Rogers Sugar
Annual Report 2019

Plain-text annual report

2019 ANNUAL REPORT R O G E R S S U G A R I N C . 2 0 1 9 A N N U A L R E P O R T SOMETHING SWEET FOR EVERYONE OUR GOAL IS TO OFFER THE BEST QUALITY SUGARS AND SWEETENERS TO SATISFY OUR CUSTOMERS. TOTAL DIVIDEND (thousand of $) OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP TOTAL Fiscal 2019 Fiscal 2018 – – – – 9,451 9,517 – – – – 9,451 9,517 – – – – 9,451 9,487 – – – – 9,440 37,793 9,450 37,971 PER SHARE DIVIDEND ($) OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP TOTAL Fiscal 2019 Fiscal 2018 – – – – 0.09 0.09 – – – – 0.09 0.09 – – – – 0.09 0.09 – – – – 0.09 0.09 0.36 0.36  1 ROGERS AT A GLANCE SUGAR VS. MAPLE SYRUP PRODUCTS GEOGRAPHIC PARTITION 25% Maple Syrup 5% Other 4% Europe 14% U.S. 75% Sugar 77% Canada ROGERS holds all of the common shares of Lantic Inc., which LANTIC also owns all of the common shares of The Maple operates cane sugar refineries in Montreal, Québec and Treat Corporation (“TMTC”) and is headquartered in Montréal, Vancouver, British Columbia, as well as the only Canadian Québec. TMTC operates bottling plants in Granby, Dégelis sugar beet processing facility in Taber, Alberta. Lantic’s and in St-Honoré-de-Shenley, Québec and in Websterville, sugar products are marketed under the “Lantic” trademark Vermont. TMTC’s products include maple syrup and derived in Eastern Canada, and the “Rogers” trademark in Western maple syrup products and are sold under various brand Canada and include granulated, icing, cube, yellow and brown names, such as L.B. Maple Treat, Great Northern, Decacer and sugars, liquid sugars and specialty syrups. Highland Sugarworks. 2019 ANNUAL REPORT  2 REPORT FROM THE CHAIRMAN The year ended September 28, 2019 brought significant challenges for the business and the resulting consolidated adjusted EBITDA was $87.8 million. These results include gains from continued solid volume growth in Sugar, offset by costs from operational challenges in both Sugar and Maple as well as increased competition in Maple. Notwithstanding these lower than targeted results, progress on improving the operating platform of both the Sugar and Maple segments continues. We believe diversification in the natural sweetener segment will, in time, bring greater top line growth and profitability. Year-over-year volume for the Sugar segment was approximately 21,300 metric tonnes greater than in fiscal 2018. A significant portion of this improvement was attributable to liquid sugar which is benefiting from low #11 sugar values and improved price competitiveness with respect to High Fructose Corn Syrup (“HFCS”). In addition, an increase in conversion from HFCS to liquid sugar stems from food processors response to consumer negative attitudes and perception towards HFCS. Overall, adjusted gross margin for the sugar business was approximately $127 per metric tonne compared to approximately $138 per metric tonne last year. The lower margin is largely attributable to unexpected business costs associated with the Vancouver capital project and to a lesser extent by lower profitability of the Taber facility where #11 raw sugar values were lower than the comparable year in the first quarter. Finally, fiscal 2018 included a one-time non-cash pension plan income. In the Maple segment, fiscal 2019 included plans to consolidate and change our manufacturing platform to support expected top line sales growth. The footprint optimization project created some short-term capacity constraints and combined with the impact of a tighter than historically labour market, lowered plant efficiencies and throughputs. A significant new market entrant, a continued deceleration in market growth and a below average 2018 maple crop created very difficult market conditions which resulted in higher costs, sales losses, lower selling margins and an inability to realize planned account growth. Altogether, the Maple products segment adjusted EBITDA was lower than anticipated at $14.7 million. The business is focused on fixing what is within its control. In fiscal 2020, we reasonably expect improvements from operations, access to more labour and lower cost of manufacturing stemming from increased capacity. Competitor behaviours and market growth opportunities are less predictable and will require perseverance and smart tactics. ROGERS SUGAR INC.  3 We believe diversification in the natural sweetener segment will, in time, bring greater top line growth and profitability. Overall, fiscal 2019 was a difficult year. The Board and Management believe the combined business can do better. Management feels unexpected costs in Sugar in Vancouver are behind us. Improved logistics and efficiencies in Maple are imminent, although competitive conditions in Maple have been difficult. Competitive market issues aside, the lesson this year is better execution. Management is applying learnings from the challenges faced and making substantive changes. In fiscal 2019, Rogers paid quarterly dividends of $0.09 per share for a yearly total of $0.36 per share. The declared dividend for fiscal 2019 of $37.8 million by Rogers’ is higher than stated free cash flow of $30.8 million but, stated free cash flow was reduced by $7.8 million due to non recurring costs associated with the Vancouver capital project and one-time additional capital spending for the Taber air emission project. Adjusted for these two elements, free cash flow appropriately covered the dividend requirements in the year. The Board of Directors always assesses the appropriateness of the dividend based on the performance and outlook for the business and views sustainable returns to shareholders and maintenance of the dividend as a critical strategic priority. During the year, Rogers put in place a Normal Course Issuer Bid and as a result, the Company purchased and cancelled 122,206 common shares for a total cash consideration of $0.6 million. Finally, as we make these commitments to change, I would like to thank all of our employees for their efforts and resolve to strengthen the Company. We are always guided by our obligation to both ensure and enhance the value of your investment. We thank you, our shareholders, for the trust you have accorded us. On behalf of the Board of Directors, Dallas H. Ross Chairman November 20, 2019 2019 ANNUAL REPORT  4 REPORT FROM THE PRESIDENT AND CEO Fiscal 2019 proved to be a challenging year for the business. While we made progress against our core strategies and have positioned ourselves well for the future our 2019 results did not meet our expectations. Taking some time to reflect on our results, our vision and enabling strategies is a healthy and appropriate exercise: validating what is working, what we should improve, what we should stop doing and what we should initiate is a good business process. The growth in sugar consumption in the short term has been driven by the conversion of high fructose corn syrup to natural sugar. These conversion opportunities are diminishing and we continue to observe consumers and food processors increasingly adopting alternative natural sweeteners and, in parallel, looking at new sugar reduction solutions to address evolving market demands. Our investment in the Maple platform has provided Lantic with a significant position in the alternative natural sweetener space. We believe our vision also compels us to investigate and explore natural sugar reduction solutions. We know, the complexity of the functional role of sugar in food processing and the high cost of sugar reduction solutions will always limit the substitution potential of traditional sweetener demand. Notwithstanding this fact, we believe, in time, more cost effective and label friendly solutions will emerge. We will follow these developments closely with a view to find a platform that would complement and leverage our current capabilities. We are pleased with the solid momentum achieved in our sugar business in 2019. Positive market place growth, execution on our eastern strategy to improve customer mix, and profitability dovetailed well with significantly improved manufacturing and supply chain performance in our eastern refining operations. Contrasting this good news, a major capital investment in our sugar decolourization system in Vancouver created unplanned operating costs and supply chain disruptions in Western Canada. Some unusual events - A provincial gas pipeline interruption, and a site flood - contributed to the challenge. We conducted a thorough review and have taken steps to reduce the chances of reoccurrence. At the close of the fiscal year, after a 9-month commissioning period, we are approaching steady-state operations and have increased confidence in the system. Our attention in Fiscal 2020 will be to leverage the learnings and changes made in 2019 and to execute the best way possible to meet whatever challenges may come our way. The maple business did not deliver on our financial expectations in 2019. Strategically, we remain firmly committed to this segment. We see it as an excellent fit in the alternative natural sweetener segment strategy. It is clear that most of the headwinds we are facing are rooted in changes in the competitive environment and slower than forecasted growth in consumption. The start-up of a new player and two early post-acquisition account losses and a realignment of one of our key customer’s supply chains to align with a more “made in America” sourcing strategy, have combined to result in lower than projected volume, and compressed margins. These market fundamentals represent the largest cause for the misses to our original expectations. Exacerbating this were some delays to integration gains, mostly in the area of reduction in syrup costs, product overfill and manufacturing ROGERS SUGAR INC.  5 cost improvements. The latter will eventually meet our regular access for Canadian beet sugar and sugar containing products. threshold for return on investment when completed in the spring Our Market Access Strategy is equally applicable to our Maple of 2020. High employee turnover and absenteeism, particularly Syrup business. Historically largely unencumbered by tariffs, it in the Granby region, have also caused delays in our progress. was interesting to see the Canadian government put maple syrup Record low unemployment rates in rural Quebec are a significant on the retaliatory tariff list for the US steel and aluminum dispute. contributing factor to our labour challenge. Developing more We are now back to free and fair trade between Canada and the competitive and flexible working solutions to attract and retain a USA on the maple syrup portfolio, which offers us an excellent quality workforce is a key focus and an important enabler for this opportunity to expand sales beyond our borders. In fact, 80% of business. Maple is an important part of our long-term business our revenues in this newly acquired business come from export plan and we will work through these marketplace forces as we sales, primarily to the U.S., which continues to provide good have in the past with our sugar business. In the short term, the key opportunities for growth in both the traditional retail and food focus for the business is completing the manufacturing platform ingredient channels. changes, achieving low cost supplier status and providing the sales team with a platform for growth. These changes should be Our Acquisition Strategy is an important enabler to our overall completed by mid-Fiscal 2020. vision for the company. To achieve our vision of becoming a leading North American Natural Sweetener Supplier, we will need Reflecting briefly on our strategies, we continue to believe our to find new targets for growth. Our immediate focus in this area is core strategies of Operational Excellence; Market Access and the ongoing integration of the Maple business, but in parallel we Acquisition/Brand Development/Innovation provide the right continue to build insights and explore potential ways to further focus for our business. This focus helps us communicate our strengthen our product offering and market development within priorities and channel our resources, human and capital, towards North America through strategic partnerships that allow us to making meaningful progress. leverage our existing business footprint. With the flatter growth outlook for sugar, we have made a Our strategies and future success require hard work, perseverance greater effort to increase our investment in ROI projects that and teamwork and I would like to take this opportunity to thank will deliver bottom line growth. Our operating budget earmarks our valued employees for all their efforts and support this past approximately $6 million of capital to support investments in year and for their ongoing commitment to ensure we continue to solutions that lower energy costs, increase automation and deliver value to our shareholders. deliver new value added manufacturing capabilities. In addition to our funding, the business was successful in obtaining $4 million in grant funding to increase the scale and scope of work. These funds will help to further augment our commitments and improve overall returns. Key projects in fiscal 2020 include packing line automation projects in Montreal and Taber along with multiple sustainability projects related to waste, heat recovery and process John Holliday efficiency across all three sugar manufacturing sites. This capital President and Chief Executive Officer is complemented by continuous investment in replacement of November 20, 2019 equipment that has reached the end of its useful life which, together, lower our costs, improve our reliability and help deliver on our Operational Excellence Strategy. In a complex and dynamic political environment, we believe the eventual ratification of the new modernized CUSMA agreement will be a positive development for our business. The new agreement will provide a better environment for investment by food processors and create opportunities for improved market 2019 ANNUAL REPORT  6 PROUDLY CANADIAN WITH ROOTS FROM COAST TO COAST 1 2 6 7 4 5 3 8 ROGERS TMTC 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. Bottling Plant, Warehousing and Shipping DÉGELIS, QC 8. Botting Plant, Warehousing and Shipping WEBSTERVILLE, VT ROGERS SUGAR INC.  7 MANAGEMENT’S DISCUSSION AND ANALYSIS CONSOLIDATED FINANCIAL STATEMENTS For the fiscal years ended September 28, 2019 and September 29, 2018 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 8 T his Management’s Discussion and Analysis (“MD&A”) of Rogers Sugar Inc.’s (“Rogers” or the “Company”) audited consolidated financial statements for the fiscal years ended September 28, 2019 and September 29, 2018 should be read in words “may,” “will,” “should,” “anticipate,” “intend,” “assume,” “expect,” “plan,” “believe,” “estimate,” and similar expressions and the negative of such expressions, identify forward-looking statements. Although this is not an exhaustive list, the Company conjunction with the audited consolidated financial statements cautions investors that statements concerning the following and related notes for the years ended September 28, 2019 and subjects are, or are likely to be, forward-looking statements: future September 29, 2018. The Company’s MD&A and consolidated prices of raw sugar, natural gas costs, the opening of special financial statements are prepared using a fiscal year which typically refined sugar quotas in the United States (“U.S.”), beet production consists of 52 weeks, however, every five years, a fiscal year consists forecasts, growth of the maple syrup industry, anticipated benefit of of 53 weeks. The fiscal years ended September 28, 2019, September the TMTC and Decacer acquisitions (including expected adjusted 29, 2018 and September 30, 2017 all consist of 52 weeks. EBITDA), the status of labour contracts and negotiations, the level of future dividends and the status of government regulations and All financial information contained in this MD&A and audited investigations. Forward-looking statements are based on estimates consolidated financial statements are prepared in accordance with and assumptions made by the Company in light of its experience International Financial Reporting Standards (“IFRS”). All amounts and perception of historical trends, current conditions and expected are in Canadian dollars unless otherwise noted, and the term future developments, as well as other factors that the Company “dollar”, as well as the symbol “$”, designate Canadian dollars believes are appropriate and reasonable in the circumstances, but unless otherwise indicated. there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements involve known Management is responsible for preparing the MD&A. Rogers’s and unknown risks, uncertainties and other factors that may cause audited consolidated financial statements and MD&A have been actual results or events to differ materially from those anticipated approved by its Board of Directors upon the recommendation in such forward-looking statements. Actual performance or results of its Audit Committee prior to release. This MD&A is dated could differ materially from those reflected in the forward-looking November 20, 2019. statements, historical results or current expectations. Readers should also refer to the section “Risks and Uncertainties” at the Additional information relating to Rogers, Lantic Inc. (“Lantic”) end of this MD&A for additional information on risk factors and (Rogers and Lantic together referred as the “Sugar segment”), The other events that are not within the Company’s control. These risks Maple Treat Corporation (“TMTC”), formally known as L.B. Maple are also referred to in the Company’s Annual Information Form in Treat Corporation (“LBMTC”), 9020-2292 Québec Inc. (“Decacer”) the “Risk Factors” section. and Highland Sugarworks Inc. (“Highland”) (the latter three companies together referred to as “TMTC” or the “Maple products Although the Company believes that the expectations and segment”), including the annual information form, quarterly and assumptions on which forward-looking information is based are annual reports, management proxy circular, short form prospectus reasonable under the current circumstances, readers are cautioned and various press releases is available on Rogers’s website at www. not to rely unduly on this forward-looking information as no LanticRogers.com or on the Canadian Securities Administrators’ assurance can be given that it will prove to be correct. Forward- System for Electronic Document Analysis and Retrieval (“SEDAR”) looking information contained herein is made as at the date of this website at www.sedar.com. Information contained in or otherwise MD&A and the Company does not undertake any obligation to accessible through our website does not form part of this MD&A update or revise any forward-looking information, whether as a and is not incorporated into the MD&A by reference. result of events or circumstances occurring after the date hereof, FORWARD-LOOKING STATEMENTS unless so required by law. ABOUT ROGERS SUGAR INC This report contains Statements or information that are or may be “forward-looking statements” or “forward-looking information” Rogers is the largest refined sugar producer in Canada and the within the meaning of applicable Canadian securities laws. Forward- largest maple syrup bottler in the world. Our aspiration is to become looking statements may include, without limitation, statements and a leading North American natural sweetener supplier by executing information which reflect the current expectations of the Company on our three core strategies, namely, operational excellence, market with respect to future events and performance. Wherever used, the access and acquisition. On August 5 and November 18, 2017, the Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 9 Company made progress in its third strategy by acquiring LBMTC volume sold within this market in fiscal 2019 by Canadian refiners and Decacer. As a result, the Company diversified and solidified had a slight decrease of approximately 1% year-over-year. its leadership position in this growing natural sweetener market. Rogers encompasses two reportable segments; the Sugar segment The liquid market segment is comprised of core users whose and the Maple product segment. process or products require liquid sucrose and another customer group that can substitute liquid sucrose with high fructose corn Rogers’ head office is in Vancouver, British Columbia and its syrup (“HFCS”). The purchasing patterns of substitutable users are administrative office is located in Montréal, Québec. largely influenced by the absolute price spread between HFCS and liquid sugar. Increasingly, other considerations, such as ingredient Our 800 employees are key to our success and employee safety labeling could also bear some influence on the purchasing is continuously at the forefront of our priorities. Each of the decision. The liquid segment grew by approximately 11% during Company’s manufacturing operations incorporates occupational the current fiscal year as a result of an increase in overall demand health and safety components in its annual planning which are and conversion from HFCS to sucrose that was beneficial for the reviewed weekly by senior management and quarterly by the Board Canadian refiners. of Directors. SUGAR SEGMENT Facilities Lantic’s Taber plant is the only beet sugar factory in Canada and is therefore the only producer of Canadian origin sugar. As such, this plant is the sole participant in an annual Canadian-specific quota to the U.S. of 10,300 metric tonnes. As part of the recently concluded Canada-United-States-Mexico Agreement (“CUSMA”), Lantic is the only sugar producer with operating facilities across an additional quota of 9,600 metric tonnes of Canadian origin Canada with cane refineries in Montréal and Vancouver and a sugar has been awarded to Canada. Shipments will begin following sugar beet factory in Taber, Alberta. Lantic also operates a custom ratification of the agreement by the three respective governments. blending and packaging operation and a distribution center in In addition, there is a 7,090 metric tonnes U.S. global refined sugar Toronto, Ontario. The strategic location of these facilities confers quota, which opens and is usually filled on a first-come first-served operating flexibility and the ability to service all customers across pro-rata basis on October 1st of every year. the country efficiently and on a timely basis. Our Products By-products relating to beet processing and cane refining activities are sold in the form of beet pulp, beet and cane molasses. Beet All Lantic operations supply high quality white sugar as well as a pulp is sold domestically and to export customers for livestock feed. broad portfolio of specialty products which are differentiated by The production of beet molasses and cane molasses is dependent colour, granulation, and raw material source. on the volume of sugar processed through the Taber, Montréal and Sales are focused in three specific market segments: industrial, consumer, and liquid products. The domestic market represents Our Supply Vancouver plants. more than 90% of the Company’s total volume. The global supply of raw cane sugar is ample. Over the last several In fiscal 2019, the domestic refined sugar market continued to and South America for its Montréal and Vancouver cane refineries. years, Lantic has purchased most of its raw cane sugar from Central show modest growth and increased by approximately 2% versus last fiscal year. In fiscal 2018, the Company entered into a two-year agreement with the Alberta Sugar Beet Growers (the “Growers”) for the supply The industrial granulated segment is the largest segment accounting of sugar beets to the Taber beet plant, for which the crop harvested for approximately 60% of all shipments. The industrial segment is in the Fall of 2019 is the first year of the agreed contract. Any comprised of a broad range of food processing companies that potential shortfall in beet sugar production related to crop issues is serve both the Canadian and American markets. mostly replaced by refined cane sugar from the Vancouver refinery, which acts as a swing capacity refinery and from the Montréal In the consumer market segment, a wide variety of products are refinery if required. offered under Lantic and Rogers brand name. This segment has remained fairly stable during the past several years although 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 10 Pricing Bottled maple syrup is packaged in a variety of ways and sizes, In fiscal 2019, the price of raw sugar fluctuated between U.S. including bottles, plastic jugs and the traditional cans. Bottled 10.68 cents per pound and U.S. 14.24 cents per pound and closed maple syrup is available in all commercial grades and in organic at U.S. 11.92 cents per pound at the end of the fiscal year, which and non-organic varieties. TMTC’s bottled maple syrup is sold was 0.72 cents higher than the closing value at September 29, 2018. under a variety of brands, including Uncle Luke’s™, L.B. Maple Although price variation during the year was less than in fiscal 2018 Treat™, Great Northern™, Decacer, Highland Sugarworks™ and when raw sugar prices fluctuated between U.S. 9.83 and U.S. 15.49 Tapp and Spout TM. cents per pound, the average raw sugar price in fiscal 2019 was slightly lower than fiscal 2018 average. Since 2017, the global sugar Bulk maple syrup is mainly sold in containers of 4L or 17L, barrels market has been in a surplus situation driven by increased output in and totes to foodservice retailers as well as other wholesalers. Bulk India and Thailand while world consumption remained flat. maple syrup is also sold for industrial use for bottling or for use in food production, and privately under the L.B. Maple Treat™ brand. The price of refined sugar deliveries from the Montréal and Vancouver raw cane facilities is directly linked to the price of Maple derived products include maple blended syrup, maple the #11 world raw sugar market traded on the Intercontinental spread, maple cookies, maple taffy and other maple candies, Exchange (“ICE”). All sugar transactions are economically hedged, popcorn, teas and coffees. Maple products are mainly sold under thus eliminating the impact of volatility in world raw sugar prices. the L.B. Maple Treat™ and Highland Sugarworks™ brands. This applies to all refined sugar sales made by these plants. Liquid sales to HFCS substitutable customers are normally priced against Our Supply competing HFCS prices and are historically the lowest margin sales The biggest concentration of maple trees is located in Québec, for the Company. New Brunswick, Ontario, Vermont, Maine and New Hampshire. The production of maple syrup takes place over a period of 6 to 8 Whereas higher #11 world raw sugar values may have the effect of weeks during the months of March and April of each year. reducing the competitiveness of the liquid business versus HFCS, the opposite holds true for our beet operation. In Taber, the raw Canada remains the largest producer of maple syrup, with over material used to produce sugar is sugar beets, for which a fixed 77% of the world’s production. The U.S. is the only other major price, plus a scaled incentive linked to higher raw sugar values, producing country in the world, producing approximately 22% is paid by Lantic to the Growers. As a result, Lantic benefits from, of the global supply. Québec represented 71% of the world’s or alternatively, absorbs some of the changes associated with production in 2018. fluctuations in world raw sugar prices for all volume sold, excluding non U.S. export volume. MAPLE PRODUCTS SEGMENT Facilities There are approximately 7,300 commercial-scale maple syrup producers in Québec. The maple syrup producers in Québec are represented by the Producteurs et Productrices Acéricoles du Québec (“PPAQ”). The PPAQ generally regulates the buying and selling of bulk maple syrup. TMTC operates three plants in Québec, namely, in Granby, Dégelis In Québec, nearly 90% of the total production of maple syrup and in St-Honoré-de-Shenley, and one in Websterville, Vermont. is sold through the PPAQ to the authorized buyers, leaving only On August 1, 2018, the Company announced its intention to approximately 10% of the total production being sold directly by relocate its Granby operation to a new built for purpose leased the producers to consumers or grocery stores. The authorized facility also located in Granby. The relocation is not expected to buyer status is renewed on an annual basis. occur until the beginning of calendar 2020. TMTC also uses a storage facility in Dégelis and in St-Robert-Bellarmin, Québec, as In 2002, the PPAQ set up a strategic maple syrup reserve in order to well as a distribution centre in Richmond, British Columbia. mitigate production fluctuations imputable to weather conditions Our Products and prevent such fluctuations from causing maple syrup prices to spike or drop significantly. The reserve was initially established TMTC’s products are comprised of the following: bottled maple to set aside a production quantity equivalent to half of the then syrup, bulk maple syrup, maple sugar and flakes, and ancillary or annual demand. Each year, the PPAQ may organize a sale of a derived maple products. portion of its accumulated reserve. This allows bottlers to respond to supply shortages in the event of a poor harvest or unplanned Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  11 growth and demand. As at February 28, 2019, the PPAQ had vessel or the delivery of sugar to the Company’s customers. The over 88 million pounds of bulk maple syrup, including 18 million ICE rules are strict and are governed by the New York Board of pounds of processing/industrial grade maple syrup, in its strategic Trade. Any amount owed, due to the movement of the commodity reserve, which represents a little over half of the annual global retail being traded, has to be settled in cash the following day (margin consumption. call payments/receipts). In 2004, the PPAQ adopted a policy with respect to production and For the purchasing of raw sugar, the Company enters into long-term marketing quotas which resulted in an annual production volume supply contracts with reputable raw sugar suppliers (the “Seller”). allocated to each maple syrup business. The main objective of These long-term agreements will, amongst other things, specify the policy is to adjust the supply of maple syrup in response to the yearly volume (in metric tonnes) to be purchased, the delivery consumer demand, and more specifically, to stabilize selling prices period of each vessel, the terminal against which the sugar will be for producers and, ultimately, the buying price for consumers, foster priced, and the freight rate to be charged for each delivery. The investments in the maple industry and maintain a steady number of price of raw sugar will be determined later by the Seller, based maple producing businesses in operation, regardless of their size. upon the delivery period. The delivery period will correspond to the terminal against which the sugar will be priced. Outside of Québec, the maple syrup industry is generally organized through producer-based organizations or associations, which The selling of refined sugar by the Company is also done under the promote maple syrup in general and its industry and serve as the #11 world raw sugar market. When a sales contract is negotiated official voice for maple syrup producers with the public. with a customer, the sales contract will determine the period of the contract, the expected delivery period against specific terminals TMTC has relationships with more than 1,400 maple syrup producers, and the refining margin and freight rate to be charged over and mainly in Québec and Vermont. Most of these producers sell 100% above the value of the sugar. The price of the sugar is not yet of their production to TMTC. Through its strong relationship with determined but needs to be fixed by the customer prior to delivery. such producers, TMTC was able to develop a leading position in The customer will make the decision to fix the price of the sugar certified organic maple syrup. when he feels the sugar market is favourable against the sugar terminal, as per the anticipated delivery period. Pricing Pursuant to a Marketing Agreement entered into annually between The Company purchases sugar beets from the Growers under a the PPAQ and the Conseil de l’industrie de l’érable (the Maple fixed price formula plus a scale incentive when raw sugar values Industry Council (“MIC”)), authorized buyers must pay a minimum exceed a certain price level. Except for sales to the U.S., under the price to the PPAQ for