensured that it is consistent with the financial statements of the Corporation. The Administrator maintains systems of internal accounting and administrative controls of high quality, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Corporation’s assets are appropriately accounted for and adequately safeguarded. The Board of Directors is responsible for ensuring that the Administrator fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements of the Corporation. The Board carries out this responsibility through its Audit Committee. The Audit Committee is appointed by the Board and all of its members are outside and unrelated directors. The committee meets with the Administrator, as well as external auditors, to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities and to review the annual report, the financial statements and the external auditors’ report. The committee reports its findings to the Board for consideration when approving the financial statements for issuance to the Shareholders. The committee also considers, for review by the Board and approval by the Shareholders, the engagement or re-appointment of the external auditors. The consolidated financial statements of the Corporation have been audited by KPMG LLP, the external auditors, in accordance with Canadian generally accepted auditing standards on behalf of the Shareholders. KPMG LLP has full and free access to the Audit Committee. John Holliday, Manon Lacroix, President and Chief Executive Officer Vice President Finance, Chief Financial Officer and Secretary Lantic Inc., Administrator Lantic Inc., Administrator November 22, 2017 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS INDEPENDENT AUDITORS’ REPORT 53 To the Shareholders of Rogers Sugar Inc. We have audited the accompanying consolidated financial statements of Rogers Sugar Inc., which comprise the consolidated statements of financial position as at September 30, 2017 and October 1, 2016, the consolidated statements of earnings and comprehensive income, changes in shareholders’ equity and cash flows for the years ended September 30, 2017 and October 1, 2016, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the prepara- tion of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial state- ments. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Rogers Sugar Inc. as at September 30, 2017 and October 1, 2016, and of its consolidated financial performance and its consolidated cash flows for the years ended September 30, 2017 and October 1, 2016 in accordance with International Financial Reporting Standards. November 22, 2017 Montréal, Canada * CPA auditor, CA, public accountancy permit No. A109612 (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 54 CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (In thousands of dollars except per share amounts) Consolidated statements of earnings Revenues (note 34) Cost of sales Gross margin Administration and selling expenses Distribution expenses Results from operating activities Finance income (note 6) Finance costs (note 6) Net finance costs (note 6) Earnings before income taxes Income tax expense (recovery) (note 7): Current Deferred Net earnings Net earnings per share (note 29): Basic Diluted For the years ended September 30, 2017 $ 682,517 605,219 77,298 25,603 10,664 36,267 41,031 (371) 10,589 10,218 30,813 13,198 (4,291) 8,907 21,906 0.23 0.22 October 1, 2016 $ 564,411 436,188 128,223 19,636 9,989 29,625 98,598 (205) 9,817 9,612 88,986 14,214 9,193 23,407 65,579 0.70 0.64 Consolidated statements of comprehensive income Net earnings Other comprehensive income (loss): Items that are or may be reclassified subsequently to net earnings: Cash flow hedges (note 11) Income tax on other comprehensive income (loss) (note 7) Foreign currency translation differences Items that will not be reclassified to net earnings: Defined benefit actuarial gains (losses) (note 22) Income tax on other comprehensive income (loss) (note 7) Other comprehensive income (loss) Net earnings and comprehensive income for the year For the years ended September 30, 2017 $ 21,906 October 1, 2016 $ 65,579 401 (106) (192) 103 15,866 (4,182) 11,684 11,787 33,693 — — — — (7,587) 1,993 (5,594) (5,594) 59,985 The accompanying notes are an integral part of these consolidated financial statements. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 55 (In thousands of dollars) September 30, 2017 $ October 1, 2016 $ ASSETS Current assets: Cash Restricted cash (note 8) Trade and other receivables (note 9) Income taxes receivable Inventories (note 10) Prepaid expenses Derivative financial instruments (note 11) Total current assets Non-current assets: Restricted cash (note 8) Property, plant and equipment (note 12) Intangible assets (note 13) Other assets (note 14) Deferred tax assets (note 15) Derivative financial instruments (note 11) Goodwill (note 16) Total non-current assets Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Revolving credit facility (note 17) Trade and other payables (note 18) Income taxes payable Provisions (note 20) Finance lease obligations (note 21) Derivative financial instruments (note 11) Convertible unsecured subordinated debentures (note 23) Current portion of other long-term liabilities (note 19) Total current liabilities Non-current liabilities: Revolving credit facility (note 17) Employee benefits (note 22) Provisions (note 20) Derivative financial instruments (note 11) Finance lease obligations (note 21) Convertible unsecured subordinated debentures (note 23) Deferred tax liabilities (note 15) Other long-term liabilities (note 19) Total non-current liabilities Total liabilities Shareholders’ equity: Share capital (note 24) Contributed surplus Equity portion of convertible unsecured subordinated debentures (note 23) Deficit Accumulated other comprehensive income (loss) Total shareholders’ equity Commitments (notes 26 and 27) Contingencies (note 28) Subsequent event (note 35) Total liabilities and shareholders’ equity The accompanying notes are an integral part of these consolidated financial statements. 17,033 4,201 77,009 1,174 173,129 2,892 93 275,531 631 190,875 25,374 982 15,048 2,323 323,228 558,461 833,992 20,000 125,260 — 478 48 6,665 — 4,703 157,154 150,000 39,169 1,753 2,381 114 111,544 37,133 588 342,682 499,836 101,335 300,247 3,141 (71,860) 1,293 334,156 1,246 — 68,782 — 81,121 2,631 501 154,281 — 178,631 1,883 497 18,422 1,532 229,952 430,917 585,198 — 47,096 3,473 1,133 45 3,408 49,805 — 104,960 60,000 52,933 1,861 6,305 162 58,714 34,710 — 214,685 319,645 133,528 200,201 1,188 (58,870) (10,494) 265,553 833,992 585,198 (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 56 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands of dollars except number of shares) i n g e r o f y c n e r r u c l d e t a u m u c c A l d e t a u m u c c A e e y o p m e l f o n o i t r o p i n a g d e z i l a e r n u l d e t a u m u c c A n o ) s s o l ( y t i u q E 7 1 0 2 , 0 3 r e b m e t p e S d e d n e r a e y e h t r o F t i c fi e D s e c n e r e f f i d i n a g e g d e h s n a p l s e r u t n e b e d l s u p r u s s e r a h s s e r a h s n o i t a l s n a r t w o fl h s a c t fi e n e b l e b i t r e v n o c d e t u b i r t n o C n o m m o C f o r e b m u N $ l a t o T $ 3 5 5 5 6 2 , ) 0 7 8 8 5 , ( 6 0 9 1 2 , 6 0 9 1 2 , ) 6 9 8 4 3 , ( ) 6 9 8 4 3 , ( 1 2 5 5 3 4 — 3 5 9 1 , 3 2 8 6 6 , 4 7 5 9 2 ) 2 9 1 ( 4 8 6 1 1 , 6 5 1 4 3 3 , — — — — — — — — — ) 0 6 8 1 7 , $ — — — — — — — — — — — ( ) 2 9 1 ( ) 2 9 1 ( $ — — — — — — — — — 5 9 2 — — 5 9 2 $ $ $ $ ) 4 9 4 , 0 1 ( 8 8 1 , 1 1 0 2 , 0 0 2 8 2 5 , 3 3 1 0 6 1 , 0 5 8 3 9 , — — — — — — — — — — 4 8 6 , 1 1 — — — — 3 5 9 , 1 — — — — — — — — ) 8 2 ( — — — — 9 4 5 5 3 4 — 0 0 0 , 0 0 1 ) 0 0 0 , 0 0 1 ( — — — — 2 2 9 , 6 6 — 4 7 — — — — — — — — — — — 3 2 8 , 6 6 0 0 0 , 0 3 7 1 1 , s e r a h s n o m m o c o t n i s e r u t n e b e d l e b i t r e v n o c f o n o i s r e v n o C ) 4 2 d n a 3 2 s e t o n ( , s e r u t n e b e d e b i t r e v n o c l f o e c n a u s s I ) 3 2 e t o n ( x a t f o t e n ) 4 2 e t o n ( l a t i p a c d e t a t s f o n o i t c u d e R f o t e n , s e r a h s n o m m o c f o e c n a u s s I ) 4 2 e t o n ( s t s o c e c n a u s s i ) 5 2 e t o n ( n o i t a s n e p m o c d e s a b - e r a h S ) 1 1 e t o n ( x a t f o t e n , s e g d e h w o fl h s a C t e n , s n a g i l a i r a u t c a t fi e n e b d e n fi e D ) 2 2 e t o n ( x a t f o s n o i t a r e p o n g e r o i f f o n o i t a l s n a r T 6 1 0 2 , 1 r e b o t c O , e c n a a B l r a e y e h t r o f i s g n n r a e t e N ) 4 2 e t o n ( s d n e d v D i i 0 0 5 , 6 9 ) 5 2 d n a 4 2 s e t o n ( d e s i c r e x e s n o i t p o k c o t S 0 9 1 , 1 1 4 1 , 3 7 4 2 , 0 0 3 5 3 3 , 1 0 1 2 8 5 , 3 4 7 5 0 1 , 7 1 0 2 , 0 3 r e b m e t p e S , e c n a a B l . s t n e m e t a t s l i a c n a n fi d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a i s e t o n g n y n a p m o c c a e h T (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED) 57 (In thousands of dollars except number of shares) For the year ended October 1, 2016 Accumulated unrealized gain (loss) on employee benefit plans Equity portion of convertible surplus debentures $ $ $ Number of shares Common Contributed shares $ Deficit $ Total $ Balance, October 3, 2015 94,028,760 133,782 200,167 1,188 (4,900) (90,180) 240,057 Dividends (note 24) Share-based compensation (note 25) Purchase and cancellation of shares Defined benefit actuarial losses (note 22) Net earnings for the year — — — — (178,600) (254) — — — — — 34 — — — — — — — — — — — (33,796) (33,796) — 34 (473) (727) (5,594) — (5,594) — 65,579 65,579 Balance, October 1, 2016 93,850,160 133,528 200,201 1,188 (10,494) (58,870) 265,553 The accompanying notes are an integral part of these consolidated financial statements. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 58 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) Cash flows from (used in) operating activities: Net earnings Adjustments for: Depreciation of property, plant and equipment (note 5) Amortization of intangible assets (note 5) Changes in fair value of derivative financial instruments included in cost of sales Income tax expense (note 7) Pension contributions Pension expense Net finance costs (note 6) Investment tax credit receivable Loss on disposal of property, plant and equipment (note 12) Share-based compensation (note 25) Other Changes in: Trade and other receivables Inventories Prepaid expenses Trade and other payables Provisions Cash generated from operating activities: Interest paid Income taxes paid Net cash flows from operating activities Cash flows from (used in) financing activities: Dividends paid Increase (decrease) in revolving credit facility (note 17) Issuance of convertible debentures, net of underwriting fees and issuances costs of $2.7 million (note 23) Repayment of convertible debentures (note 23) Issuance of common shares, net of underwriting fees and issuance costs of $3.2 million (note 24) Purchase and cancellation of shares (note 24) Payment of financing fees (note 14) Stock options exercised (note 25) Net cash flows from (used in) financing activities Cash flows used in investing activities: Business combination, net of cash acquired (note 4) Additions to property, plant and equipment, net of proceeds on disposal Additions to intangible assets Net cash used in investing activities Effect of changes in exchange rate on cash Net increase (decrease) in cash Cash, beginning of year Cash, end of year Supplemental cash flow information (note 30). The accompanying notes are an integral part of these consolidated financial statements. For the years ended September 30, 2017 $ October 1, 2016 $ 21,906 13,022 574 (278) 8,907 (7,324) 9,426 10,218 — 1 74 8 56,534 8,711 16,422 429 1,506 (763) 26,305 82,839 (10,024) (17,680) 55,135 (33,826) 110,000 54,786 (49,565) 65,985 — (629) 521 147,272 (169,280) (17,046) (257) (186,583) (37) 15,787 1,246 17,033 65,579 12,154 191 2,356 23,407 (9,190) 9,401 9,612 (318) 32 34 — 113,258 (20,580) (13,848) (402) 8,187 (1,060) (27,703) 85,555 (8,827) (10,056) 66,672 (33,812) (17,000) — — — (727) (90) — (51,629) — (14,785) (371) (15,156) — (113) 1,359 1,246 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 59 1. REPORTING ENTITY Rogers Sugar Inc. (“Rogers” or the “Company”) is a company domiciled in Canada, incorporated under the Canada Business Corporations Act. The head office of Rogers is located at 123 Rogers Street, Vancouver, British Columbia, V6B 3V2. The consolidated financial statements of Rogers as at September 30, 2017 and October 1, 2016 comprise Rogers and its subsidiary, Lantic Inc. (together referred to as the “Company”). The principal business activities of the Company are the refining, packaging and marketing of sugar and maple products. The Company’s fiscal quarters end on the Saturday closest to the end of December, March, June and September. All references to 2017 and 2016 represent the years ended September 30, 2017 and October 1, 2016. 2. BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE (a) Statement of compliance: These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These consolidated financial statements were authorized for issue by the Board of Directors on November 22, 2017. (b) Basis of measurement: These consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated statements of financial position: (i) derivative financial instruments are measured at fair value; (ii) the defined benefit liability is recognized as the net total of the present value of the defined benefit obligation less the total of the fair value of the plan assets and the unrecognized past service costs; and (iii) assets and liabilities acquired in business combinations are measured at fair value at acquisition date. (c) Functional and presentation currency: These consolidated financial statements are presented in Canadian dollars, since it is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousands, except as noted and per share amounts. (d) Use of estimates and judgements: The preparation of these consolidated financial statements, in conformity with IFRS, requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting years. The following is a summary of areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements: (i) Embedded derivatives: As at October 2, 2016, embedded derivatives, which relate to the foreign exchange component of certain sales contracts denominated in U.S. currency, will no longer be separated from the host contract as it has been determined that the U.S. dollar is commonly used in Canada. This change in estimate will be applied prospectively, as such, any contracts for which it was determined there was an embedded derivative and that needed to be separated from the host contract as of October 1, 2016 will continue to be treated as such as a transitional step to meet the new interpretation. These contracts will continue to be marked-to-market every quarter until all the volume on the contract has been delivered. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 60 2. BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE (CONTINUED) (d) Use of estimates and judgements (continued): (ii) Useful lives of property, plant and equipment: The Company reviews estimates of the useful lives of property, plant and equipment on an annual basis and adjusts depreciation on a prospective basis, if necessary. (iii) Goodwill impairment: The Company makes a number of estimates when calculating the recoverable amount of a cash-generating unit containing goodwill using discounted future cash flows or other valuation methods. These estimates take into account the control premium in determining the fair value less cost to sell. (iv) Asset impairment: The Company must assess the possibility that the carrying amounts of tangible and intangible assets may not be recoverable. Management is required to make subjective assessments, linking the possible loss of value of assets to future economic performance, and determine the amount of asset impairment that should be recognized, if any. (v) Income taxes: The calculation of income taxes requires judgement in interpreting tax rules and regulations. Deferred income tax assets are recorded to the extent that it is probable that there will be adequate income in the future against which they can be utilized. (vi) Pension plans: The cost of defined benefit pension plans is determined by means of actuarial valuations, which involve making assumptions about discount rates, future salary increases, mortality rates and the future increases in pensions. Because of the long-term nature of the plans, such estimates are subject to a high degree of uncertainty. (vii) Business combinations: Establishing the fair value of assets and liabilities, intangible assets and goodwill related to business combinations. (viii) Consolidation: See Note 3(a), Basis of consolidation. Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual results could differ from those estimates. The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which estimates are revised and in any future years affected. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 61 3. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation: (i) Subsidiaries: The consolidated financial statements include the Company and the subsidiaries it controls, Lantic Inc. (“Lantic”) and L.B. Maple Treat Corporation (“LBMT”). LBMT is a combination of four businesses: LBMT, Highland Sugarworks Inc. (“Highland”), Great Northern Maple Products Inc. (“Great Northern” amalgamated with LBMT on December 1, 2016) and the assets of Sucro-Bec L. Fortier Inc. (“Sucro-Bec”). Control exists where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date that control ceases. The accounting policies of subsidiaries are aligned with the policies adopted by the Company. The Company owns 100% of the common shares of Lantic. Lantic Capital Inc., a wholly-owned subsidiary of Belkorp Industries Inc., owns the two outstanding Class C shares of Lantic. These Class C shares are non-voting, have no rights to return or risk of loss and are redeemable for a nominal value of one dollar each. The Class C shares entitle the holder to elect five of the seven directors of Lantic but have no other voting rights at any meetings of Lantic’s shareholders except as may be required by law. Notwithstanding Lantic Capital Inc.’s ability to elect five of the seven directors of Lantic, Lantic Capital Inc. receives no benefits or exposure to losses from its ownership of the Class C shares. As the Class C shares are non-dividend paying and redeemable for a nominal value of one dollar, there is no participation in future dividends or changes in value of Lantic resulting from the ownership of the Class C shares. There is also no management fee or other form of consideration attributable to the Class C shares. The determination of control involves a high degree of judgement. Based on all the facts and available information, management has concluded that the Company has control of Lantic. Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the consolidated financial statements. (ii) Business combinations: Business combinations are accounted for using the acquisition method when control is transferred to the Company. The consideration transferred in the acquisition is generally measured at fair value of the assets transferred, and any debt and equity interests issued by the Company on the date control of the acquired company is obtained. The consideration transferred includes the fair value of any liability resulting from a contingent consideration arrangement. Contingent consideration classified as a liability that is a financial instrument is subsequently remeasured at fair value, with any resulting gain or loss recognized in the consolidated statements of earnings and comprehensive income. Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed as incurred and are included in administration and selling expenses in the consolidated statements of earnings and comprehensive income. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are generally measured initially at their fair values at the acquisition date. The Company recognizes any non-controlling interest in an acquired company either at fair value or at the non-controlling interest’s proportionate share of the acquired company’s net identifiable assets. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred and non-controlling interest recognized is less than the fair value of the net assets of the business acquired, a purchase gain is recognized immediately in the consolidated statements of earnings and comprehensive income. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 62 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Foreign currency transactions: Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate in effect at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated at the rate prevailing at the date that the fair value was determined. Foreign denominated non- monetary assets and liabilities that are measured at the historical costs are translated at the rate prevailing at the transaction date. Revenues and expenses denominated in foreign currencies are translated into the functional currency at the rate in effect on the dates they occur. Gains or losses resulting from these translations are recorded in net earnings of the period. (c) Foreign operations: The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on business combinations, are translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Canadian dollars at the average exchange rate in effect during the reporting period. Foreign currency differences are recognized in other comprehensive income (loss) in the accumulated foreign currency translation differences account. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Company disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Company disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to income or loss. (d) Cash: Cash includes cash on hand, bank balances and bank overdraft when the latter forms an integral part of the Company’s cash management. (e) Inventories: Inventories are valued at the lower of cost and net realizable value. The cost of inventories is determined substantially on a first-in, first-out basis and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (f) Property, plant and equipment: Property, plant and equipment, with the exception of land, are recorded at cost less accumulated depreciation and any accumulated impairment losses. Land is carried at cost and is not depreciated. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Construction-in-progress assets are capitalized during construction and depreciation commences when the asset is available for use. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 63 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Property, plant and equipment (continued): The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. Gains and losses on disposal of items of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment and are recognized in cost of sales for assets used in production and in administration and selling expenses for all other assets. Depreciation related to assets used in production is recorded in cost of sales while the depreciation of all other assets is recorded in administration and selling expenses. Depreciation is calculated on a straight-line basis, after taking into account residual values, over the estimated useful lives of each component of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Significant components of individual assets are assessed and, if a component has a useful life that is different from the remainder of that asset, then that component is depreciated separately. The estimated useful lives are as follows: Barrels Buildings Furniture and fixtures Machinery and equipment 6 years 20 to 60 years 5 to 10 years 5 to 40 years Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Depreciation methods, useful lives and residual values are reviewed at each financial year-end and depreciation is adjusted on a prospective basis, if necessary. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 64 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Intangible assets: (i) Goodwill: Goodwill is measured at the acquisition date as the fair value of the consideration transferred less the fair value of the net identifiable assets of the acquired company or business activities. Goodwill is not amortized and is carried at cost less accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. (ii) Other intangible assets: Intangible assets that are acquired by the Company and have finite useful lives are initially measured at cost. Following initial recognition, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized in profit or loss as incurred. Amortization is calculated over the cost of the asset, less its residual value. Amortization is recognized in administrative expenses on a straight-line basis over the estimated useful lives of the intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Amortization of intangible assets not in service begins when they are ready for their intended use. The estimated useful lives are as follows: Software Customer relationships Other 5 to 15 years 10 years 10 years Brand names are not amortized as are not considered to be indefinite life intangible assets. Useful lives and residual values are reviewed at each financial year-end and amortization is adjusted on a prospective basis, if necessary. (h) Leased assets: Leases for which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognized in the Company’s consolidated statements of financial position. (i) Impairment: Non-financial assets: The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated yearly at the same time, at year-end, and whenever there is an indication that the asset might be impaired. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 65 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Impairment (continued): Non-financial assets (continued): For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). The Company’s corporate assets do not generate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amount of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (j) Employee benefits: (i) Pension benefit plans: The Company provides post-employment benefits through defined benefit and defined contribution plans. The Company also sponsors Supplemental Executive Retirement Plans (“SERP”), which are neither registered nor pre-funded. Finally, the Company sponsors defined benefit life insurance, disability plans and medical benefits for some retirees and employees. Defined contribution plans The Company’s obligations for contributions to employee defined contribution pension plans are recognized as employee benefit expense in profit or loss in the years during which services are rendered by employees. Defined benefit plans The Company maintains some contributory defined benefit plans that provide for pensions to employees based on years of service and the employee’s compensation. The Company’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior years, discounting that amount and deducting the fair value of any plan assets. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 66 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Employee benefits (continued): (i) Pension benefit plans (continued): Defined benefit plans (continued) Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. Costs related to plan settlements are recorded at the time the Company is committed to a settlement as a separate constructive obligation. Subsequent to the Company being committed to a settlement, the plan liability is measured at the expected settlement amount using settlement interest rates. (ii) Short-term employee benefits: Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under cash incentive if the Company has a present legal or constructive obligation to pay the amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (iii) Share-based compensation: The Company has a Share Option Plan. Share-based payment awards are measured at fair value at the grant date, which is recognized as a personnel expense, with a corresponding increase in contributed surplus over the vesting period, which is normally five years. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met. Any consideration paid by employees on exercise of share options is credited to share capital. (iv) Employee share purchase plan: The Company has an Employee Share Purchase Plan that is an equity-settled share-based payment with employees; the measurement is based on the grant-date fair value of the equity instrument granted. As such, the expense is recognized when the employee purchases the shares. (v) Cash-settled share appreciation rights: The Company’s Share Option Plan allows for the issuance of Share Appreciation Rights (“SARs”) that entitles certain senior personnel of the Company to a cash payment based on the increase in the share price of the Company’s common shares from the grant date to the vesting date. The SARs are automatically exercised upon vesting dates if the share price of the Company’s common shares is greater than the price on the grant date; if not, they are rolled to the next vesting date. A liability is recognized for the services acquired and is recorded at the fair value of the SARs in other non-current payables, except for the current portion recorded in trade and other payables, with a corresponding expense recognized in selling and administration expenses over the period that the employees become unconditionally entitled to the payment. The fair value of the employee benefits expense of the SARs is measured using the Black-Scholes pricing model. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 67 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Employee benefits (continued): (v) Cash-settled share appreciation rights (continued): Estimating fair value requires determining the most appropriate inputs to the valuation model including the expected life of the SARs, volatility, risk-free interest rate and dividend yield and making assumptions about them. At the end of each reporting period until the liability is settled, the fair value of the liability is remeasured, with any changes in fair value recognized in the consolidated statements of earnings and comprehensive income of the current years. (vi) Termination benefits: Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are not expected to be fully settled within 12 months of the end of the reporting period, they are discounted. (k) Provisions: A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance costs. (i) Asset retirement obligation: The Company recognizes the estimated liability for future costs to be incurred in the remediation of site restoration in regards to asbestos removal and disposal of such asbestos to a landfill for hazardous waste, and for oil, chemical and other hazardous materials storage tanks, only when a present legal or constructive obligation has been determined and that such obligation can be estimated reliably. Upon initial recognition of the obligation, the corresponding costs are added to the carrying amount of the related items of property, plant and equipment and amortized as an expense over the economic life of the asset, or earlier if a specific plan of removal exists. This obligation is reduced every year by payments incurred during the year in relation to these items. The obligation might be increased by any required remediation to the owned assets that would be required through enacted legislation. (ii) Contingent liability: A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Company, or a present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets, provision of services, or any other transfer of economic benefits will be required to settle the obligation, or the amount of the obligation cannot be estimated reliably. (l) Financial instruments: (i) IFRS 9, Financial Instruments: The Company early adopted all the requirements of IFRS 9 (2014), Financial Instruments with a date of initial application of October 2, 2016. The standard establishes principles for the financial reporting classification and measurement of financial assets and financial liabilities. This standard incorporates a new hedging model, which increases the scope of hedged items eligible for hedge accounting and aligns hedge accounting more closely with risk management. This standard also amends the impairment model by introducing a new “expected credit loss” model for calculating impairment. This new standard also increases required disclosures about an entity’s risk management strategy, cash flows from hedging activities and the impact of hedge accounting on the consolidated financial statements. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 68 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Financial instruments (continued): (i) IFRS 9, Financial Instruments (continued): IFRS 9 (2014) uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39, Financial instruments – Recognition and Measurement. The approach in IFRS 9 (2014) is based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9 (2014). The following summarizes the classification and measurement changes for the Company’s non-derivative and derivative financial assets and financial liabilities as a result of the adoption of IFRS 9 (2014). IAS 39 IFRS 9 (2014) Financial assets: Cash Restricted cash Loans and receivables Loans and receivables Trade and other receivables Loans and receivables Income taxes recoverable Loans and receivables Amortized cost Amortized cost Amortized cost Amortized cost Non-hedged derivative assets Fair value through profit and loss Fair value through profit or loss Financial liabilities: Revolving credit facility Other financial liabilities Trade and other payables Other financial liabilities Income taxes payable Other financial liabilities Finance lease obligations Other financial liabilities Amortized cost Amortized cost Amortized cost Amortized cost Convertible unsecured subordinated debentures Other financial liabilities Amortized cost Other long-term liabilities Fair value through profit and loss Fair value through profit or loss Non-hedged derivative liabilities Fair value through profit and loss Fair value through profit or loss With the adoption of IFRS 9 (2014), the Company’s natural gas futures and interest rate swap agreements were designated as being effective hedging instruments. In accordance with the transitional provisions of IFRS 9 (2014), the financial assets and financial liabilities held at October 2, 2016 were reclassified retrospectively without prior period restatement based on the new classification requirements and the characteristics of each financial instrument at October 2, 2016. The accounting for these instruments and the line item in which they are included in the balance sheet were unaffected by the adoption of IFRS 9 (2014). The adoption of IFRS 9 (2014) did not result in any measurement adjustments to our financial assets and financial liabilities. Our significant accounting policies for financial instruments, derivative financial instruments, and hedging relationships have been aligned with IFRS 9 (2014). The adoption of IFRS 9 (2014) did not have a material impact on impairment at October 2, 2016. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 69 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Financial instruments (continued): (i) IFRS 9, Financial Instruments (continued): The Company initially recognizes financial instruments on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Financial instruments are initially measured at fair value. In the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability are added to or deducted from the fair value. (ii) Financial assets: Financial assets are classified into the following categories: a. Financial assets measured at amortized cost: A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if: • The asset is held within a business model whose objectives is to hold assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principals and/or interest. The Company currently classifies its cash, trade accounts receivable, and certain other current assets as assets measured at amortized cost. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost. The Company has a portfolio of trade receivables at the reporting date. The Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in income or loss and reflected in an allowance account against trade and other receivables. b. Financial assets measured at fair value: These assets are measured at fair value and changes therein, including any interest are recognized in profit or loss. The Company currently has no significant financial assets measured at fair value. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 70 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Financial instruments (continued): (iii) Financial liabilities: Financial liabilities are classified into the following categories: a. Financial liabilities measured at amortized cost: A financial liability is subsequently measured at amortized cost, using the effective interest method. The Company currently classifies and measures short-term borrowings, trade payables and accrued liabilities, finance lease obligations, and convertible unsecured subordinated debentures as financial liabilities measured at amortized cost. b. Financial liabilities measured at fair value: Financial liabilities at fair value are initially recognized at fair value and are re-measured at each reporting date with any changes therein recognized in net earnings. The Company currently has no significant financial liabilities measured at fair value except for other long-term liabilities. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expired. Financial assets and liabilities are offset and the net amount is presented in the consolidated statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. (iv) Fair values of financial instruments: Financial assets and liabilities measured at fair value use a fair value hierarchy to prioritize the inputs used in measuring fair value as follows: Level 1 - valuation based on observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - valuation techniques based on inputs that are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices); and Level 3 - valuation techniques with observable market inputs (involves assumptions and estimates by management of how market participants would price the asset or liability). a. Cash: The Company classifies its cash as amortized cost assets. Cash includes cash on hand, bank balances and bank overdraft when the latter forms an integral part of the Company’s cash management. b. Derivative financial instruments and hedging relationships: The Company enters into derivative financial instruments to hedge its market risk exposures. On initial designation of the hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be effective in offsetting the changes in the fair value or cash flows of the respective hedged items throughout the period for which the hedge is designated. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net earnings. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 71 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Financial instruments (continued): (iv) Fair values of financial instruments (continued): c. Embedded derivatives: Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics, risks of the host contract and the embedded derivative are not closely related; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the combined instrument is not measured at fair value through profit or loss as described in note 2(d)(i). d. Other derivatives: When a derivative financial instrument, for example, sugar futures and at times options (“sugar contracts”), foreign exchange forward contracts and embedded derivatives is not designated in a qualifying hedge relationship, all changes in its fair value are recognized immediately in net earnings (marked-to-market). e. Compound financial instruments: The Company’s convertible unsecured subordinated debentures are accounted for as compound financial instruments. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. Interest, dividends, gains and losses relating to the financial liability are recognized in profit or loss. f. Financing charges: Financing charges, which reflect the cost to obtain new financing, are offset against the debt for which they were incurred and recognized in finance costs using the effective interest method. Financing charges for the revolving credit facility are recorded with other assets. g. Trade date: The Company recognizes and derecognizes purchases and sales of derivative contracts on the trade date. h. Share capital: Common shares Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects. Dividends to the equity holders are recorded in equity. Repurchase of share capital When share capital recognized as equity is repurchased for cancellation, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. The excess of the purchase price over the carrying amount of the shares is charged to deficit. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 72 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Financial instruments (continued): (v) Cash flow hedges: When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in accumulated other comprehensive income as part of equity. The amount recognized in other comprehensive income is removed and included in net earnings under the same line item in the consolidated statements of earnings and comprehensive income as the hedged item, in the same period that the hedged cash flows affect net earnings. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, or exercised, the hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income remains in accumulated other comprehensive income until the forecasted transaction affects profit or loss. If forecasted transaction is no longer expected to occur, then the balance in accumulated other comprehensive income is recognized immediately in net earnings. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to net earnings in the same period that the hedged item affects net earnings. The Company has designated as hedging items its natural gas futures and its interest rate swap agreements entered into in order to protect itself against natural gas prices and interest rate fluctuations as cash flow hedges. (m) Revenue recognition: Revenue is measured at the fair value of the consideration received or receivable and recognized at the time products are shipped to customers, at which time significant risks and rewards of ownership are transferred to the customers. Revenue is recorded net of all returns and allowances and excludes sales taxes. Sales incentives, including volume rebates provided to customers, are estimated based on contractual agreements and historical trends and are recognized at the time of sale as a reduction in revenue. Such rebates are primarily based on a combination of volume purchased and achievement of specified volume levels. (n) Lease payments: Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liabilities. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (o) Finance income and finance costs: Finance income comprises interest income on funds invested and finance costs comprise interest expense on borrowings. Changes in the fair value of interest rate swaps are recorded either to finance income or finance costs based on its outcome. Interest expense is recorded using the effective interest method. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 73 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Income taxes: Income tax expense comprises current and deferred taxes. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or recoverable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years. Deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred taxes are not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. In addition, the effect on deferred tax assets or liabilities of a change in tax rates is recognized in profit or loss in the period in which the enactment or substantive enactment takes place, except to the extent that it relates to an item recognized either in other comprehensive income or directly in equity in the current or in a previous period. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (q) Earnings per share: The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares from the conversion of the convertible debentures. (r) New standards and interpretations adopted: (i) IFRS 9, Financial Instruments: The Company early adopted all the requirements of IFRS 9 (2014), Financial Instruments with a date of initial application of October 2, 2016. See Note 3(l)(i). IFRS 9, Financial Instruments and Note 11, Financial instruments for further information. (ii) IAS 1, Presentation of Financial Statements: On December 18, 2015, the International Accounting Standards Board (“IASB”) issued amendments to IAS 1, Presentation of Financial Statements as part of its major initiative to improve presentation and disclosure in financial reports. The amendments are effective for annual periods beginning on or after January 1, 2016. The Company adopted the amendments in the first quarter of the year ending September 30, 2017. The adoption of IAS 1, Presentation of Financial Statements did not have an impact on the consolidated financial statements. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 74 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (r) New standards and interpretations adopted (continued): (iii) Annual improvements to IFRS (2012-2014) cycle: On September 25, 2014, the IASB issued narrow-scope amendments to a total of four standards as part of its annual improvements process. The amendments will apply for annual periods beginning on or after January 1, 2016. Amendments were made to clarify the following in their respective standards: • • Changes in method for disposal under IFRS 5, Non-current Assets Held for Sale and Discontinued Operations; “Continuing involvement” for servicing contracts and offsetting disclosures in condensed interim financial statements under IFRS 7, Financial Instruments: Disclosures; • Discount rate in a regional market sharing the same currency under IAS 19, Employee Benefits; • Disclosure of information “elsewhere in the interim financial report” under IAS 34, Interim Financial Reporting. The Company adopted the amendments in the first quarter of the year ending September 30, 2017. The adoption of annual improvements to IFRS (2012-2014) cycle did not have an impact on the consolidated financial statements. (s) New standards and interpretations not yet adopted: A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended September 30, 2017 and have not been applied in preparing these consolidated financial statements. New standards and amendments to standards and interpretations that are currently under review include: (i) IFRS 2, Classification and Measurement of Share-based Payment Transactions: On June 20, 2016, the IASB issued amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions, clarifying how to account for certain types of share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective or early application is permitted if information is available without the use of hindsight. 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 Company intends to adopt the amendments to IFRS 2 in its consolidated financial statements for the annual period beginning on September 30, 2018. The extent of the impact of adoption of the standard on the consolidated financial statements of the Company has not yet been determined. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 75 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) New standards and interpretations not yet adopted (continued): (ii) IFRS 15, Revenue from Contracts with Customers: On May 28, 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 will replace IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfer of Assets from Customers, and SIC 31, Revenue – Barter Transactions Involving Advertising Services. The new standard is effective for years beginning on or after January 1, 2018. Earlier application is permitted. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRS. The Company intends to adopt IFRS 15 in its consolidated financial statements for the year beginning on September 30, 2018. The extent of the impact of adoption of the standard on the consolidated financial statements of the Company has not yet been determined. (iii) IFRS 16, Leases: On January 13, 2016, the IASB issued IFRS 16 Leases. The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17, Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by the lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions have been provided. The Company intends to adopt IFRS 16 in its consolidated financial statements for the annual period beginning on September 29, 2019. The extent of the impact of adoption of the standard on the consolidated financial statements of the Company has not yet been determined. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 76 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) New standards and interpretations not yet adopted (continued): (iv) IAS 7, Disclosure Initiative: On January 7, 2016 the IASB issued Disclosure Initiative (amendments to IAS 7). The amendments apply prospectively for annual periods beginning on or after January 1, 2017. Earlier application is permitted. The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. One way to meet this new disclosure requirement is to provide a reconciliation between the opening and closing balances for liabilities from financing activities. The Company intends to adopt the amendments to IAS 7 in its consolidated financial statements for the annual period beginning on October 1, 2017. The Company does not expect the amendments to have a material impact on the consolidated financial statements. (v) IAS 12, Recognition of Deferred Tax Assets for Unrealized Losses: On January 19, 2016, the IASB issued Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12). The amendments apply retrospectively for annual periods beginning on or after January 1, 2017. Earlier application is permitted. The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments also clarify the methodology to determine the future taxable profits used for assessing the utilization of deductible temporary differences. The Company intends to adopt the amendments to IAS 12 in its consolidated financial statements for the annual period beginning on October 1, 2017. The Company does not expect the amendments to have a material impact on the consoli dated financial statements. (vi) Annual improvements to IFRS standards (2014-2016) cycle: On December 8, 2016, the IASB issued narrow-scope amendments to three standards as part of its annual improvements process. Each of the amendments has its own specific transition requirements and effective date. Amendments were made to the following standards: • Clarification that IFRS 12, Disclosures of Interests in Other Entities also applies to interests that are classified as held for sale, held for distribution, or discontinued operations, effective retrospectively for annual periods beginning on or after January 1, 2017; • Removal of out-dated exemptions for first-time adopters under IFRS 1, First-time Adoption of International Financial Reporting Standards, effective for annual periods beginning on or after January 1, 2018; and • Clarification that the election to measure an associate or joint venture at fair value under IAS 28, Investments in Associates and Joint Ventures for investments held directly, or indirectly, through a venture capital or other qualifying entity can be made on an investment-by-investment basis. The amendments are effective retrospectively for annual periods beginning on or after January 1, 2018. The Company intends to adopt these amendments in its consolidated financial statements for the annual period beginning October 1, 2017 or October 1, 2018, as applicable. The Company does not expect the amendments to have a material impact on the consolidated financial statements. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 77 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) New standards and interpretations not yet adopted (continued): (vii) IFRIC 22, Foreign Currency Transactions and Advance Consideration: On December 8, 2016, the IASB issued IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration. The Interpretation clarifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The Interpretation is applicable for annual periods beginning on or after January 1, 2018. Earlier application is permitted. The Company intends to adopt the Interpretation in its consolidated financial statements for the annual period beginning on October 1, 2018, as applicable. The extent of the impact of adoption of the Interpretation has not yet been determined. (viii) IFRIC 23, Uncertainty over Income Tax Treatments: On June 7, 2017, the IASB issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is applicable for annual periods beginning on or after January 1, 2019. Earlier application is permitted. The Interpretation requires an entity to: • contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution; • reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or recover) an amount for the uncertainty; and • measure a tax uncertainty based on the most likely amount or expected value depending on whichever method better predicts the amount payable (recoverable). The Company intends to adopt the Interpretation in its consolidated financial statements for the annual period beginning on September 29, 2019. The extent of the impact of the adoption of the Interpretation has not yet been determined. 4. BUSINESS COMBINATIONS On August 5, 2017, the Company acquired all of the issued and outstanding shares of LBMT for a total consideration of $169.5 million ($169.3 million, net of cash acquired) (the “Transaction”). The Company financed the acquisition, including transaction costs, with a combination of (i) net proceeds of a public offering completed on July 28, 2017 consisting of subscription receipts (converted to 11,730,000 common shares upon closing of the Transaction) for gross proceeds of $69.2 million ($66.0 million net of underwriting commission and professional fees) and $57.5 million aggregate principal amount of the Sixth series 5.00% convertible unsecured subordinated debentures with a December 31, 2024 maturity date ($54.8 million net of underwriting commission and professional fees) and (ii) a draw-down on the Company’s $275.0 million amended credit facility for an amount of approximately $48.7 million. LBMT is one of the world’s largest branded and private label maple syrup bottling and distribution companies. Headquartered in Granby, Québec, LBMT has three bottling plants in the heart of the world’s maple syrup harvesting region (Québec and Vermont). (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 78 4. BUSINESS COMBINATIONS (CONTINUED) The Company has determined the fair value of the assets acquired and liabilities assumed based on management’s preliminary best estimate of their fair values and taking into account all relevant information available at that time. As of the reporting date, the Company had not yet completed the purchase price allocation over the identifiable net assets and goodwill. Information to confirm the fair value of certain assets and liabilities is still to be obtained. As the Company obtains more information, the allocation will be completed. The following table presents the purchase price allocation based on the best information available to the Company to date: Identifiable assets and liabilities assumed: Cash Restricted cash Trade and other receivables Income taxes recoverable Inventories Prepaid expenses Property, plant and equipment (note 12) Intangible assets (note 13) Trade and other payables Income taxes payable Other long-term liabilities (note 19) Derivative financial instruments Deferred tax liabilities Total net assets acquired Total consideration transferred Goodwill (note 16) Equity (net of underwriting commission and professional fees) Convertible debentures (net of underwriting commission and professional fees) Revolving credit facility Total consideration transferred $ 210 10,883 16,951 882 109,224 687 8,163 23,875 (75,914) (718) (11,308) (769) (5,952) 76,214 169,490 93,276 $ 65,985 54,786 48,719 169,490 The trade receivables comprise a gross amount of $17.1 million, of which $0.1 million was expected to be uncollectable at the acqui- sition date. Goodwill is attributable primarily to expected synergies and assembled workforce, which were not recorded separately since they did not meet the recognition criteria for identifiable intangible assets. Goodwill and intangible assets recorded in connection with this acquisition are mostly not deductible for tax purposes. The operating results of LBMT are included in the maple products segment. The consolidated results of the Company include net sales of $26.7 million and results from operating activities of $0.9 million related to LBMT since the date of acquisition. If the acquisition had occurred on October 2, 2016, the consolidated results of the Company would have included net sales of approximately $155.0 million and results from operating activities of approximately $13.0 million, based on management’s best estimates. In determining these estimated amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on October 2, 2016. Acquisition-related costs of $2.5 million for legal fees and due diligence costs have been expensed in relation to the above business combination. These costs have been recorded in administration and selling expenses in the consolidated statements of earnings and comprehensive income. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. DEPRECIATION AND AMORTIZATION EXPENSES Depreciation and amortization expenses were charged to the consolidated statements of earnings and comprehensive income as follows: 79 Depreciation of property, plant and equipment: Cost of sales Administration and selling expenses Amortization of intangible assets: Administration and selling expenses Total depreciation and amortization expenses 6. FINANCE INCOME AND FINANCE COSTS Recognized in net earnings: Net change in fair value of interest rate swaps (note 11) Finance income Interest expense on convertible unsecured subordinated debentures, including accretion of $233 (2016 - $175) (note 23) Interest on revolving credit facility Amortization of deferred financing fees Other interest expense Finance costs Net finance costs recognized in net earnings For the years ended September 30, 2017 $ October 1, 2016 $ 12,605 417 13,022 574 13,596 11,749 405 12,154 191 12,345 For the years ended September 30, 2017 October 1, 2016 $ 371 371 5,813 3,474 781 521 10,589 10,218 $ 205 205 6,446 2,545 826 — 9,817 9,612 (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 80 7. INCOME TAX EXPENSE (RECOVERY) Current tax expense: Current period Deferred tax (recovery) expense: Recognition and reversal of temporary differences Changes in tax rates Deferred tax (recovery) expense Total income tax expense Income tax recognized in other comprehensive income: For the years ended September 30, 2017 $ October 1, 2016 $ 13,198 14,214 (4,599) 308 (4,291) 8,907 8,991 202 9,193 23,407 September 30, 2017 October 1, 2016 For the years ended Before tax Tax effect Net of tax Before tax Tax effect Net of tax $ 401 $ (106) $ 295 $ — $ — $ — Cash flow hedges Defined benefit actuarial gains (losses) 15,866 (4,182) 11,684 (7,587) 1,993 (5,594) Reconciliation of effective tax rate: The provision for income taxes differs from the amount computed by applying the Canadian federal and provincial tax rates to earnings before provision for income taxes. The reasons for the difference and the related tax effects are as follows: Earnings before income taxes Income taxes using the Company’s statutory tax rate Changes due to the following items: Changes in tax rate Non-deductible expenses Other September 30, 2017 October 1, 2016 For the years ended % — 26.00 1.00 2.39 (0.48) 28.91 $ 30,813 8,011 308 736 % — 26.00 0.23 0.08 (148) — $ 88,986 23,136 202 69 — 8,907 26.31 23,407 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 81 8. RESTRICTED CASH Restricted cash represents balances assumed by the Company as a result of having acquired all of the issued and outstanding shares of LBMT. They are as a result of: (a) On December 1, 2016, LBMT acquired all issued and outstanding Class A shares of Great Northern with $7.0 million cash consideration (which was placed in escrow), conditionally payable in quarterly installments contingent on achieving monthly and annual sales volume targets to a specific client for the twelve-month periods ending November 30, 2017 and November 30, 2018. The fair value of the contingent consideration was determined to be $6.6 million and was calculated using a probability-weighted expectation of the payment of the contingent consideration and a discount rate of 3.45%. As at September 30, 2017, cash held in an escrow account was $3.9 million and the carrying value of the contingent consideration payable was $4.5 million (See Note 19, Other long-term liabilities). (b) On August 26, 2016, LBMT acquired all issued and outstanding common stock of Highland with $1.7 million (US $1.3 million) as a balance of purchase price payable. Fifty percent of the balance of purchase price payable was paid on August 26, 2017 and the remainder is to be paid on February 26, 2018. The fair value of the balance of purchase price payable, as at the acquisition date, was $1.7 million (US $1.3 million) and was calculated using a discount rate of 3.14%. Under the share purchase agreement, the amount of the balance of purchase price was placed in escrow pursuant to an escrow agreement and, as at September 30, 2017, cash held in an escrow account was $0.9 million. As at September 30, 2017, the carrying value of the balance of the purchase price payable was $0.8 million (See Note 19, Other long-term liabilities). 9. TRADE AND OTHER RECEIVABLES Trade receivables Less allowance for doubtful accounts Other receivables Initial margin deposits with commodity brokers September 30, 2017 October 1, 2016 $ 69,080 (385) 68,695 4,334 3,980 77,009 $ 55,954 (300) 55,654 1,780 11,348 68,782 All trade and other receivables are current. The Company grants credit to its customers in the ordinary course of business. Management believes that the Company’s exposure to credit risk and impairment losses related to trade and other receivables is limited due to the following reasons: – There is a broad base of customers with dispersion across different market segments. – Bad debt write-offs to total revenue have been less than 0.1% for each of the last five years (averaging less than $95 per year). Write-offs for fiscal 2017 were nominal, which is comparable to fiscal 2016. All bad debt write-offs are charged to administration and selling expenses. – Less than 2% of trade receivables are outstanding for more than 90 days, which is comparable to October 1, 2016, while over 84% are current (less than 30 days) as at September 30, 2017 (October 1, 2016 - 83%). Through general security agreements with its lenders, trade and other receivables have been granted as continuing collateral security for all present and future indebtedness to the current lenders. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 82 10. INVENTORIES Raw inventory Work in progress Finished goods Packaging and operating supplies Spare parts and other September 30, 2017 October 1, 2016 $ 111,281 10,770 30,040 152,091 9,245 11,793 173,129 $ 30,804 12,970 19,585 63,359 5,923 11,839 81,121 Costs of sales expensed during the year were all inventorial items, except for fixed costs incurred in Taber, Alberta, after the beet slicing campaign, and mark-to-market adjustments of derivative financial instruments. As at September 30, 2017, the Company recorded an amount of nil (October 1, 2016 - $0.5 million) related to onerous contracts as defined in IAS 37 paragraph 66, as a write-down to inventory through cost of sales. 11. FINANCIAL INSTRUMENTS Derivative financial instruments Fair value estimates are made as of a specific point in time, using available information about the financial instruments. These estimates are subjective in nature and may not be determined with precision. A three-tier fair value hierarchy prioritizes the inputs used in measuring the fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of derivative instruments is the estimated amount that the Company would receive or pay to terminate the instruments at the reporting date. The fair values have been determined by reference to prices available from the markets on which the instruments trade, subject to credit adjustments as applicable. The fair values of the sugar future contracts and options are measured using Level 1 inputs, using published quoted values for these commodities. The fair values for the natural gas futures contracts, foreign exchange forward contracts and interest rate swap contracts are measured using Level 2 inputs. The fair values for these derivative assets or liabil- ities are estimated using industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, natural gas prices, foreign exchange rates, and forward and spot prices for currencies. The fair values of the interest rate swap have been determined by using rates published on financial capital markets. The fair values of all derivative instruments approximate their carrying value and are recorded as separate line items on the consoli- dated statements of financial position. As at October 2, 2016, the Company’s natural gas futures and interest rate swap agreements were designated as cash flow hedges and qualified for hedge accounting. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 83 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) Details of recorded gains (losses) for the year, in marking-to-market all derivative financial instruments and embedded derivatives that are outstanding at year-end, are noted below. For sugar futures contracts (derivative financial instruments), the amounts noted below are netted with the variation margins paid or received to/from brokers at the end of the reporting period. Natural gas forwards and sugar futures have been marked-to-market using published quoted values for these commodities, while foreign exchange forward contracts have been marked-to-market using rates published by the financial institution, which is a counterparty to these contracts. The fair value of natural gas futures contracts, foreign exchange forward contracts and interest rate swap calculations includes a credit risk adjustment for the Company’s or counterparty’s credit, as appropriate. As at October 2, 2016, embedded derivatives, which relate to the foreign exchange component of certain sales contracts denominated in U.S. currency, are no longer separated from the host contract as it has been determined that the U.S. dollar is commonly used in Canada. This change in estimate was applied prospectively; as such, any contracts for which it was determined there was an embedded derivative that needed to be separated from the host contract as of October 1, 2016 continued to be treated as such as a transitional step to meet the new interpretation. These contracts will continue to be marked-to-market every quarter until all the volume on the contract has been delivered. As at September 30, 2017 and October 1, 2016, the Company’s financial derivatives carrying values were as follows: Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts Foreign exchange forward contracts Embedded derivatives Derivative financial instruments designated as effective cash flow hedging instruments: Natural gas futures contracts Interest rate swaps Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts Foreign exchange forward contracts Embedded derivatives Natural gas futures contracts Interest rate swaps Financial Assets Financial Liabilities Current Non-current Current Non-current September 30, 2017 September 30, 2017 $ 93 — — — — 93 $ $ — 1,280 — — 1,043 2,323 — 2,712 74 3,826 53 6,665 $ 37 — — 2,344 — 2,381 Financial Assets Financial Liabilities Current Non-current Current Non-current October 1, 2016 October 1, 2016 $ — 501 — — — 501 $ $ $ — 1,532 — — — 1,532 186 — 216 2,617 389 3,408 231 — 112 4,869 1,093 6,305 (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 84 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) For the years ended Charged to cost of sales Unrealized gain / (loss) Charged to finance income (costs) Other comprehensive gain / (loss) Sept. 30, 2017 $ Oct. 1, 2016 $ Sept. 30, 2017 $ Oct. 1, 2016 $ Sept. 30, 2017 $ Oct. 1, 2016 $ Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts (9,311) 10,562 Foreign exchange forward contracts Embedded derivatives Natural gas futures contracts Interest rate swap (861) 254 — — 2,298 (2,322) (2,460) — Derivative financial instruments designated as effective cash flow hedging instruments: Natural gas futures contracts Interest rate swap 3,018 — — — (6,900) 8,078 — — — — — — 371 371 — — — — 205 — — 205 — — — — — (1,701) 2,102 401 — — — — — — — — The following table summarizes the Company’s hedging components of other comprehensive income as at September 30, 2017 and October 1, 2016: Net (loss) gain on derivatives designated as cash flow hedge: Natural gas futures contracts Interest rate swap Income taxes Hedging gain For the years ended September 30, 2017 $ October 1, 2016 $ (1,701) 2,102 (106) 295 — — — — For the year ended September 30, 2017, the derivatives designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net earnings. The amount of net gains presented in accumulated other comprehensive income expected to be reclassified to net earnings within the next twelve months is nominal. For its financial assets and liabilities measured at amortized cost as at September 30, 2017 and October 1, 2016, the Company has determined that the carrying value of its short-term financial assets and liabilities approximates their fair value because of the relatively short period to maturity of these instruments. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 85 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) The Company uses derivative financial instruments to manage its exposure to changes in raw sugar, foreign exchange, and natural gas prices. In addition, the Company entered into interest rate swap contracts to fix a portion of the Company’s exposure to floating interest rate debt on its short-term borrowings. The Company’s objective for holding derivatives is to minimize risk using the most efficient methods to eliminate or reduce the impacts of these exposures. (a) Raw sugar: The Company’s risk management policy is to manage the forward pricing of purchases of raw sugar in relation to its forward refined sugar sales to reduce price risk. The Company attempts to meet this objective by entering into futures contracts to reduce its exposure. Such financial instruments are used to manage the Company’s exposure to variability in fair value attributable to the committed purchase price of raw sugar. The pricing mechanisms of futures contracts and the respective forecasted raw sugar purchase transactions are the same. The Company's raw sugar futures contracts as well as the fair value of these contracts relating to purchases or sales of raw sugar as at September 30, 2017 and October 1, 2016 are as follows: September 30, 2017 October 1, 2016 Original futures contracts value Current contract value Fair value gain/(loss) Original futures contracts value Current contract value Fair value gain/(loss) (US$) (US$) (US$) (US$) (US$) (US$) Purchases 0 - 6 months 6 - 12 months 12 - 24 months Over 24 months Sales 0 - 6 months 6 -12 months 12 - 24 months Over 24 months 114,184 103,927 (10,257) 47,730 70,788 75,166 18,114 56 72,290 17,765 54 (2,876) 89,873 126,991 (349) 37,484 53,116 (2) 19 20 1 23,058 37,118 15,632 207,520 194,036 (13,484) 175,106 250,915 75,809 (111,228) (103,311) (73,971) (67,402) (22,808) (22,568) (18) (18) 7,917 6,569 240 — (37,020) (38,717) (1,697) (108,595) (163,547) (54,952) (31,863) (38,805) (6,942) — — — (208,025) (193,299) 14,726 (177,478) (241,069) (63,591) Net position (505) 737 1,242 (2,372) 9,846 12,218 Foreign exchange rate at the end of the period Net value (CA$) Less margin call receipt at year-end Net asset (liabilities) (CA$) 1.2476 1,550 (1,494) 56 1.3117 16,026 (16,443) (417) (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 86 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (a) Raw sugar (continued): All sugar futures contracts are traded through a large exchange clearing house on the New York Intercontinental Exchange. Regulation of the U.S. futures industry is primarily self-regulation, with the role of the Federal Commodity Futures Trading Commission being principally an oversight role to determine that self-regulation is continuous and effective. The exchange clearing house used is one of the world’s largest capitalized financial institutions with excellent long-term credit ratings. Daily cash settlements are mandatory (margin calls) for resulting gains and/or losses from futures trading for each customer’s account. Due to the above, the Company does not anticipate a credit risk from the raw sugar futures derivative instruments. (b) Natural gas: The Company uses natural gas contracts to help manage its costs of natural gas. The Company monitors its positions and the credit ratings of its counterparties and does not anticipate losses due to counterparty’s non-performance. The Company's natural gas contracts as well as the fair value of these contracts relating to purchases of natural gas are as follows: September 30, 2017 October 1, 2016 Original futures contracts value Current contract value Fair value gain/(loss) Original futures contracts value Current contract value Fair value gain/(loss) (US$) (US$) (US$) (US$) (US$) (US$) 4,955 5,580 5,774 11,706 28,015 1,888 4,276 5,610 11,296 23,070 (3,067) (1,304) (164) (410) 5,318 7,410 5,580 2,033 3,323 5,155 4,208 1,948 (1,995) (2,255) (1,372) (85) (4,945) 20,341 14,634 (5,707) Purchases Less than 1 year 1 to 2 years 2 to 3 years 3 years and over Foreign exchange rate at the end of the period Net liability (CA$) 1.2476 (6,170) 1.3117 (7,486) The forecasted purchases of natural gas, the hedged items, are used for calculating the hedge ineffectiveness. No ineffectiveness was recognized in net earnings as the change in value of the hedging instrument for calculating ineffectiveness was the same or smaller as the change in value of the hedged items used for calculating the ineffectiveness. