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)
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(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