any maple syrup purchased from the export quota, to HFCS-substitutable accounts, and for other export producers. The price is fixed on an annual basis and depends on opportunities, all other sales are made using the same formula as the grade of the maple syrup. In addition, a premium is added to cane sugar, following the #11 world raw sugar price. the minimum price for any organic maple syrup. Pursuant to the Marketing Agreement, authorized buyers must buy maple syrup Natural Gas from the PPAQ. The Board of Directors of Lantic approved an energy hedging policy to mitigate the overall price risks in the purchase of natural gas. USE OF FINANCIAL DERIVATIVES FOR HEDGING The Company purchases between 3.0 million gigajoules and Sugar 3.5 million gigajoules of natural gas per year for use in its refining operations. To protect against large and unforeseen fluctuations, In order to protect itself against fluctuations in the world raw sugar the Company can hedge forward up to 90% of its estimated usage market, the Company follows a rigorous hedging program for all over the next 12 months and lower percentages of its estimated purchases of raw cane sugar and sales of refined sugar. usage on a longer-term basis. The #11 world raw sugar market is only traded on the ICE, which These gas hedges are unwound in the months that the commodity trades in U.S. dollars. One can trade sugar futures forward for a is used in the operations, at which time any gains or losses incurred period of three years against four specific terminals per year are then recognized for the determination of adjusted gross (March, May, July and October). The terminal values are used to margins and earnings. determine the price settlement upon the receipt of a raw sugar 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  12 Foreign Exchange Certain export sales of maple syrup are denominated in U.S. Raw sugar costs for all sales contracts are based on the U.S. dollar. dollars, in Euro or in Australian dollars. In order to mitigate against The Company also buys natural gas in U.S. dollars. In addition, the movement of the Canadian dollar versus the U.S. dollars, sugar export sales and some Canadian sugar sales are denominated Euro or Australian dollars, TMTC 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 DATA AND HIGHLIGHTS The following is a summary of selected financial information of Rogers’ consolidated results for the 2019, 2018 and 2017 fiscal years. The financial results for fiscal 2018 include those of Decacer since its acquisition on November 18, 2017 and the financial results for fiscal 2017 include those of LBMTC since its acquisition on August 5, 2017. (unaudited) Fourth Quarter Fiscal Year (In thousands of dollars, except volume and per share information) Total volume 2019 2018 2019 2018 2017 Sugar (metric tonnes) 196,903 200,147 741,144 719,875 694,465 Maple syrup (‘000 pounds) 10,163 10,549 42,377 45,919 Total revenues Gross margin Results from operating activities Net (loss) earnings Net (loss) earnings per share (basic) Net (loss) earnings per share (diluted) Dividends per share Non- IFRS results (1) Adjusted Gross Margin (1) (2) Adjusted results from operating activities (1) (2) Adjusted EBITDA (1) (2) Adjusted net earnings (1) (2) Adjusted net earnings per share (basic) (1) (2) Trailing twelve months free cash flow (2) $ $ 207,572 211,807 29,073 (32,800) (40,021) (0.38) (0.38) 0.09 $ 29,026 17,153 22,215 9,910 0.09 30,843 29,255 18,231 9,633 0.09 0.09 0.09 $ 32,764 21,740 26,332 12,122 0.12 47,802 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. $ 794,292 122,575 24,147 (8,167) (0.08) (0.08) 0.36 $ $ 805,201 130,853 84,100 48,729 0.46 0.43 0.36 $ 5,764 $ 682,517 77,298 41,031 21,906 0.23 0.22 0.36 $ 116,578 126,362 103,259 68,150 87,808 37,079 0.35 30,843 79,609 99,942 45,032 0.43 47,802 66,992 84,181 40,714 0.42 40,646 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  13 Adjusted results Management believes that the Company’s financial results are In the normal course of business, the Company uses derivative more meaningful to management, investors, analysts and any financial instruments consisting of sugar futures, foreign exchange other interested parties when financial results are adjusted by the forward contracts, natural gas futures and interest rate swaps. gains/losses from financial derivative instruments. These adjusted The Company has designated as effective cash flow hedging financial results provide a more complete understanding of factors instruments its natural gas futures and its interest rate swap and trends affecting our business. This measurement is a non-GAAP agreements entered into in order to protect itself against natural measurement. See “Non-GAAP measures” section. gas prices and interest rate fluctuations as cash flow hedges. Derivative financial instruments pertaining to sugar futures and Management uses the non-GAAP adjusted results of the operating foreign exchange forward contracts are marked-to-market at each company to measure and to evaluate the performance of the reporting date and are charged to the consolidated statement of business through its adjusted gross margin, adjusted EBIT and earnings. The unrealized gains/losses related to natural gas futures adjusted net earnings. In addition, management believes that these and interest rate swaps are accounted for in other comprehensive measures are important to our investors and parties evaluating our income. The amount recognized in other comprehensive income is performance and comparing such performance to past results. removed and included in Net (loss) earnings under the same line Management also uses adjusted gross margin, adjusted EBITDA, item in the consolidated statement of earnings and comprehensive Maple products segment Adjusted EBITDA, adjusted EBIT and income as the hedged item, in the same period that the hedged adjusted net earnings when discussing results with the Board of cash flows affect Net (loss) earnings, reducing earnings volatility Directors, analysts, investors, banks and other interested parties. related to the movements of the valuation of these derivatives See “Non-GAAP measures” section. hedging instruments. The results of operations would therefore need to be adjusted by the following: Income (loss) Fourth Quarter Fiscal 2019 Fourth Quarter Fiscal 2018 (In thousands of dollars) Mark-to-market on: Sugar futures contracts Foreign exchange forward contracts Total mark-to-market adjustment on derivatives Cumulative timing differences Adjustment to cost of sales Amortization of transitional balance to cost of sales and changes in fair value of expired contracts for cash flow hedges Total adjustment to costs of sales Sugar $ Maple Products $ 1,744 (250) 1,494 (1,551) (57) 342 285 — (53) (53) (185) (238) — (238) Total $ 1,744 (303) 1,441 (1,736) (295) 342 47 Sugar $ (1,896) 290 (1,606) (3,134) (4,740) 582 (4,158) Maple Products $ — 660 660 (11) 649 — 649 Total $ (1,896) 950 (946) (3,145) (4,091) 582 (3,509) 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  14 Income (loss) (In thousands of dollars) Mark-to-market on: Sugar 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 and changes in fair value of expired contracts for cash flow hedges Total adjustment to costs of sales Fiscal 2019 Maple Products $ — (321) — (321) 49 (272) — (272) Sugar $ 179 (220) — (41) 4,652 4,611 1,658 6,269 Total $ 179 (541) — (362) 4,701 4,339 1,658 5,997 Fiscal 2018 Maple Products $ — 1,263 — 1,263 309 1,572 Sugar $ (3,154) 231 51 (2,872) 3,076 204 Total $ (3,154) 1,494 51 (1,609) 3,385 1,776 2,715 — (2,919) 1,572 2,715 (4,491) The fluctuations in mark-to-market adjustment on derivatives are On October 2, 2016, the Company adopted IFRS 9 (2014) Financial due to the price movements in #11 world raw sugar and foreign Instruments and designated natural gas futures as an effective cash exchange variations. See “Non-GAAP measures” section. flow hedging instrument. The transitional balances, representing the mark-to-market value recorded as of October 1, 2016, are Cumulative timing differences, as a result of mark-to-market gains subsequently removed from other comprehensive income when or losses, are recognized by the Company only when sugar is sold the natural gas futures will be liquidated, in other words, when the to a customer. The gains or losses on sugar and related foreign natural gas is used. As a result, in fiscal 2019, the Company removed exchange paper transactions are largely offset by corresponding a gain of $0.3 million and $1.7 million from other comprehensive gains or losses from the physical transactions, namely sale and income and recorded a gain of the same amount in cost of sales for purchase contracts with customers and suppliers. See “Non-GAAP the fourth quarter and year-to-date, respectively. The transitional measures” section. balance relating to natural gas futures will be fully depleted in fiscal 2020. See “Non-GAAP measures” section. The Company sells refined sugar to some clients in U.S. dollars. Prior to October 1, 2016, these sales contracts were viewed as The above described adjustments are added or deducted to the having an embedded derivative if the functional currency of the mark-to-market results to arrive at the total adjustment to cost of customer was not U.S. dollars, the embedded derivative being the sales. For the fourth quarter of the current year, the total cost of sales source currency of the transaction. As of October 2, 2016, the U.S. adjustment is a nominal gain to be deducted from the consolidated dollars of these sales contract were no longer considered as being results versus a loss of $3.5 million to be added to the consolidated an embedded derivative as it was determined that the U.S. dollar results for the comparable quarter last year. Year-to-date, the total is commonly used in Canada. This change in estimate was applied cost of sales adjustment is a gain of $6.0 million compared to a gain prospectively, as a result, only the embedded derivatives relating of $4.5 million to be deducted from the consolidated results for the to sales contracts outstanding as of October 1, 2016 continued to comparable period last year. See “Non-GAAP measures” section. be marked-to-market every quarter until all the volume on these contracts has been delivered, which occurred in fiscal 2018. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS SEGMENTED INFORMATION The following is a table showing the key results by segments: Consolidated results Fourth Quarter Fiscal 2019 Fourth Quarter Fiscal 2018 15 (In thousands of dollars) Revenues Gross margin Administration and selling expenses Distribution costs Goodwill impairment Sugar $ Maple Products $ Total $ Sugar $ Maple Products $ Total $ 159,432 48,140 207,572 161,040 50,767 211,807 29,073 21,640 24,643 4,730 3,465 4,430 2,622 1,056 7,352 4,521 — 50,000 50,000 4,751 2,908 — 7,615 2,215 1,150 — 29,255 6,966 4,058 — Results from operating activities 16,448 (49,248) (32,800) 13,981 4,250 18,231 Non-GAAP results (1): Adjusted Gross Margin (1) Adjusted results from operating activities (1) Adjusted EBITDA (1) Additional information: Addition to property, plant and equipment and intangible assets 24,358 16,163 19,662 4,668 990 2,553 29,026 17,153 22,215 25,798 18,139 21,570 6,966 3,601 4,762 32,764 21,740 26,332 7,054 1,081 8,135 10,894 608 11,502 Consolidated results Fiscal Year 2019 Fiscal Year 2018 (In thousands of dollars) Revenues Gross margin Administration and selling expenses Distribution costs Goodwill impairment Results from operating activities Non-GAAP results: Sugar $ Maple Products $ Total $ Sugar $ Maple Products $ Total $ 595,878 198,414 794,292 601,958 203,243 805,201 100,301 22,274 122,575 102,578 28,275 130,853 21,609 13,153 9,962 3,704 — 50,000 65,539 (41,392) 31,571 16,857 50,000 24,147 21,070 10,760 — 11,001 3,922 — 32,071 14,682 — 70,748 13,352 84,100 Adjusted Gross Margin (1) 94,032 22,546 116,578 Adjusted results from operating activities (1) 59,270 8,880 73,135 14,673 68,150 87,808 99,659 67,829 81,324 26,703 126,362 11,780 18,618 79,609 99,942 Adjusted EBITDA (1) Additional information: Addition to property, plant and equipment and intangible assets (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. 22,645 4,468 27,113 23,352 1,792 25,144 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  16 Results from operation by segment SUGAR Revenues (In thousands of dollars, except volume) Fourth Quarter Fiscal Year 2019 $ 2018 $ 2019 $ 2018 $ Volume (MT) as at September 29, 2018 159,432 161,040 595,878 601,958 Variation: Industrial Consumer Liquid Export Total variation Volume as at September 28, 2019 200,147 (7,152) (16) 4,771 (847) (3,244) 196,903 719,875 1,242 4,122 18,590 (2,685) 21,269 741,144 The decrease for the quarter in the industrial market segment is The liquid market continued to deliver higher volume when mostly due to non-recurring sales to a competitor that occurred compared to the prior year for both the quarter and the fiscal year in the fourth quarter last year and due to timing in certain large due mainly to additional demand from new and existing customers industrial accounts. as well as the recapture of some business temporarily lost to HFCS. Total consumer volume increased for the current fiscal year due Finally, the export volume decreased for the quarter and year-to- mainly to the additional volume negotiated with a National retail date when compared to last year due to less volume shipped to account for which additional shipments started in April of this year. Mexico, somewhat offset by opportunistic U.S. high tier sales. In the fourth quarter, the additional volume from this National retail account was offset by lower volume from other consumer accounts The decrease in revenues for the fourth quarter of fiscal 2019 and as a result of timing in retail promotional activities during the year-to-date versus the comparable periods last year is mainly quarter, which explains why the overall consumer volume for the explained by a decrease in the weighted average raw sugar values fourth quarter was comparable to the same period last year. in Canadian dollars, since the cost of raw sugar for all domestic sales is passed on to the Company’s customers which more than offset the increase in revenues generated by the additional volume for both periods. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  17 Gross margin Two major factors impact gross margins: the selling margin of the products and operating costs. (In thousands of dollars, except per metric tonne information) Gross margin Total adjustment to cost of sales (1) (2) Adjusted gross margin (1) Gross margin per metric tonne Adjusted gross margin per metric tonne Included in Gross margin: Fourth Quarter Fiscal Year 2019 $ 24,643 (285) 24,358 125.15 123.71 2018 $ 21,640 4,158 25,798 108.12 128.90 2019 $ 2018 $ 100,301 102,578 (6,269) (2,919) 94,032 135.33 126.87 99,659 142.49 138.44 Depreciation of property, plant and equipment 3,298 3,252 13,072 12,813 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. Gross margin of $24.6 million for the quarter and $100.3 million Year-to-date, adjusted gross margin decreased by $5.6 million. On year-to-date does not reflect the economic margin of the sugar a year-to-date basis, the Vancouver commissioning issues added segment, as it includes a gain of $0.3 million and of $6.3 million for approximately $4.6 million in one-time incremental costs caused the fourth quarter of fiscal 2019 and year-to-date, respectively, for by large amounts of overtime, significant refining materials usage the mark-to-market of derivative financial instruments as explained and additional natural gas usage in a time period when there above. In fiscal 2018, a mark-to-market loss of $4.2 million and a was a disruption in natural gas supply in British Columbia, which mark-to-market gain of $2.9 million was recorded for the fourth significantly increased natural gas transportation costs during the quarter and year-to-date, respectively, resulting in gross margins of second quarter. In addition, fiscal 2018 included a non-cash pension $21.6 million and $102.6 million for their respective periods. These plan income of $1.5 million recorded as a result of an amendment mark-to-market gains and losses must be deducted from or added to a defined benefit pension plan. Therefore, excluding these two to the gross margin in order to arrive to adjusted gross margin items, adjusted gross margin would have been $98.6 million for results, as explained above. fiscal 2019 versus $98.2 million for the comparable period last year, representing an increase of $0.4 million. This increase was We will therefore comment on adjusted gross margin results. due mainly to a higher sales volume and additional by-product revenues, somewhat offset by lower #11 raw sugar values during Adjusted gross margin for the current quarter was $1.4 million the first quarter of the current year, when compared to the same lower than the last quarter of fiscal 2018, mainly explained by period last year, which had a negative impact on Taber’s domestic lower sales volume as well as some additional operating costs. The sales gross margin and to higher operating costs. Adjusted gross current quarter’s adjusted gross margin rate was $5.19 per metric margin per metric tonne amounted to $126.87 for fiscal 2019 or tonne lower than last year. This decrease is mostly explained by $133.08, when excluding the one-time costs in Vancouver. In fiscal a somewhat unfavourable sales mix with higher liquid sales and 2018 adjusted gross margin of $138.44 included the non-cash lower export sales and additional operating costs, mostly related to pension plan income mentioned above, representing $2.05 per the fine tuning of the Vancouver refinery following a major capital metric tonne, thus reducing adjusted margin to $136.39 for fiscal investment earlier this year. 2018. The reduction of $3.31 in adjusted gross margin per metric tonne is mainly explained by the lower #11 raw sugar values in the first quarter of the current year, a different sales mix with higher liquid volume and to a lesser extent, higher operating costs. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  18 Other expenses (In thousands of dollars) Administration and selling expenses Distribution costs Included in Administration and selling expenses: Fourth Quarter Fiscal Year 2019 $ 4,730 3,465 2018 $ 4,751 2,908 2019 $ 21,609 13,153 2018 $ 21,070 10,760 Amortization of intangible assets 201 179 793 682 Administration and selling expenses were comparable to the fourth Year-to-date, distribution costs were $2.4 million higher than last quarter of last year but $0.5 million higher than fiscal 2018, mainly year due to additional freight costs as a result of additional sales due to additional employee benefits expenses. volume in the first half of the year as well as to product transfers between locations, of which, approximately $0.8 million relates to Distribution costs for the fourth quarter were $0.6 million higher the commissioning issues in Vancouver encountered in the second than the comparable period last year, mainly due to additional quarter of this year. transfers between location and additional warehousing costs. Results from operating activities (In thousands of dollars) Results from operating activities Adjusted results from operating activities (1) (2) Fourth Quarter Fiscal Year 2019 $ 16,448 16,163 2018 $ 13,981 18,139 2019 $ 65,539 59,270 2018 $ 70,748 67,829 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. The results from operating activities for fiscal 2019 of $16.5 million depreciation and amortization expense also had a negative impact and $65.5 million for the fourth quarter and year-to-date, on the results from operating activities. As such Management respectively, do not reflect the adjusted results from operating believes that the Sugar segment’s financial results are more activities of the Sugar segment, as they include gains and losses meaningful to management, investors, analysts, and any other from the mark-to-market of derivative financial instruments, as well interested parties when financial results are adjusted for the above- as timing differences in the recognition of any gains and losses mentioned items. on the liquidation of derivative instruments. In addition, non-cash Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  19 Adjusted EBITDA 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 Depreciation of property, plant and equipment and amortization of intangible assets Adjusted EBITDA (1) (2) Fourth Quarter Fiscal Year 2019 $ 16,448 (285) 16,163 3,499 19,662 2018 $ 13,981 4,158 18,139 3,431 21,570 2019 $ 65,539 (6,269) 59,270 13,865 73,135 2018 $ 70,748 (2,919) 67,829 13,495 81,324 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. Adjusted EBITDA for the fourth quarter decreased by $1.9 million year-to-date is mainly explained by lower adjusted gross margin due when compared to the last quarter of fiscal 2018, which is in large part to one-time costs incurred at the Vancouver refinery, explained by lower adjusted gross margins of $1.4 million and as explained above, and to higher distribution costs attributable higher distribution costs of $0.6 million, excluding depreciation and to higher sales volume and transfers between location, in part as amortization expense, as explained above. Year-to-date, adjusted a result of the commissioning issues in Vancouver and somewhat EBITDA was $8.2 million lower than fiscal 2018. The decrease higher administrative and selling expenses. MAPLE PRODUCTS Results for the prior fiscal year include Decacer’s results since its acquisition on November 18, 2017. Revenues (In thousands of dollars, except volume) Volume (‘000 pounds) Revenues Fourth Quarter Fiscal Year 2019 10,163 48,140 2018 10,549 50,767 2019 42,377 2018 45,119 198,414 203,243 Revenues for the current quarter were $2.6 million lower than the increased competition, certain delivery delays due to the relocation same period last year, which is mainly explained by short-term of production between facilities and the reduction in promotional production capacity constraints, associated with the optimization of activities associated with a shortage of certain syrup in the second the operational footprint, causing delays in certain shipments and quarter, more than offset the additional revenues generated by the continuation of competitive activities. Year-to-date, revenues Decacer for the full first quarter of the current year as compared decreased by $4.8 million versus fiscal 2018. The shortfall caused by to fiscal 2018. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  20 Gross margin Two major factors impact gross margins: the selling margin of the products and operating costs. (In thousands of dollars, except adjusted gross margin rate information) Gross margin Total adjustment to cost of sales (1) (2) Adjusted gross margin (1) Gross margin percentage Adjusted gross margin percentage (1) Included in Gross margin: Fourth Quarter Fiscal Year 2019 $ 4,430 238 4,668 9.2% 9.7% 2018 $ 7,615 (649) 6,966 15.0% 13.7% 2019 $ 22,274 272 22,546 11.2% 11.4% 2018 $ 28,275 (1,572) 26,703 13.9% 13.1% Depreciation of property, plant and equipment 557 309 1,855 1,479 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. Gross margin of $4.4 million and $22.3 million for the quarter decreased by 4.0% from last year due mainly to competitive and year-to-date does not reflect the economic margin of the pressure, unfavourable sales mix and additional operating costs. Maple products segment, as it includes a loss of $0.2 million and Year-to-date, adjusted gross margin was $4.2 million lower than last a $0.3 million, respectively, for the mark-to-market of derivative year, representing a decrease in adjusted gross margin percentage financial instruments on foreign exchange contracts. of 1.7%, mainly explained by a decrease in volume, by margin contractions and additional operating costs due to short-term We will therefore comment on adjusted gross margin results. inefficiencies associated with the operational footprint optimization. In addition, the second quarter results were negatively impacted by Adjusted gross margin for the current quarter was $2.3 million low inventories of certain syrup grades which required additional lower than the comparable period due in large part to lower purchases from the PPAQ’s reserve at a premium as opposed to a volume and to competitive pressure. Adjusted gross margin rate discount last year. Other expenses (In thousands of dollars) Administration and selling expenses Distribution costs Goodwill impairment Included in Administration and selling expenses: Fourth Quarter Fiscal Year 2019 $ 2,622 1,056 50,000 2018 $ 2,215 1,150 — 2019 $ 9,962 3,704 50,000 2018 $ 11,001 3,922 — Amortization of intangible assets 875 856 3,501 3,500 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  21 Administration and selling expenses were $0.4 million higher Distribution expenses were $0.1 million and $0.2 million lower in than the fourth quarter last year due to an increase in allowance the fourth quarter and year-to-date when compared to the same for doubtful accounts, timing of expenses and an increase in periods last year. non-recurring costs. Year-to-date, administration and selling expenses were $1.0 million lower than last year, mainly explained The Company performed a goodwill impairment test as of by a reduction in non-recurring costs. Fiscal 2019 includes September 28, 2019 and concluded that the carrying value of $0.4 million in non-recurring costs associated with the footprint goodwill exceeded the recoverable amount of the cash generating optimization project while fiscal 2018 included non-recurring costs unit for the Maple product segment. As a result, the Company and acquisition costs relating to Decacer totalling $0.9 million and recorded a non-cash impairment of $50.0 million in the fourth $0.7 million, respectively, representing a year-over-year variation of quarter of the current year. $1.2 million. Excluding these one-time costs, administration and selling expenses were $0.2 million higher than last fiscal 2018. Results from operating activities (“EBIT”) Fourth Quarter Fiscal Year (In thousands of dollars) Results from operating activities 2019 $ (49,248) Adjusted results from operating activities (“Adjusted EBIT”) (1) (2) 990 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. 2018 $ 4,250 3,601 2019 $ (41,392) 8,880 2018 $ 13,352 11,780 The results from operating activities for fiscal 2019 of negative Year-to-date, excluding the goodwill impairment, Adjusted $49.2 million and negative $41.4 million for the fourth quarter and EBIT of $8.9 million was $2.9 million lower than fiscal 2018 due year-to-date, respectively, do not reflect the adjusted results from to lower adjusted gross margin, as explained above, offset by operating activities of the Maple products segment, as they include lower administration and selling expenses and to a lesser extent, gains and losses from the mark-to-market of derivative financial distribution costs. instruments, as well as timing differences in the recognition of any gains and losses on the liquidation of derivative instruments. We will In addition, the acquisitions of LBMTC and Decacer resulted in therefore comment on adjusted results from operating activities. expenses that do not reflect the economic performance of the operation of the Maple products segment. Finally, non-cash As explained above, in the fourth quarter of the current year, a depreciation and amortization expense as well as goodwill goodwill impairment of $50.0 million was recorded and negatively impairment also had a negative impact on the results from operating impacted Adjusted EBIT. Excluding the goodwill impairment, the activities. As such Management believes that the Maple products Adjusted EBIT of $1.0 million was $2.6 million lower than the fourth segment’s financial results are more meaningful to management, quarter of last year, mostly due to a decrease in adjusted gross investors, analysts, and any other interested parties when financial margin and an increase in administration and selling expenses, results are adjusted for the above-mentioned items. as explained above, somewhat offset by lower distribution costs. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  22 Adjusted results The results of operations would therefore need to be adjusted by the following: Fourth Quarter Fiscal Year (In thousands of dollars) Results from operating activities Total adjustment to cost of sales (1) (2) 2019 $ (49,248) 238 2018 $ 4,250 (649) Adjusted results from operating activities (1) (49,010) 3,601 Non-recurring expenses: Acquisition costs incurred Other one-time non-recurring items Finished goods value at the estimated selling price less disposal costs as of the acquisition date Depreciation and amortization Goodwill impairment Adjusted EBITDA (1) — 131 — 1,432 50,000 2,553 — (4) — 1,165 4,762 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. (2) See “Adjusted results” section. 2019 $ (41,392) 272 (41,120) — 437 — 5,356 50,000 14,673 2018 $ 13,352 (1,572) 11,780 675 923 261 4,979 18,618 Other non-recurring items mainly include severance costs expensed to date, as well as non-recurring expenses related to the footprint optimization project. Adjusted EBITDA decreased by $2.2 million and $3.9 million for the fourth quarter and the full twelve months of fiscal 2019 due mainly to lower adjusted gross margins and higher administration and selling expenses, as explained above, somewhat offset by a reduction in distribution costs. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  23 CONSOLIDATED RESULTS OF OPERATION The following is a summary of selected financial information of Rogers’ consolidated results for the 2019, 2018 and 2017 fiscal years. The financial results for fiscal 2018 include those of Decacer since its acquisition on November 18, 2017 and the financial results for fiscal 2017 include those of LBMTC since its acquisition on August 5, 2017. (unaudited) Fourth Quarter Fiscal Year (In thousands of dollars, except volume and per share information) Sugar (metric tonnes) Maple syrup (‘000 pounds) Total revenues Gross margin Results from operating activities (“EBTI”) Net finance costs Income tax expense Net (loss) earnings Net (loss) earnings per share (basic) Net (loss) earnings per share (diluted) Dividends per share Non- GAAP results (1): Adjusted Gross Margin (1) Adjusted results from operating activities (“Adjusted EBIT”) (1) 17,153 Adjusted EBITDA (1) Adjusted net earnings (1) Adjusted net earnings per share (basic) (1) 22,215 9,910 0.09 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. 