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 87 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (c) Foreign exchange contracts: The Company's activities, which result in exposure to fluctuations in foreign currency exchange rates, consist of the purchasing of raw sugar, the selling of refined sugar and maple products, the purchase of natural gas and purchases of property, plant and equipment. The Company manages this exposure by creating offsetting positions through the use of financial instruments. These instruments include forward contracts, which are commitments to buy or sell U.S. dollars or euros at a future date, and may be settled in cash. The credit risk associated with foreign exchange contracts arises from the possibility that a counterparty to a foreign exchange contract, in which the Company has an unrealized gain, fails to perform according to the terms of the contract. The credit risk is much less than the notional principal amount, being limited at any time to the change in foreign exchange rates attributable to the principal amount. Forward foreign exchange contracts have maturities of less than four years and relate mostly to U.S. currency, and from time to time, euro currency. The counterparties to these contracts are major Canadian financial institutions. The Company does not anticipate any material adverse effect on its financial position resulting from its involvement in these types of contracts, nor does it anticipate non-performance by the counterparties. The Company's foreign currency forward contracts relating to the purchase of raw sugar, the sale of refined sugar, the purchase of natural gas and purchases of property, plant and equipment for the sugar segment are detailed below. In addition, for the maple products segment, the Company hedges its exposure to fluctuations in foreign currency related to its anticipated cash flows from sales to specific U.S. customers, using a foreign exchange forward contract. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 88 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (c) Foreign exchange contracts (continued): Original contract value (US$) 94,575 12,320 233 107,128 (119,837) (13,463) (783) (134,083) (26,955) Original contract value September 30, 2017 Current contract value (CA$) (CA$) Fair value gain/(loss) (CA$) 122,561 15,552 294 138,407 (151,973) (18,190) (1,080) (171,243) (32,836) 118,010 15,380 292 133,682 (149,529) (16,835) (981) (167,345) (33,663) (4,551) (172) (2) (4,725) 2,444 1,355 99 3,898 (827) (5,962) (8,049) (8,654) (605) SUGAR Purchases U.S. dollars Less than 1 year 1 to 2 years 2 to 3 years Sales U.S. dollars Less than 1 year 1 to 2 years 2 to 3 years Total U.S. dollars - Sugar MAPLE PRODUCTS Sales U.S. dollars Less than 1 year Total U.S. dollars (32,917) (40,885) (42,317) (1,432) SUGAR Purchases U.S. dollars Less than 1 year 1 to 2 years 2 to 3 years Sales U.S. dollars Less than 1 year 1 to 2 years 2 to 3 years 3 years and over Total U.S. dollars Original contract value (US$) 74,772 2,500 175 77,447 (98,553) (13,628) (10,986) (783) (123,950) (46,503) Original contract value (CA$) 98,302 3,261 225 101,788 (130,000) (18,609) (15,015) (1,080) (164,704) (62,916) October 1, 2016 Current contract value (CA$) Fair value gain/(loss) (CA$) 98,050 3,270 228 101,548 (129,248) (17,821) (14,341) (1,021) (162,431) (60,883) (252) 9 3 (240) 752 788 674 59 2,273 2,033 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 89 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (d) Interest rate swap agreements: In order to fix the interest rate on a substantial portion of the expected drawdown of the revolving credit facility, the Company enters into interest rate swap agreements. The outstanding swap agreements by maturity are as follows: Fiscal year contracted Date Fiscal 2013 Fiscal 2014 Fiscal 2015 Fiscal 2017 Fiscal 2017 Fiscal 2017 June 28, 2016 to June 28, 2018 – 2.09% June 30, 2014 to June 28, 2019 – 2.09% June 28, 2018 to June 28, 2020 – 1.959% May 29, 2017 to June 28, 2022 – 1.454% September 1, 2017 to June 28, 2022 – 1.946% June 29, 2020 to June 29, 2022 – 1.733% Total value $ 30,000 10,000 30,000 20,000 30,000 30,000 The counterparties to these swap agreements are major Canadian financial institutions. The Company does not anticipate any material adverse effect on its financial position resulting from its involvement in these types of swap agreements, nor does it anticipate non-performance by the counterparties. As at September 30, 2017, the fair value of the swap agreements amounted to a net asset of $1.0 million (October 1, 2016 - liability of $1.5 million). The forecasted interest payments, the hedged items, are used for calculating the hedge ineffectiveness. No ineffectiveness was recognized in net earnings as the change in value of the hedging instrument for calculating ineffectiveness was the same or smaller as the change in value of the hedged items used for calculating the ineffectiveness. Risks The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks at year-end. (a) Credit risk: Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company believes it has limited credit risk other than those explained in Note 8, Trade and other receivables and Note 11, Financial instruments. (b) Currency risk: Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rate. The Company’s significant cash flow exposure to foreign currency is due mainly to the following: – – – – – sales in U.S. dollars for both the sugar and maple products segments; purchases of natural gas; sales of by-products; Taber refined sugar and by-products sales; ocean freight; and – purchases of property, plant and equipment for both the sugar and maple products segments. The Company mitigates its exposure to foreign currency by entering into forward exchange contracts (see Note 11, Financial instruments; Derivative financial instruments, (c) Foreign exchange contracts). (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 90 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (b) Currency risk (continued): The Company had the following significant foreign currency exposures at year-end: Financial instruments measured at amortized cost: Cash Trade and other receivables, including initial margin deposits Trade and other payables Financial instruments at fair value through profit or loss: Raw sugar futures sales contracts Raw sugar futures purchases contracts Balance of purchase price payable Natural gas contracts Variation margins paid on futures contracts Total exposure from above Forward exchange contracts Gross exposure September 30, 2017 (US$) October 1, 2016 (US$) 8,454 15,851 (3,004) 21,301 208,025 (207,521) (659) (28,015) (1,242) (29,412) (8,111) (32,917) (41,028) 2,272 19,867 (2,410) 19,729 177,478 (175,106) — (20,341) (12,218) (30,187) (10,458) (46,503) (56,961) As at September 30, 2017, the U.S./Can. exchange rate was $1.2476 (October 1, 2016 - $1.3117). Based on the above gross exposure at year-end, and assuming that all other variables remain constant, in particular the price of raw sugar and natural gas, a 5-cent increase in the Canadian dollar would result in an increase in net earnings of $1.5 million, (October 1, 2016 - increase of $2.1 million) while a 5-cent decrease would have an equal but opposite effect on net earnings. Management believes that the impact on the gross exposure is not representative as it needs to be adjusted for the following transactions, which are not recorded on the consolidated statements of financial position as at year-end but were committed during the fiscal year, and will be accounted for as the physical transactions occur: Gross exposure as per above Sugar purchases priced not received Committed future sales in U.S. dollars Ocean freight Other Net exposure September 30, 2017 October 1, 2016 (US$) (41,028) (98,341) 117,736 (142) (284) (US$) (56,961) (63,849) 106,407 (428) (243) (22,059) (15,074) (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 91 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (b) Currency risk (continued): The net exposure is due mainly to the Company’s policy not to hedge its foreign exchange exposure on natural gas futures contracts with maturities exceeding 12 months. The impact of a 5-cent increase in the Canadian dollar would result in an increase of net earnings by $0.8 million in 2017 (October 1, 2016 - increase of $0.6 million) while a decrease would have an equal but opposite effect on net earnings. Raw sugar futures sales contracts represent, in large part, futures contracts entered into when sugar is priced by a raw sugar supplier. As both the raw sugar futures sales contracts and the sugar purchases priced not received are in U.S. dollars, there is no need to economically hedge the currency, hence the reason for the adjustment for sugar purchases priced not received. Included in other is the Taber sales formula for refined sugar, which is based on the raw sugar value that trades in U.S. dollars. As all beet sugar is paid in Canadian dollars, the raw sugar value within the Taber sales contracts is in U.S. dollars and therefore needs to be economically hedged for currency exposure. Some sales are transacted in U.S. dollars. For these sales, the raw sugar value is not hedged, as the corresponding futures contract is also in U.S. dollars. Only the U.S. dollar refined sugar margin and ocean freight contribution are economically hedged for the currency exposure. Ocean freight for raw sugar is denominated in U.S. dollars and therefore forward exchange contracts are used to cover the foreign exchange exposure. (c) 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. As at September 30, 2017, the Company has a short-term cash borrowing of $20.0 million and a long-term cash borrowing of $150.0 million, as opposed to only a long-term cash borrowing of $60.0 million, as at October 1, 2016. The Company normally enters into a 30- or 90-day bankers’ acceptance for an amount varying between $50.0 million to $150.0 million of the borrowings, and will borrow either under prime rate loans or shorter term bankers’ acceptances for any other borrowings. To mitigate the risk in future cash flows due to interest rate fluctuations, the Company enters into interest rate swap agreements from time to time (see Note 11, Financial Instruments, Derivative financial instruments, (d) interest rate swap agreements). All other borrowings over and above the aggregate notional amount of the swap agreements are therefore exposed to interest rate fluctuations. For the year ended September 30, 2017, if interest rates had been 50 basis points higher, considering all borrowings not covered by the interest rate swap agreements, net earnings would have been $0.3 million lower (October 1, 2016 - $0.2 million lower) while a decrease would have an equal but opposite effect on net earnings. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 92 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (d) Liquidity risk: Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The following are the contractual maturities of financial liabilities, including estimated interest payments: September 30, 2017 Carrying Contractual cash flows amount $ $ 0 to 6 months $ 6 to 12 months $ 12 to 24 months $ After 24 months $ Non-derivative financial liabilities: Revolving credit facility 170,000 170,000 20,000 Trade and other payables 125,260 125,260 125,260 Finance lease obligations 162 178 28 295,422 295,438 145,288 — — 28 28 50,000 100,000 — 56 — 66 50,056 100,066 Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts (net) (i) (56) (920) (769) (6,098) 5,992 (45) Forward exchange contracts (net) (i) Other long-term liabilities Derivative financial instruments designated as effective cash flow hedging instruments: 1,432 5,291 (40,885) (52,869) 15,408 (2,638) 5,291 2,852 1,851 588 (786) — Natural gas contracts (i) 6,170 34,952 Interest on swap agreements (990) (7,206) 3,254 (855) 2,928 6,962 21,808 (846) (1,619) (3,886) 11,847 (8,768) (48,387) 307,269 286,670 96,901 13,243 13,271 9,285 17,091 59,341 117,157 (i) Based on notional amounts as presented above. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 93 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (d) Liquidity risk (continued): Non-derivative financial liabilities: Revolving credit facility Trade and other payables Finance lease obligations Derivative financial instruments measured at fair value through profit or loss: Carrying Contractual cash flows amount 0 to 6 months $ $ 60,000 47,096 207 60,000 47,096 233 $ — 47,096 28 107,303 107,329 47,124 October 1, 2016 6 to 12 months $ — — 28 28 12 to 24 months $ — — 56 56 After 24 months $ 60,000 — 121 60,121 Sugar futures contracts (net) (i) 417 12,915 42,068 (47,951) 18,772 26 Forward exchange contracts (net) (i) Derivative financial instruments designated as effective cash flow hedging instruments: Natural gas contracts (i) Interest on swap agreements (2,033) (62,916) (28,722) (2,976) (15,348) (15,870) 7,486 1,482 7,352 114,655 26,681 2,847 (20,473) 86,856 3,484 418 17,248 64,372 3,491 418 (47,018) (46,990) 9,720 826 13,970 14,026 9,986 1,185 (4,673) 55,448 (i) Based on notional amounts as presented above. The convertible unsecured subordinated debentures of $117.5 million have been excluded from the above due to the Company’s option to satisfy the obligations at redemption or maturity in shares. The Company borrows under its revolving credit facility (see Note 17, Revolving credit facility). It is the Company’s intention to keep a debt level under its revolving credit facility between $50.0 million to $150.0 million. All other non-derivative financial liabilities are expected to be financed through the collection of trade and other receivables and cash flows generated from operations. Derivative financial instruments for raw sugar, natural gas and forward exchange contracts are expected to be financed from the working capital of the Company. As at September 30, 2017, the Company had an unused available line of credit of $105.0 million (October 1, 2016 - $90.0 million) and cash balance of $17.0 million (October 1, 2016 - $1.2 million). (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 94 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (e) Commodity price risk: Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices. There are two types of commodity contracts, which are entered into by the Company: (i) Sugar: In order to protect itself against fluctuations of the world raw sugar market, the Company follows a rigorous hedging program for all purchases of raw cane sugar and sales of refined sugar. Anytime raw sugar is priced by a sugar supplier, a corresponding sugar futures contract is sold for the same quantity, period and underlying value. Anytime refined sugar is priced by a customer, the corresponding volume of raw sugar is purchased for the same quantity, period and underlying value. The Company’s policy is to cover all raw cane purchases and refined sugar sales as they are priced by the Company’s suppliers and customers. On a daily basis, the Company monitors all net sugar futures contract positions against the physical priced purchases and sales commitments to ensure that appropriate hedge positions are in place. For the Company’s beet operation, the Board of Directors approved an economic pre-hedge, using sugar futures contracts, of some of the beet sugar sales that will occur in the future, provided there is a contract in place with the Alberta Sugar Beet Growers to grow sugar beets. The Board of Directors also approved a trading book up to a maximum of 25,000 metric tonnes of sugar derivative contracts. The Board reviews on a quarterly basis the results achieved. (ii) Natural gas: In order to mitigate the overall price risks in the purchase of natural gas for use in the manufacturing operations, the Board approved the use of natural gas futures contracts. Natural gas futures contracts cannot be entered into for speculative reasons. The Board reviews on a quarterly basis the position of the natural gas contracts. As at September 30, 2017, the Company had the following commodity contracts: Sugar futures contracts Natural gas contracts Current average value Current contract value Current average value Current contract value Contracts (US$) (US$) (10,000 MM BTU) (US$) (US$) Volume (M.T.) 614,005 316.02 194,036 912 25.30 23,070 (609,839) 316.97 (193,299) — — — 4,166 n/a 737 912 25.30 23,070 1.2476 920 1.2476 28,782 Purchases Sales Foreign exchange rate at the end of the period Net value CA$ (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 95 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (e) Commodity price risk (continued): (ii) Natural gas (continued): As at October 1, 2016, the Company had the following commodity contracts: Sugar futures contracts Natural gas contracts Volume (M.T.) 530,028 (518,699) (2,235) 9,094 Purchases Sales Beet pre-hedge Foreign exchange rate at the end of the period Net value CA$ Current average value Current contract value Current average value Current contract value Contracts (US$) (US$) (10,000 MM BTU) (US$) (US$) 473.40 462.57 506.94 n/a 250,915 (239,936) (1,133) 9,846 1.3117 12,915 598 24.47 14,634 — — — — — — 598 24.47 14,634 1.3117 19,195 If, on September 30, 2017, the raw sugar value would have increased by US$0.05 per pound (being approximately US$110.0 per metric tonne), and all other variables remained constant, the impact on net earnings would have been an increase of approxi- mately $0.4 million (calculated only on the point-in-time exposure on September 30, 2017) (October 1, 2016 - increase of $0.7 million for US$0.03 per pound increase). If the raw sugar value would have decreased by US$0.03 per pound (being approximately US$66.00 per metric tonne), and all other variables remained constant, the impact on net earnings would have been a decrease of approximately $0.3 million (October 1, 2016 - decrease of $1.2 million for US$0.05 decrease). Except for the beet pre-hedge as at October 1, 2016, management believes that the above is not representative, as the Company has physical raw sugar purchases and refined sugar selling contracts that would offset most gains or losses realized from such decrease or increase in the commodity value, when such contracts are liquidated. For the beet pre-hedge, if, on October 1, 2016, the raw sugar value would have increased by US$0.03 per pound (being approximately US$66.00 per metric tonne), and all other variables remained constant, the impact on net earnings would have been a decrease of approximately $0.1 million (calcu lated only on the point-in-time exposure on October 1, 2016). If the raw sugar value would have decreased by US$0.05 per pound (being approximately US$110.00 per metric tonne), and all other variables remained constant, the impact on net earnings would have been an increase of approximately $0.2 million. The Company had no beet pre-hedge contracts as at September 30, 2017. If, on September 30, 2017, the natural gas market price would have increased by US$1.00, and all other variables remained constant, net earnings would have increased by $8.4 million (October 1, 2016 - increase of $5.8 million) as a result of the change in fair value of our natural gas futures. If the natural gas value would have decreased by US$1.00, and all other variables remained constant, net earnings would have decreased by $8.4 million (October 1, 2016 - decrease of $5.8 million). Management believes that this impact for natural gas is not representative as this variance will mostly offset when the actual natural gas is purchased and used. At such time, a gain or loss on the liquidation of the natural gas contracts would mostly offset the same increase or decrease in the actual physical transaction. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 96 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (e) Commodity price risk (continued): Fair values of financial instruments The fair values of derivative instruments are the estimated amount that the Company would receive or pay to terminate the instruments at the reporting date. The fair values have been determined by reference to prices available from the markets on which the instruments trade, subject to credit adjustments as applicable. The fair values of all derivative instruments approximate their carrying value and are recorded as separate line items on the consolidated statements of financial position. The following describes the fair value determinations of financial instruments: i) Cash: due to the short-term maturity of these instruments, the carrying amount approximates fair value. ii) Restricted cash: the carrying amount approximates fair value. iii) Trade and other receivables and trade and other payables: the carrying amount approximates fair value due to the short-term maturity of these instruments. iv) Borrowing under the revolving credit facility: the carrying amount approximates fair value as the borrowings bear interest at variable rates. v) The fair values for the derivative assets and liabilities are estimated using industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, natural gas prices, foreign exchange rates, and forward and spot prices for currencies. vi) The fair value of convertible unsecured subordinated debentures was based upon market quotes for the identical instruments. The fair value of the conversion option has been marked-to-market using a model with various inputs. vii) See Note 21, Finance lease obligations. viii) The fair value of the contingent consideration was discounted and calculated using a probability-weighted expectation (see Note 8, Restricted cash). (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 97 11. FINANCIAL INSTRUMENTS (CONTINUED) Fair values of financial instruments (continued) The following tables provide a comparison of carrying and fair values for each classification of financial instruments at year-end, and show a level within the fair values hierarchy in which they have been classified. Fair values hierarchy level September 30, 2017 Fair values Carrying values October 1, 2016 Fair values Carrying values $ $ $ $ Financial assets: Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts Foreign exchange forward contracts Derivative financial instruments designated as effective cash flow hedging instruments: Interest rate swap Loans and receivables: Cash Restricted cash Trade and other receivables Income taxes recoverable Total financial assets Financial liabilities: Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts Natural gas futures contracts Foreign exchange forward contracts Embedded derivatives Interest rate swap Derivative financial instruments designated as effective cash flow hedging instruments: Level 1 Level 2 56 — 56 — — 2,033 — 2,033 Level 2 990 990 — — Level 1 Level 1 n/a n/a 17,033 4,832 77,009 1,174 17,033 4,832 77,009 1,174 1,246 — 1,246 — 68,782 68,782 — — 101,094 101,094 72,061 72,061 Level 1 Level 2 Level 2 Level 2 Level 2 — — — — 1,432 1,432 74 — 74 — 417 7,486 — 328 417 7,486 — 328 1,482 1,482 Natural gas futures contracts Level 2 6,170 6,170 — — Other financial liabilities: Revolving credit facility Trade and other payables Income taxes payable Finance lease obligations Other long-term liabilities Convertible unsecured subordinated debentures Total financial liabilities n/a n/a n/a n/a 170,000 170,000 125,260 125,260 — 162 — 162 Level 3 5,291 5,291 60,000 47,096 3,473 207 — 60,000 47,096 3,473 207 — Level 1 111,544 121,469 108,519 113,275 419,933 429,858 229,008 233,764 (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 98 12. PROPERTY, PLANT AND EQUIPMENT Machinery and equipment Buildings Furniture and fixtures Barrels Construction in progress Finance leases $ $ $ $ $ $ Land $ Total $ 17,748 60,594 249,552 — — — — 600 2,128 11,131 — (1,318) — — — — 4,289 588 8,160 340,931 — 2,692 — — 13,795 14,395 (15,951) — — (148) — (1,466) Cost or deemed cost Balance at October 3, 2015 Additions Transfers Disposals Balance at October 1, 2016 17,748 62,722 259,965 — 6,981 440 6,004 353,860 Additions through business combination 201 2,198 3,046 2,240 — 55 1,711 6,994 — — — — 139 2 408 163 1 — (2) (184) 176 8,163 17,055 17,113 (9,113) — — — (186) (22) (16) (3) — (3) 17,949 66,631 270,044 2,237 7,528 417 14,122 378,928 — — — — — — — — — — — Additions Transfers Disposals Effect of movements in exchange rate Balance at September 30, 2017 Depreciation Balance at October 3, 2015 Depreciation for the year Disposals Balance at October 1, 2016 Depreciation for the year Disposals Effect of movements in exchange rate Balance at September 30, 2017 Net carrying amounts — — — 19,792 141,251 1,338 10,400 — (1,318) — 21,130 150,333 1,429 10,878 — — — — — 59 — 3,158 365 320 51 — (128) 3,523 607 243 49 (2) (183) (10) (2) — (1) — — — — — — — 164,521 12,154 (1,446) 175,229 13,022 (185) (13) — 22,559 161,201 57 4,128 108 — 188,053 At October 1, 2016 17,748 41,592 109,632 — 3,458 At September 30, 2017 17,949 44,072 108,843 2,180 3,400 197 309 6,004 178,631 14,122 190,875 There were no impairment losses during fiscal 2017 and 2016. All property, plant and equipment have been pledged as security for the revolving credit facility (see Note 17, Revolving credit facility). (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. INTANGIBLE ASSETS Cost Balance at October 3, 2015 Additions Balance at October 1, 2016 Customer Software relationships Brand names(1) $ 2,997 371 3,368 $ — — — $ — — — Additions through business combinations Additions Effect of movements in exchange rate 255 257 — 21,200 2,420 — (57) — (10) 99 Other $ 284 — 284 — — — Total $ 3,281 371 3,652 23,875 257 (67) Balance at September 30, 2017 3,880 21,143 2,410 284 27,717 Amortization Balance at October 3, 2015 Amortization for the year Balance at October 1, 2016 Amortization for the year Balance at September 30, 2017 Net carrying amounts At October 1, 2016 At September 30, 2017 (1) Indefinite life 14. OTHER ASSETS Deferred financing charges, net Other 1,485 163 1,648 194 1,842 — — — 352 352 — — — — — 1,720 2,038 — 20,791 — 2,410 93 28 121 28 149 163 135 1,578 191 1,769 574 2,343 1,883 25,374 September 30, 2017 October 1, 2016 $ 979 3 982 $ 486 11 497 Deferred financing charges represent the fees and costs related to the negotiation of the 5-year credit agreement. Borrowings under the revolving credit facility are short term in nature and can be repaid at any time. Therefore, deferred financing charges are presented separately and not applied against the debt (see Note 17, Revolving credit facility). During the fiscal year, the Company paid $0.1 million in financing fees to extend the maturity date of the revolving credit facility as well as to increase its credit availability (see Note 17, Revolving credit facility). In addition, the Company paid $0.5 million in financing fees to amend its existing revolving credit facility by drawing additional funds under the accordion feature (see Note 17, Revolving credit facility). These fees, along with the outstanding balance of the previously deferred financing charges, are amortized over the extended life of the revolving credit facility, which now matures on June 28, 2022. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 100 15. DEFERRED TAX ASSETS AND LIABILITIES The deferred tax assets (liabilities) comprise the following temporary differences: Assets: Employee benefits Derivative financial instruments Losses carried forward Provisions Intangibles Other Liabilities: Property, plant and equipment Derivative financial instruments Goodwill Deferred financing charges Intangibles Other Net assets (liabilities): Property, plant and equipment Intangibles Employee benefits Derivative financial instruments Losses carried forward Goodwill Provisions Deferred financing charges Other September 30, 2017 $ October 1, 2016 $ 10,279 2,022 110 585 36 2,016 15,048 (27,763) (668) (2,418) (337) (5,049) (898) 13,977 2,594 — 791 — 1,060 18,422 (27,024) (4,769) (2,295) (323) — (299) (37,133) (34,710) (27,763) (5,013) 10,279 1,354 110 (2,418) 585 (337) 1,118 (22,085) (27,024) — 13,977 (2,175) — (2,295) 791 (323) 761 (16,288) (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED) The movement in temporary differences during the current years is as follows: 101 Balance Recognized Recognized in other in profit comprehensive income (loss) October 1, 2016 $ Property, plant and equipment (27,024) Intangibles Employee benefits — 13,977 $ (74) 819 484 Derivative financial instruments (2,175) 3,430 Losses carried forward Goodwill Provisions Deferred financing charges Other — (2,295) 791 (323) 761 110 (36) (206) (901) 665 (16,288) 4,291 (4,288) Balance October 3, 2015 Recognized in profit (loss) Recognized in other comprehensive income Recognized in equity $ — — — — — — — 838 (686) 152 Acquired Balance in business September 30, 2017 combination $ $ (665) (27,763) (5,832) — 205 — (87) — 49 378 (5,013) 10,279 1,354 110 (2,418) 585 (337) 1,118 (5,952) (22,085) $ — — (4,182) (106) — — — — — $ (6,102) 216 (1,746) (1,124) (66) (175) 17 (213) $ — 1,993 — — — — — — Balance October 1, 2016 $ (27,024) 13,977 (2,175) — (2,295) 791 (323) 761 (9,193) 1,993 (16,288) Property, plant and equipment Employee benefits Derivative financial instruments Losses carried forward Goodwill Provisions Deferred financing charges Other $ (20,922) 11,768 (429) 1,124 (2,229) 966 (340) 974 (9,088) (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 102 16. GOODWILL Balance, beginning of year Additions through business combination Balance, end of year September 30, 2017 $ 229,952 93,276 323,228 October 1, 2016 $ 229,952 — 229,952 Recoverability of cash generating units (“CGU”): For the purpose of impairment testing, goodwill and intangibles with indefinite useful life are allocated to the Company’s operating segments, which represent the lowest level within the Company at which the goodwill and intangibles are monitored for internal management purposes, as follows: Sugar: Goodwill Maple products: Goodwill Brand names September 30, 2017 $ October 1, 2016 $ 229,952 229,952 93,276 2,410 325,638 — — 229,952 In assessing whether goodwill and indefinite life intangible assets are impaired, the carrying amount of the segments (including goodwill and indefinite life intangible assets) are compared to their recoverable amount. The recoverable amounts of segments are based on the higher of the value in use and fair value less costs to sell. The Company performed the annual impairment review for goodwill and indefinite life intangible assets during fiscal 2017, and the estimated recoverable amounts exceeded the carrying amounts of the segments and, as a result, there was no impairment identified. Recoverable amount The methodology used by the Company to determine the recoverable amount of the sugar and maple segments was based on the fair values less cost to sell (“FVLCTS”). The fair values of each segment were based on an earnings multiple applied to forecasted adjusted EBITDA for the next year, which takes into account financial budgets approved by senior management. The earnings multiple used was obtained by using market comparables as a reference. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 103 17. REVOLVING CREDIT FACILITY On June 28, 2013, the Company entered into a revolving credit facility agreement for $150.0 million of available working capital from which it can borrow at prime rate, LIBOR rate or under bankers’ acceptances, plus 20 to 200 basis points, based on achieving certain financial ratios. Certain assets of the Company, including trade receivables, inventories, and property, plant and equipment have been pledged as security for the credit facility. On April 25, 2017, the Company exercised its option to extend the maturity date of its revolving credit facility of $150.0 million to June 28, 2022 under the same terms and conditions of the credit agreement entered into on June 28, 2013. In addition, on April 28, 2017, the Company borrowed an additional amount of $50.0 million by drawing a portion of the funds available under an accordion feature embedded in its revolving credit facility (“Accordion borrowings”). The Accordion borrowings carry the same terms and condi- tions as the $150.0 million revolving credit facility described above, except that it will mature on December 31, 2018. The funds from the Accordion borrowings were used to repay the Fourth series convertible unsecured subordinated debentures (“Fourth series deben- tures”). A total of $0.1 million was paid in financing fees. On August 3, 2017, the Company amended its existing revolving credit facility in line with the acquisition of LBMT. The available credit was increased by $75.0 million by drawing additional funds under the accordion feature embedded in the revolving credit facility (“Additional Accordion Borrowings”). As a result of the amended revolving credit facility and the Additional Accordion Borrowings, the Company has a total of $275.0 million of available working capital from which it can borrow at prime rate, LIBOR rate or under bankers’ acceptances, plus 20 to 250 basis points, based on achieving certain financial ratios. Certain assets of the Company, including trade receivables, inventories and property, plant and equipment, have been pledged as security for the revolving credit facility, including some of the assets of LBMT. The maturity date of the amended revolving credit facility is June 28, 2022, except for a $50.0 million portion, which will expire on December 31, 2018. A total of $0.5 million was paid in financing fees. The following amounts were outstanding as follows: Outstanding amount on revolving credit facility: Current Non-current September 30, 2017 $ 20,000 150,000 170,000 October 1, 2016 $ — 60,000 60,000 As at September 30, 2017, an amount of $150.0 million is shown as non-current as we don’t expect it to be repaid within the next 12 months. The carrying value of the revolving credit facility approximates fair value as the borrowings bear interest at variable rates. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 104 18. TRADE AND OTHER PAYABLES Trade payables Other non-trade payables Personnel-related liabilities Dividends payable to shareholders September 30, October 1, 2017 $ 101,605 3,658 10,480 9,517 125,260 2016 $ 26,255 3,312 9,082 8,447 47,096 Considering that Maple products syrup is harvested once a year, the Federation des producteurs acericoles du Quebec (“FPAQ”) offers to authorized purchasers the possibility to pay their purchases over the course of the year (ending in February). Once the syrup is graded, the Company must pay 30% of the cost of the syrup on the 15th of the following month. The outstanding balance bears interest (prime + 1%) and is paid in four monthly installments (November, December, January and February). Included in trade payables is an amount of $70.9 million as of September 30, 2017. During the year, more than 85% of the maple syrup purchases were made from the FPAQ. Personnel-related liabilities represent the Company’s obligation to its current and former employees that are expected to be settled within one year from the reporting period as salary and accrued vacation. The Company’s exposure to currency and liquidity risks related to trade and other payables is disclosed in Note 11, Financial instruments. 19. OTHER LONG-LIABILITIES Opening balance Business acquisition (note 4) Accretion expense Foreign exchange adjustment Payment made Closing balance Presented as: Current Non-current Contingent consideration payable Balance of purchase price payable $ — 5,573 22 — (1,126) 4,469 3,881 588 4,469 $ — 5,735 9 (12) (4,910) 822 822 — 822 Total $ — 11,308 31 (12) (6,036) 5,291 4,703 588 5,291 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. PROVISIONS Opening balance Additions Provisions used during the period Closing balance Presented as: Current Non-current 105 September 30, 2017 October 1, 2016 $ 2,994 — (763) 2,231 478 1,753 2,231 $ 3,706 348 (1,060) 2,994 1,133 1,861 2,994 Provisions are comprised of asset retirement obligations, which represent the future cost the Company estimated to incur for the removal of asbestos in the operating facilities and for oil, chemical and other hazardous materials storage tanks for which the Company has been able to identify the costs. The estimate of the total liability for future asset retirement obligations is subject to change, based on amendments to laws and regu- lations and as new information concerning the Company’s operations becomes available. Future changes, if any, to the estimated total liability as a result of amended requirements, laws, regulations and operating assumptions would be recognized prospectively as a change in estimate, when applicable. The asset retirement obligations have not been discounted as the provision is expected to be used within the next five years. 