2019 $ 2018 $ 2019 $ 2018 2017 $ $ 196,903 200,147 741,144 719,875 694,465 10,163 10,549 42,377 45,119 5,764 207,572 211,807 794,292 805,201 682,517 29,073 (32,800) 4,843 2,378 (40,021) (0.38) (0.38) 0.09 29,026 29,255 18,231 4,735 3,863 9,633 0.09 0.09 0.09 32,764 21,710 26,332 12,122 0.12 122,575 130,853 24,147 18,113 14,201 (8,167) (0.08) (0.08) 0.36 84,100 17,132 18,239 48,729 0.46 0.43 0.36 77,298 41,031 10,218 8,907 21,906 0.23 0.22 0.36 116,578 126,362 103,259 68,150 87,808 37,079 0.35 79,609 99,942 45,032 0.43 66,992 84,181 40,714 0.42 Total revenues Excluding the mark-to-market of derivative financial instruments, Revenues decreased by $4.2 million and by $10.9 million for the adjusted gross margin for the last quarter of the current year fourth quarter and year-to-date, respectively, when compared to decreased by $3.7 million. The adjusted gross margin for the Maple the same period last year. The reduction in revenues both periods products segment resulted in a reduction of $2.3 million due mainly is explained by lower revenues in the Sugar and Maple product to a decrease in revenues, margin contractions stemming from segments, as explained above. Gross margin competitive activities and higher operating costs, as explained above. In addition, the Sugar segment’s adjusted gross margin also decreased by $1.4 million due to lower sales volume and additional Gross margin of $29.1 million for the quarter and $122.6 million operating costs, as explained above. Year-to-date, adjusted gross year-to-date does not reflect the economic margin of the Company, margin was lower than last year by $5.6 million and $4.2 million as it includes a nominal gain for the fourth quarter of the current for the Sugar segment and Maple product segment, respectively, year and a gain of $6.0 million year-to-date for the mark-to-market resulting in a total year-over-year reduction of $9.8 million. This of derivative financial instruments (See “Adjusted results” section). negative variance for the sugar segment is mainly explained by In fiscal 2018, a mark-to-market loss of $3.5 million and a mark-to- the one-time operating costs in Vancouver, by lower #11 raw sugar market gain of $4.5 million was recorded for the fourth quarter and values in the first quarter, by the non-recurrence in fiscal 2019 of a year-to-date, respectively, resulting in gross margins of $29.3 million pension income of $1.5 million as well as additional operating costs and $130.9 million for their respective period. in the fourth quarter, all of which offset the increase in sales volume 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  24 and higher by-product revenues as explained above. In addition, is mainly explained by a lower contribution from both reportable the adjusted gross margin for the Maple products segment also segments mostly as a result of lower adjusted gross margin as well contributed negatively to the decrease versus the comparable as higher distribution costs in the Sugar segment of $0.6 million, period due to lower revenues and margins as well as higher syrup due mainly to increased transfers between locations and higher costs, as explained above. administrative and selling expenses in the Maple products segment of $0.4 million due mainly to an increase in allowance Results from operating activities (“EBIT”) for doubtful accounts and timing, as explained above. Year-to- EBIT is defined as earnings before interest and taxes. For the fourth date, also excluding the mark-to-market of derivative financial quarter and fiscal 2019, EBIT amounted to negative $32.8 million instruments and the impact of the goodwill impairment, adjusted and $24.1 million, respectively, compared to $18.2 million and EBIT amounted to $68.2 million compared to $79.6 million for fiscal $84.1 million. The fourth quarter of the current year includes a 2018, a $11.4 million decrease. The reduction in adjusted gross non-cash goodwill impairment of $50.0 million relating to the margin of $5.6 million and $4.2 million for the Sugar and Maple Maple products segment. In addition, as mentioned above, the products segment, respectively, mainly explain the decrease year- gross margin comparison does not reflect the economic results from over-year. In addition, distribution costs for the Sugar segment operating activities which were positively impacted by $3.6 million were $2.4 million higher than fiscal 2018, mainly explained by and $1.5 million for the quarter and year-to-date, respectively, incremental costs resulting from additional freight transfers due to the period-over-period variation in mark-to-market of between locations, as explained above. Finally, somewhat reducing derivative financial instruments. Excluding the mark-to-market of the negative variance year-over-year is a reduction of $0.5 million in derivative financial instruments, and excluding the impact of the administration and selling expenses as the increase of $0.5 million goodwill impairment, adjusted EBIT for the current quarter stood at in the Sugar segment was more than offset by a reduction of $17.2 million versus $21.7 million, a decrease of $4.5 million. This $1.0 million in the Maple product segment, as explained above. Net finance costs Net finance costs consisted of interest paid under the revolving credit facility, as well as interest expense on the convertible unsecured subordinated debentures and other interest. It also includes a mark-to-market gain or loss on the interest swap agreements. The net finance costs breakdown is as follows: (In thousands of dollars) Interest expense on convertible unsecured subordinated debentures Interest on revolving credit facility Amortization of deferred financing fees Other interest expense Amortization of transition balances and net change in fair value of interest rate swap agreements Net finance costs Fourth Quarter Fiscal Year 2019 $ 2,082 1,797 296 737 (69) 4,843 2018 $ 2,072 1,739 329 723 (128) 4,735 2019 $ 8,339 7,337 1,178 1,637 2018 $ 7,691 6.893 1,422 1.658 (378) 18,113 (532) 17,132 Net finance costs for the current quarter were $0.1 million higher than the comparable quarter last year. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  25 Year-to-date, net finance costs were $1.0 million higher than fiscal As mentioned above, on October 2, 2016, the Company adopted 2018. The increase is mainly explained by $0.6 million in additional IFRS 9 (2014) Financial Instruments and designated interest rate interest expense on the convertible unsecured subordinated swap agreements as effective cash flow hedging instruments. debentures. On March 28, 2018, the Fifth series 5.75% convertible The transitional balances, representing the mark-to-market value unsecured subordinated debentures (“Fifth series debentures”) recorded as of October 1, 2016, are subsequently removed from of $60.0 million were repaid using a portion of the funds raised other comprehensive income when each of the fixed interest rate on the same day from the issuance of the Seventh series 4.75% tranches is liquidated, in other words, when the fixed interest convertible unsecured subordinated debentures (“Seventh series rate is paid. As a result, in the current quarter and year-to-date, debentures”) of $97.8 million. The increased borrowing level from the Company removed a gain of $0.1 million and $0.4 million, the Seventh series debentures, combined with the increase in respectively from other comprehensive income and recorded a accretion expense, more than offset the reduction in interest rate, gain of the same amount in net finance costs. For the comparative which mainly explains the increase year-to-date. periods of fiscal 2018, the Company recorded a mark-to-market gain of $0.1 million for the fourth quarter and of $0.5 million for The other interest expense pertains mainly to interest payable the full year. The transitional balance relating to interest rate swap to the PPAQ on syrup purchases, in accordance with its payment agreements will be fully depleted in fiscal 2020. See “Adjusted terms. Taxation The income tax expense (recovery) is as follows: results” section. (In thousands of dollars) Current Deferred Income tax expense Fourth Quarter Fiscal Year 2019 $ 4,038 (1,660) 2,378 2018 $ 3,091 772 3,863 2019 $ 16,084 (1,883) 14,201 2018 $ 17,967 272 18,239 The variation in current and deferred tax expense, quarter-over- Net (loss) earnings quarter and year-over-year, is consistent with the decrease in Net (loss) earnings were $49.7 million and $56.9 million lower than earnings before taxes in fiscal 2019, excluding the impact from the comparable fourth quarter and year-to-date, respectively. The the goodwill impairment, which had no current or deferred tax decrease is mostly explained by the Maple products non-cash consequence. goodwill impairment recorded in the current quarter this year, the negative variation of the after-tax impact of a decrease in EBIT, the Deferred income taxes reflect temporary differences, which result period-over-period variation of the gains and losses on the mark- primarily from the difference between depreciation claimed for to-market of derivative financial instruments, and to a much lower tax purposes and depreciation amounts recognized for financial extent, the additional finance costs, as explained above. reporting purposes, employee future benefits and derivative financial instruments. Deferred income tax assets and liabilities are measured using the enacted or substantively enacted tax rates anticipated to apply to income in the years in which temporary differences are expected to be realized or reversed. The effect of a change in income tax rates on future income taxes is recognized in income in the period in which the change occurs. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  26 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 2019 and 2018: QUARTERS 2019 2018 (In thousands of dollars, except for volume and per share information) First Second Third Fourth First Second Third Fourth Sugar Volume (MT) 188,377 175,040 180,824 196,903 174,144 163,253 182,331 200,147 Maple products volume (‘000 pounds) Total revenues Gross margin EBIT 11,857 11,033 9,325 10,163 11,191 12,725 10,654 10,549 $ $ $ $ $ $ $ $ 206,022 189,250 191,448 207,572 204,883 189,455 199,056 211,807 34,549 28,212 30,741 29,073 43,113 27,055 31,430 29,255 22,982 15,395 18,570 (32,800) 31,685 14,888 19,296 18,231 Net (loss) earnings 13,411 8,011 10,432 (40,021) 20,216 7,586 11,294 9,633 Gross margin rate per MT (1) 155.81 124.80 135.28 125.15 206.88 126.51 113.04 108.12 Gross margin percentage (2) 9.5% 12.7% 13.9% 9.2% 14.4% 12.1% 14.3% 15.0% Per share Net (loss) earnings Basic Diluted Non-GAAP Measures (3) 0.13 0.12 0.08 0.08 0.10 0.10 (0.38) (0.38) 0.19 0.18 0.07 0.07 0.11 0.10 0.09 0.09 Adjusted gross margin (3) 37,009 24,312 26,231 29,026 37,303 28,607 27,687 32,764 Adjusted EBIT (3) 25,442 11,495 14,060 17,153 25,875 16,440 15,553 21,740 Adjusted net earnings (3) 15,056 5,077 7,033 9,910 15,848 8,617 8,445 12,122 Adjusted gross margin rate per MT (1) (3) Adjusted gross margin percentage (2) (3) Adjusted net earnings per share (3) 155.16 110.22 116.97 123.71 179.19 134.66 113.37 128.90 14.2% 10.0% 11.2% 9.7% 12.4% 12.5% 13.9% 13.7% Basic Diluted 0.14 0.13 0.05 0.05 0.07 0.07 0.09 0.09 0.15 0.14 0.08 0.07 0.08 0.08 0.12 0.11 (1) Gross margin rate per MT and adjusted gross margin rate per MT pertain to the Sugar segment only. (2) Gross margin percentage and adjusted gross margin percentage pertains to the Maple products segment only. (3) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. 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 product mix, resulting in lower revenues, adjusted gross margins and adjusted net earnings. Quarterly results reflect Decacer since its acquisition on November 18, 2017. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS Financial condition (In thousands of dollars) Total assets Total non-current liabilities 27 2019 $ 835,028 404,904 2018 $ 870,209 382,136 2017 $ 835,474 344,130 The decrease in total assets in the current fiscal year is due mainly to to borrowings for the Decacer acquisition. Finally, deferred tax the $50.0 million impairment of goodwill partially offset with higher liabilities were $5.7 million higher than in fiscal 2017. Somewhat property-plant and equipment. The increase in total assets for fiscal offsetting these negative variances in non-current liabilities is a 2018, when compared to 2017 is due mainly to the acquisition of reduction in employee benefits liabilities of $7.7 million due mainly Decacer’s asset in November 2017 totalling $34.7 million. to a change in pension actuarial assumptions as at September 29, Non-current liabilities for fiscal 2019 also increased due mainly to 2018. an increase in employee benefits liabilities mostly due to a change On an annual basis, a goodwill impairment calculation is performed in pension actuarial assumptions as at September 28, 2019. The with the aim of ensuring that the recoverable value of the Company’s increase in non-current liabilities from fiscal 2017 to fiscal 2018 is operating segments is more than their respective carrying value. As explained by the issuance of the Seventh series debentures, net mentioned above, an impairment of $50.0 million was recorded of deferred financing costs, somewhat offset by the repayment in fiscal 2019 for the Maple product segment. There was no of the Fifth series debentures, for a net impact of $30.9 million. impairment in the Sugar segment analysis performed in fiscal 2019, In addition, the long-term portion of the revolving credit facility nor was there any impairment for any of the previous two years for was higher in fiscal 2018 when compared to the prior year due both reportable segments. Liquidity 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) Cash flow from operating activities Cash flow used in financing activities Cash flow used in investing activities Effect of changes in exchange rate on cash Net decrease in cash and cash equivalents 2019 $ 55,868 (30,768) (27,009) 52 (1,817) 2018 $ 52,912 (1,555) (66,429) 140 (14,932) Cash flow from operating activities increased by $3.0 million, which is explained by a positive non-cash working capital variation of $10.8 million, higher pension plan expense, somewhat offset by an increase in income taxes and interest paid of $7.8 million and $1.4 million, respectively. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  28 The negative variation in cash flow used in financing activities of both occurred in fiscal 2018 as well as a reduction in intangible $29.2 million is mainly attributable to the reduction of $33.2 million assets addition of $0.2 million. Somewhat reducing this variation in the issuance of convertible debentures in fiscal 2019. Slightly is greater capital spending during the current year as a result of reducing the above-mentioned negative cash flows from financing various major projects undertaken and an increased plan spending activities is a reduction in repurchases under the Normal Course during the year, resulting in an increase of $3.6 million. Issuer Bid (“NCIB”) of $3.3 million, a $0.4 million increase in borrowings from the revolving credit facilities, net of the variation in In order to provide additional information, the Company believes bank overdraft versus the comparable period last year, a reduction it is appropriate to measure free cash flow that is generated by the of $0.2 million in dividend due to the repurchase and cancellation operations of the Company. Free cash flow is a non-GAAP measure of shares under the NCIB and lower financing fees paid in the and is defined as cash flow from operations excluding changes in current period of $0.1 million. non-cash working capital, mark-to-market and derivative timing adjustments and financial instruments’ non-cash amounts, and The cash outflow used in investing activities decreased compared to including funds received or paid from the issue or purchase of fiscal 2018 by $39.4 million due mainly to the acquisition of Decacer shares and capital expenditures, excluding operational excellence for $42.1 million, a purchase price payment of $0.7 million, which capital expenditures. Free cash flow is as follows: (In thousands of dollars) Cash flow from operations Adjustments: Changes in non-cash working capital Mark-to-market and derivative timing adjustments Amortization of transitional balances Financial instruments non-cash amount Capital expenditures and intangible assets Operational excellence capital expenditures Purchase and cancellation of shares Deferred financing charges Stock options exercised Free cash flow (1) Declared dividends 2019 $ Fiscal Year 2018 $ 2017 $ 55,868 52,912 52,037 1,996 (4,340) (2,037) (1,472) 12,764 (23,192) (1,776) (3,247) 7,645 28,979 (3,389) 278 (27,009) (23,655) (17,303) 8,617 (640) (140) — 30,843 37,793 7,394 (3,963) (272) — 47,802 37,971 3,344 — (629) 521 40,646 34,896 (1) See “Non-GAAP Measures” section for definition and reconciliation to GAAP measures. Free cash flow for fiscal 2019 was $17.0 million lower than the paid of $7.8 million and $1.4 million, respectively and higher previous year mainly explained by a decrease in adjusted EBITDA(1) capital and intangible spending, net of operational excellence of $9.2 million, when reduced by the non-cash pension revenue capital of $2.1 million reduced free cash flow. Somewhat offsetting of $1.5 million and the net non-recurring costs year-over-year of the negative variance is a reduction of $3.3 million purchase and $1.4 million. In addition, an increase in income taxes and interest cancellation of shares. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  29 Operational excellence capital expenditures were $1.2 million During the current fiscal year, Rogers purchased and cancelled a higher when compared to fiscal 2018. This year’s operational total of 122,606 common shares under the NCIB for a total cash excellence capital expenditures included the completion of an consideration of $0.6 million, compared to 736,900 common energy saving project at the Vancouver refinery of $6.1 million, of shares acquired last fiscal year, for a total cash consideration of which, $2.1 million was spent in fiscal 2019. In addition, $2.4 million $4.0 million. was spent on the start of another energy saving project at the Vancouver refinery that should be completed by the end of the Financing charges are paid when a new debt financing is completed first quarter of fiscal 2020, for a total estimated project costs of and such charges are deferred and amortized over the term of that $2.7 million. Another important project is the Maple product debt. The cash used in the year to pay for such fees is therefore not segment footprint optimization, for which, $2.8 million was available and as a result is deducted from free cash flow. In fiscal spent in fiscal 2019. The total cost of the project is estimated at 2019, an amount of $0.1 million was paid to extend and amend the $5.5 million and should be completed by the end of the second revolving credit facility as opposed to $0.3 million for fiscal 2018. quarter of fiscal 2020. Free cash flow is not impacted by operational excellence capital expenditures, as these projects are not necessary The Company declared a quarterly dividend of 9.0 cents per for the operation of the plants but are undertaken because of the common share, resulting in an amount payable of $37.8 million for substantial operational savings that are realized once the projects the current year versus $38.0 million last year. are completed. Changes in non-cash operating working capital represent year- The Sugar segment invested $21.2 million in “Stay in Business over-year movements in current assets, such as accounts receivable and Safety” capital projects for plant reliability, product security, and inventories, and current liabilities, such as accounts payables. information systems and environmental requirements. The Movements in these accounts are due mainly to timing in the Company is spending an increased amount on “Stay in Business collection of receivables, receipts of raw sugar and payment and Safety” capital projects when compared to recent fiscal years. of liabilities. Increases or decreases in such accounts are due to In comparison, the Maple product segment invested $0.8 million in timing issues and therefore do not constitute free cash flow. Such “Stay in Business and Safety” capital projects. increases or decreases are financed from available cash or from the Company’s available credit facility of $265.0 million. Increases or During the current fiscal year, the Company spent $6.2 million to decreases in bank indebtedness are also due to timing issues from substantially complete the purchase and installation of equipment the above and therefore do not constitute available free cash flow. to upgrade the Taber beet factory to be fully compliant with the new air emissions regulations by the start of the fiscal 2020 beet The combined impact of the mark-to-market, financial instruments harvesting season (crop 2019). Air emission testing took place in late non-cash amount and amortization of transitional balances of October 2019 and preliminary results are positive. The finalization $7.8 million for the current fiscal year do not represent cash items of the commissioning is expected to be completed by the end of as these contracts will be settled when the physical transactions the first quarter of fiscal 2020. The investment required for this occur, which is the reason for the adjustment to free cash flow. project was considered as a one-time incremental investment to the ongoing capital expenditure program. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  30 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 Sugar segment purchase obligations (in MT) Maple product segment purchase obligations (in ‘000 pounds) Total $ 177,000 41,723 9,341 1,025 20,930 63,594 313,613 Less than 1 year $ 17,000 7,506 1,861 170 3,439 63,594 93,570 1 to 3 years 4 to 5 years After 5 years $ — 15,013 3,706 329 5,484 — $ 160,000 7,506 2,152 106 3,894 — $ — 11,698 1,622 420 8,113 — 24,532 173,658 21,853 1,057,000 628,000 429,000 4,300 4,300 — — — — — During fiscal 2018, the Company issued a total of $97.8 million On July 9, 2019, the Company exercised its option to extend 4.75% Seventh series debentures. In fiscal 2017, the Company the maturity date of its revolving credit facility to June 28, 2024 issued $57.5 million 5.0% Sixth series debentures in order to and made minor amendments to the amended credit agreement partially fund the acquisition of LBMTC. The Sixth and Seventh entered into on December 20, 2017, which do not affect its series debentures, which mature in December 2024 and June 2025, outstanding borrowings nor its financial covenants. As a result respectively, have been excluded from the above table due to the of the amended revolving credit facility, the Second Additional holders’ conversion option and the Company’s option to satisfy the Accordion Borrowings and the Additional Accordion Borrowings, obligations at redemption or maturity in shares. Interest has been the Company has a total of $265.0 million of available working included in the above table to the date of maturity. capital from which it can borrow at prime rate, LIBOR rate or under bankers’ acceptances, plus 20 to 250 basis points, based on In fiscal 2013, Lantic entered into a five-year credit agreement of achieving certain financial ratios. As at September 28, 2019, a total $150.0 million effective June 28, 2013, replacing the $200.0 million of $422.2 million have been pledged as security for the revolving credit agreement that expired on the same date. On August 3, credit facility, compared to $407.8 million as at September 29, 2017, the Company amended its existing revolving credit facility 2018, including trade receivables, inventories and property, plant to partially fund the acquisition of LBMTC. The available credit and equipment. was increased by $75.0 million by drawing additional funds under the accordion feature embedded in the revolving credit facility At September 28, 2019, a total of $177.0 million had been borrowed (“Additional Accordion Borrowings”). Then, on December 20, under this facility, of which, $17.0 million was presented as current. 2017, the Company amended, once again, its existing revolving credit facility thereby increasing its available credit by $40.0 million by drawing additional funds under the accordion feature (“Second Additional Accordion Borrowings”) to partially fund the Decacer acquisition. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  31 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 28, 2019 as well as their respective value, interest rate and time period: Fiscal year contracted Date Total value Fiscal 2015 Fiscal 2017 Fiscal 2017 Fiscal 2019 Total outstanding value as at September 28, 2019 Forward start interest rate swaps: Fiscal 2017 Fiscal 2019 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% March 12, 2019 to June 28, 2024 – 2.08% June 29, 2020 to June 29, 2022 – 1.733% June 29, 2022 to June 28, 2024 – 2.17% $ 30,000 20,000 30,000 20,000 100,000 $ 30,000 80,000 The interest payments that will be incurred on the future borrowings Company also contracts to purchase raw cane sugar substantially related to this swap agreement are reflected in the contractual in advance of the time it delivers the refined sugar produced from obligations table above. Subsequent to September 28, 2019, the the purchase. To mitigate its exposure to future price changes, the Company entered into an additional interest rate swap agreement Company attempts to manage the volume of refined sugar sales of $20.0 million at a rate of 1.68% for the period of October 3, 2019 contracted for future delivery in relation to the volume of raw cane to June 28, 2024. sugar contracted for future delivery, when feasible. Finance and operating lease obligations relate mainly to the The Company uses derivative instruments to manage exposures leasing of various mobile equipment, the premises of the blending to changes in raw sugar prices, natural gas prices and foreign operations in Toronto and the Maple products segment operations exchange. The Company’s objective for holding derivatives is to in Granby and Dégelis, Québec, in Richmond, British Columbia and minimize risk using the most efficient methods to eliminate or in Websterville,Vermont. reduce the impacts of these exposures. Purchase obligations represent all open purchase orders as at To reduce price risk, the Company’s risk management policy is to year-end and approximately $25.0 million for sugar beets that will manage the forward pricing of purchases of raw sugar in relation be harvested and processed in fiscal 2019 but exclude any raw to its forward refined sugar sales. The Company attempts to sugar priced against futures contracts. The purchase obligation meet this objective by entering into futures contracts to reduce regarding the sugar beets represents Management’s best estimate its exposure. Such financial instruments are used to manage the of the amount expected to be payable in fiscal 2020 as of the date Company’s exposure to variability in fair value attributable to the of this MD&A. firm commitment purchase price of raw sugar. TMTC has $8.8 million remaining to pay related to an agreement to The Company has hedged all of its exposure to raw sugar price risk purchase approximately $13.9 million (4.3 million pounds) of maple movement through March 2022. syrup from the PPAQ. In order to secure bulk syrup purchases, the Company issued letters of guarantee for a total amount of At September 28, 2019, the Company had a net long sugar position $17.3 million in favor of the PPAQ. The letters of guarantee expire of $3.2 million in net contract amounts with a current net contract on March 31, 2020. value of $4.7 million. This long position represents the offset of a smaller volume of purchases priced from suppliers than sugar A significant portion of the Company’s sales are made under fixed- priced with customers. price, forward-sales contracts, which extend up to three years. The 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  32 The Company uses futures contracts and swaps to help manage Capital resources its natural gas costs. At September 28, 2019, the Company had As mentioned above, Lantic entered into a five-year credit $37.9 million in natural gas derivatives, with a current contract value agreement of $150.0 million effective June 28, 2013, which has been of $34.3 million. amended in fiscal 2017, 2018 and 2019 to increase its borrowing capacity by requesting the Additional Accordion borrowings and The Company’s activities, which result in exposure to fluctuations the Second Additional Accordion Borrowings, which brought the in foreign exchange rates, consist of the purchasing of raw sugar, total available credit to $265.0 million. In addition, the credit facility the selling of refined sugar and Maple products and the purchasing was also amended in the current year to extend its maturity to of natural gas. The Company manages this exposure by creating June 28, 2024. At September 28, 2019, $177.0 million had been offsetting positions through the use of financial instruments. These drawn from the working capital facility, $8.3 million was drawn as instruments include forward contracts, which are commitments to bank overdraft and $0.2 million in cash was also available. buy or sell at a future date and may be settled in cash. The Taber beet operation requires seasonal working capital in the The credit risk associated with foreign exchange contracts arises first half of the fiscal year, when inventory levels are high and a from the possibility that counterparties to a foreign exchange substantial portion of the payments due to the Growers is made. contract in which the Company has an unrealized gain, fail to TMTC also has seasonal working capital requirements. Although perform according to the terms of the contract. The credit risk is the syrup inventory is received during the third quarter of the fiscal much less than the notional principal amount, being limited at any year, its payment terms with the PPAQ requires cash payment in time to the change in foreign exchange rates attributable to the the first half of the fiscal year. The Company has sufficient cash and principal amount. availability under its line of credit to meet such requirements. Forward foreign exchange contracts have maturities of less than Future commitments of approximately $19.0 million have been three years and relate mostly to the U.S. currency, and to a much approved for completing capital expenditures presently in progress. smaller extent, the Euro and Australian currency. The counterparties to these contracts are major Canadian financial institutions. The The Company also has funding obligations related to its employee Company does not anticipate any material adverse effect on its future benefit plans, which include defined benefit pension plans. financial position resulting from its involvement in these types As at September 28, 2019, all of the Company’s registered defined of contracts, nor does it anticipate non-performance by the benefit pension plans were in a deficit position. The Company counterparties. performed actuarial evaluations for two of its three remaining pension plans as of December 31, 2016 and January 1, 2017. At September 28, 2019, the Company had a net $99.7 million in foreign currency forward contracts with a current contract value of The Company monitors its pension plan assets closely and follows $99.3 million. strict guidelines to ensure that pension fund investment portfolios are diversified in line with industry best practices. Nonetheless, As part of its normal business practice, the Company also enters pension fund assets are not immune to market fluctuations and, into multi-year supply agreements with raw sugar processors for as a result, the Company may be required to make additional raw cane sugar. Contract terms will state the quantity and estimated cash contributions in the future. In fiscal 2019, cash contributions delivery schedule of raw sugar. The price is determined at specified to defined benefit pension plans decreased by approximately periods of time before such raw sugar is delivered based upon $0.3 million to $3.6 million. In total, the Company expects to incur the value of raw sugar as traded on the ICE #11 world raw sugar cash contributions of approximately $3.7 million for fiscal 2020 market. At September 28, 2019, the Company had commitments relating to employee defined benefit pension plans. For more to purchase a total of 1,057,000 metric tonnes of raw sugar, of information regarding the Company’s employee benefits, please which approximately 283,000 metric tonnes had been priced, for a refer to Note 22 of the audited consolidated financial statements. total dollar commitment of $113.9 million. The Company has no other off-balance sheet arrangements. expenditures are expected to be paid from available cash resources Cash requirements for working capital and other capital and funds generated from operations. Management believes that the unused credit under the revolving facility is adequate to meet any future cash requirements. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 33 OUTSTANDING SECURITIES series debentures may be redeemed by the Company only if the weighted average trading price of the share, for 20 consecutive A total of 104,885,464 shares and 104,872,764 shares were trading days, is at least 125% of the conversion price of $8.85. outstanding as at September 28, 2019 and November 20, 2019, Subsequent to June 30, 2023, the Seventh series debentures are respectively (105,008,070 as at September 29, 2018). redeemable at a price equal to the principal amount thereof plus accrued and unpaid interest. On May 22, 2019, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer Following the issuance of the Seventh series debentures on bid (“2019 NCIB”). Under the NCIB, the Company may purchase March 28 and April 3, 2018, the Company used a portion of the up to 1,500,000 common shares. The 2019 NCIB commenced on funds to repay the Fifth series debentures totalling $60.0 million May 24, 2019 and may continue to May 23, 2020. During fiscal at a price equal to the principal amount thereof plus accrued and 2019, the Company purchased 122,606 common shares for a total unpaid interest as of March 28, 2018. The remaining funds from the cash consideration of $0.6 million. issuance of the Seventh series debentures were used to reduce a portion of the amount drawn under revolving credit facility. In addition, the Company has entered into an automatic share purchase agreement with Scotia Capital Inc. in connection with On July 1, 2005, the Company reserved and set aside for issuance a the 2019 NCIB. Under the agreement, Scotia may acquire, at its total of 850,000 units to be allocated to key personnel. On January discretion, common shares on the Company’s behalf during certain 1, 2011, the 450,000 options outstanding under the unit option “black-out” periods, subject to certain parameters as to price and plan were transferred to a share option plan (the “Share Option number of shares. Plan”) on a one-for-one basis. Between July 2005 and March 2012, all these options were allocated at different times to executives of On May 22, 2018, the Company received approval from the Toronto the Company. In fiscal 2015, the number of options for common Stock Exchange to proceed with a 2018 NCIB. Under the 2018 shares set aside to be allocated to key personnel was increased NCIB, the Company was able to purchase up to 1,500,000 common from 450,000 to 4,000,000 common shares. On May 21, 2015, shares. The NCIB commenced on May 24, 2018 and ended on 850,000 share options were granted to the new President and CEO May 23, 2019. During fiscal 2018, the Company purchased 736,900 of Lantic at a price of $4.59 per common share, representing the common shares for a total cash consideration of $4.0 million. average market price for the five business days before the granting of the options. On December 5, 2016, the Company granted a total On March 28, 2018, the Company issued $85.0 million of 4.75% of 360,000 share options to certain executives at an exercise price Seventh series debentures, maturing June 30, 2025, with interest of $6.51 under the share option plan. On December 4, 2017, a payable semi-annually in arrears on June 30 and December 31 total of 1,065,322 share options were granted at a price of $6.23 of each year, starting June 30, 2018. Then, on April 3, 2018, per common share to certain executives and senior managers. the Company issued an additional $12.8 million Seventh series On December 3, 2018, the Company granted a total of 447,175 debentures pursuant to the exercise in full of the over-allotment share options to executives at a price of $5.58 per common share. option granted by the Company. The total amount of the Seventh These shares are exercisable to a maximum of twenty percent per series debentures issued represents $97.75 million and may be year, starting after the first anniversary date of the granting of the converted at the option of the holder at a conversion price of $8.85 options and will expire after a term of ten years. Upon termination, per share (representing 11,045,197 common shares) at any time resignation, retirement, death or long-term disability, all shares prior to maturity and cannot be redeemed prior to June 30, 2021. granted under the Share Option Plan not vested are forfeited. On or after June 30, 2021and prior to June 30, 2023, the Seventh In fiscal 2018, a Performance Share Unit plan (“PSU”) was created and on December 4, 2017. The following table provides the detail of the grants under the PSU: Grant date December 4, 2017 December 3, 2018 PSU Additional PSU Total PSU Performance Cycle 224,761 290,448 25,565 13,858 250,326 304,306 2018-2020 2019-2021 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 34 The PSUs were granted to executives and will vest at the end of the or a sale, it is worth noting that the Vancouver facility has a lengthy Performance Cycle based on the achievement of total shareholder history of industrial use, and fill materials have been used on the returns set by the Human Resources and Compensation Committee property in the normal course of business. No assurance can be (“HRCC”) and the Board of Directors of the Company. If the level given that material expenditures will not be required in connection of achievement of total shareholder returns is within the specified with contamination from such industrial use or fill materials. range, the value to be paid-out to each participant will be equal to the result of: the number of PSUs granted to the participant which Similarly, the Montréal facility has a lengthy history of industrial use. have vested, multiplied by the volume weighted average closing Contamination has been identified on a vacant property acquired price of the Common Shares on the Toronto Stock Exchange (the in 2001, and the Company has been advised that additional soil “TSX”) for the five trading days immediately preceding the day on and ground water contamination is likely to be present. Given the which the Company shall pay the value to the participant under the industrial use of the property, and the fact that the Company does PSU Plan. If the level of achievement of total shareholder returns is not intend to change the use of that property in the future, the below the minimum threshold, the PSU will be forfeited without any Company does not anticipate any material expenditures being payments made. required in the short term to deal with this contamination, unless off-property impacts are discovered. The Company has recorded a In addition, in fiscal 2017, a Share Appreciation Right (“SARs”) was provision under asset retirement obligations for this purpose and created under the existing Share Option Plan. On December 5, the provision is expected to be sufficient. 2016, a total of 125,000 SARs were issued to an executive at an exercise price of $6.51. These SARs are exercisable twenty percent Although the Company is not aware of any specific problems at its per year, starting on the first anniversary date of the granting of the Toronto distribution centre, its Taber plant and any of the TMTC SARs and will expire after a term of ten years. Upon termination, properties, no assurance can be given that expenditures will not resignation, retirement, death or long-term disability, all SARs be required to deal with known or unknown contamination at the granted under the Share Option Plan not vested are forfeited. property or other facilities or offices currently or formerly owned, During fiscal 2018, 60,000 share options were forfeited at a price of $6.23 following the departure of a senior manager. used or controlled by Lantic. RISKS AND UNCERTAINTIES ENVIRONMENT The Company’s business and operations are substantially affected by many factors, including prevailing margins on refined sugar The Company’s policy is to meet all applicable government and its ability to market sugar and maple products competitively, requirements with respect to environmental matters. Management sourcing of raw material supplies, weather conditions, operating believes that the Company is in compliance in all material respects costs and government programs and regulations. with environmental laws and regulations and maintains an open dialogue with regulators and the Government with respect to Dependence Upon Lantic awareness and adoption of new standards. Rogers is entirely dependent upon the operations and assets of Lantic through its ownership of securities of this company. As mentioned above, the Company substantially completed, Accordingly, interest payments to debenture holders and dividends during the fiscal year, the purchase and installation of equipment to to shareholders will be dependent upon the ability of Lantic and/ upgrade the Taber beet factory to be fully compliant with the new air or TMTC to pay its interest obligations under the subordinated emissions regulations by the start of the fiscal 2020 beet harvesting notes and to declare and pay dividends on or return capital in season (crop 2019). Air emission testing took place in late October respect of the common shares. The terms of Lantic’s bank and other 2019 and final results are expected to be received by the end of indebtedness may restrict its ability to pay dividends and make the first quarter of fiscal 2020. The Taber factory is expected to other distributions on its shares or make payments of principal obtain from Alberta Environment and Parks a compliance certificate or interest on subordinated debt, including debt which may be following the receipt of the results. held, directly or indirectly, by Rogers, in certain circumstances. In addition, Lantic may defer payment of interest on the subordinated With respect to potential environmental remediation of our notes at any given time for a period of up to 18 months. properties, which could occur in the event of a building demolition Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 35 Integration Related Risks and Operational Gains charged on nearby deliveries which would have a negative impact The Acquisitions of LBMTC and Decacer are the only acquisitions on the adjusted gross margins of the cane operations. The #11 the Corporation has concluded in recent history. To effectively world raw sugar price can, however, impact the profitability of the integrate TMTC into its own business and operations, the Company Company’s beet operations. Sugar derived from beets is purchased must establish appropriate operational, administrative, finance, at a fixed price, plus an incentive when sugar prices rise over a management systems and controls and marketing functions relating certain level, and the selling price of domestic refined sugar rises to such business and operations. This will require substantial or falls in relation to the #11 world raw sugar price. attention from management. This diversion of management attention, as well as any other difficulties which the Company may A relatively high world raw sugar price and/or low price of corn encounter in completing the transition and integration process, will also reduce the competitive position of liquid sugar in Canada including difficulties in retaining key employees of TMTC, could as compared to HFCS which could result in the loss of HFCS have a material adverse impact on the Company’s financial results substitutable business for Lantic. and operations. There can be no assurance that the Company will be successful in integrating the business and operations of TMTC. Security of Raw Sugar Supply There are over 177 million metric tonnes of sugar produced No Assurance of Future Performance worldwide. Of this, more than 50 million metric tonnes of raw cane Historic and current performance of the business of the Company sugar is traded on the world market. The Company, through its cane and TMTC may not be indicative of success in future periods. The refining plants, buys approximately 0.7 million metric tonnes of raw future performance of the business after the acquisition may be sugar per year. Even though worldwide raw sugar supply is much influenced by economic downturns and other factors beyond the larger than the Company’s yearly requirements, concentration of control of the Company. As a result of these factors, the operations supply in certain countries like Brazil, combined with an increase in and financial performance of the Company, including TMTC, may cane refining operations in certain countries, may create tightness be negatively affected, which may materially adversely affect the in raw sugar availability at certain times of the year. To prevent Company’s financial results. any raw sugar supply shortage, the Company normally enters into long-term supply contracts with reputable suppliers. For raw sugar Fluctuations in Margins and Foreign Exchange supply not under contract, significant premiums may be paid on The Company’s profitability is principally affected by its margins the purchase of raw sugar on a nearby basis, which may negatively on domestic refined sugar sales. In turn, this price is affected impact adjusted gross margins. by a variety of market factors such as competition, government regulations and foreign trade policies. The Company, through The availability of sugar beets to be processed in Taber, Alberta the Canadian-specific quota, normally sells approximately 10,300 is dependent on a supply contract with the Growers, and on the metric tonnes of refined sugar per year in the U.S. and to Mexico Growers planting the necessary acreage every year. In the event and also sells beet pulp to export customers in U.S. dollars. The that sufficient acreage is not planted in a certain year, or that the Company’s Taber sugar sales in Canada are priced against the Company and the Growers cannot agree on a supply contract, #11 world raw sugar market, which trades in U.S. dollars, while the sugar beets might not be available for processing, thus requiring sugar derived from the sugar beets is paid for in Canadian dollars transfer of products from the Company’s cane refineries to the to the Growers. Fluctuations in the value of the Canadian dollar will Prairie market, normally supplied by Taber. This would increase impact the profitability of these sales. Except for these sales, which the Company’s distribution costs and may have an impact on the currently can only be supplied by the Company’s Taber beet plant, adjusted gross margin rate per metric tonne sold. and sales to the U.S. under other announced specific quotas, most sales are in Canada and have little exposure to foreign exchange Weather and Other Factors Related to Production movements. Fluctuations in Raw Sugar Prices Sugar beets, as is the case with most other crops, are affected by weather conditions during the growing season. Additionally, weather conditions during the harvesting and processing season Raw sugar prices are not a major determinant of the profitability of could affect the Company’s total beet supply and sugar extraction the Company’s cane sugar operations, as the price at which sugar from beets stored for processing. A significant reduction in the is both purchased and sold is related to the #11 world raw sugar quantity or quality of sugar beets harvested due to adverse weather price and all transactions are hedged. In a market where world raw conditions, disease or other factors could result in decreased sugar is tight due to lower production, significant premiums may be production, with negative financial consequences to Lantic. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 36 Regulatory Regime Governing the Purchase and Pursuant to the Marketing Agreement, authorized buyers must buy Sale of Maple Syrup in Québec Maple products from the PPAQ in barrels corresponding to the Producers of maple syrup in Québec are required to operate within “anticipated volume”. The anticipated volume must be realistic and the framework provided for by the Marketing Act. Pursuant to the in line with volumes purchased in previous years. The refusal from Marketing Act, producers, including producers of maple syrup, the PPAQ to accept the anticipated volume set forth by TMTC or can take collective and organized control over the production the failure by TMTC to properly estimate the anticipated volume for and marketing of their products (i.e. a joint plan). Moreover, the a given year may affect the ability for TMTC to increase its reselling Marketing Act empowers the marketing board responsible for capacity and could materially adversely affect the Company’s administering a joint plan, that is the PPAQ in the case of maple financial results and operations. syrup, with the functions and role otherwise granted to the Régie des marchés agricoles et alimentaires du Québec, the governing Production of Maple Syrup Being Seasonal and body created by the Government of Québec to regulate, among Subject to Climate Change other things, the agricultural and food markets in Québec. As part The production of maple syrup takes place over a period of 6 to 8 of its regulating and organizing functions, the PPAQ may establish weeks during the months of March and April of each year. Maple arrangements to maintain fair prices for all producers and may syrup production is intimately tied to the weather as sap only manage production surpluses and their storage to stabilize the flows when temperatures rise above freezing level during the day pricing of maple syrup. and drop below it during the night, such temperature difference creating enough pressure to push sap out of the maple tree. Given Pursuant to the Sales Agency Regulation, the PPAQ is responsible the sensitivity of temperature in the process of harvesting maple for the marketing of bulk maple syrup in Québec. Therefore, sap, climate change and global warming may have a material any container that contains 5L or more of maple syrup must be impact on such process as the maple syrup production season marketed through the PPAQ as the exclusive selling agent for may become shorter. Reducing the production season for maple the producers. Bulk maple syrup may be sold to the PPAQ or to syrup may also have an impact on the level of production. Such “authorized buyers” accredited by the PPAQ. In Québec, 85% phenomenon may be witnessed in Québec as well as in the New of the total production of maple syrup is sold to the PPAQ or the England states, such as Vermont and Maine, where substantially all authorized buyers, leaving only approximately 15% of the total of the world maple syrup is produced. production being sold directly by the producers to consumers or grocery stores. TMTC is an authorized buyer with the PPAQ. The In 2002, the PPAQ set up a strategic maple syrup reserve in order to authorized buyer status is renewed on an annual basis. There is mitigate production fluctuations imputable to weather conditions no certainty that TMTC will be able to maintain its status as an and prevent such fluctuations from causing maple syrup prices authorized buyer with the PPAQ. Failure by TMTC, the Corporation to spike or drop significantly. The reserve was initially established or Lantic to remain an authorized buyer with the PPAQ will likely to set aside a production quantity equivalent to half of the then affect the capacity to fully supply the resale of maple syrup or Maple annual demand. Each year, the PPAQ may organize a sale of a products and therefore the financial results of the Corporation. portion of its accumulated reserve. There can be no assurance that TMTC will have access to some of such reserve to offset decreases The PPAQ, in its capacity as bargaining and sales agent for the in production due to weather conditions or that such reserve will producers of maple syrup in Québec as well as the body empowered be sufficient to cover a gap in the production in any given year. to regulate and organize the production and marketing of maple Any decrease in production or incapacity to purchase additional syrup, and the bulk buyers of maple syrup, represented by the MIC reserves from the PPAQ may affect TMTC’s supply of its sales of entered into the Marketing Agreement, which is expected to be maple syrup and other Maple products and, ultimately, its financial renewed on an annual basis. Pursuant to the Marketing Agreement, results. authorized buyers must pay a minimum price to the PPAQ for any maple syrup purchased from the producers. As a result, TMTC’s Competition ability to negotiate the purchase price of maple syrup is limited. For the Sugar segment, the Company faces domestic competition Moreover, the minimum purchase price that is applicable to the from Redpath Sugar Ltd. and smaller regional operators and/ authorized buyers with the PPAQ also restricts TMTC’s ability to distributors of both foreign and domestic refined sugar. Differences adjust its resale pricing to take into account market fluctuations due in proximity to various geographic areas within Canada and to supply and demand. TMTC’s incapacity to adjust its resale prices elsewhere result in differences in freight and shipping costs, which upward to take into account any increase in consumer demand may in turn affect pricing and competitiveness in general. affect the financial outlook of the Corporation. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 37 In addition to sugar, the overall sweetener market also includes: enhanced production capability could adversely result in reduced corn-based sweeteners, such as HFCS, an alternative liquid demand for its products, which could in turn affect the financial sweetener, which can be substituted for liquid sugar in soft drinks performance of the Company. There is also no guarantee that the and certain other applications; and non-nutritive, high intensity current favourable market trends will continue in the future. sweeteners such as aspartame, sucralose and stevia. Differences in functional properties and prices have tended to define the use of Growth of TMTC’s Business Relying Substantially on Exports these various sweeteners. For example, HFCS is limited to certain The size of the global wholesale market for maple syrup is currently applications where a liquid sweetener can be used. Non-nutritive estimated at $850 million, the United States being by far the world’s sweeteners are not interchangeable in all applications. The largest importer, followed by Japan and Germany. Despite the substitution of other sweeteners for sugar has occurred in certain increase of sales of maple products that the Canadian market has products, such as soft drinks. We are not able to predict the experienced in recent years, the potential for growth of this industry availability, development or potential use of these sweeteners and largely relies on the international market. Moreover, over the last their possible impact on the operations of the Company. few years, Vermont and Maine have increased their production of maple syrup and have now become competitors of Québec, which For the Maple products segment, TMTC is among the largest however remains the largest producer and exporter of maple syrup branded and private label maple syrup bottling and distributing in the world. While TMTC continues to develop its selling efforts companies in the world. TMTC has three major competitors in the outside of Canada, including through forming new partnerships market and also competes against a multitude of smaller bottlers in countries where the maple syrup market is undeveloped, it will and distributing companies. likely face high competition from other bottlers and distributers, including from other Canadian and U.S. companies, for its share A large majority of TMTC’s revenues are made under the private of the international market. Such growing competition and the label line. The Corporation anticipates that for a foreseeable incapacity for TMTC to further develop its selling efforts outside future, TMTC’s relationship with its top private label customers will of Canada could adversely affect the Company’s capacity to grow continue to be key and will continue to have a material impact on TMTC’s business and its future results. Furthermore, an incapacity its sales. Although the Corporation considers that the relationship to attract increased attention on maple products or a sudden lack of with its top private label customers is excellent, the loss of, or a interest for such products from customers outside of North America decrease in the amount of business from, such customers, or any may affect the Company’s future results. default in payment on their part could significantly reduce TMTC’s sales and harm the Company’s operating and financial results. Operating Costs Consumer Habits may Change Natural gas represents an important cost in our refining operations. Our Taber beet factory includes primary agricultural processing The maple products market, both national and international, has and refining. As a result, Taber uses more energy in its operations experienced some important changes over the last few years than the cane facilities in Vancouver and Montréal, principally as as maple products are becoming better known and consumer a result of the need to heat the cossettes (sliced sugar beets) to preferences and consumption patterns have shifted to more natural evaporate water from juices containing sugar, and to dry wet beet products. Maple syrup has typically been used, principally in North pulp. Changes in the costs and sources of energy may affect the America, as a natural alternative to traditional sweeteners and has financial results of the Company’s operations. In addition, all natural been served on morning meals, such as pancakes, waffles and gas purchased is priced in U.S. dollars. Therefore, fluctuations in other breakfast bakeries for decades. The offer of maple products the Canadian/U.S. dollar exchange rate will also impact the cost has recently expanded to include, among others, maple butter and of energy. The Company hedges a portion of its natural gas maple sugar, flakes and taffy. As a result of evolving customer trends price exposure through the use of natural gas contracts to lessen and the development of new maple products continues, TMTC will the impact of fluctuations in the price of natural gas. Provincial need to anticipate and meet these trends and developments in a application of some form of carbon tax has been increasingly competitive environment on a timely basis. The failure of TMTC important across Canada and for some provinces with carbon tax, to anticipate, identify and react to shifting consumer and retail rates have been increasing, which could increase the overall energy customer trends and preferences through successful innovation and costs for the Company. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 38 Government Regulations and Foreign Trade Policies Canadian-specific sugar quota will increase from 10,300 metric with regards to Sugar tonnes to 19,900 metric tonnes once the CUSMA is in place. It In July 1995, Revenue Canada made a preliminary determination, has not yet been determined how the SCP quota allocation will be followed by a final determination in October 1995, that there administered within the Canadian refined sugar industry. was dumping of refined sugar from the United States, Denmark, Germany, the United Kingdom, the Netherlands and the Republic Implementation of the CUSMA requires ratification by all three of Korea into Canada, and that subsidized refined sugar was countries. Mexico ratified the deal on July 29, 2019. Canada being imported into Canada from the European Union (“EU”). started the process towards ratification in the House of Commons The Canadian International Trade Tribunal (“CITT”) conducted prior to the October 2019 federal election, so the government will an inquiry and on November 6, 1995 ruled that the dumping of have to bring this back for Parliamentary debate before it can be refined sugar from the United States, Denmark, Germany, the ratified. The process is much more uncertain in the U.S. where the United Kingdom and the Netherlands as well as the subsidizing democratic controlled House of Representatives continues to delay from the EU was threatening material injury to the Canadian sugar a vote. If the agreement receives Congressional support in 2019, it industry. The ruling resulted in the imposition of protective duties could be implemented in 2020. on these unfairly traded imports. The Canada-European trade agreement (“CETA”) entered into Under Canadian laws, these duties must be reviewed every five force provisionally on September 21, 2017 and includes an SCP years. On October 30, 2015, the CITT concluded its fourth review quota set at 30,000 metric tonnes annually through 2021. The of the 1995 finding and issued its decision to continue the finding quota is allocated 90% to Canadian refiners on an equal share against dumped and subsidized sugar from the U.S. and EU for basis. Depending on quota utilization, the volume has the potential another five years. New CITT practice is to initiate reviews later than to increase in 5 year increments to reach 51,840 metric tonnes in previous reviews so it is likely that duty protection will remain over 15 years. Canada’s sugar industry has yet to benefit from the in place as late as July 2021 and could be further extended for new access to the EU given the October 1, 2017 removal of EU another five years depending on the outcome of the review. domestic sugar quotas and ongoing domestic subsidies which generate substantial surplus sugar supplies and reduce market The duties on imports of U.S. and EU refined sugar are important prices. Regardless, the Company is committed to ensure maximum to Lantic and to the Canadian refined sugar industry in general utilization of this new export opportunity in a well-developed because they protect the market from the adverse effect of unfairly market which will be beneficial to the Company in the future. The traded imports from these sources. The government support CSI is also closely monitoring developments with respect to the UK and trade distorting attributes of the U.S. and EU sugar regimes Brexit on future market access opportunities for SCPs. continue to generate surplus refined sugar production and exports that threaten the Canadian sugar market. However, there is no The Comprehensive and Progressive Agreement for Trans-Pacific assurance that the CITT determination in the next review will Partnership (“CPTPP”) entered into force on December 30, 2018 continue the duty protection for a further five years. for the first six countries that ratified the agreement – Canada, Australia, Japan, Mexico, New Zealand, and Singapore. Vietnam On November 30, 2018, a new NAFTA deal was signed by the joined on January 14, 2019, leaving Brunei, Chile, Malaysia and three countries – the Canada-United States-Mexico Agreement Peru still to ratify. The CPTPP countries are diverse in terms of sugar (“CUSMA”), known as USMCA in the U.S. and T-MEX in Mexico. policies and trade but collectively may provide an opportunity to Through seven rounds of negotiations, the Canadian Sugar advance trade in refined sugar and SCPs over the medium to long Institute (CSI) advanced Canada’s sugar industry interest in securing term. Lantic and the other Canadian sugar refiner may benefit improved U.S. market access for Canadian sugar and sugar- from new access for SCPs in Japan, Vietnam and Malaysia (after containing products (“SCPs”) and addressing outdated quota rules ratification) as the phase-out of tariffs proceed over several years. for SCPs. If the “CUSMA” is implemented, it will provide Canada A number of other countries have expressed varying degrees of a combined 19,200 metric tonnes of new access consisting of two interest in joining the CPTPP and may provide additional export separate tariff rate quotas; one for 9,600 metric tonnes of Canadian opportunities in the long term. Much technical work remains to origin refined beet sugar and a second for 9,600 metric tonnes determine specific product opportunities and import procedures of SCPs, with more flexible rules to allow full quota utilization. before the Company can ascertain whether any financial benefits As the only producer of Canadian origin sugar, the Company’s will result from the CPTPP in fiscal 2020 or subsequent years. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 39 Canada has entered into free trade agreements (“FTAs”) with input from the CSI and the Canadian sugar refiners to ensure the numerous countries on a bilateral or regional basis, however, few long-term stability of the Canadian refined sugar industry and its beyond the NAFTA (or new CUSMA), CETA and potentially the ability to support a vibrant food processing industry in Canada. CPTPP offer significant market potential for Canadian sugar and SCPs. There are a number of reasons why these FTAs have not Foreign Trade Policies with regards to Maple products provided Lantic with meaningful export gains. In many cases, the TMTC’s international operations are also subject to inherent FTA country is not a logical export market, such as Jordan which is risks, including change in the free flow of food products between distant from Canada and closer to European suppliers or Colombia countries, fluctuations in currency values, discriminatory fiscal that is a large surplus sugar producer and exporter relative to policies, unexpected changes in local regulations and laws and the Canada. FTAs with countries such as Honduras, Peru and Panama uncertainty of enforcement of remedies in foreign jurisdictions. In are also not significant markets for high quality Canadian sugar addition, foreign jurisdictions, including the United States, TMTC’s and negotiated outcomes provide for minimal tariff rate quota current and expected largest market, could impose tariffs, quotas, quantities. Other more recent FTAs, including with the Republic trade barriers and other similar restrictions on TMTC’s international of Korea and the Ukraine, excluded refined sugar from tariff sales and subsidize competing agricultural products. improvements. “Rules of origin” in almost all FTAs limit Canadian sugar benefits to beet sugar grown in Canada and processed at the All of these risks could result in increased costs or decreased Taber beet factory. Some limited opportunities under the Canada- revenues, either of which could materially adversely affect TMTC’s Costa Rica FTA are available for both refined beet and cane sugar. financial condition and results of operations. The implementation of CETA removes the duties on imported maple syrup which could The CSI will continue to monitor Canada’s exploratory discussions benefit the Company in additional export volume to the EU. and formal negotiations for any meaningful developments that may be of value to Canada’s sugar industry while also monitoring Unexpected Costs or Liabilities Related to the Acquisition potential threats. The Company continues to remain concerned Although the Company has conducted due diligence in connection that the inclusion of refined sugar in Canada’s various regional with the acquisitions of LBMTC and Decacer, an unavoidable level of and bilateral negotiations may result in substantial new duty-free risk remains regarding any undisclosed or unknown liabilities of, or imports from these countries, while not providing offsetting issues concerning, TMTC and its business. Lantic sought insurance export market opportunities. The Canada-Mercosur free trade to cover any potential liability under the Purchase Agreement negotiations are an example (includes Argentina, Brazil, Paraguay of LBMTC and subscribed to the representation and warranties and Uruguay). Exploratory discussions towards an FTA with the insurance (“RWI”) Policy, with coverage of up to $16.0 million and ASEAN region also limit export prospects given Thailand’s large a deductible of $1.6 million, half of which will be assumed by the surplus production and dominance in the region. previous shareholders of LBMTC. Although Lantic has subscribed to the RWI Policy which provides for a $16.0 million coverage, The real potential for significant, long-term export gains is via a the RWI Policy is subject to certain exclusions. In addition, there global agreement through the World Trade Organization (“WTO”). may be circumstances for which the insurer may elect to limit such The WTO agriculture negotiations have not advanced since they coverage or refuse to indemnify Lantic or situations for which the stalled in July 2008, however like-minded WTO members including coverage provided under the RWI Policy may not be sufficient or Canada are actively collaborating to find ways to strengthen and applicable and Lantic may have to seek indemnifications from the modernize the WTO to ensure there remains a strong rules-based previous shareholders of LBMTC. The existence of any undisclosed multilateral trading system in the face of rising global protectionism. liabilities and Lantic’s inability to claim indemnification from the Efforts by Canada and other like-minded countries are essential to previous shareholders of LBMTC or the provider of the RWI Policy maintain and reform this international body while continuing to could materially adversely affect the Company’s financial results provide an effective dispute settlement and appeals process. and its operations. Reaffirming the critical value of a modernized WTO along with growing regional integration through comprehensive and ambitious FTAs such as the CETA and CPTPP provide the best medium to long term prospect of improved export opportunity for the Canadian sugar industry. All of these agreements involve significant 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 40 Employee Relations Cybersecurity The majority of the Lantic’s operations are unionized and agreements The Company faces various security threats, including cybersecurity are currently in place in each unionized facility. The next collective threats to gain unauthorized access to sensitive information, to bargaining agreement to expire will be in fiscal 2021. render data or systems unusable, or otherwise affect the Company’s ability to operate. The Company’s operations require it to use and In fiscal 2019, a six-year labour agreement, expiring in June store personally identifiable and other sensitive information of its 2024, was reached with the unionized employees of the Toronto employees, notably. The collection and use of personally identifiable warehouse. The new agreement was agreed at competitive rates. information is governed by Canadian federal and provincial laws and regulations. Privacy and information security laws continue to TMTC’s bottling plant in Granby, Québec is under a collective evolve and may be inconsistent from one jurisdiction to another. bargaining agreement, which is currently scheduled to expire in The security measures put in place by the Company in that regard May 2023. cannot provide absolute security, and the Company’s information technology infrastructure may be vulnerable to cyberattacks, Strikes or lock-outs in future years could restrict the ability of including without limitation, malicious software, attempts to gain the Company to service its customers in the affected regions, unauthorized access to data hereinabove mentioned, and other consequently affecting the Company’s revenues. electronic security breaches that could lead to disruptions in critical systems, corruptions of data and unauthorized release of confidential Food Safety and Consumer Health or otherwise protected information. The occurrence of one of these The Company is subject to risks that affect the food industry in events could cause a substantial decrease in revenues, increased general, including risks posed by accidental contamination, costs to respond or other financial loss, damage to reputation, product tampering, consumer product liability, and the potential increased regulation or litigation or inaccurate information reported costs and disruptions of a product recall. The Company actively by the Company’s operations. These developments may subject the manages these risks by maintaining strict and rigorous controls and Company’s operations to increased risks, as well as increased costs, processes in its manufacturing facilities and distribution systems and, depending on their ultimate magnitude, could materially and and by maintaining prudent levels of insurance. adversely affect the Company’s financial results and operations. The Company’s facilities are subject to audit by federal health The Company seeks to manage cybersecurity risk by continuing agencies in Canada and similar institutions outside of Canada. to invest in appropriate information technology systems, The Company also performs its own audits designed to ensure infrastructure and security, including disaster plans, reviewing its compliance with its internal standards, which are generally at, or existing technologies, processes and practices on a regular basis higher than, regulatory agency standards in order to mitigate the and ensuring employees understand and are aware of their role risks related to food safety. in protecting the integrity of the Company’s technological security and information. The Company relies on third party products Consumers, public health officials and government officials are and services to assist it in protecting its information technology increasingly concerned about the public health consequences infrastructure and its proprietary and confidential information. The of obesity, particularly among young people. In addition, some Company seeks to be proactive in the area of cybersecurity and researchers, health advocates and dietary guidelines are suggesting consequently anticipates that it will continue to incur expenses that consumption of sugar, in various forms, is a primary cause of in relation to, and dedicate personnel and other resources to, increased obesity rates and are encouraging consumers to reduce cybersecurity, as new and increasingly complex threats and risks their consumption of sugar. Increasing public concern about obesity are identified and responded to. and other health conditions; possible new or increased taxes on products containing sugar, such as sugar-sweetened beverages by government entities to reduce consumption or to raise revenue; shift in consumer preferences from sugar to other types of sweeteners; additional governmental regulations concerning the marketing, labeling, packaging or sale of products and negative publicity may reduce demand for the products of the Company and each of the aforementioned factors could materially adversely affect the Company’s financial results and operations. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 41 Environmental Matters transferred to Rogers for dividend payment. Management believes The operations of the Company are subject to environmental that the interest expense inherent in the structure is supportable regulations imposed by federal, provincial and municipal and reasonable in light of the terms of the debt owed by Lantic to governments in Canada, including those relating to the treatment Rogers and TMTC to Lantic. and disposal of waste water and cooling water, air emissions, contamination and spills of substances. Management believes Management and Operation of Lantic that the Company is in compliance in all material respects with The Board of Directors of Lantic is currently controlled by Lantic environmental laws and regulations. However, these regulations Capital, an affiliate of Belkorp Industries. As a result, holders of have become progressively more stringent and the Company shares have limited say in matters affecting the operations of Lantic; anticipates this trend will continue, potentially resulting in the if such holders are in disagreement with the decisions of the Board incurrence of material costs to achieve and maintain compliance. of Directors of Lantic, they have limited recourse. The control As mentioned above, the Company substantially completed the may make it more difficult for others to attempt to gain control of purchase and installation of equipment to upgrade the Taber beet or influence the activities of Lantic and the Company. exercised by Lantic Capital over the Board of Directors of Lantic factory to be fully compliant with the new air emissions regulations by the start of the fiscal 2020 beet harvesting season (crop 2019). Air emission testing took place in late October 2019 and preliminary OUTLOOK results are positive. The finalization of the commissioning is expected to be completed by the end of the first quarter of fiscal Sugar 2020. No assurance can be given that such air emission testing will We estimate that the current 2019 beet crop should derive a meet the requirements of Alberta Environment and Park. quantity of refined sugar ranging between 60,000 to 70,000 metric tonnes, as opposed to 125,000 metric tonnes as previously Violation of these regulations can result in fines or other penalties, expected, following severe adverse weather in Alberta. The which in certain circumstances can include clean-up costs. As decision was made in early November to terminate the beet harvest well, liability to characterize and clean up or otherwise deal with as severe snow and frost damage resulted in an inability to store or contamination on or from properties owned, used or controlled process the unharvested damaged sugar beet crop. The Company by the Company currently or in the past can be imposed by is reviewing all available options to service its customers, one of environmental regulators or other third parties. Such liabilities which will include the supply of cane sugar from the Vancouver could materially adversely affect the Company’s financial results and Montréal refineries as they both have excess capacity. The and operations. Income Tax Matters Company will work to mitigate the financial implication of a smaller sugar beet crop. The income of the Company must be computed and is taxed in Given the smaller crop in Taber, export volume is expected to be accordance with Canadian tax laws, all of which may be changed approximately 15,000 metric tonnes lower than fiscal 2019. The in a manner that could adversely affect the amount of dividends. Company has a long-term relationship with its customer in Mexico There can be no assurance that taxation authorities will accept the and, as a result, we were able to reduce its shipments in fiscal 2020 tax positions adopted by the Company including the determination and roll commitments into fiscal 2022 at no additional costs to the of the amounts of federal and provincial income which could Company. Shipments to the USA under the Canada-specific U.S. materially adversely affect dividends. quota of 10,300 metric tonnes have been fully considered in our reconfigured supply chain and will be fully delivered in fiscal 2020. The current corporate structure involves a significant amount of inter-company or similar debt, generating substantial interest The Company anticipates that the consumer segment should be expense, which reduces earnings and therefore income tax payable approximately 10,000 metric tonnes higher than fiscal 2019. During at Lantic and TMTC’s level. There can be no assurance that taxation the current fiscal year, the Company gained additional business authorities will not seek to challenge the amount of interest with an existing consumer account which started in April 2019 and expense deducted. If such a challenge were to succeed against as such, will improve consumer volume in fiscal 2020. Lantic, it could materially adversely affect the amount of cash 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS 42 The Taber factory delivers a significant portion of its volume to liquid Maple products customers, which is still expected to occur in fiscal 2020. Therefore, In fiscal 2019, the Company experienced increased competitive the Company’s liquid segment is expected to be comparable to activities as a result of a new entrant in the maple bottling business. fiscal 2019. We are confident in our ability to defend our market share; however, as a result of the increased competition, we have experienced Industrial volume should be slightly lower than fiscal 2019. margin pressures in the Maple products segment and anticipate these pressures to remain until current market conditions improve. Despite the challenges expected as a result of a small crop in Taber, In addition to defending our current market share, the Company the Company anticipates that the overall sales volume in fiscal 2020 will continue to invest in the business to lower operating cost and should be approximately 735,000 metric tonne, thus approximately build new sales volume through the pursuit of new markets and 6,000 metric tonnes lower than fiscal 2019. value-added products. On May 22, 2019, the Alberta Legislature announced that Bill 1, As part of our strategy to enhance our competitive advantage, we An Act to Repeal the Carbon Tax, will take effect on June 1, 2019. have embarked on a footprint optimization project that will result Bill 1 has effectively removed the carbon tax in Alberta, which in increased capacity. Once the footprint optimization project is was set at $1.517 per gigajoule by the previous government. On completed, the Company will be well positioned to have ample June 13, 2019, the Canadian government announced that on capacity to respond to future growth and be more competitive January 1, 2020, the Federal government will impose a carbon through more cost-efficient facilities. The footprint optimization, tax on Alberta, which will be equivalent to the carbon tax that was with the repurposing of the St-Honoré-de-Shenley facility, the removed on June 1, 2019. The Alberta government has launched relocation of the Granby facility and the expansion of the Degelis a constitutional challenge in court. Then on October 30, 2019, the facility, has, in the short-term, created some short-term operational Alberta government proposed a new carbon tax on large emitters inefficiencies and capacity constraints in the second half of fiscal called the “Technology Innovation and Emissions Reduction 2019. The Company has taken several steps to address the core (“TIER”)” system that would tax large emitting facilities. The operational issues by temporary augmenting its production Federal government is reviewing the proposal by Alberta in order capacity by increasing staffing in order to add production hours to decide if it will continue to impose or not the Federal carbon as well as transferring some production to its Vermont facility. As a tax on Alberta. It is unclear how the carbon tax will be calculated result, we expect the Degelis site to continuously improve and hit starting on January 1, 2020 but in light of the reduced beet crop, it target efficiencies by the end of the first quarter of calendar 2020. is not expected to have a significant financial impact as the slicing Granby operations have taken on some of the production overflow campaign should be completed by the end of December. Savings from Degelis and will complete a planned transition to a new site of approximately $2.7 million are expected in the first half of fiscal by January 31, 2020. We expect that the economic benefit of this 2020 as a result of the temporary removal of the carbon tax in transition will start to be realized after the second quarter of fiscal Alberta as well as the shorter slicing campaign. No other changes 2020. No changes are expected in our Vermont facility. are expected on carbon tax in British Columbia and Québec. In light of the smaller crop in Taber, it is expected that distribution footprint optimization, of which, approximately $4.0 million will be costs will increase in fiscal 2020 since our supply chains will be out spent in fiscal 2020 to complete the Granby relocation. The Company expects to spend approximately $7.0 million for its of balance. See “Forward Looking Statements” section and “Risks and With the completion of the air emission project, capital spend for Uncertainties” section. the Sugar segment is expected to return to a level of approximately $20.0 million, including a high proportion of return on investment capital expenditures. Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS 43 NON-GAAP MEASURES • Adjusted EBITDA is defined as adjusted EBIT adjusted to add back depreciation and amortization expenses, goodwill In analyzing results, we supplement the use of financial measures impairment, the Sugar segment acquisition costs and the Maple that are calculated and presented in accordance with IFRS with a products segment non-recurring expenses. number of non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s performance, • Adjusted net earnings is defined as net (loss) earnings adjusted financial position or cash flow that excludes (includes) amounts, or is for the adjustment to cost of sales, the amortization of transitional subject to adjustments that have the effect of excluding (including) balances to cost of sales for cash flow hedges, the amortization amounts, that are included (excluded) in most directly comparable of transitional balance to net finance costs and the income tax measures calculated and presented in accordance with IFRS. impact on these adjustments. Amortization of transitional balance Non-GAAP financial measures are not standardized; therefore, to net finance costs is defined as the transitional marked-to- it may not be possible to compare these financial measures with market balance of the interest rate swaps outstanding as of the non-GAAP financial measures of other companies having the October 1, 2016, amortized over time based on their respective same or similar businesses. We strongly encourage investors to settlement date until all existing interest rate swaps agreements review the audited consolidated financial statements and publicly have expired, as shown in the notes to the consolidated financial filed reports in their entirety, and not to rely on any single financial statements. measure. We use these non-GAAP financial measures in addition to, and in margin of the Sugar segment divided by the sales volume of the • Adjusted gross margin rate per MT is defined as adjusted gross conjunction with, results presented in accordance with IFRS. These Sugar segment. non-GAAP financial measures reflect an additional way of viewing aspects of the operations that, when viewed with the IFRS results • Adjusted gross margin percentage is defined as the adjusted and the accompanying reconciliations to corresponding IFRS gross margin of the Maple products segment divided by the financial measures, may provide a more complete understanding revenues generated by the Maple products segment. of factors and trends affecting our business. The following is a description of the non-GAAP measures used by earnings divided by the weighted average number of shares the Company in the MD&A: outstanding. • Adjusted net earnings per share is defined as adjusted net • Adjusted gross margin is defined as gross margin adjusted for: • Free cash flow is defined as cash flow from operations excluding • “the adjustment to cost of sales”, which comprises the changes in non-cash working capital, mark-to-market and mark-to-market gains or losses on sugar futures, foreign derivative timing adjustments, amortization of transitional exchange forward contracts and embedded derivatives as balances, financial instruments non-cash amount, deferred shown in the notes to the consolidated financial statements financing charges and includes funds received from stock and the cumulative timing differences as a result of mark-to- options exercised and excludes funds paid for the purchase and market gains or losses on sugar futures, foreign exchange cancellation of shares and includes capital and intangible assets forward contracts and embedded derivatives as described expenditures, net of operational excellence capital expenditures. below; and Free cash flow for fiscal 2017 excludes any funds received or paid • “the amortization of transitional balance to cost of sales as part of the short form prospectus offering for subscription for cash flow hedges”, which is the transitional marked-to- receipts and convertible unsecured subordinated debentures market balance of the natural gas futures outstanding as of issued in July 2017. Free cash flow for fiscal 2018 excludes any October 1, 2016 amortized over time based on their funds received or paid for the issuance of the convertible respective settlement date until all existing natural gas unsecured subordinated debentures issued in March 2018. futures have expired, as shown in the notes to the consolidated financial statements. • Adjusted operating results (“Adjusted EBIT”) is defined as EBIT adjusted for the adjustment to cost of sales, the amortization of transitional balances to cost of sales for cash flow hedges. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  44 In the MD&A, we discuss the non-GAAP financial measures, including the reasons why we believe these measures provide useful information regarding the financial condition, results of operations, cash flows and financial position, as applicable. We also discuss, to the extent material, the additional purposes, if any, for which these measures are used. These non-GAAP measures should not be considered in isolation, or as a substitute for, analysis of the Company’s results as reported under GAAP. Reconciliations of non-GAAP financial measures to the most directly comparable IFRS financial measures are as follows: Consolidated results Fourth Quarter Fiscal 2019 Fourth Quarter Fiscal 2018 (In thousands of dollars) Sugar $ Maple Products $ Total $ Gross margin 24,643 4,430 29,073 Total adjustment to the cost of sales (1) (285) 238 (47) Adjusted Gross Margin 24,358 4,668 29,026 Results from operating activities (“EBIT”) 16,448 (49,248) (32,800) Total adjustment to the cost of sales (1) (285) 238 (47) Goodwill impairment Adjusted results from operating activities (“Adjusted EBIT”) — 50,000 16,163 990 50,000 17,153 Sugar $ 21,640 4,158 25,798 13,981 4,158 — Maple Products $ Total $ 7,615 29,255 (649) 3,509 6,966 32,764 4,250 18,231 (649) 3,509 — — 18,139 3,601 21,740 Results from operating activities (“EBIT”) Total adjustment to the cost of sales (1) 16,163 (285) 990 238 17,153 (47) 18,139 4,158 3,601 21,740 (649) 3,509 Depreciation of property, plant and equipment and amortization of intangible assets 3,499 1,432 4,931 3,431 1,165 4,596 Goodwill impairment Maple Segment non-recurring costs (1) — — 50,000 50,000 131 131 — — — (4) — (4) Adjusted EBITDA (1) 19,662 2,553 22,215 21,570 4,762 26,332 Net (loss) earnings Total adjustment to the cost of sales (1) Goodwill impairment Amortization of transitional balance to net finance costs (1) Income taxes on above adjustments Adjusted net earnings Net (loss) earnings per share (basic) Adjustment for the above Adjusted net earnings per share (basic) (40,021) (47) 50,000 (69) 47 9,910 (0.38) 0.47 0.09 9,633 3,509 — (128) (892) 12,122 0.09 0.03 0.12 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  45 Consolidated results (In thousands of dollars) Fiscal 2019 Maple Products $ Sugar $ Total $ Sugar $ Fiscal 2018 Maple Products $ Total $ Gross margin 100,301 22,274 122,575 102,578 28,275 130,853 Total adjustment to the cost of sales (1) (6,269) 272 (5,997) (2,919) (1,572) (4,491) Adjusted Gross Margin 94,032 22,546 116,578 99,659 26,703 126,362 Results from operating activities (“EBIT”) 65,539 (41,392) 24,147 70,748 13,352 84,100 Total adjustment to the cost of sales (1) (6,269) 272 (5,997) (2,919) (1,572) (4,491) Goodwill impairment Adjusted results from operating activities (“Adjusted EBIT”) (1) — 50,000 59,270 8,880 50,000 68,150 — — — 67,829 11,780 79,609 Results from operating activities (“EBIT”) 59,270 8,880 68,150 67,829 11,780 79,609 Total adjustment to the cost of sales (1) (6,269) 272 (5,997) (2,919) (1,572) (4,491) Depreciation of property, plant and equipment and amortization of intangible assets 13,865 5,356 Goodwill impairment Maple Segment non-recurring costs (1) — — 50,000 437 437 19,221 50,000 13,495 4,979 18,474 — — — — 1,859 1,859 Adjusted EBITDA (1) 73,135 14,673 87,808 81,324 18,618 99,942 Net (loss) earnings Total adjustment to the cost of sales (1) Goodwill impairment Amortization of transitional balance to net finance costs (1) Income taxes on above adjustments Adjusted net earnings Net (loss) earnings per share (basic) Adjustment for the above Adjusted net earnings per share (basic) (1) See “Adjusted results” section. (8,167) (5,997) 50,000 (378) 1,621 37,079 (0.08) 0.43 0.35 48,729 (4,491) — (532) 1,326 45,032 0.46 (0.03) 0.43 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  46 CRITICAL ACCOUNTING ESTIMATES be provided by the lessors. Other areas of the lease accounting The preparation of the Company’s audited consolidated financial Transitional provisions have been provided. 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 16 in its consolidated liabilities, net revenue and expenses, and the related disclosures. financial statements for the annual period beginning on model have been impacted, including the definition of a lease. Such estimates include the valuation of goodwill, intangible September 29, 2019. assets, identified assets and liabilities acquired in business combinations, other long-lived assets, income taxes, the provision The adoption of IFRS 16 will have a significant impact on the for asbestos removal and pension obligations. These estimates Company’s consolidated financial statements, as the Company and assumptions are based on management’s best estimates and will recognize new assets and liabilities for its operating leases judgments. Management evaluates its estimates and assumptions of warehouses, operating properties, railcars and production on an ongoing basis using historical experience, knowledge of equipment. In addition, the nature and timing of expenses economics and market factors, and various other assumptions that related to those leases will change as IFRS 16 replaces the management believe to be reasonable under the circumstances. straight-line operating lease expense with a depreciation charge Management adjusts such estimates and assumptions when facts for right-of use assets and interest expense on lease liabilities. and circumstances dictate. Actual results could differ from these On a go-forward basis, there will be a decrease in operating estimates. Changes in those estimates and assumptions are lease expense and an increase in depreciation and amortization recognized in the period in which the estimates are revised. Refer and interest expense. to note 2 (d) to the audited consolidated financial statements for more detail. The Company intends to adopt this standard using the modified retrospective approach measuring the right-of-use asset to be equal to the lease liability with no restatement of the comparative CHANGES IN ACCOUNTING PRINCIPLES AND PRACTICES period. Under the modified retrospective approach, the NOT YET ADOPTED Company has elected to use the following practical expedients A number of new standards, and amendments to standards and interpretations, are not yet effective and have not been applied • the Company will not reassess whether a contract is, or in preparing these audited consolidated financial statements. New contains, a lease at the date of initial application and instead standards and amendments to standards and interpretations that will apply IFRS 16 to contracts that were previously identified are currently under review include: as leases applying IAS 17, Leases; permitted on adoption of IFRS 16: • IFRS 16, Leases: • the Company will rely on the assessment of the onerous On January 13, 2016 the IASB issued IFRS 16 Leases. The new lease provisions under IAS 37, Provisions, contingent standard is effective for annual periods beginning on or after liabilities and contingent assets, instead of performing an January 1, 2019. Earlier application is permitted for entities that impairment review. The Company will adjust the right- apply IFRS 15 Revenue from Contracts with Customers at or of-use assets at the date of initial application by the amount before the date of initial adoption of IFRS 16. IFRS 16 will replace of any provision for onerous leases recognized in the IAS 17 Leases. consolidated balance sheet immediately before the date of initial application; This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases • the Company will account for leases for which the lease with a term of more than 12 months, unless the underlying asset term ends within twelve months of September 28, 2019 as is of low value. A lessee is required to recognize a right-of-use short-term leases; and asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. • the Company will use hindsight in determining the lease term at the date of initial application. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS  47 The Company’s preliminary assessment of the impact of the • information required to be disclosed by the Company in its adoption of the standard is an increase of the lease liability of annual filings, interim filings or other reports filed or submitted by approximately $11.0 million and an increase in the right-of-use it under securities legislation is recorded, processed, summarized asset of approximately $11.0 million on the consolidated and reported within the time periods specified in securities statement of financial position as at September 29 2019. As legislation. amounts previously recognized as lease expenses will be replaced by the depreciation of the right-of-use asset and the As at September 28, 2019, an evaluation was carried out, under the lease liability finance costs, the consolidated statement of (loss) supervision of the CEO and the CFO, of the design and operating earnings and comprehensive (loss) income will be affected. effectiveness of the Company’s DC&P. Based on this evaluation, the CEO and the CFO concluded that the Company’s DC&P Additional new standards, and amendments to standards and were appropriately designed and were operating effectively as at interpretations, include: IFRIC 23 Uncertainty over Income September 28, 2019. Tax Treatments, Annual Improvements to IFRS Standards (2015- 2017) Cycle and Amendments to References to the Conceptual Framework in IFRS Standards. The Company intends to INTERNAL CONTROLS OVER FINANCIAL REPORTING adopt these new standards, and amendments to standards and interpretations, in its consolidated financial statements in each of The CEO and CFO have also designed internal controls over their respective annual period for which they become applicable. financial reporting (“ICFR”), or have caused them to be designed The Company does not expect the amendments to have a under their supervision, in order to provide reasonable assurance material impact on the consolidated financial statements. Refer regarding the reliability of financial reporting and the preparation of to note 3 (s) to the audited consolidated financial statements for financial statements for external purposes in accordance with IFRS more detail. CONTROLS AND PROCEDURES using the framework established in “Internal Control – Integrated Framework (COSO 2013 Framework) published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”. As at September 28, 2019, an evaluation was carried out, under the supervision of the CEO and the CFO, of the design In compliance with the provisions of Canadian Securities and operating effectiveness of the Company’s ICFR. Based on that Administrators’ Regulation 52-109, the Corporation has filed evaluation, they have concluded that the design and operation certificates signed by the President and Chief Executive Officer of the Company’s internal controls over financial reporting were (“CEO”) and by the Vice-President Finance and Chief Financial effective as at September 28, 2019. Officer (“CFO”), in that, among other things, report on: • their responsibility for establishing and maintaining disclosure that, due to inherent limitations, any controls, no matter how well controls and procedures and internal control over financial designed and operated, can provide only reasonable assurance reporting for the Company; and of achieving the desired control objectives and may not prevent • the design and effectiveness of disclosure controls and or detect misstatements. Projections of any evaluations of procedures and the design and effectiveness of internal controls effectiveness to future periods are subject to the risk that controls In designing and evaluating such controls, it should be recognized over financial reporting. 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 DISCLOSURE CONTROLS AND PROCEDURES in evaluating controls and procedures. The CEO and the CFO, have designed the disclosure controls and procedures (“DC&P”), or have caused them to be designed under CHANGES IN INTERNAL CONTROLS OVER their supervision, in order to provide reasonable assurance that: FINANCIAL REPORTING • material information relating to the Company is made known to There were no changes in the Company’s internal controls over the CEO and CFO by others, particularly during the period in financial reporting during the year that have materially affected, which the interim and annual filings are being prepared; and or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 2019 Annual ReportMANAGEMENT’S DISCUSSION & ANALYSIS  48 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 20, 2019 Rogers Sugar Inc.MANAGEMENT’S DISCUSSION & ANALYSIS INDEPENDENT AUDITORS’ REPORT 49 To the Shareholders of Rogers Sugar Inc. Opinion We have audited the consolidated financial statements of Rogers Sugar Inc. (the "Entity"), which comprise: • the consolidated statements of financial position as at September 28, 2019 and September 29, 2018, • the consolidated statements of (loss) earnings and comprehensive (loss) income for fiscal years ended September 28, 2019 and September 29, 2018, • the consolidated statements of changes in shareholders’ equity for fiscal years ended September 28, 2019 and September 29, 2018, • the consolidated statements of cash flows for fiscal years ended September 28, 2019 and September 29, 2018, • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at September 28, 2019 and September 29, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. Other information comprises: • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. • the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Glossy Annual Report". Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  50 In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Glossy Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity‘s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  51 • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represents the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. The engagement partner on the audit resulting in this auditors’ report is Aaron Fima. Montréal, Canada November 20, 2019 * CPA auditor, CA, public accountancy permit No. A125211 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  52 CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME (In thousands of dollars except per share amounts) Consolidated statements of (loss) earnings Revenues (note 34) Cost of sales Gross margin Administration and selling expenses Distribution expenses Goodwill impairment (note 16) 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 (loss) earnings Net (loss) earnings per share (note 29): Basic Diluted Consolidated statements of comprehensive (loss) income Net (loss) earnings Other comprehensive (loss) income: Items that are or may be reclassified subsequently to net (loss) earnings: Cash flow hedges (note 11) Income tax on other comprehensive (loss) income (note 7) Foreign currency translation differences Items that will not be reclassified to net (loss) earnings: Defined benefit actuarial (losses) gains (note 22) Income tax expense (recovery) on other comprehensive (loss) income (note 7) Other comprehensive (loss) income Net (loss) earnings and comprehensive (loss) income for the year The accompanying notes are an integral part of these consolidated financial statements. Fiscal years ended September 28, 2019 September 29, 2018 $ 794,292 671,717 122,575 31,571 16,857 50,000 98,428 24,147 (378) 18,491 18,113 6,034 16,084 (1,883) 14,201 (8,167) (0.08) (0.08) $ 805,201 674,348 130,853 32,071 14,682 — 46,753 84,100 (532) 17,664 17,132 66,968 17,967 272 18,239 48,729 0.46 0.43 Fiscal years ended September 28, 2019 $ (8,167) September 29, 2018 $ 48,729 (4,763) 1,243 425 (3,095) (19,902) 5,194 (14,708) (17,803) (25,970) (32) 9 506 483 6,643 (1,763) 4,880 5,363 54,092 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands of dollars) 53 September 28, 2019 $ September 29, 2018 $ 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: 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: Bank overdraft 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) 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) 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 (loss) income Total shareholders’ equity Commitments (notes 26 and 27) Contingencies (note 28) Total liabilities and shareholders’ equity The accompanying notes are an integral part of these consolidated financial statements. 284 — 85,823 1,977 182,359 4,162 931 275,536 220,408 35,444 928 19,684 21 283,007 559,492 835,028 8,325 17,000 117,735 — 878 139 615 — 144,692 160,000 51,810 819 4,677 742 144,230 42,626 404,904 549,596 100,522 300,626 5,085 (109,654) (11,147) 285,432 835,028 2,101 846 81,736 — 179,325 5,304 4,011 273,323 208,899 38,947 985 12,976 2,072 333,007 596,886 870,209 5,469 12,000 113,777 3,506 1,006 50 1,847 773 138,428 160,000 31,494 1,199 2,720 64 142,421 44,238 382,136 520,564 100,639 300,436 5,085 (63,171) 6,656 349,645 870,209 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  54 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands of dollars except number of shares) 9 1 0 2 , 8 2 r e b m e t p e S d e d n e r a e y l a c s fi e h t r o F i n g e r o f y c n e r r u c l d e t a u m u c c A l d e t a u m u c c A e e y o p m e l f o n o i t r o p i n a g d e z i l a e r n u l d e t a u m u c c A n o ) s s o l ( y t i u q E t i c fi e D s e c n e r e f f i d i n a g e g d e h s n a p l s e r u t n e b e d l s u p r u s s e r a h s s e r a h s n o i t a l s n a r t w o fl h s a c t fi e n e b l e b i t r e v n o c d e t u b i r t n o C n o m m o C f o r e b m u N $ l a t o T $ 5 4 6 9 4 3 , ) 1 7 1 3 6 , ( ) 7 6 1 8 , ( ) 7 6 1 8 , ( ) 3 9 7 7 3 , ( ) 3 9 7 7 3 , ( ) 0 4 6 ( 0 9 1 ) 0 2 5 3 , ( 5 2 4 ) 8 0 7 4 1 , ( — — — — ) 3 2 5 ( 2 3 4 5 8 2 , ) 4 5 6 9 0 1 , ( $ 4 1 3 — — — — — — 5 2 4 9 3 7 $ 2 7 2 — — — — ) 0 2 5 3 , ( — — — — — — — — ) 8 0 7 , 4 1 ( $ $ $ $ 0 7 0 , 6 5 8 0 , 5 6 3 4 , 0 0 3 9 3 6 , 0 0 1 0 7 0 , 8 0 0 , 5 0 1 8 1 0 2 , 9 2 r e b m e t p e S , e c n a a B l — — — — — — — — — — 0 9 1 — — — — — — — r a e y e h t r o f s s o l t e N ) 4 2 e t o n ( s d n e d v D i i ) 7 1 1 ( ) 6 0 6 , 2 2 1 ( ) 4 2 e t o n ( s e r a h s f o n o i t a l l e c n a c d n a e s a h c r u P — — — — — — — — ) 5 2 e t o n ( n o i t a s n e p m o c d e s a b - e r a h S ) 1 1 e t o n ( x a t f o t e n , s e g d e h w o fl h s a C , s n a g i l a i r a u t c a t fi e n e b d e n fi e D ) 2 2 e t o n ( x a t f o t e n s n o i t a r e p o n g e r o i f f o n o i t a l s n a r T ) 8 4 2 3 , ( ) 8 3 6 , 8 ( 5 8 0 , 5 6 2 6 , 0 0 3 2 2 5 , 0 0 1 4 6 4 , 5 8 8 , 4 0 1 9 1 0 2 , 8 2 r e b m e t p e S , e c n a a B l . s t n e m e t a t s l i a c n a n fi d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a i s e t o n g n y n a p m o c c a e h T (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED) (In thousands of dollars except number of shares) 55 8 1 0 2 , 9 2 r e b m e t p e S d e d n e r a e y l a c s fi e h t r o F n o i t a l s n a r t s e c n e r e f f i d i n a g e g d e h s n a p l w o fl h s a c t fi e n e b i n g e r o f y c n e r r u c l d e t a u m u c c A l d e t a u m u c c A e e y o p m e l n o n a g i d e z i l a e r n u l d e t a u m u c c A y t i u q E f o n o i t r o p l e b i t r e v n o c s e r u t n e b e d l s u p r u s s e r a h s s e r a h s d e t u b i r t n o C n o m m o C f o r e b m u N $ l a t o T $ t i c fi e D $ 6 5 1 , 4 3 3 ) 0 6 8 , 1 7 ( ) 2 9 1 ( 9 2 7 , 8 4 9 2 7 , 8 4 ) 1 7 9 , 7 3 ( ) 1 7 9 , 7 3 ( ) 3 6 9 , 3 ( ) 7 5 2 , 3 ( 9 8 1 0 1 — ) 3 2 ( 2 3 1 , 3 6 0 5 0 8 8 , 4 — — 8 8 1 , 1 — — — — 5 4 6 , 9 4 3 ) 1 7 1 , 3 6 ( — — — — — — — — — 6 0 5 4 1 3 $ 5 9 2 — — — — — — — ) 3 2 ( — — 2 7 2 $ $ $ $ 0 9 1 , 1 1 4 1 , 3 7 4 2 , 0 0 3 5 3 3 , 1 0 1 2 8 5 , 3 4 7 , 5 0 1 7 1 0 2 , 0 3 r e b m e t p e S , e c n a a B l — — — — — — — — — 0 8 8 , 4 0 7 0 , 6 — — — — — ) 8 8 1 , 1 ( 2 3 1 , 3 — — — — — — 9 8 1 — — — — — — — — — ) 6 0 7 ( 0 1 — — — — — — — r a e y e h t r o f i s g n n r a e t e N ) 4 2 e t o n ( s d n e d v D i i ) 0 0 9 , 6 3 7 ( ) 4 2 e t o n ( s e r a h s f o n o i t a l l e c n a c d n a e s a h c r u P — ) 5 2 e t o n ( n o i t a s n e p m o c d e s a b - e r a h S — — — — — 8 8 3 , 1 s e r a h s n o m m o c o t n i s e r u t n e b e d l e b i t r e v n o c f o n o i s r e v n o C ) 4 2 d n a 3 2 s e t o n ( l e b i t r e v n o c f o e s a h c r u p e R ) 3 2 e t o n ( s e r u t n e b e d ) 1 1 e t o n ( x a t f o t e n , s e g d e h w o fl h s a C ) 3 2 e t o n ( x a t f o t e n , s e r u t n e b e d l e b i t r e v n o c f o e c n a u s s I , s n a g i l a i r a u t c a t fi e n e b d e n fi e D ) 2 2 e t o n ( x a t f o t e n s n o i t a r e p o n g e r o i f f o n o i t a l s n a r T 5 8 0 , 5 6 3 4 , 0 0 3 9 3 6 , 0 0 1 0 7 0 , 8 0 0 , 5 0 1 8 1 0 2 , 9 2 r e b m e t p e S , e c n a a B l . s t n e m e t a t s l i a c n a n fi d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a i s e t o n g n y n a p m o c c a e h T (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  56 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) For the fiscal years ended September 28, 2019 $ September 29, 2018 $ Cash flows from operating activities: Net (loss) 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) Loss on disposal of property, plant and equipment (note 12) Share-based compensation – equity settled (note 25) Share-based compensation – cash settled (note 25) Goodwill impairment (note 16) Other Changes in: Trade and other receivables Inventories Prepaid expenses Trade and other payables Provisions (note 20) Cash generated from operating activities: Interest paid Income taxes paid Net cash flows from operating activities Cash flows used in financing activities: Dividends paid Increase in bank overdraft Increase in revolving credit facility (note 17) Issuance of convertible debentures, net of underwriting fees and issuances costs of $4.5 million (note 23) Repurchase of convertible debentures (note 23) Purchase and cancellation of shares (note 24) Payment of financing fees (note 14) Net cash flows used in financing activities Cash flows used in investing activities: Business combination, net of cash acquired and prior year adjustments (Note 4) Payment of purchase price payable Additions to property, plant and equipment, net of proceeds on disposal Additions to intangible assets (note 13) Net cash used in investing activities Effect of changes in exchange rate on cash Net 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. (8,167) 15,449 3,772 1,472 14,201 (8,422) 8,836 18,113 (16) 190 5 50,000 7 95,440 (4,039) (2,828) 1,143 4,306 (578) (1,996) 93,444 (16,350) (21,226) 55,868 (37,804) 2,856 5,000 — — (640) (140) (30,728) — — (26,837) (172) (27,009) 52 (1,817) 2,101 284 48,729 14,716 3,758 (7,645) 18,239 (8,435) 7,403 17,132 — 189 (5) — (21) 94,060 2,205 8,962 (2,315) (20,866) (750) (12,764) 81,296 (14,952) (13,432) 52,912 (38,037) 5,469 2,000 93,238 (59,990) (3,963) (272) (1,555) (42,084) (690) (23,271) (384) (66,429) 140 (14,932) 17,033 2,101 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  57 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 28, 2019 and September 29, 2018 comprise Rogers and the directly and indirectly controlled subsidiaries, Lantic Inc. ("Lantic") and The Maple Treat Corporation ("TMTC"), (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 year ends on the Saturday closest to the end of September. All references to 2019 and 2018 represent the years ended September 28, 2019 and September 29, 2018. 2. BASIS OF PREPARATION (a) Statement of compliance: These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements were authorized for issue by the Board of Directors on November 20, 2019. (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) equity-settled share-based compensation, cash-settled share appreciation rights and cash-settled performance share units are measured at fair value, (iii) 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 (iv) assets and liabilities acquired in business combinations are measured at fair value at acquisition date, less any subsequent impairment, if applicable. (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 about future events 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: (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  58 2. BASIS OF MEASUREMENT (CONTINUED) (d) Use of estimates and judgements (continued): (i) Embedded derivatives: As at October 2, 2016, embedded derivatives, which related to the foreign exchange component of certain sales contracts denominated in U.S. currency, were no longer separated from the host contract as it was 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 and 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 continued to be marked-to-market every quarter until all the volume on the contract was delivered. As at September 28, 2019, there were no embedded derivatives outstanding. (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. (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. These estimates and assumptions are based on management’s best estimates and judgments. 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  59 3. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation: (i) Subsidiaries: The consolidated financial statements include the Company and the subsidiary it controls, Lantic Inc. ("Lantic") and its subsidiaries, TMTC, 9020-2292 Québec Inc. ("Decacer") and Highland Sugarworks Inc. ("Highland") (the latter three companies together referred to as "TMTC"). 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 are 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 (loss) earnings and comprehensive (loss) 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 (loss) earnings and comprehensive (loss) 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. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  60 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 (loss) 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 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  61 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 Finance leased assets are depreciated over the shorter of the lease term and their useful lives. Depreciation methods, useful lives and residual values are reviewed at each financial year-end and depreciation is adjusted on a prospective basis, if necessary. (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. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  62 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Intangible assets (continued): (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 Brand names are not amortized as they are considered to have an indefinite life. 5 to 15 years 10 years 10 years Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. For intangible assets with finite life, 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, 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  63 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. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or group of assets. 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  64 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 (loss) 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  65 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 (loss) earnings and comprehensive (loss) income of the current year. (vi) Cash-settled Performance Share Units: The Company implemented a Performance Share Units plan ("PSU") entitling certain senior personnel to a cash payment. A liability is recognized in payables for the services acquired and is recorded at fair value based on the share price of the Company’s Common Shares with a corresponding expense recognized in administration and selling expenses. The amount recognized as an expense is adjusted to reflect the number of units for which the related service and performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the units of awards that do meet the related service and non-market performance conditions at the vesting date. At the end of each reporting period until the liability is settled, the fair value of the liability is re-measured, with any changes in fair value recognized in the consolidated statement of (loss) earnings. The fair value of the employee benefits expense of the PSUs is measured using the Monte Carlo pricing model. (vii) 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. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  66 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. 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. (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) (l) Financial instruments (continued): (i) IFRS 9, Financial Instruments (continued): 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. 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, except for non-hedged derivative assets. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  68 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 (loss) earnings. The Company currently has no significant financial liabilities measured at fair value except for other long-term liabilities and non-hedged derivative 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 (loss) earnings. (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): (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 (loss) 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  70 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 (loss) earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive (loss) income and presented in accumulated other comprehensive (loss) income as part of equity. The amount recognized in other comprehensive (loss) income is removed and included in net (loss) earnings under the same line item in the consolidated statements of (loss) earnings and comprehensive (loss) income as the hedged item, in the same period that the hedged cash flows affect net (loss) 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 (loss) income remains in accumulated other comprehensive (loss) income until the forecasted transaction affects profit or loss. If the forecasted transaction is no longer expected to occur, then the balance in accumulated other comprehensive (loss) income is recognized immediately in net (loss) earnings. When the hedged item is a non-financial asset, the amount recognized in other comprehensive (loss) income is transferred to net (loss) earnings in the same period that the hedged item affects net (loss) 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: The Company derives revenue from the sale of finished goods, which include sugar and maple products. The Company recognizes revenue at a point in time when it transfers control of the finished goods to a customer, which occurs upon shipment of the finished goods from the Company’s facilities or upon delivery of the finished goods to the customer’s premises. Some arrangements for the sale of finished goods provide for customer price discounts and/or volume rebates based on aggregate sales over a specified period, which gives rise to variable consideration. At the time of sale, estimates are made for items giving rise to variable consideration based on the terms of the sales program or arrangement. The variable consideration is estimated at contract inception using the most likely amount method and revenue is only recognized to the extent that a significant reversal of revenue is not expected to occur. The estimate is based on historical experience, current trends, and other known factors. Sales are recorded net of customer discounts, rebates, and exclude sales taxes. (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. (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) (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 initially in other comprehensive income since inception of the cash flow hedge and transferred to finance income and finance costs in the same period that the hedged cash flows affect net (loss) earnings. Interest expense is recorded using the effective interest method. (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 (loss) 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 (loss) 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) (Loss) Earnings per share: The Company presents basic and diluted (loss) 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. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  72 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (r) New standards and interpretations adopted: (i) IFRS 2, Classification and Measurement of Share-based Payment Transactions: On June 20, 2016, the IASB issued amendments to IFRS 2, Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments 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 adopted the amendments to IFRS 2 in its consolidated financial statements for the annual period beginning on September 30, 2018. The adoption of the amendments did not have an impact on the consolidated financial statements. (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 IFRSs. The Company adopted IFRS 15 in its consolidated financial statements for the year beginning on September 30, 2018. The adoption of the standard did not have an impact on the consolidated financial statements. (iii) 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 adopted the Interpretation in its consolidated interim financial statements for the annual period beginning on September 30, 2018. The adoption of the Interpretation did not have an 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  73 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (r) New standards and interpretations adopted (continued): (iv) 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 standard: • 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 adopted these amendments in its consolidated interim financial statements for the annual period beginning September 30, 2018. The adoption of the amendments 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 ending September 28, 2019 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 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 adoption of IFRS 16 will have a significant impact on the Company’s consolidated financial statements, as the Company will recognize new assets and liabilities for its operating leases of warehouses, operating properties, railcars and production equipment. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. On a go-forward basis, there will be a decrease in operating lease expense and an increase in depreciation and amortization and interest expense. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  74 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) New standards and interpretations not yet adopted (continued): (i) IFRS 16, Leases (continued): The Company intends to adopt this standard using the modified retrospective approach measuring the right-of-use asset to be equal to the lease liability with no restatement of the comparative period. Under the modified retrospective approach, the Company has elected to use the following practical expedients permitted on adoption of IFRS 16: • the Company will not reassess whether a contract is, or contains, a lease at the date of initial application and instead will apply IFRS 16 to contracts that were previously identified as leases applying IAS 17, Leases; • the Company will rely on the assessment of the onerous lease provisions under IAS 37, Provisions, contingent liabilities and contingent assets, instead of performing an impairment review. The Company will adjust the right-of-use assets at the date of initial application by the amount of any provision for onerous leases recognized in the consolidated balance sheet immediately before the date of initial application; • the Company will account for leases for which the lease term ends within twelve months of September 28, 2019 as short- term leases; and • the Company will use hindsight in determining the lease term at the date of initial application. The Company’s preliminary assessment of the impact of the adoption of the standard is an increase of the lease liability of approximately $11.0 million and an increase in the right-of-use asset of approximately $11.0 million on the consolidated statement of financial position as at September 29 2019. As amounts previously recognized as lease expenses will be replaced by the depreciation of the right-of-use asset and the lease liability finance costs, the consolidated statement of (loss) earnings and comprehensive (loss) income will be affected. (ii) 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 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  75 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) New standards and interpretations not yet adopted (continued): (iii) Annual Improvements to IFRS Standards (2015-2017) Cycle: On December 12, 2017 the IASB issued narrow-scope amendments to three standards as part of its annual improvements process. The amendments are effective on or after January 1, 2019, with early application permitted. Each of the amendments has its own specific transition requirements. Amendments were made to the following standards: • IFRS 3, Business Combinations and IFRS 11, Joint Arrangements – to clarify how a company accounts for increasing its interest in a joint operation that meets the definition of a business; • IAS 12, Income Taxes – to clarify that all income tax consequences of dividends are recognized consistently with the transactions that generated the distributable profits – i.e. in profit or loss, OCI, or equity; and • IAS 23, Borrowing Costs – to clarify that specific borrowings – i.e. funds borrowed specifically to finance the construction of a qualifying asset – should be transferred to the general borrowings pool once the construction of the qualifying asset has been completed. The Company intends to adopt these amendments in its consolidated financial statements for the annual period beginning on September 29, 2019. The Company does not expect the amendments to have a material impact on the consolidated financial statements. (iv) Amendments to References to the Conceptual Framework in IFRS Standards: On March 29, 2018 the IASB issued a revised version of its Conceptual Framework for Financial Reporting (the Framework), that underpins IFRS Standards. The IASB also issued Amendments to References to the Conceptual Framework in IFRS Standards (the Amendments) to update references in IFRS Standards to previous versions of the Conceptual Framework. Both documents are effective from January 1, 2020 with earlier application permitted. The Company does not intend to adopt the Amendments in its consolidated financial statements before the annual period beginning on October 4, 2020. 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  76 4. BUSINESS COMBINATIONS On November 18, 2017, the Company acquired all of the issued and outstanding shares of Decacer for a total consideration of $43.0 million ($42.1 million net of cash acquired) (the "Decacer Transaction"). The Company financed the acquisition, including transaction costs, with a draw-down on the Company’s $265.0 million amended credit facility (see Note 17, Revolving credit facility). Decacer is a major bottler and distributor of branded and private label maple syrup and maple sugar based in Dégelis, Québec. 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. The Company had completed the purchase price allocation over the identifiable net assets and goodwill and no adjustment was made to the purchase price allocation as presented in the audited annual consolidated financial statements for the fiscal year ended September 29, 2018. The following table presents the purchase price allocation: Identifiable assets and liabilities assumed: Cash Trade and other receivables Inventories Prepaid expenses Property, plant and equipment Intangible assets Trade and other payables Income taxes payable Deferred tax liabilities Total net assets acquired Total consideration transferred Goodwill (note 16) Revolving credit facility Total consideration transferred 2018 $ 928 3,832 15,711 96 8,132 11,307 (8,311) (197) (4,544) 26,954 43,012 16,058 $ 43,012 43,012 The trade receivables comprise a gross amount of $3.8 million for which the full amount was expected to be collectable subsequent to the acquisition 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 not deductible for tax purposes. The operating results of Decacer are included in the maple products segment. If the acquisition had occurred on October 1, 2017, the consolidated results of the Company for fiscal 2018 would have included additional net sales of approximately $11.7 million and additional results from operating activities of approximately $0.3 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 1, 2017. Acquisition-related costs of $0.7 million for legal fees, due diligence costs and other fees 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 (loss) earnings and comprehensive (loss) 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 (loss) earnings and comprehensive (loss) income as follows: 77 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 (loss) earnings: Net change in fair value of interest rate swaps (note 11) Finance income Interest expense on convertible unsecured subordinated debentures, including accretion of $821 (2018 - $785) (note 23) Interest on revolving credit facility Amortization of deferred financing fees Other interest expense Finance costs Net finance costs recognized in net (loss) earnings For the fiscal years ended September 28, 2019 September 29, 2018 $ $ 14,927 522 15,449 3,772 19,221 14,292 424 14,716 3,758 18,474 For the fiscal years ended September 28, 2019 September 29, 2018 $ 378 378 8,339 7,337 1,178 1,637 18,491 18,113 $ 532 532 7,691 6,893 1,422 1,658 17,664 17,132 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  78 7. INCOME TAX EXPENSE (RECOVERY) Current tax expense: Current period Deferred tax (recovery) expense: Recognition and reversal of temporary differences Adjustments for prior year periods Changes in tax rates Deferred tax (recovery) expense Total income tax expense Income tax recognized in other comprehensive (loss) income: For the fiscal years ended September 28, 2019 September 29, 2018 $ $ 16,084 17,967 (978) (453) (452) (1,883) 14,201 375 — (103) 272 18,239 September 28, 2019 September 29, 2018 For the fiscal years ended Before tax Tax effect Net of tax Before tax Tax effect Net of tax Cash flow hedges $ (4,763) Defined benefit actuarial (losses) gains (19,902) $ 1,243 5,194 $ (3,520) (14,708) $ (32) $ 9 $ (23) 6,643 (1,763) 4,880 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: September 28, 2019 September 29, 2018 For the fiscal years ended Earnings before income taxes Income taxes using the Company’s statutory tax rate Changes due to the following items: Changes in tax rates Non-deductible expenses % — 27.00 (7.49) 2.59 Non-deductible impairment of goodwill 220.76 Adjustments for prior year periods Other (7.51) — 235.35 $ 6,034 1,629 (452) 156 13,321 (453) — 14,201 % — 26.75 (0.15) 0.23 — — 0.41 27.24 $ 66,968 17,914 (103) 156 — — 272 18,239 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  79 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 TMTC. On December 1, 2016, TMTC 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 the acquisition date. As at September 28, 2019, cash held in an escrow account was nil (September 29, 2018 - $0.8 million) and the fair value of the contingent consideration payable was nil (September 29, 2018 - $0.8 million) (See Note 19, Other long-term liabilities). 