21. FINANCE LEASE OBLIGATIONS The Company leases moveable equipment. The leases substantially transfer all the usage benefits of such equipment to the Company. These leases have an interest rate of 5.65% with maturity dates in fiscal 2020. The outstanding liabilities are as follows: Finance lease obligations September 30, 2017 October 1, 2016 Carrying values $ 162 Fair values $ 162 Carrying values $ 207 Fair values $ 207 The finance lease obligations are payable as follows: September 30, 2017 October 1, 2016 Future minimum lease payments $ 56 122 178 Present value of minimum lease payments $ 48 114 162 Future minimum lease payments $ 56 177 233 Interest $ 8 8 16 Present value of minimum lease payments $ 45 162 207 Interest $ 11 15 26 Less than one year Between one and five years (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 106 22. EMPLOYEE BENEFITS The Company sponsors defined benefit pension plans for its employees (“Pension benefit plans”), as well as health care benefits, medical plans and life insurance coverage (“Other benefit plans”). The following table presents a reconciliation of the pension obligations, the plan assets and the funded status of the benefit plans: Fair value of plan assets: Pension benefit plans Defined benefit obligation: Pension benefit plans Other benefit plans Funded status: Pension benefit plans Other benefit plans Experience adjustment arising on plan liabilities Experience adjustment arising on plan assets September 30, 2017 $ October 1, 2016 $ 100,450 97,033 121,886 17,733 139,619 (21,436) (17,733) (39,169) 1,746 2,570 126,972 22,994 149,966 (29,939) (22,994) (52,933) (785) 5,348 The Company has determined that, in accordance with the terms and conditions of the defined benefit pension plans, and in accor- dance with statutory requirements (such as minimum funding requirements) of the plans of the respective jurisdictions, the present value of refunds or reductions in the future contributions is not lower than the balance of the total fair value of the plan assets less the total present value of the obligations. As such, no decrease in the defined benefit asset is necessary as at September 30, 2017 (October 1, 2016 - no decrease in defined benefit asset). (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 107 22. EMPLOYEE BENEFITS (CONTINUED) The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes at year-end. The most recent actuarial valuations of the pension plans for funding purposes were as of December 31, 2016 and the next required valuations will be as of December 31, 2019. The asset allocation of the major categories in the plan was as follows: Equity instruments Government bonds Cash and short-term securities September 30, 2017 October 1, 2016 % 63.6 34.8 1.6 100.0 $ 63,886 34,957 1,607 100,450 % 61.8 35.3 2.9 100.0 $ 59,966 34,253 2,814 97,033 The pension committee prepares the documentation relating to the management of asset allocation, reviews the investment policy and recommends it to the Board of Directors for approval in the event of material changes to the policy. Semi-annually monitoring of the asset allocation of the pension benefit plans allows the pension committee to ensure that the limits of asset allocation of the pension benefit plans are respected. Based on historical data, contributions to the defined benefit pension plans in fiscal 2018 are expected to be approximately $4.0 million. The pension plan exposes the Company to the following risks: (i) Investment risk: The defined benefit obligation is calculated using a discount rate. If the fund returns are lower than the discount rate, a deficit is created. (ii) Interest rate risk: Variation in bond rates will affect the value of the defined benefit obligation. (iii) Inflation risk: The defined benefit obligation is calculated assuming a certain level of inflation. An actual inflation higher than expected will have the effect of increasing the value of the defined benefit obligation. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 108 22. EMPLOYEE BENEFITS (CONTINUED) Movement in the present value of the defined benefit obligations is as follows: For the years ended September 30, 2017 Pension benefit plans $ Other benefit plans $ Total $ Pension benefit plans $ October 1, 2016 Other benefit plans $ Total $ Movement in the present value of the defined benefit obligation: Defined benefit obligation, beginning of the year 126,972 22,994 149,966 150,837 21,005 171,842 Current service cost 2,724 468 3,192 2,128 382 2,510 Re-measurements of other long-term benefits Gain on settlements Interest cost Employee contributions Benefit payments from plan Benefit payments from employer Actuarial losses (gains) arising from changes in demographic assumptions Actuarial (gains) losses arising from changes in financial assumptions Actuarial losses (gains) arising from member experience Defined benefit obligation, end of year Movement in the fair value of plan assets: Fair value of plan assets, beginning of the year Interest income Return on plan assets (excluding interest income) Employer contributions Employee contributions Benefit payments from plan Benefit payments from employer Plan expenses Loss on settlement Fair value of plan assets, end of year 17 — 4,166 961 (4,243) (62) — 740 — — (45) — 4,906 961 1,809 (2,475) 5,032 945 (4,243) (41,582) (12) — 844 — — 1,797 (2,475) 5,876 945 (41,582) (1,073) (749) (1,822) (1,090) (792) (1,882) 651 (3,744) (3,093) — (924) (924) (9,532) (2,417) (11,949) 12,038 2,606 14,644 1,243 503 1,746 (670) (115) (785) 121,886 17,733 139,619 126,972 22,994 149,966 97,033 3,212 2,570 2,583 961 (4,243) (1,073) (593) — 100,450 — — — 749 — — (749) — — — 97,033 126,707 3,212 4,141 2,570 3,332 961 (4,243) (1,822) (593) — 5,348 4,110 945 (41,582) (1,090) (406) (1,140) 100,450 97,033 — — — 792 — — (792) — — — 126,707 4,141 5,348 4,902 945 (41,582) (1,882) (406) (1,140) 97,033 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 109 22. EMPLOYEE BENEFITS (CONTINUED) The net defined benefit obligation can be allocated to the plans’ participants as follows: Active plan participants Retired plan members Deferred plan participants Other September 30, 2017 Pension benefit plans Other benefit plans October 1, 2016 Pension benefit plans Other benefit plans 44.4 50.1 5.5 — 100.0 42.3 57.7 — — 100.0 44.8 15.1 36.3 3.8 100.0 46.8 53.2 — — 100.0 In 2016, the Company recorded an expense of $1.8 million for contracted future plan amendments to one of the pension benefit plans. In fiscal 2014, a decision was made to terminate the defined benefit portion of the Lantic Inc. Pension Plan for Salaried Employees in B.C. and Alberta (the “Salaried Plan”), for which years of service had been frozen since 2008. In fiscal 2016, the Company completed the termination of the Salaried Plan, with the settlement and transfer of the defined benefit pension liabilities to an insurance company. The settlement process resulted in the reversal of a non-cash accrual of $1.2 million against administration and selling expenses, pertaining to the deficit outstanding as at October 1, 2016. The Company’s defined benefit pension expense was as follows: For the years ended September 30, 2017 Pension benefit plans $ Other benefit plans $ Total $ Pension benefit plans $ Pension costs recognized in net earnings: Current service cost 2,724 468 3,192 2,128 Expenses related to the pension benefits plans Interest cost Gain on settlement Re-measurements of other long-term benefits 593 954 — 17 — 740 — (62) Pension expense 4,288 1,146 593 1,694 406 891 — (1,335) (45) 5,434 1,809 3,899 (12) 1,214 October 1, 2016 Other benefit plans $ 382 — 844 — Total $ 2,510 406 1,735 (1,335) 1,797 5,113 Recognized in: Cost of sales Administration and selling expenses 3,730 715 4,445 3,790 785 4,575 558 4,288 431 1,146 989 5,434 109 3,899 429 1,214 538 5,113 (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 110 22. EMPLOYEE BENEFITS (CONTINUED) The following table presents the change in the actuarial gains and losses recognized in other comprehensive income: For the years ended September 30, 2017 Pension benefit plans $ Other benefit plans $ Total $ Cumulative amount in income at the beginning of the year 14,248 (523) 13,725 Recognized during the year (10,208) (5,658) (15,866) Pension benefit plans $ 8,228 6,020 October 1, 2016 Other benefit plans $ (2,090) 1,567 Total $ 6,138 7,587 Cumulative amount in income at the end of the year Recognized during the year, net of tax 4,040 (6,181) (2,141) 14,248 (523) 13,725 (7,518) (4,166) (11,684) 4,439 1,155 5,594 Principal actuarial assumptions used were as follows: September 30, 2017 October 1, 2016 For the years ended Pension benefit plans % 3.85 3.00 3.35 3.00 Other benefit plans % 3.85 3.00 3.35 3.00 Pension benefit plans % 3.35 3.00 4.20 3.50 Other benefit plans % 3.35 3.00 4.20 3.50 Company’s defined benefit obligation: Discount rate Rate of compensation increase Net benefit plan expense: Discount rate Rate of compensation increase (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 111 22. EMPLOYEE BENEFITS (CONTINUED) Assumptions regarding future mortality are based on published statistics and mortality tables. The current longevities underlying the value of the liabilities in the defined benefit plans are as follows: Longevity at age 65 for current pensioners: Males Females Longevity at age 65 for members aged 45: Males Females September 30, 2017 October 1, 2016 21.8 24.5 23.3 25.9 21.6 24.1 22.7 25.0 The assumed health care cost trend rate as at September 30, 2017 was 5.6% (October 1, 2016 - 5.54%), decreasing uniformly to 4.43% in 2034 (October 1, 2016 - 4.44% in 2034) and remaining at that level thereafter. The following table outlines the key assumptions for the year ended September 30, 2017 and the sensitivity of a percentage change in each of these assumptions on the defined benefit plan obligations and the net defined benefit plan costs. The sensitivity analysis provided in the table 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. (Decrease) increase in Company’s defined benefit obligation: Discount rate Impact of increase of 1% Impact of decrease of 1% Rate of compensation increase Impact of increase of 0.5% Impact of decrease of 0.5% Mortality 99% of expected rate For the year ended September 30, 2017 Pension benefit plans $ (15,006) 19,151 1,281 (1,211) 278 Other benefit plans $ (2,156) 2,707 4 (4) 63 Total $ (17,162) 21,858 1,285 (1,215) 341 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percent- age-point change in assumed health care cost trend would have the following effects: Effect on the defined benefit obligations Increase $ (2,135) Decrease $ (1,735) As at September 30, 2017, the weighted average duration of the defined benefit obligation amounts to 14.1 years (October 1, 2016 - 14.9 years). (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 112 23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES The outstanding convertible debentures are as follows: Current Fourth series (i) Total face value Less deferred financing fees Carrying value – current Non-current Fifth series (ii) Sixth series (iii) Total face value Less net deferred financing fees Less equity component (ii),(iii) Accretion expense on equity component Carrying value – non-current Total carrying value (i) Fourth series: September 30, October 1, 2017 $ — — — — 60,000 57,500 117,500 (3,121) (3,826) 991 111,544 2016 $ 50,000 50,000 (195) 49,805 60,000 — 60,000 (856) (1,188) 758 58,714 111,544 108,519 On April 8, 2010, the Company issued 50,000 Fourth series, 5.70% convertible unsecured subordinated debentures (“Fourth series debentures”), maturing on April 30, 2017, with interest payable semi-annually in arrears on April 30 and October 31 of each year, starting October 31, 2010 for gross proceeds of $50.0 million. The debentures may be converted at the option of the holder at a conversion price of $6.50 per share (representing 7,692,308 common shares) at any time prior to maturity, and cannot be redeemed prior to April 30, 2013. The Company incurred issuance costs of $2.4 million, which are netted against the convertible debenture liability. During fiscal 2017, holders of the Fourth series debentures converted a total of $0.4 million into 66,922 common shares (October 1, 2016 - nil). This conversion is a non-cash transaction and therefore not reflected in the consolidated statements of cash flows. On May 1, 2017, the Company used the Accordion borrowings to repay its Fourth series debentures for a total cash outflows of $51.0 million, consisting of its principal amount of $49.6 million plus accrued and unpaid interest up to, but excluding the maturity date. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 113 23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES (CONTINUED) (ii) Fifth series: On December 16, 2011, the Company issued $60.0 million fifth series, 5.75% convertible unsecured subordinated debentures (“Fifth series debentures”), maturing on December 31, 2018, with interest payable semi-annually in arrears on June 30 and December 31 of each year, starting June 29, 2012. The debentures may be converted at the option of the holder at a conversion price of $7.20 per share (representing 8,333,333 common shares) at any time prior to maturity, and cannot be redeemed prior to December 31, 2014. The debentures are redeemable at a price equal to the principal amount thereof plus accrued unpaid interest. On redemption or at maturity, the Company will repay the indebtedness of the convertible debentures by paying an amount equal to the principal amount of the outstanding convertible debentures, together with accrued and unpaid interest thereon. The Company may, at its option, elect to satisfy its obligation to repay the principal amount of the convertible debentures, which are to be redeemed or which have matured, by issuing shares to the holders of the convertible debentures. The number of shares to be issued will be determined by dividing $1,000 (one thousand) of principal amount of the convertible debentures by 95% of the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending on the fifth trading day preceding the date for redemption or the maturity date, as the case may be. The Company allocated $1.2 million of the Fifth series debentures into an equity component. During the year, the Company recorded $187 (October 1, 2016 - $175) in finance costs for the accretion of the Fifth series debentures. The Company incurred issuance costs of $2.7 million, which are netted against the convertible debenture liability. The fair value of the Fifth series convertible unsecured subordinated debentures is measured based on Level 1 of the three-tier fair value hierarchy and was based upon market quotes for the identical instruments. The fair value as at September 30, 2017 was approximately $62.1 million (October 1, 2016 - $62.4 million). (iii) Sixth series: On July 28, 2017, the Company issued $57.5 million Sixth series, 5.00% convertible unsecured subordinated debentures (“Sixth series debentures”), maturing on December 31, 2024, with interest payable semi-annually in arrears on June 30 and December 31 of each year, starting on December 31, 2017. The debentures may be converted at the option of the holder at a conversion price of $8.26 per share (representing 6,961,259 common shares) at any time prior to maturity, and cannot be redeemed prior to December 31, 2020. On or after December 31, 2020 and prior to December 31, 2022, the debentures may be redeemed by the Company, at a price equal to the principal amount plus accrued and unpaid interest, only if the current market price on the day preceding the date on which the notice is given is at least 125% of the conversion price of $8.26. Subsequent to December 31, 2022, the debentures are redeemable at a price equal to the principal amount thereof plus accrued unpaid interest. On redemption or at maturity, the Company will repay the indebtedness of the convertible debentures by paying an amount equal to the principal amount of the outstanding convertible debentures, together with accrued and unpaid interest thereon. The Company may, at its option, elect to satisfy its obligation to repay the principal amount of the convertible debentures, which are to be redeemed or which have matured, by issuing shares to the holders of the convertible debentures. The number of shares to be issued will be determined by dividing $1,000 (one thousand) of principal amount of the convertible debentures by 95% of the then current market price on the day preceding the date fixed for redemption or the maturity date, as the case may be. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 114 23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES (CONTINUED) (iii) Sixth series (continued): The Company allocated $2.6 million of the Sixth series debentures into an equity component (net of tax an amount of $2.0 million). During the year, the Company recorded $46 (October 1, 2016 - nil) in finance costs for the accretion of the Sixth series debentures. The Company incurred underwriting fees and issuance costs of $2.7 million, which are netted against the convertible debenture liability. The fair value of the Sixth series convertible unsecured subordinated debentures is measured based on Level 1 of the three-tier fair value hierarchy and was based upon market quotes for the identical instruments. The fair value as at September 30, 2017 was approximately $59.4 million (October 1, 2016 - nil). 24. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY During fiscal 2017, a total of 96,500 common shares (October 1, 2016 - nil) were issued pursuant to the exercise of share options under the Share Option Plan. See note 25, Share-based compensation. During the second quarter of fiscal 2017, further to a special resolution approved at the shareholders’ meeting of February 1, 2017, the Company reduced the stated capital by $100.0 million and the contributed surplus was increased by the same amount of $100.0 million. During the year, a total of $0.4 million (October 1, 2016 - nil) of the Fourth series debentures were converted by holders of the securi- ties for a total of 66,922 common shares (October 1, 2016 - nil). See Note 23, Convertible unsecured subordinated debentures. On August 5, 2017, the Company acquired all of the issued and outstanding shares of LBMT for a total consideration of $169.5 million (see Note 4, Business combinations). As part of the financing, a public offering was completed on June 28, 2017 consisting of subscrip- tion receipts (converted to 11,730,000 common shares upon closing of the transaction) for gross proceeds of $69.2 million ($66.8 million net of underwriting commissions and professional fees of $3.2 million and deferred tax of $0.8 million). As of September 30, 2017, a total of 105,743,582 common shares (October 1, 2016 - 93,850,160) were outstanding. The Company declared a quarterly dividend of $0.09 per share for fiscal years 2017 and 2016. The following dividends were declared by the Company: Dividends Contributed surplus: For the years ended September 30, 2017 $ 34,896 October 1, 2016 $ 33,796 The contributed surplus account is used to record amounts arising on the issue of equity-settled share-based payment awards (see Note 25, Share-based compensation). (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 115 24. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED) Capital management: The Company’s objectives when managing capital are: – To ensure proper capital investment is done in the manufacturing infrastructure to provide stability and competitiveness of the operations; – To have stability in the dividends paid to shareholders; – To have appropriate cash reserves on hand to protect the level of dividends made to shareholders; – To maintain an appropriate debt level so that there is no financial constraint on the use of capital; – To have an appropriate line of credit; – To repurchase shares or convertible debentures when trading values do not reflect fair values. The Company typically invests in its operations between $10.0 million and $15.0 million yearly in capital expenditures. Occasionally, such as in fiscal 2017, the Company will invest additional capital expenditures on an ad hoc basis. Management believes that these investments, combined with approximately $25.0 million spent on average annually on maintenance expenses, allow for the stability of the manufacturing operations and improve its cost competitiveness through new technology or process procedures. The Board of Directors aims to ensure proper cash reserves are in place to maintain the current dividend level. Dividends to share- holders will only be raised after the Directors have carefully assessed a variety of factors that include the overall competitive landscape, volume and selling margin sustainability, the operating performance and capital requirements of the manufacturing plants and the sustainability of any increase. The Company has a $275.0 million revolving credit facility. The Company estimates to use between $50.0 million and $150.0 million of its revolving credit facility to finance its normal operations during the year. The Company monitors, on a quarterly basis, the ratio of total debt to earnings before interest, income taxes, depreciation and amorti- zation, adjusted for the impact of all derivative financial instruments (“adjusted EBITDA”) of the operating company. Through required lenders’ covenants, the debt ratio must be kept below 3.5:1 in order not to have restrictions on interest payments from Lantic to the Company. At year-end, the operating company’s debt ratio was below 1.50:1 for fiscal 2017 and below 1.10 for fiscal 2016. Having satisfied the above factors, if cash is available, it will be used to repurchase the Company’s shares and convertible debentures when the Board of Directors considers that the current trading range does not reflect the fair trading value of the Company’s shares. As such, the Company puts in place a NCIB from time to time. The Company does not use equity ratios to manage its capital requirements. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 116 25. SHARE-BASED COMPENSATION (a) Equity-settled share-based compensation: The Company has reserved and set aside for issuance an aggregate of 4,000,000 common shares (October 1, 2016 - 4,000,000 common shares) at a price equal to the average market price of transactions during the last five trading days prior to the grant date. Options are exercisable to a maximum of 20% of the optioned shares per year, starting after the first anniversary date of the granting of the options and will expire after a term of ten years. Upon termination, resignation, retirement, death or long-term disability, all share options granted under the Share Option Plan not vested shall be forfeited. On December 5, 2016, a total of 360,000 share options were granted at a price of $6.51 per common share to certain executives. In addition, during fiscal 2017, a total of 96,500 common shares (October 1, 2016 – nil) were issued pursuant to the exercise of share options under the Share Option Plan for total cash proceeds of $521 (October 1, 2016 - nil), which was recorded to share capital as well as an ascribed value from contributed surplus of $28 (October 1, 2016 - nil). During fiscal 2016, 70,000 share options were forfeited at a price of $5.61 per common share following the retirement of an executive. Compensation expense is amortized over the vesting period of the corresponding optioned shares and is expensed in the administration and selling expenses with an offsetting increase to contributed surplus. An expense of $74 was incurred for the year ended September 30, 2017 (October 1, 2016 - $34). The following table summarizes information about the Share Option Plan as of September 30, 2017: Exercise price per option $4.59 $5.61 $6.51 Outstanding number of options at October 1, 2016 850,000 156,500 — 1,006,500 Options granted during the period — — 360,000 360,000 Options exercised during the period (20,000) (76,500) — Outstanding number of options at September 30, 2017 Weighted average remaining life (in years) 830,000 80,000 360,000 7.65 4.45 9.17 n/a (96,500) 1,270,000 The following table summarizes information about the Share Option Plan as of October 1, 2016: Exercise price per option $4.59 $5.61 Outstanding number of options at October 3, 2015 850,000 226,500 1,076,500 Options granted during the period Options exercised during the period Options forfeited during the period Outstanding Weighted average remaining life (in years) number of options at October 1, 2016 — — — — — — — 850,000 (70,000) 156,500 (70,000) 1,006,500 8.65 5.45 n/a Number of options exercisable 150,000 80,000 — 230,000 Number of options exercisable 170,000 124,500 294,500 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 117 25. SHARE-BASED COMPENSATION (CONTINUED) (a) Equity-settled share-based compensation (continued): As at September 30, 2017 and October 1, 2016, all of the options outstanding are held by key management personnel (see Note 31, Key management personnel). The grant date fair value was measured based on the Black-Scholes option pricing model. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values of the share-based payment plans granted in the first quarter of fiscal 2017 are the following: Total fair value of options at grant date Share price at grant date Exercise price Expected volatility (weighted average volatility) Option life (expected weighted average life) Expected dividends $152 $6.63 $6.51 16.520% to 18.490% 4 to 6 years 5.43% Weighted average risk-free interest rate (based on government bonds) 0.923% to 1.156% (b) Cash-settled share-based compensation: During the first quarter of fiscal 2017, a Share Appreciation Right (“SAR”) was created under the existing Share Option Plan. On December 5, 2016, a total of 125,000 SARs were granted at a price of $6.51 to an executive. Compensation expense is amortized over the vesting period of the corresponding optioned shares and is expensed in the administration and selling expenses with an offsetting credit to liability. An expense of $15 was recorded for the year ended September 30, 2017 (an expense of nil for the year ended October 1, 2016). The liabilities arising from the SARs as at September 30, 2017 were $15 (October 1, 2016 - nil). The fair values at the measurement date were measured based on the Black-Scholes option pricing model. Expected volatility is estimated by considering historic average share price volatility. As at September 30, 2017, the inputs used in the measurement of the fair values of the SARs granted are the following: Total fair value of options Share price Exercise price Grant date Measurement date as at September 30, 2017 $53 $6.63 $6.51 $42 $6.32 $6.51 Expected volatility (weighted average volatility) 16.520% to 18.670% 16.639% to 17.646% Option life (expected weighted average life) Expected dividends Weighted average risk-free interest rate (based on government bonds) 2 to 6 years 5.43% 2 to 6 years 5.70% 0.740% to 1.160% 1.521% to 1.841% (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 118 26. OPERATING LEASES The Company has financial commitments for minimum lease payments under operating leases for various mobile equipment and the premises for the sugar and maple product segments. Non-cancellable operating lease rentals are payable as follows: Less than 1 year Between 1 and 5 years More than 5 years September 30, 2017 October 1, 2016 $ 1,988 3,770 188 5,946 $ 1,282 2,134 231 3,647 For the year ended September 30, 2017, an amount of $2.9 million was recognized as an expense in net earnings with respect to operating leases (October 1, 2016 - $2.2 million). 27. COMMITMENTS As at September 30, 2017, the Company had commitments to purchase a total of 1,708,000 metric tonnes of raw cane sugar (October 1, 2016 - 1,238,000), of which 286,000 metric tonnes had been priced (October 1, 2016 - 144,000), for a total dollar commitment of $122.7 million (October 1, 2016 - $83.8 million). In addition, the Company has a commitment of approximately $43.1 million (October 1, 2016 - $40.1 million) for sugar beets to be harvested and processed in fiscal 2017. A subsidiary of the Company has $2.5 million remaining to pay related to an agreement to purchase approximately $4.0 million (1.5 million pounds) of maple syrup from the FPAQ. In order to secure bulk syrup purchases, the Company issued a letter of guarantee for an amount of $12.5 million in favor of the FPAQ. The letter of guarantee expires on February 28, 2018. During the year ended September 30, 2017, the Company entered into capital commitments to complete its capital projects for a total value of $6.3 million (October 1, 2016 - $7.8 million). The Taber beet sugar processing facility was established in 1950. Over the past few years, the Company has been actively working on solutions to reduce the air emissions footprint of the facility. The Taber facility obtained from Alberta Environment and Parks a variance for non-compliance of air emission standards valid until May 2018. The Company is currently evaluating various scenarios, which would allow the facility to be fully compliant on air emission standards for the 2019 beet harvesting season. To achieve this objective, the Company expects to undertake significant capital expenditures starting in the first half of fiscal 2018. Early estimates of the net invest- ment required to remediate the non-compliance range between $15 million and $25 million. 28. CONTINGENCIES The Company is subject to laws and regulations concerning the environment and to the risk of environmental liability inherent to its activities relating to its past and present operations. The Company, in the normal course of business, becomes involved from time to time in litigation and claims. While the final outcome with respect to claims and legal proceedings pending as at September 30, 2017 cannot be predicted with certainty, management believes that no provision was required and that the financial impact, if any, from claims related to normal business activities will not be material. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29. EARNINGS PER SHARE Reconciliation between basic and diluted earnings per share is as follows: Basic earnings per share: Net earnings 119 For the years ended September 30, 2017 $ October 1, 2016 $ 21,906 65,579 Weighted average number of shares outstanding 96,027,566 93,885,631 Basic earnings per share Diluted earnings per share: Net earnings Plus impact of convertible unsecured subordinated debentures and share options Weighted average number of shares outstanding: Basic weighted average number of shares outstanding Plus impact of convertible unsecured subordinated debentures and share options 0.23 0.70 21,906 467 22,373 65,579 5,327 70,906 96,027,566 7,197,978 93,885,631 16,086,769 103,225,544 109,972,400 Diluted earnings per share 0.22 0.64 As at September 30, 2017, the Fifth series debentures were excluded from the calculation of diluted earnings per share as they were deemed anti-dilutive. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 120 30. SUPPLEMENTARY CASH FLOW INFORMATION Non-cash transactions: Additions of property, plant and equipment included in trade and other payables Investment tax credit included in income taxes payable September 30, 2017 $ 247 — October 1, 2016 $ October 3, 2015 $ 135 220 579 — 31. KEY MANAGEMENT PERSONNEL The Board of Directors as well as the executive team, which include the President and all the Vice-Presidents, are deemed to be key management personnel of the Company. The following is the compensation expense for key management personnel: Salaries and short-term benefits Attendance fees for members of the Board of Directors Post-employment benefits Share-based compensation (note 25) 32. PERSONNEL EXPENSES Wages, salaries and employee benefits Expenses related to defined benefit plans (note 22) Expenses related to defined contributions plans Share-based compensation (note 25) For the years ended September 30, 2017 October 1, 2016 $ 3,603 627 164 74 4,468 $ 2,577 458 138 34 3,207 For the years ended September 30, 2017 October 1, 2016 $ 72,674 5,434 3,992 74 82,174 $ 67,063 5,113 4,288 34 76,498 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 32. PERSONNEL EXPENSES (CONTINUED) The personnel expenses were charged to the consolidated statements of earnings and comprehensive income or capitalized in the consolidated statements of financial position as follows: 121 Cost of sales Administration and selling expenses Distribution expenses Property, plant and equipment For the years ended September 30, 2017 October 1, 2016 $ 66,941 13,240 1,564 81,745 429 82,174 $ 63,506 11,186 1,271 75,963 535 76,498 33. RELATED PARTIES Lantic has outstanding redeemable Class B shares of $44.5 million that are retractable and can be settled at Lantic’s option by delivery of a note receivable from Belkorp Industries Inc., having the same value. The note receivable bears no interest and has no fixed terms of repayment. The Class B shares are entitled to vote, but on a pro rata basis at a meeting of shareholders of Lantic. Under the terms of a voting trust agreement between Belkorp Industries Inc. and Rogers, Rogers is entitled to vote the Class B shares so long as they remain outstanding. Due to the fact that Lantic has the intent and the legal right to settle the note receivable with the redeemable preferred shares, these amounts have been offset and, therefore, are not presented on the consolidated statements of financial position. Belkorp Industries Inc. also controls, through Lantic Capital, the two Lantic Class C shares issued and outstanding. The Class C shares entitle Lantic Capital to elect five of the seven directors of Lantic, but have no other voting rights at any meetings of shareholders of Lantic, except as may be required by law. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 122 34. SEGMENTED INFORMATION The Company has two operating and reportable segments, sugar and maple products. The principal business activity of the sugar segment is the refining, packaging and marketing of sugar products. The Maple products segment processes pure maple syrup and related maple products. The reportable segments are managed independently as they require different technology and capital resources. Performance is measured based on the segments’ gross margins and results from operating activities. These measures are included in the internal management reports that are reviewed by the Company’s President and CEO, and management believes that such information is the most relevant in the evaluation of the results of the segments. Transactions between reportable segments are interest receivable (payable), which are eliminated upon consolidation. Revenues Cost of sales Gross margin Depreciation and amortization Results from operating activities Total assets Total liabilities Additions to property, plant and equipment and intangible assets Revenues Cost of sales Gross margin Depreciation and amortization Results from operating activities Total assets Total liabilities Additions to property, plant and equipment and intangible assets Sugar $ 655,851 582,143 73,708 13,105 41,247 744,311 (918,313) For the year ended September 30, 2017 Maple products Corporate and eliminations $ 26,666 23,076 3,590 491 948 254,056 (210,647) $ — — — — (1,164) (164,375) 629,124 Total $ 682,517 605,219 77,298 13,596 41,031 833,992 (499,836) 17,306 64 — 17,370 Sugar $ 564,411 436,188 128,223 12,345 99,746 584,642 (759,956) 14,766 For the year ended October 1, 2016 Maple products Corporate and eliminations $ — — — — — — — — $ — — — — (1,148) 556 440,311 Total $ 564,411 436,188 128,223 12,345 98,598 585,198 (319,645) — 14,766 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 34. SEGMENTED INFORMATION (CONTINUED) Revenues were derived from customers in the following geographic areas: Canada United States Other 123 For the years ended September 30, 2017 October 1, 2016 $ 624,992 50,055 7,470 682,517 $ 534,630 29,781 — 564,411 35. SUBSEQUENT EVENT On November 18, 2017, the Company acquired 100% of 9020-2292 Quebec Inc., a company operated under “Decacer” trade name, for approximately $40.0 million (the “Transaction”), subject to closing adjustments. The Company financed the Transaction with a draw-down on the Company’s $275.0 million amended credit facility. As of the reporting date, the Company had not completed the purchase price allocation of the Transaction. (In thousands of dollars except as noted and per share amounts)2017 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 124 ROGERS SUGAR INC. Corporate Information DIRECTORS M. Dallas H. Ross, Chairman and CEO Kinetic Capital Limited Partnership Dean Bergmame, (2) (3) Director Michel P. Desbiens, (2) (3) Director William S. Maslechko, (3) Partner Burnet, Duckworth & Palmer LLP Daniel Lafrance, (1) (2) Director Gary Collins, Senior Advisor Lazard Group (1) Nominees to Board of Directors of Lantic Inc. (2) Audit Committee Members (3) Nominating and Governance Committee Members LEGAL COUNSEL Davies, Ward, Phillips & Vineberg Montreal, Quebec TRADING SYMBOL RSI STOCK EXCHANGE LISTING The Toronto Stock Exchange ANNUAL MEETING The annual meeting of Shareholders to be held at 1:00 PM (Pacific Time) February 1, 2018 at the Pinnacle Hotel Vancouver Harbourfront 1133 West Hastings St. Vancouver, British Columbia V6E 3T3 Tel: (604) 689-9211 ADMINISTRATIVE OFFICE 4026 Notre-Dame Street East Montreal, Quebec H1W 2K3 Tel: (514) 527-8686 Fax: (514) 527-8406 REGISTRAR & TRANSFER AGENT Computershare Investor Services Inc. Toronto, Ontario AUDITORS KPMG LLP Montreal, Quebec INVESTOR RELATIONS Manon Lacroix Tel: (514) 940-4350 Fax: (514) 527-1610 WEBSITE rogerssugarinc.com lantic.ca (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSBOTTLING FACILITIES L.B. Maple Treat 1037 boul. Industriel, Granby, Québec J2J 2B8 Great Northern 331 rue Principale, Saint-Honoré-de-Shenley, Québec G0M 1V0 Highland Sugarworks PO Box 58, Websterville Vermont, 05678, USA Designed and written by MaisonBrison Communications Printed in Canada LANTIC INC. Corporate Information — Management DIRECTORS OF LANTIC INC. M. Dallas H. Ross, (1) Chairman & CEO Kinetic Capital Limited Partnership AUDITORS KPMG LLP Montreal, Quebec Gary Collins, (2) Senior Advisor Lazard Group Michael Heskin, (2) Vice President Finance and CFO Belkorp Industries Inc. Donald G. Jewell, Managing Partner RIO Industrial Daniel Lafrance, (1) (2) Director John Holliday, President and Chief Executive Officer Lantic Inc. (1) Rogers Sugar Inc. Nominees (2) Audit Committee Members OFFICERS John Holliday, President and Chief Executive Officer Patrick Dionne, Vice President, Operations and Supply Chain Diana R. Discepola, Director of Finance Jean-François Khalil, Vice President, Human Resources Manon Lacroix, Vice President Finance, Chief Financial Officer and Secretary Michael Walton, Vice President, Sales and Marketing MANAGEMENT OFFICE 4026 Notre-Dame Street East Montreal, Quebec H1W 2K3 Tel: (514) 527-8686 Fax-General: (514) 527-8406 Fax-Administration: (514) 527-1610 PLANT ADDRESSES 123 Rogers Street, Vancouver, British Columbia V6B 3N2 Western Operation Operations Manager: Gary Mustvedt Tel: (604) 253-1131 Fax: (604) 253-2517 5405 – 64th Street Taber, Alberta T1G 2C4 Western Operations Operations Manager: Andrew Llewelyn-Jones Tel: (403) 223-3535 Fax: (403) 223-9699 230 Midwest Road Scarborough, Ontario M1P 3A9 Plant Manager: David Saulnier Tel: (416) 757-8787 Fax: (416) 757-2315 4026 Notre-Dame Street East Montreal, Quebec H1W 2K3 Plant Manager: Serge Allaire Tel: (514) 527-8686 Fax-Gen.: (514) 527-8406 lantic.ca rogerssugarinc.com 

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