9. TRADE AND OTHER RECEIVABLES Trade receivables Less expected credit loss Other receivables Initial margin deposits with commodity brokers September 28, 2019 September 29, 2018 $ 80,174 (827) 79,347 5,961 515 85,823 $ 73,794 (373) 73,421 5,505 2,810 81,736 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 $0.1 million per year). Write-offs for fiscal 2019 were $0.1 million (September 29, 2018 - $0.2 million). 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 September 29, 2018, while over 83% are current (less than 30 days) as at September 28, 2019 (September 29, 2018 - 79%). 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  80 10. INVENTORIES Raw inventory Work in progress Finished goods Packaging and operating supplies Spare parts and other September 28, 2019 September 29, 2018 $ 113,487 7,947 36,356 157,790 11,831 12,738 182,359 $ 113,134 10,460 32,491 156,085 11,074 12,166 179,325 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 28, 2019, inventories recognized as cost of goods sold amounted to $677.7 million (September 29, 2018 - $669.9 million). As at September 28, 2019, the Company recorded an amount of $0.1 million (September 29, 2018 - nil) related to onerous contracts as defined in IAS 37 paragraph 66, as a write-down to inventory through cost of sales. In the normal course of business, the Company enters into an economic hedge for all of its raw sugar purchases and refined sugar sales. As the Company does not apply hedge accounting for these contracts, the related derivative instruments, being the futures contracts are marked-to-market. As a result, the Company must record an onerous loss to cost of sales when the net realizable value is lower than the mark-to-market of the raw sugar futures contract and the related refining costs. 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. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  81 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) 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. 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 values of the interest rate swaps have been determined by using rates published on financial capital markets. 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 September 28, 2019 and September 29, 2018, the Company’s financial derivatives carrying values were as follows: Financial Assets Financial Liabilities Current Non-current Current Non-current September 28, 2019 September 28, 2019 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: Natural gas futures contracts Interest rate swaps $ 27 673 — 231 931 $ — 21 — — 21 $ — 13 602 — 615 $ 59 328 2,956 1,334 4,677 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: Natural gas futures contracts Interest rate swaps Financial Assets Financial Liabilities Current Non-current Current Non-current September 29, 2018 September 29, 2018 $ 364 3,187 — 460 4,011 $ — 58 — 2,014 2,072 $ — — 1,847 — 1,847 $ 135 — 2,585 — 2,720 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  82 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) For the fiscal years ended Charged to cost of sales Unrealized (loss) gain Charged to finance income Other comprehensive (loss) gain September 28, September 29, September 28, September 29, September 28, September 29, 2018 2019 2019 2019 2018 2018 $ $ $ $ $ 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 swap 179 (541) — (3,154) 1,494 51 1,658 — 1,296 2,715 — 1,106 — — — — 378 378 — — — — 532 532 $ — — — — — — (784) (3,979) (4,763) (979) 947 (32) The following table summarizes the Company’s hedging components of other comprehensive (loss) income ("OCI") as at September 28, 2019 and September 29, 2018: September 28, 2019 September 29, 2018 Opening OCI Income taxes Natural gas futures contracts $ Interest rate swap $ (2,229) 2,492 262 (253) Opening OCI – net of income taxes (1,967) 2,239 Change in fair value of derivatives designated as cash flow hedges 874 (3,601) Amounts reclassified to net (loss) earnings (1,658) Income taxes Ending OCI – net of income taxes 204 (2,547) (378) 1,039 (701) Natural gas futures contracts Total $ 263 9 272 (2,727) (2,036) 1,243 3,248 $ (1,701) 451 (1,250) 1,736 (2,715) 262 Interest rate swap $ 2,102 (557) 1,545 1,479 (532) (253) (1,967) 2,239 Total $ 401 (106) 295 3,215 (3,247) 9 272 For the fiscal year ended September 28, 2019, the derivatives designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net (loss) earnings. Approximately $0.1 million of net losses presented in accumulated other comprehensive (loss) income are expected to be reclassified to net (loss) earnings within the next twelve months. (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) For its financial assets and liabilities measured at amortized cost as at September 28, 2019 and September 29, 2018, 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. 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 28, 2019 and September 29, 2018 are as follows: September 28, 2019 September 29, 2018 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$) 35,746 51,877 6,964 613 35,393 51,665 6,757 604 95,200 94,419 (40,393) (39,774) (39,556) (38,553) (12,816) (12,556) — — (92,765) (90,883) 2,435 3,536 (353) (212) (207) (9) (781) 619 1,003 260 — 1,882 1,101 1.3247 1,458 (1,490) (32) 61,500 86,326 8,567 361 51,794 76,767 7,962 357 (9,706) (9,559) (605) (4) 156,754 136,880 (19,874) (56,761) (81,107) (19,167) — (52,898) (66,426) (18,199) — 3,863 14,681 968 — (157,035) (137,523) 19,512 (281) (643) (362) 1.2918 (468) 697 229 Purchases 0 - 6 months 6 - 12 months 12 - 24 months Over 24 months Sales 0 - 6 months 6 -12 months 12 - 24 months Over 24 months Net position Foreign exchange rate at the end of the period Net value (CA$) Margin call payment (receipt) at year-end Net (liability) asset (CA$) (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  84 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (a) Raw sugar (continued): All sugar futures contracts are traded through a large exchange clearing house on the New York Intercontinental Exchange. Regulation of the U.S. futures industry is primarily self-regulation, with the role of the Federal Commodity Futures Trading Commission being principally an oversight role to determine that self-regulation is continuous and effective. The exchange clearing house used is one of the world’s largest capitalized financial institutions with excellent long-term credit ratings. Daily cash settlements are mandatory (margin calls) for resulting gains and/or losses from futures trading for each customer’s account. Due to the above, the Company does not anticipate a credit risk from the raw sugar futures derivative instruments. (b) Natural gas: The Company uses natural gas contracts to help manage its costs of natural gas. The Company monitors its positions and the credit ratings of its counterparties and does not anticipate losses due to counterparty’s non-performance. The Company's natural gas contracts as well as the fair value of these contracts relating to purchases of natural gas are as follows: September 28, 2019 September 29, 2018 Original futures contracts value Current contract value Fair value gain/(loss) Original futures contracts value Current contract value Fair value gain/(loss) (US$) (US$) (US$) (US$) (US$) (US$) Purchases Less than 1 year 1 to 2 years 2 to 3 years 3 years and over 5,904 6,415 6,429 9,834 5,449 5,480 5,568 9,399 (455) (935) (861) (435) 28,582 25,896 (2,686) 5,044 6,821 6,495 11,775 30,135 3,614 6,332 5,814 10,944 26,704 Foreign exchange rate at the end of the period Net liability (CA$) 1.3247 (3,558) (1,430) (489) (681) (831) (3,431) 1.2918 (4,432) The forecasted purchases of natural gas, the hedged items, are used for calculating the hedge ineffectiveness. No ineffectiveness was recognized in net (loss) 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  85 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  86 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (c) Foreign exchange contracts (continued): September 28, 2019 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 SUGAR Purchases EUR Less than 1 year Total EUR - Sugar MAPLE PRODUCTS Purchases U.S. dollars Less than 1 year Sales U.S. dollars Less than 1 year 1 to 2 years Original contract value (US$/EUR/AUD$) 66,592 8,481 575 75,648 (96,978) (14,791) (1,616) (113,385) (37,737) Original contract value (CA$) 77,280 11,157 756 89,193 (117,528) (19,178) (2,138) (138,844) (49,651) Current contract value (CA$) 77,782 11,614 760 90,156 (118,025) (19,964) (2,142) (140,131) (49,975) 263 263 400 400 382 382 2,500 3,323 3,303 (28,694) (400) (29,094) (38,204) (531) (38,735) (37,973) (530) (38,503) Total U.S. dollars - Maple (26,594) (35,412) (35,200) MAPLE PRODUCTS Purchases EUR Less than 1 year Sales EUR Less than 1 year 1 to 2 years Total EUR - Maple MAPLE PRODUCTS Sales AUD Less than 1 year 1 to 2 years Total AUD - Maple 155 236 227 (8,072) (270) (8,342) (8,187) (2,666) (148) (2,814) (12,283) (426) (12,709) (12,473) (2,404) (134) (2,538) (11,816) (406) (12,222) (11,995) (2,399) (134) (2,533) Total Foreign Exchange (75,069) (99,674) (99,321) Fair value gain/(loss) (CA$) 502 457 4 963 (497) (786) (4) (1,287) (324) (18) (18) (20) 231 1 232 212 (9) 467 20 487 478 5 — 5 353 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  87 11. FINANCIAL INSTRUMENTS (CONTINUED) Derivative financial instruments (continued) (c) Foreign exchange contracts (continued): Original contract value (US$/EUR) 68,896 6,769 1,040 76,705 (95,188) (2,590) (1,330) (99,108) (22,403) Original contract value (CA$) 88,515 8,696 1,341 98,552 (124,766) (3,410) (1,707) (129,883) (31,331) Current contract value (CA$) 87,153 6,408 1,355 94,916 (121,181) (1,061) (1,726) (123,968) (29,052) 1,606 2,108 2,058 (26,878) (25,272) (35,303) (33,195) (34,632) (32,574) September 29, 2018 Fair value gain/(loss) (CA$) (1,362) (2,288) 14 (3,636) 3,585 2,349 (19) 5,915 2,279 (50) 671 621 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 Purchases U.S. dollars Less than 1 year Sales U.S. dollars Less than 1 year Total U.S. dollars - Maple Total U.S. dollars (47,675) (64,526) (61,626) 2,900 MAPLE PRODUCTS Purchases Euro dollars Less than 1 year Sales Euro dollars Less than 1 year 1 to 2 years Total Euro dollars - Maple 364 554 509 (3,631) (92) (3,723) (3,359) (5,827) (144) (5,971) (5,417) (5,439) (142) (5,581) (5,072) (45) 388 2 390 345 Total Foreign Exchange (51,034) (69,943) (66,698) 3,245 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  88 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 2015 Fiscal 2017 Fiscal 2017 Fiscal 2017 Fiscal 2019 Fiscal 2019 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% March 12, 2019 to June 28, 2024 – 2.08% June 28, 2022 to June 28, 2024 – 2.17% Total value $ 30,000 20,000 30,000 30,000 20,000 80,000 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 28, 2019, the fair value of the swap agreements amounted to a liability of $1.1 million (September 29, 2018 - asset of $2.5 million). The forecasted interest payments, the hedged items, are used for calculating the hedge ineffectiveness. No ineffectiveness was recognized in net (loss) 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 9, 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)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  89 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 Natural gas contracts Fair value loss or (gain) on futures contracts Total exposure from above Forward exchange contracts Gross exposure September 28, 2019 September 29, 2018 (US$) (US$) 2,115 21,330 (3,356) 20,089 92,765 (95,200) (28,582) (1,101) (32,118) (12,029) (64,333) (76,362) 1,672 21,440 (3,560) 19,552 157,035 (156,754) (30,135) 362 (29,492) (9,940) (47,675) (57,615) As at September 28, 2019, the U.S./Can. exchange rate was $1.3247 (September 29, 2018 - $1.2918). 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 decrease in net loss of $2.8 million, (September 29, 2018 - increase in net earnings of $2.1 million) while a 5-cent decrease would have an equal but opposite effect on net (loss) earnings. Management believes that the impact on the gross exposure is not representative as it needs to be adjusted for the following transactions, which are not recorded on the consolidated statements of financial position as at year-end but were committed during the fiscal year, and will be accounted for as the physical transactions occur: Gross exposure as per above Sugar purchases priced not received Committed future sales in U.S. dollars Ocean freight Other Net exposure September 28, 2019 September 29, 2018 (US$) (76,362) (85,992) 139,368 (488) (374) (US$) (57,615) (93,516) 111,698 (15) (592) (23,848) (40,040) (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  90 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 decrease of net loss by $0.9 million in 2019 (September 29, 2018 - increase in net earnings of $1.5 million) while a decrease would have an equal but opposite effect on net (loss) 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 28, 2019, the Company has a short-term cash borrowing of $17.0 million (September 29, 2018 - $12.0 million) and a long-term cash borrowing of $160.0 million (September 29, 2018 - $160.0 million). The Company normally enters into a 30 - or 90-day bankers’ acceptance for an amount varying between $100.0 million to $180.0 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 fiscal year ended September 28, 2019, if interest rates had been 50 basis points higher, considering all borrowings not covered by the interest rate swap agreements, net loss would have been $0.5 million higher (September 29, 2018 - $0.5 million lower net earnings) while a decrease would have an equal but opposite effect on net (loss) earnings. (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) (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: Carrying Contractual cash flows amount $ $ 0 to 6 months $ 6 to 12 months $ Non-derivative financial liabilities: Revolving credit facility 177,000 177,000 17,000 Trade and other payables 117,731 117,731 117,731 Finance lease obligations 881 1,025 89 295,612 295,756 134,820 — — 81 81 September 28, 2019 12 to 24 months After 24 months $ — — 117 117 $ 160,000 — 738 160,738 Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts (net) (i) 32 (4,684) 5,804 (17,368) 7,680 (800) Forward exchange contracts (net) (i) Derivative financial instruments designated as effective cash flow hedging instruments: Natural gas contracts (i) Interest on swap agreements (353) (99,674) (77,736) (11,443) (9,112) (1,383) 3,558 1,103 4,340 37,863 9,341 4,256 939 3,565 922 (57,154) (66,737) (24,324) 299,952 238,602 68,083 (24,243) 8,498 1,811 8,877 8,994 21,544 5,669 25,030 185,768 (i) Based on notional amounts as presented above. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  92 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (d) Liquidity risk (continued): Carrying Contractual cash flows amount $ $ 0 to 6 months $ 6 to 12 months $ Non-derivative financial liabilities: Revolving credit facility 172,000 172,000 12,000 Trade and other payables 113,777 113,777 113,777 Finance lease obligations 114 121 28 285,891 285,898 125,805 — — 28 28 September 29, 2018 12 to 24 months $ — — 56 56 After 24 months $ 160,000 — 9 160,009 Derivative financial instruments measured at fair value through profit or loss: Sugar futures contracts (net) (i) (229) 831 1,426 (13,359) 13,224 (460) Forward exchange contracts (net) (i) (3,245) (69,943) (75,765) Other long-term liabilities 773 773 773 1,046 — 5,142 — (366) — Derivative financial instruments designated as effective cash flow hedging instruments: Natural gas contracts (i) Interest on swap agreements 4,432 (2,474) 38,928 5,505 3,070 837 (743) (23,906) (69,659) 285,148 261,992 56,146 3,446 783 (8,084) (8,056) 8,811 1,445 28,622 28,678 23,601 2,440 25,215 185,224 (i) Based on notional amounts as presented above. The convertible unsecured subordinated debentures of $155.3 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 $100.0 million to $180.0 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 28, 2019, the Company had an unused available line of credit of $88.0 million (September 29, 2018 - $93.0 million), a cash balance of $0.3 million (September 29, 2018 - $2.1 million) and an overdraft balance of $8.3 million (September 29, 2018 - $5.5 million). (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) (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 28, 2019, the Company had the following commodity contracts: Sugar futures contracts Natural gas contracts Volume (M.T.) 333,725 (320,872) 12,853 Current average value Current contract value Current average value Current contract value Contracts (US$) (US$) (10,000 MM BTU) (US$) (US$) 282.92 283.24 94,419 (90,883) 1,127 22.98 25,896 — — — n/a 3,536 1,127 22.98 25,896 1.3247 4,684 1.3247 34,304 Purchases Sales Foreign exchange rate at the end of the period Net value CA$ (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  94 11. FINANCIAL INSTRUMENTS (CONTINUED) Risks (continued) (e) Commodity price risk (continued): (ii) Natural gas (continued): As at September 29, 2018, 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.) 542,119 252.49 136,880 1,090 24.50 26,704 (541,154) 254.13 (137,523) — — — 965 n/a (643) 1,090 24.50 26,704 1.2918 (831) 1.2918 34,496 Purchases Sales Foreign exchange rate at the end of the period Net value CA$ If, on September 28, 2019, 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 loss would have been a decrease of approximately $1.4 million (calculated only on the point-in-time exposure on September 28, 2019) (September 29, 2018 - increase in net earnings of $0.1 million for US$0.05 per pound increase). If the raw sugar value would have decreased by US$0.02 per pound (being approximately US$44.00 per metric tonne), and all other variables remained constant, the impact on net loss would have been an increase of approximately $0.5 million (September 29, 2018 - decrease in net earnings of $0.1 million for US$0.02 decrease). Except for the beet pre-hedge, 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. The Company had no beet pre-hedge contracts as at September 28, 2019 nor September 29, 2018. If, on September 28, 2019, the natural gas market price would have increased by US$1.00, and all other variables remained constant, net loss would have decreased by $11.0 million (September 29, 2018 - increase in net earnings of $10.4 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 loss would have increased by $11.0 million (September 29, 2018 - decrease in net earnings of $10.4 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)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  95 11. FINANCIAL INSTRUMENTS (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. 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  96 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 28, 2019 Fair values Carrying values September 29, 2018 Fair values Carrying values $ $ $ $ Level 1 Level 2 — 353 — 353 229 3,245 229 3,245 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 Level 2 — — 2,474 2,474 Financial assets recorded at amortized cost: Cash Restricted cash Trade and other receivables Income taxes receivable Total financial assets FINANCIAL LIABILITIES: Derivative financial instruments measured at fair value through profit or loss: Level 1 Level 1 n/a n/a 284 — 85,823 1,977 88,437 284 — 85,823 1,977 88,437 2,101 846 2,101 846 81,736 81,736 — — 90,631 90,631 Sugar futures contracts Level 2 32 32 — — Derivative financial instruments designated as effective cash flow hedging instruments: Natural gas futures contracts Interest rate swap Level 2 Level 2 3,558 1,103 3,558 1,103 4,432 — 4,432 — Financial liabilities recorded at amortized cost: Bank overdraft Revolving credit facility Trade and other payables Income taxes payable Finance lease obligations Other long-term liabilities Convertible unsecured subordinated debentures Total financial liabilities Level 1 8,325 8,325 5,469 5,469 n/a n/a n/a n/a Level 3 177,000 177,000 172,000 172,000 117,731 117,731 113,777 113,777 — 881 — — 881 — 3,506 3,506 114 773 114 773 Level 1 144,230 158,010 142,421 157,464 452,860 466,640 442,492 457,535 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  97 12. PROPERTY, PLANT AND EQUIPMENT Machinery and equipment Buildings Furniture and fixtures Barrels Construction in progress Finance leases $ $ $ $ $ $ Land $ Total $ Cost or deemed cost Balance at September 30, 2017 17,949 66,631 270,044 2,237 7,528 417 13,947 378,753 Additions through business combination 140 3,347 — 4,616 1,771 3,490 17,242 — 349 — 29 110 572 — 15 3 1 — — — — 6 — 5 — 22,524 (21,304) — 8,132 24,760 — 24 18,089 73,468 293,688 2,589 8,240 428 15,167 411,669 — — — — 630 1,241 (9) — 1,578 20,674 (752) 11 36 — — 3 123 288 (1,955) 1 897 23,725 26,989 — — 3 (22,203) — — — (2,716) 18 18,089 75,330 315,199 2,628 6,697 1,328 16,689 435,960 — — — — — — — 22,559 161,201 1,725 11,807 57 412 4,128 709 108 63 — 1 — — — 24,284 173,009 469 4,837 171 1,873 12,258 439 781 (9) — (706) — (1,955) 2 1 — 98 — — — — — — — — — 188,053 14,716 1 202,770 15,449 (2,670) 3 — 26,148 184,563 909 3,663 269 — 215,552 Additions Transfers Effect of movements in exchange rate Balance at September 29, 2018 Additions Transfers Disposals Effects of movements in exchange rate Balance at September 28, 2019 Depreciation Balance at September 30, 2017 Depreciation for the year Effect of movements in exchange rate Balance at September 29, 2018 Depreciation for the year Disposals Effect of movements in exchange rate Balance at September 28, 2019 Net carrying amounts At September 29, 2018 18,089 49,184 120,679 At September 28, 2019 18,089 49,182 130,636 2,120 1,719 3,403 3,034 257 15,167 208,899 1,059 16,689 220,408 There were no impairment losses during fiscal 2019 and 2018. Any grants received are offset against property, plant and equipment additions. During the year, an amount of $4 million was recorded. 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  98 13. INTANGIBLE ASSETS Cost Balance at September 30, 2017 Additions through business combinations Additions Effect of movements in exchange rate Balance at September 29, 2018 Additions Disposals Effect of movements in exchange rate Customer Software relationships $ $ Brand names(1) $ Other $ 3,880 87 94 — 25,203 9,220 — 119 3,850 2,000 — 21 4,061 34,542 5,871 172 (203) — — — 81 — — 16 284 — 290 — 574 — — — Total $ 33,217 11,307 384 140 45,048 172 (203) 97 Balance at September 28, 2019 4,030 34,623 5,887 574 45,114 Amortization Balance at September 30, 2017 Amortization for the year Balance at September 29, 2018 Amortization for the year Disposals Balance at September 28, 2019 Net carrying amounts At September 29, 2018 At September 28, 2019 (1) Indefinite life. 14. OTHER ASSETS Deferred financing charges, net Other 1,842 317 2,159 279 (203) 2,235 352 3,395 3,747 3,465 — 7,212 — — — — — — 1,902 1,795 30,795 27,411 5,871 5,887 149 46 195 28 — 223 379 351 2,343 3,758 6,101 3,772 (203) 9,670 38,947 35,444 September 28, 2019 September 29, 2018 $ 925 3 928 $ 975 10 985 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). On July 9, 2019, the Company paid $0.1 million in financing fees to amend its existing 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, 2024. (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 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 99 September 28, 2019 September 29, 2018 $ 13,267 1,339 3,548 435 58 1,037 19,684 $ 8,330 1,299 1,518 583 41 1,205 12,976 (29,465) (29,260) (565) (2,537) (549) (7,894) (1,616) (1,517) (2,509) (417) (8,694) (1,841) (42,626) (44,238) (29,465) (7,836) 13,267 774 3,548 (2,537) 435 (549) (579) (29,260) (8,653) 8,330 (218) 1,518 (2,509) 583 (417) (636) (22,942) (31,262) (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  100 15. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED) The movement in temporary differences during the current years is as follows: September 29, 2018 $ Property, plant and equipment (29,260) Intangibles Employee benefits Derivative financial instruments Losses carried forward Goodwill Provisions Deferred financing charges Other (8,653) 8,330 (218) 1,518 (2,509) 583 (417) (636) Balance Recognized Recognized in other in profit comprehensive (loss) income (loss) $ (205) 817 (257) (251) 2,030 (28) (148) (132) 57 $ — — 5,194 1,243 — — — — — Recognized in equity $ — — — — — — — — — – Acquired Balance in business September 28, 2019 combination $ — — — — — — — — — – $ (29,465) (7,836) 13,267 774 3,548 (2,537) 435 (549) (579) (22,942) (31,262) 1,883 6,437 Balance September 30, 2017 Recognized in profit (loss) Recognized in other comprehensive (loss) income Recognized in equity Acquired Balance in business September 29, 2018 combination Property, plant and equipment (27,763) $ Intangibles Employee benefits Derivative financial instruments Losses carried forward Goodwill Provisions Deferred financing charges Other (6,461) 10,279 1,354 110 (2,418) 585 (337) 1,118 (23,533) $ 76 779 (186) (1,581) 1,408 (91) (2) (80) (595) (272) $ — — (1,763) 9 — — — — — (1,754) $ — — — — — — — — (1,159) (1,159) $ (1,573) (2,971) — — — — — — — $ (29,260) (8,653) 8,330 (218) 1,518 (2,509) 583 (417) (636) (4,544) (31,262) (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. GOODWILL Balance, beginning of year Additions through business combination Goodwill impairment Balance, end of year 101 September 28, 2019 September 29, 2018 $ 333,007 — (50,000) 283,007 $ 316,949 16,058 — 333,007 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 28, 2019 September 29, 2018 $ $ 229,952 229,952 53,055 5,887 288,894 103,055 5,871 338,878 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 of disposal. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  102 16. GOODWILL (CONTINUED) SUGAR SEGMENT The Company performed the annual impairment review for goodwill and indefinite life intangible assets as at September 28, 2019, and the estimated recoverable amounts exceeded the carrying amounts of the segments and, as a result, there was no impairment identified. The recoverable amount was based on value in use. The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources. Pre-tax discount rate Terminal growth rate Budgeted EBITDA growth rate (average of next 5 years) 2019 % 10.6 2.0 6.4 The discount rate was a pre-tax measure estimated based on historical industry weighted-average cost of capital adjusted for impacts on risk and taxes. The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was based on management's best estimate of the long-term compound annual EBITDA growth rate, consistent with the assumptions that a market participant would make. Budgeted EBITDA was estimated taking into account past experience, adjusted as follows: • Revenue growth for the first year was projected taking into account the budgeted sales volumes, and the following years taking into account the average growth levels experienced over the past 5 years and the estimated sales volumes and price growth for the next five years. It was assumed that the sales price would increase in line with forecasted inflation over the next five years. Management has identified the two key assumptions that could cause the carrying amount to exceed the recoverable amount. The following table shows the amount by which these two assumptions would need to change individually for the estimated recoverable amount to be equal to the carrying amount. Pre-tax discount rate Budgeted EBITDA growth rate 2019 % 7.3 (6.2) (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  103 16. GOODWILL (CONTINUED) MAPLE PRODUCTS SEGMENT The Company performed the annual impairment review for goodwill and indefinite life intangible assets as at September 28, 2019. The recoverable amount was based on value in use. The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources. Pre-tax discount rate Terminal growth rate Budgeted EBITDA growth rate (average of next 5 years) 2019 % 13.3 2.8 7.3 The discount rate was a pre-tax measure estimated based on historical industry weighted-average cost of capital adjusted for impacts on risk and taxes. The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was based on management's best estimate of the long-term compound annual EBITDA growth rate, consistent with the assumptions that a market participant would make. Budgeted EBITDA was estimated taking into account past experience, adjusted as follows: • Revenue growth for the first year was projected taking into account the budgeted sales volumes, adjusted for uncertainties, and the following years taking into account the average growth levels experienced in the past and the estimated sales volumes and price growth for the next five years. It was assumed that the sales price would increase in line with forecasted inflation over the next five years. As a result of the test, the Company recorded a goodwill impairment loss of $50.0 million in the fiscal year ended September 28, 2019. Following the impairment loss recognised in the maple products segment, the recoverable amount is equal to the carrying amount. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  104 17. REVOLVING CREDIT FACILITY On July 9, 2019, the Company exercised its option to extend the maturity date of its revolving credit facility to June 28, 2024 and made some minor amendments, which do not affect its outstanding borrowings nor its financial covenants. A total of $0.1 million was paid in financing fees. On December 20, 2017, the Company amended its existing revolving credit facility thereby increasing its available credit by $40.0 million by drawing additional funds under the accordion feature embedded in the revolving credit facility ("Additional Accordion Borrowings"). A total of $0.1 million was paid in financing fees (see Note 14, Other assets). As a result of the amended revolving credit facility, the Additional Accordion Borrowings and the Additional LBMT Accordion Borrowings, the Company has a total of $265.0 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. As at September 28, 2019, a total of $422.2 million of assets are pledged as security (September 29, 2018 - $407.8 million). The following amounts were outstanding as at: Outstanding amount on revolving credit facility: Current Non-current September 28, 2019 September 29, 2018 $ $ 17,000 160,000 177,000 12,000 160,000 172,000 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)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. TRADE AND OTHER PAYABLES Trade payables Other non-trade payables Personnel-related liabilities Dividends payable to shareholders 105 September 28, September 29, 2019 $ 96,150 2,907 9,238 9,440 2018 $ 91,675 2,754 9,897 9,451 117,735 113,777 Considering that Maple products syrup is harvested once a year, the Producteurs et Productrices Acericoles du Québec ("PPAQ") 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 $62.3 million as of September 28, 2019 (September 29, 2018 - $61.8 million). During the year, more than 89% of the maple syrup purchases were made from the PPAQ. 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-TERM LIABILITIES September 28, 2019 September 29, 2018 Contingent consideration payable Balance of purchase price payable $ 773 77 — (850) — — — — $ — — — — — — — — Total $ 773 77 — (850) — — — — Contingent consideration payable Balance of purchase price payable $ 4,469 190 — $ 822 8 30 Total $ 5,291 198 30 (3,886) (860) (4,746) 773 773 — 773 — — — — 773 773 — 773 Opening balance Accretion expense Foreign exchange adjustment Payment made Closing balance Presented as: Current Non-current (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  106 20. PROVISIONS Opening balance Additions Provisions used during the period Closing balance Presented as: Current Non-current September 28, 2019 September 29, 2018 $ 2,205 70 (578) 1,697 878 819 1,697 $ 2,231 724 (750) 2,205 1,006 1,199 2,205 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 regulations 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. 21. FINANCE LEASE OBLIGATIONS The Company leases moveable equipment. These leases have an interest rate of 5.65% with maturity dates in fiscal 2020. The Company also leases a warehouse. This lease has an interest rate of 3.66% with a maturity date in fiscal 2028. The leases substantially transfer all the usage benefits of such equipment and warehouse to the Company. The outstanding liabilities are as follows: Finance lease obligations September 28, 2019 September 29, 2018 Carrying values $ 881 Fair values $ 881 Carrying values $ 114 Fair values $ 114 The finance lease obligations are payable as follows: September 28, 2019 September 29, 2018 Future minimum lease payments $ 170 435 420 1,025 Present value of minimum lease payments Future minimum lease payments $ 139 352 390 881 $ 55 66 — 121 Interest $ 31 83 30 144 Present value of minimum lease payments $ 50 64 — 114 Interest $ 5 2 — 7 Less than one year Between one and five years More than five years (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: 107 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 28, 2019 September 29, 2018 $ $ 105,323 104,362 139,952 17,181 157,133 (34,628) (17,182) (51,810) 19,363 (539) 120,650 15,206 135,856 (16,288) (15,206) (31,494) (4,911) 1,732 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 28, 2019 (September 29, 2018 - no decrease in defined benefit asset). 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 January 1, 2017 and the next required valuations will be as of December 31, 2019. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  108 22. EMPLOYEE BENEFITS (CONTINUED) The asset allocation of the major categories in the plan was as follows: Equity instruments Government bonds Cash and short-term securities September 28, 2019 September 29, 2018 % 61.4 35.4 3.2 $ 64,668 37,285 3,370 100.0 105,323 % 60.9 36.6 2.5 100.0 $ 63,557 38,196 2,609 104,362 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 2020 are expected to be approximately $3.7 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)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  109 22. EMPLOYEE BENEFITS (CONTINUED) Movement in the present value of the defined benefit obligations is as follows: For the fiscal years ended September 28, 2019 Pension benefit plans $ Other benefit plans $ Total $ Pension benefit plans $ September 29, 2018 Other benefit plans $ Total $ 120,650 15,206 135,856 121,886 17,733 139,619 2,370 — (8) 4,587 982 (5,217) 235 — (103) 565 — — 2,605 — (111) 5,152 982 2,388 (1,478) 10 4,528 1,003 (5,217) (4,512) 282 — (56) 652 — — 2,670 (1,478) (46) 5,180 1,003 (4,512) (862) (635) (1,497) (1,037) (632) (1,669) — (56) (56) — (2,427) (2,427) 17,208 2,000 19,208 (814) (210) (1,024) 242 (31) 211 (1,324) (136) (1,460) 139,952 17,181 157,133 120,650 15,206 135,856 104,362 4,022 (539) 2,972 982 (5,217) (862) (397) 105,323 — — — 635 — — (635) — — 104,362 100,450 4,022 3,835 (539) 3,607 982 (5,217) (1,497) (397) 1,732 3,251 1,003 (4,512) (1,037) (360) 105,323 104,362 — — — 632 — — (632) — — 100,450 3,835 1,732 3,883 1,003 (4,512) (1,669) (360) 104,362 Movement in the present value of the defined benefit obligation: Defined benefit obligation, beginning of the year Current service cost Past service costs Re-measurements of other long-term benefits Interest cost Employee contributions Benefit payments from plan Benefit payments from employer Actuarial (gains) losses arising from changes in demographic assumptions Actuarial (gains) losses arising from changes in financial assumptions Actuarial (gains) losses 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 Fair value of plan assets, end of year (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  110 22. EMPLOYEE BENEFITS (CONTINUED) On October 16, 2017, the Alberta Treasury Board and Finance approved an amendment to the Alberta Hourly Plan which led to the elimination of the reserve for future supplements, and investment earnings accumulated thereon, effective January 1, 2017. As a result, in fiscal 2018, a $1.5 million pension income was recorded. The net defined benefit obligation can be allocated to the plans’ participants as follows: September 28, 2019 September 29, 2018 Pension benefit plans Other benefit plans Pension benefit plans Other benefit plans Active plan participants Retired plan members Deferred plan participants Other % 47.2 48.4 1.3 3.1 100.0 % 43.8 56.2 — — 100.0 % 45.8 49.9 1.3 3.0 100.0 The Company’s defined benefit pension expense was as follows: For the fiscal years ended September 28, 2019 September 29, 2018 Pension costs recognized in net (loss) earnings: Current service cost Past service cost Expenses related to the pension benefits plans Net interest cost Re-measurements of other long-term benefits Pension expense Recognized in: Cost of sales Administration and selling expenses Pension benefit plans $ Other benefit plans $ Pension benefit plans $ Other benefit plans $ 2,370 — 397 565 (8) 3,324 235 — — 565 (103) 697 Total $ 2,605 — 397 1,130 (111) 4,021 2,388 (1,478) 360 693 10 1,973 2,802 606 3,408 1,435 522 3,324 91 697 613 4,021 538 1,973 282 — — 652 (56) 878 555 323 878 % 41.6 58.4 — — 100.0 Total $ 2,670 (1,478) 360 1,345 (46) 2,851 1,990 861 2,851 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  111 22. EMPLOYEE BENEFITS (CONTINUED) The following table presents the change in the actuarial gains and losses recognized in other comprehensive (loss) income: For the fiscal years ended September 28, 2019 September 29, 2018 Pension benefit plans $ Other benefit plans $ Total $ Cumulative amount in comprehensive (loss) income at the beginning of the year 170 (8,954) (8,784) Recognized during the year 17,989 1,913 19,902 Pension benefit plans $ 4,040 (3,870) Other benefit plans $ (6,181) (2,773) Total $ (2,141) (6,643) Cumulative amount in comprehensive (loss) income at the end of the year 18,159 (7,041) 11,118 170 (8,954) (8,784) Recognized during the year, net of tax 13,294 1,414 14,708 (2,843) (2,037) (4,880) Principal actuarial assumptions used were as follows: For the fiscal years ended September 28, 2019 September 29, 2018 Pension benefit plans % 3.00 2.50 3.90 2.20 Other benefit plans % 3.00 3.00 3.90 3.00 Pension benefit plans % 3.90 2.20 3.85 2.20 Other benefit plans % 3.90 3.00 3.85 3.00 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  112 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 28, 2019 September 29, 2018 22.0 24.7 23.5 26.0 21.9 24.6 23.4 26.0 The assumed health care cost trend rate as at September 28, 2019 was 5.67% (September 29, 2018 - 5.73%), decreasing uniformly to 4.00% in 2040 (September 29, 2018 - 4.00% in 2040) and remaining at that level thereafter. The following table outlines the key assumptions for the fiscal year ended September 28, 2019 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 fiscal year ended September 28, 2019 Pension benefit plans $ (19,241) 24,029 908 (1,458) 63 Other benefit plans $ (2,228) 2,833 6 (5) 72 Total $ (21,469) 26,862 914 (1,463) 135 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 $ 2,393 Decrease $ (1,927) As at September 28, 2019, the weighted average duration of the defined benefit obligation amounts to 15.5 years (September 29, 2018 - 14.1 years). (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES The outstanding convertible debentures are as follows: Non-current Sixth series (ii) Seventh series (iii) Total face value Less net deferred financing fees Less equity component (ii), (iii) Accretion expense on equity component 113 September 28, September 29, 2019 $ 57,500 97,750 155,250 (5,500) (6,930) 1,410 2018 $ 57,500 97,750 155,250 (6,488) (6,930) 589 Total carrying value - non-current 144,230 142,421 (i) Fifth series: On March 28, 2018, a portion of the net proceeds from the issuance of the Seventh series, 4.75% convertible unsecured subordinated debentures ("Seventh series debentures") was used to redeem the Fifth series debentures. The total amount redeemed was $59,990 as an amount of $10 was converted to 1,388 common shares by holders of the convertible debentures. (ii) 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  114 23. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES (CONTINUED) (ii) 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 $303 (September 29, 2018 - $287) 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 28, 2019 was approximately $58.8 million (September 29, 2018 - $59.2 million). (iii) Seventh series: On March 28, 2018, in connection with a bought deal offering filed on March 21, 2018, the Company issued 85,000 Seventh series debentures, maturing on June 30, 2025 and bears interest of 4.75%, with interest payable semi-annually in arrears on June 30 and December 31 of each year, commencing on June 30, 2018 for gross proceeds of $85.0 million. Then, on April 3, 2018, the Company issued an additional 12,750 Seventh series debentures pursuant to the exercise in full of the over-allotment option granted by the Company for gross proceeds of $12.8 million. As a result of the over-allotment, the total amount outstanding under the Seventh series is $97,750. The debentures may be converted at the option of the holder at a conversion price of $8.85 per share (representing 11,045,197 common shares) at any time prior to maturity, and cannot be redeemed by the Company prior to June 30, 2021. On or after June 30, 2021 and prior to June 30, 2023, the debentures will be redeemable in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice at a price equal to the principal amount thereof plus accrued and unpaid interest, provided that the weighted average trading price of the common shares, for the 20 consecutive trading days ending on the fifth trading day preceding the day prior to the date upon which the notice of redemption is given is at least 125% of the conversion price of $8.85 per Debenture Share. On or after June 30, 2023 and prior to the maturity date, the debentures may be redeemed at a price equal to the principal amount thereof plus accrued and unpaid interest. On redemption or on the maturity date, the Company will repay the indebtedness of the convertible debentures by paying an amount equal to the principal amount of the outstanding 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. The Company allocated $4.3 million ($3.1 million net of tax) of the Seventh series debentures into an equity component. During the year, the Company recorded $518 (September 29, 2018 - $255) in finance costs for the accretion of the Seventh series debentures. The Company incurred underwriting fees and issuance costs of $4.5 million, which are netted against the convertible debenture liability. The fair value of the Seventh 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 28, 2019 was approximately $99.2 million (September 29, 2018 - $98.2 million). (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 On May 22, 2019, the Company received approval from the Toronto Stock Exchange to proceed with a Normal Course Issuer Bid ("2019 NCIB"), the Company may purchase up to 1,500,000 common shares. The 2019 NCIB commenced on May 24, 2019 and may continue to May 23, 2020. During the year, the Company purchased 122,606 common shares having a book value of $117 for a total cash consideration of $640. The excess of the purchase price over the book value of the shares in the amount of $523 was charged to deficit. All shares purchased were cancelled. In addition, the Company entered into an automatic share purchase agreement with Scotia Capital Inc. in connection with the 2019 NCIB. Under the agreement, Scotia may acquire, at its discretion, common shares on the Company’s behalf during certain "black-out" periods, subject to certain parameters as to price and number of shares. On May 22, 2018, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid ("2018 NCIB"). Under the 2018 NCIB, the Company was authorized to purchase up to 1,500,000 common shares. The 2018 NCIB commenced on May 24, 2018 and ended on May 23, 2019. In fiscal 2018, the Company purchased 736,900 common shares having a book value of $706 for a total cash consideration of $3,963. The excess of the purchase price over the book value of the shares in the amount of $3,257 was charged to deficit. All shares purchased were cancelled. In fiscal 2018, a total of $10 of the Fifth series debentures was converted by holders of the securities for a total of 1,388 common shares. This conversion is a non-cash transaction and therefore not reflected in the audited consolidated financial statement of cash flow. See Note 23, Convertible unsecured subordinated debentures. As of September 28, 2019, a total of 104,885,464 common shares (September 29, 2018- 105,008,070) were outstanding. The Company declared a quarterly dividend of $0.09 per share for fiscal years 2019 and 2018. The following dividends were declared by the Company: Dividends Contributed surplus: For the fiscal years ended September 28, 2019 September 29, 2018 $ 37,793 $ 37,971 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). 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, and; – To repurchase shares or convertible debentures when trading values do not reflect fair values. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  116 24. SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (CONTINUED) Capital management (continued): The Company typically invests in its operations approximately $20.0 million yearly in capital expenditures. On an exceptional basis, the Company may invest more than $20.0 million when special capital requirements arise. Management believes that these investments, combined with approximately $30.0 to $35.0 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 $265.0 million revolving credit facility. The Company estimates to use between $100.0 million and $180.0 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 4:1 in order not to have restrictions on interest payments from Lantic to the Company up to a year after an acquisition and below 3.5:1 thereafter. At year-end, the operating company’s debt ratio was 1.96:1 for fiscal 2019 and 1.58:1 for fiscal 2018. 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. 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 (September 29, 2018 - 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 3, 2018, a total of 447,175 share options were granted at a price of $5.58 per common share to certain executives. On December 4, 2017, a total of 1,065,322 share options were granted at a price of $6.23 per common share to certain executives and senior managers. During fiscal 2018, a total of 60,000 share options were forfeited following the departure of a senior manager. 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 contributed surplus. An expense of $190 was incurred for the fiscal year ended September 28, 2019 (September 29, 2018 - $189). (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25. SHARE-BASED COMPENSATION (CONTINUED) (a) Equity-settled share-based compensation (continued): The following table summarizes information about the Share Option Plan as of September 28, 2019: 117 Exercise price per option Outstanding number of options at September 29, 2018 Options granted during the period Options forfeited during the period $4.59 $5.58 $5.61 $6.23 $6.51 830,000 — — 447,175 80,000 1,005,322 360,000 — — — 2,275,322 447,175 — — — — — — exercised during Options Outstanding number of options at the September 28, 2019 period — — — — — — 830,000 447,175 80,000 1,005,322 360,000 2,722,497 Weighted average remaining life (in years) 5.65 9.18 2.48 8.18 7.19 Number of options exercisable 660,000 — 80,000 201,064 144,000 n/a 1,085,064 The following table summarizes information about the Share Option Plan as of September 29, 2018: Exercise price per option $4.59 $5.61 $6.23 $6.51 Outstanding number of options at September 30, 2017 830,000 80,000 Options granted during the period — — Options forfeited during the period Outstanding number of options at September 29, 2018 — — 830,000 80,000 — 1,065,322 (60,000) 1,005,322 360,000 — — 360,000 1,270,000 1,065,322 (60,000) 2,275,322 Weighted average remaining life 6.65 3.45 9.35 8.17 n/a Number of options exercisable 490,000 80,000 — 72,000 642,000 Options outstanding held by key management personnel amounted to 2,102,497 options as at September 28, 2019 and 1,655,322 options as at September 29, 2018 (see Note 31, Key management personnel). The measurement date fair values were 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 2019 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 $141 $5.75 $5.58 15.688% to 17.166% 4 to 6 years 6.26% Weighted average risk-free interest rate (based on government bonds) 1.842% to 1.853% (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  118 25. SHARE-BASED COMPENSATION (CONTINUED) (b) Cash-settled share-based compensation: i) Share Appreciation Rights (“SAR”): In fiscal 2017, a SAR plan was created under the existing Share Option Plan that entitle the grantee to a cash payment based on the increase in the share price of the Company’s common shares from the grant date to the settlement date. On December 5, 2017, 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 debit / credit to liability. A gain on fair value change of $2 was recorded for the fiscal year ended September 28, 2019 (September 29, 2018 – a gain of $5). The liabilities arising from the SARs as at September 28, 2019 were $8 (September 29, 2018 - $10). The following table summarizes information about the SARs as of September 28, 2019: Outstanding number of SARs at September 29, 2018 Share price per unit SARs granted during the period SARs exercised during the period SARs forfeited during the period Outstanding number of SARs at September 28, 2019 Number of SARs exercisable $6.51 125,000 — — — 125,000 50,000 The following table summarizes information about the Share Option Plan as of September 29, 2018: Outstanding number of SARs at September 30, 2017 Share price per unit SARs granted during the period SARs exercised during the period SARs forfeited during the period Outstanding number of SARs at September 29, 2018 Number of SARs exercisable $6.51 125,000 — — — 125,000 25,000 (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  119 25. SHARE-BASED COMPENSATION (CONTINUED) (b) Cash-settled share-based compensation (continued): i) Share Appreciation Rights (“SAR”) (continued): 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. The inputs used in the measurement of the fair values of the SARs granted are the following: SARs granted December 5, 2016 Total fair value of options Share price Exercise price Grant date Measurement date as at September 28, 2019 $53 $6.63 $6.51 $9 $5.34 $6.51 Expected volatility (weighted average volatility) 16.520% to 18.670% 15.128% to 16.823% Option life (expected weighted average life) Expected dividends Weighted average risk-free interest rate (based on government bonds) 2 to 6 years 5.43% 6 to 10 years 6.74% 0.740% to 1.160% 1.367% to 1.391% The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the SARs is indicative of future trends, which may not necessarily be the actual outcome. ii) Performance Share Units (“PSU”): Fiscal 2018 grant: In fiscal 2018, a PSU plan was created. On December 4, 2017, an aggregate of 224,761 PSUs having been granted by the Company at a share price of $6.31. In addition, an aggregate of 15,274 PSUs (September 29, 2018 - 10,291 PSUs) at a weighted-average share price of $5.68 (September 29, 2018 $6.01) were allocated as a result of the dividend paid during the last four quarters, as the participants also receive dividend equivalents paid in the form of PSU’s. As at September 28, 2019, an aggregate of 250,326 PSUs are outstanding. These PSUs will vest at the end of the 2018-2020 Performance Cycle based on the achievement of total shareholder returns set by the Human Resources and Compensation Committee ("HRCC") and the Board of Directors of the Company. Following the end of a Performance Cycle, the Board of Directors of the Company will determine, and to the extent only that the Vesting Conditions include financial conditions, concurrently with the release of the Company’s financial and/or operational results for the fiscal year ended at the end of the Performance Cycle, whether the Vesting Conditions for the PSUs granted to a participant relating to such Performance Cycle have been achieved. Depending on the achievement of the Vesting Conditions, between 0% and 200% of the PSUs will become vested. The Board of Directors of the Company has the discretion to determine that all or a portion of the PSUs granted to a participant for which the Vesting Conditions have not been achieved shall vest to such participant. The value to be paid-out to each participant will be equal to the result of: the number of PSUs granted to the participant which have vested, multiplied by the volume weighted average closing price of the Common Shares on the Toronto Stock Exchange (the "TSX") for the five trading days immediately preceding the day on which the Company shall pay the value to the participant under the PSU Plan, and such date will in no event occur after December 31 of the third calendar year following the calendar year in which the PSUs are granted. (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  120 25. SHARE-BASED COMPENSATION (CONTINUED) (b) Cash-settled share-based compensation (continued): ii) Performance Share Units (“PSU”) (continued): Fiscal 2018 grant (continued): The fair value as at September 28, 2019 was nil (September 29, 2018 - nil). An expense of nil was recorded for the period ending September 28, 2019 (September 29, 2018 - nil) in administration and selling expenses. The liabilities arising from the PSUs as at September 28, 2019 were nil (September 29, 2018 - nil). Fiscal 2019 grant: On December 3, 2018, an aggregate of 290,448 PSUs was granted by the Company at a share price of $5.60. In addition, an aggregate of 13,858 at a weighted-average share price of $5.76 were allocated as a result of the dividend paid during the year, as the participants also receive dividend equivalents paid in the form of PSU’s. As at September 28, 2019, an aggregate of 304,306 PSUs are outstanding. These PSUs will vest at the end of the 2019-2021 Performance Cycle based on the achievement of total shareholder returns set by the Human Resources and Compensation Committee ("HRCC") and the Board of Directors of the Company. Following the end of a Performance Cycle, the Board of Directors of the Company will determine, and to the extent only that the Vesting Conditions include financial conditions, concurrently with the release of the Company’s financial and/or operational results for the fiscal year ended at the end of the Performance Cycle, whether the Vesting Conditions for the PSUs granted to a participant relating to such Performance Cycle have been achieved. Depending on the achievement of the Vesting Conditions, between 0% and 200% of the PSUs will become vested. The Board of Directors of the Company has the discretion to determine that all or a portion of the PSUs granted to a participant for which the Vesting Conditions have not been achieved shall vest to such participant. The value to be paid-out to each participant will be equal to the result of: the number of PSUs granted to the participant which have vested, multiplied by the volume weighted average closing price of the Common Shares on the Toronto Stock Exchange (the "TSX") for the five trading days immediately preceding the day on which the Company shall pay the value to the participant under the PSU Plan, and such date will in no event occur after December 31 of the third calendar year following the calendar year in which the PSUs are granted. The fair values were established using the Monte Carlo model. The fair value as at grant date was $308 and $35 as at September 28, 2019. An expense of $7 was recorded for the period ending September 28, 2019 in administration and selling expenses. The liabilities arising from the PSUs as at September 28, 2019 were $7. (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  121 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 28, 2019 September 29, 2018 $ 3,439 9,378 8,113 20,930 $ 2,581 5,128 956 8,665 For the fiscal year ended September 28, 2019, an amount of $5.4 million was recognized as an expense in net (loss) earnings with respect to operating leases (September 29, 2018 - $3.9 million). 27. COMMITMENTS During fiscal 2019, TMTC entered into an agreement to lease a new premise in Granby for a total committed value of approximately $9.4 million over a fifteen year period. The lease will start on November 1, 2019. As at September 28, 2019, the Company had commitments to purchase a total of 1,057,000 metric tonnes of raw cane sugar (September 29, 2018 - 1,337,000), of which 283,162 metric tonnes had been priced (September 29, 2018 - 316,128), for a total dollar commitment of $113.9 million (September 29, 2018 - $120.8 million). In addition, the Company has a commitment of approximately $25.0 million (September 29, 2018 - $43.5 million) for sugar beets to be harvested and processed in fiscal 2019. TMTC has $8.8 million (September 29, 2018 - $18.9 million) remaining to pay related to an agreement to purchase approximately $13.9 million (4.3 million pounds) (September 29, 2018 - $38.2 million; 12.8 million pounds) of maple syrup from the PPAQ. In order to secure bulk syrup purchases, the Company issued letters of guarantee for a total amount of $17.3 million in favor of the PPAQ (September 29, 2018 - $16.0 million). The letters of guarantee expire on March 31, 2020. During the fiscal year ended September 28, 2019, the Company entered into capital commitments to complete its capital projects for a total value of $19.0 million (September 29, 2018 - $19.6 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 28, 2019 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)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  122 29. (LOSS) EARNINGS PER SHARE Reconciliation between basic and diluted (loss) earnings per share is as follows: Basic (loss) earnings per share: Net (loss) earnings For the fiscal years ended September 28, 2019 September 29, 2018 $ $ (8,167) 48,729 Weighted average number of shares outstanding 104,997,204 105,600,860 Basic (loss) earnings per share (0.08) 0.46 Diluted (loss) earnings per share: Net (loss) earnings Plus impact of convertible unsecured subordinated debentures and share options (8,167) — (8,167) 48,729 5,694 54,423 Weighted average number of shares outstanding: Basic weighted average number of shares outstanding 104,997,204 105,600,860 Plus impact of convertible unsecured subordinated debentures and share options — 22,173,123 104,997,204 127,773,983 Diluted (loss) earnings per share (0.08) 0.43 As at September 28, 2019, the share options, the Sixth series debentures, representing 6,961,259 common shares and the Seventh series debentures, representing 11,045,198 common shares, were excluded from the calculation of diluted loss per share as they were deemed anti-dilutive. As at September 29, 2018, the 87,731 share options were excluded from the calculation of diluted earnings per share as they were deemed anti-dilutive. 30. SUPPLEMENTARY CASH FLOW INFORMATION Non-cash transactions: Additions of property, plant and equipment and intangible assets included in trade and other payables 294 1,041 247 September 28, 2019 September 29, 2018 September 30, 2017 $ $ $ (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: 123 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 (1) (note 22) Expenses related to defined contributions plans Share-based compensation (note 25) For the fiscal years ended September 28, 2019 September 29, 2018 $ 2,281 883 111 195 3,470 $ 2,763 907 120 184 3,974 For the fiscal years ended September 28, 2019 September 29, 2018 $ 86,806 4,021 4,815 195 95,837 $ 83,688 2,851 4,552 184 91,275 (1) On October 16, 2017, the Alberta Treasury Board and Finance approved an amendment to the Alberta Hourly Plan which led to the elimination of the reserve for future supplements, and investment earnings accumulated thereon, effective January 1, 2017. As a result, during fiscal 2018, a $1.5 million pension income was recorded. The personnel expenses were charged to the consolidated statements of (loss) earnings and comprehensive (loss) income or capitalized in the consolidated statements of financial position as follows: Cost of sales Administration and selling expenses Distribution expenses Property, plant and equipment For the fiscal years ended September 28, 2019 September 29, 2018 $ 78,972 14,928 1,582 95,482 355 95,837 $ 72,173 17,234 1,434 90,841 434 91,275 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  124 33. RELATED PARTIES Lantic has outstanding redeemable Class B special 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 special 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 special 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 Class B special 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. 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 Additions to property, plant and equipment and intangible assets, net of disposals Total assets Total liabilities For the fiscal year ended September 28, 2019 Sugar $ 595,878 495,577 100,301 15,449 66,868 Maple products $ 198,414 176,140 22,274 3,772 (41,392) Corporate and eliminations $ — — — — (1,329) Total $ 794,292 671,717 122,575 19,221 24,147 22,647 4,468 — 27,115 For the fiscal year ended September 28, 2019 Sugar $ 768,949 (934,300) Maple products $ 231,659 (241,665) Corporate and eliminations $ (165,580) 626,369 Total $ 835,028 (549,596) (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  125 34. SEGMENTED INFORMATION (CONTINUED) Revenues Cost of sales Gross margin Depreciation and amortization Results from operating activities Additions to property, plant and equipment and intangible assets, net of disposals Total assets Total liabilities For the fiscal year ended September 29, 2018 Sugar $ 601,958 499,380 102,578 13,495 72,102 Maple products $ 203,243 174,968 28,275 4,979 13,352 Corporate and eliminations $ — — — — (1,354) Total $ 805,201 674,348 130,853 18,474 84,100 23,352 1,792 — 25,144 For the fiscal year ended September 29, 2018 Sugar $ 742,993 (899,026) Maple products $ 292,232 (248,871) Corporate and eliminations $ (165,016) 627,333 Total $ 870,209 (520,564) Revenues were derived from customers in the following geographic areas: Canada United States Europe Other For the fiscal years ended September 28, 2019 September 29, 2018 $ 611,633 109,655 34,633 38,371 794,292 $ 613,213 72,442 40,200 79,346 805,201 (In thousands of dollars except as noted and per share amounts)2019 Annual ReportNOTES TO CONSOLIDATED FINANCIAL STATEMENTS  126 ROGERS SUGAR INC. Corporate Information DIRECTORS M. Dallas H. Ross, (1) (3) Chairman and CEO Kinetic Capital Limited Partnership Dean Bergmame, (2) (3) Director William S. Maslechko, (3) Partner Burnet, Duckworth & Palmer LLP Daniel Lafrance, (1) (2) Director Gary Collins, (2) Senior Advisor Lazard Group Stephanie Wilkes, Director (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 11, 2020 at the Vancouver Marriott Pinnacle Downtown 1128 West Hastings St. Vancouver, British Columbia V6E 4R5 Tel: (604) 684-1128 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 Toll-free: 844 913-4350 Tel (local): 514 940-4350 Email: investors@lantic.ca WEBSITE lanticrogers.com (In thousands of dollars except as noted and per share amounts)Rogers Sugar Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMAPLE FACILITIES 1037 boul. Industriel, Granby, Québec J2J 2B8 Tel: 450 777-4464 331 rue Principale, Saint-Honoré-de-Shenley, Québec G0M 1V0 Tel: 418 485-7777 21 rue Industrielle, Dégelis, Québec G5T 2J8 Tel: 418 853-6265 PO Box 58, Websterville Vermont, 05678, USA Tel: 802 479-1747 Designed and written by MaisonBrison Communications Printed in Canada OPERATING COMPANIES Corporate Information — Management DIRECTORS M. Dallas H. Ross, (1) Chairman & CEO Kinetic Capital Limited Partnership AUDITORS KPMG LLP Montreal, Quebec MANAGEMENT OFFICE 4026 Notre-Dame Street East Montreal, Quebec H1W 2K3 Tel: 514 527-8686 SUGAR FACILITIES 123 Rogers Street, Vancouver, British Columbia V6B 3N2 Tel: 604 253-1131 5405 – 64th Street Taber, Alberta T1G 2C4 Tel: 403 223-3535 230 Midwest Road Scarborough, Ontario M1P 3A9 Tel: 416 757-8787 198 New Toronto Street Toronto, Ontario M8V 2E8 Tel: 416 252-9435 4026 Notre-Dame Street East Montreal, Quebec H1W 2K3 Tel: 514 527-8686 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 Vanessa Musuele, Director, Corporate Accounting and Controls Michael Walton, Vice President, Sales and Marketing  LANTICROGERS.COM THEMAPLETREAT.COM R O G E R S S U G A R I N C . 2 0 1 9 A N N U A L R E P O R T 

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