Ag Growth International Inc.
TSX : AFN

Ag Growth International Inc.

November 12, 2009 08:30 ET

Ag Growth Announces Results for Q3 2009

WINNIPEG, MANITOBA--(Marketwire - Nov. 12, 2009) - Ag Growth International Inc. (TSX:AFN) ("Ag Growth" or the "Company") today reported its financial results for the three and nine months ended September 30, 2009. Ag Growth reported sales, EBITDA and net earnings as follows (in thousands of dollars):



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Three Months Ended September 30
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2009 2008 Increase Increase
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Sales $ 68,316 $ 60,012 $ 8,304 14%
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Net Earnings $ 15,126 $ 9,753 $ 5,373 55%
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Earnings per share (diluted) $ 1.17 $ 0.75 $ 0.42 56%
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EBITDA (1)(2) $ 21,057 $ 13,822 $ 7,235 52%
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Adjusted EBITDA (1)(2)(3) $ 18,829 $ 15,064 $ 3,765 25%
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Nine Months Ended September 30
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2009 2008 Increase Increase
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Sales $ 190,445 $ 151,100 $ 39,345 26%
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Net Earnings $ 41,684 $ 19,102 $ 22,582 118%
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Earnings per share (diluted) $ 3.24 $ 1.47 $ 1.77 120%
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EBITDA (1)(2) $ 52,011 $ 30,508 $ 21,503 70%
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Adjusted EBITDA (1)(2)(3) $ 50,089 $ 32,045 $ 18,044 56%
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(1) See "Non-GAAP measures".
(2) Excludes costs related to Ag Growth's conversion from an income trust to
a corporation. See "Conversion to a Corporation" below.
(3) Excludes the "gain (loss) on foreign exchange".


Overview of Results

"We are very pleased to report another record quarter" said Rob Stenson, Chief Executive Officer of Ag Growth "The significant increase in sales and EBITDA was largely due to outstanding results at the portable grain handling and aeration divisions, as strong demand, sales price increases and production efficiencies resulted in record sales and strong gross margin percentages."

"Our outlook for the balance of 2009 remains positive. Our primary demand driver is grain volumes, and the USDA is forecasting the second largest corn crop in history and a record soybean crop. In addition, the U.S. harvest is exceptionally late this year which is generally supportive of demand for portable grain handling and aeration equipment. However, we do not expect sales of commercial equipment to match the exceptional levels recorded in the fourth quarter of 2008. On balance, we anticipate demand in the fourth quarter of 2009 to approximate the record levels experienced in 2008. Consistent with the last couple of years, we expect to enter 2010 with low levels of inventory throughout our distribution network which should be supportive of demand in the first half of 2010. Furthermore, we are cautiously optimistic that credit conditions in developing markets are moderately improving which may result in increased international sales of commercial equipment in 2010."

Dividends

Ag Growth today announced cash dividends of $0.17 per common share for the months of November 2009, December 2009, January 2010 and February 2010. The dividends are eligible dividends for Canadian income tax purposes. Ag Growth's current annualized cash dividend rate is $2.04 per share.

The November 2009 dividend is payable on December 30, 2009 to holders of common shares of record on November 30, 2009.

The December 2009 dividend is payable on January 29, 2010 to holders of common shares of record on December 31, 2009.

The January 2010 dividend is payable on February 26, 2010 to holders of common shares of record on January 29, 2010.

The February 2010 dividend is payable on March 30, 2010 to holders of common shares of record on February 26, 2010.

Corporate Conversion

Pursuant to a plan of arrangement under the Canada Business Corporations Act effective June 3, 2009, Ag Growth acquired all of the trust units of Ag Growth's predecessor, Ag Growth Income Fund (the "Fund"), in exchange for common shares with the effect that the Fund was "converted" from an open-ended limited purpose trust to a publicly listed corporation (the "Conversion"). The Conversion was accounted for as a continuity of interests of the Fund as there was no change of control and Ag Growth continues to operate the business of the Fund. Information in this press release reflects Ag Growth as a corporation on and subsequent to June 3, 2009 and as the Fund prior thereto, and comparative financial information is that of the Fund. For the nine month period ended September 30, 2009, Ag Growth incurred costs of $1.9 million related to the Conversion. Complete details of the terms of the Plan of Arrangement are set out in the arrangement agreement and the Management Information Circular that have been filed by Ag Growth on SEDAR (www.sedar.com).

Company Profile

Ag Growth is a leading manufacturer of portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories and grain aeration equipment. Ag Growth's sales, marketing, and distribution system is comprised of approximately 1,400 dealers and distributors that distribute product in 48 states, nine provinces, and overseas.

Non-GAAP measures

References to "EBITDA" are to earnings before interest, income taxes, depreciation amortization and Conversion costs. References to "Adjusted EBITDA" are to EBITDA before the gain (loss) on foreign exchange. Management believes that, in addition to net income or loss, EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. EBITDA and Adjusted EBITDA are not financial measures recognized by GAAP and do not have a standardized meaning prescribed by GAAP. Management cautions investors that EBITDA and Adjusted EBITDA should not replace net income or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. Ag Growth's method of calculating EBITDA and Adjusted EBITDA may differ from the methods used by other issuers.

References to "gross margin" are to sales less cost of goods sold. Management believes that, in addition to net income or loss, gross margin provides a useful supplemental measure in evaluating Ag Growth's performance. Gross margin is not a financial measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Management cautions investors that gross margin should not replace net income or loss as an indicator of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. Ag Growth's method of calculating gross margin may differ from the methods used by other issuers.

Forward-Looking Statements

This press release contains forward-looking statements that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. Forward-looking statements may contain such words as "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "will" or similar expressions suggesting future conditions or events. In particular, the forward looking statements in this press release include statements relating to the benefits of the Conversion, our business and strategy, including growth in sales to developing markets, the impact of crop conditions in our market areas, the impact of current economic conditions on the demand for our products, our working capital and capital expenditure requirements, capital resources and the payment of dividends. Such forward-looking statements reflect our current beliefs and are based on information currently available to us, including certain key expectations and assumptions concerning anticipated financial performance, business prospects, strategies, product pricing, regulatory developments, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities and the cost of labour and services. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking statements, including changes in international, national and local business conditions, crop yields, crop conditions, seasonality, industry cyclicality, volatility of production costs, commodity prices, foreign exchange rates, and competition. In addition, actual results may be materially impacted by the current economic downturn, including the cost and availability of capital and the possibility of deterioration in the Company's working capital position. These risks and uncertainties are described under "Risks and Uncertainties" in our MD&A for the year ended December 31, 2008 and in our Annual Information Form. Although the forward-looking statements contained in this press release are based on what we believe to be reasonable assumptions, we cannot assure readers that actual results will be consistent with these forward-looking statements and we undertake no obligation to update such statements except as expressly required by law.

AG GROWTH INTERNATIONAL INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

NOVEMBER 11, 2009

Ag Growth International Inc. ("Ag Growth" or the "Company") acquired its predecessor, Ag Growth Income Fund (the "Fund"), on June 3, 2009 pursuant to a statutory plan of arrangement under the Canada Business Corporations Act. Pursuant to the arrangement, Ag Growth acquired all of the trust units of the Fund in exchange for common shares of Ag Growth, and the Fund was "converted" from an open-ended limited purpose trust to a publicly listed corporation (the "Conversion"). Ag Growth continues to conduct business in the grain handling, storage and conditioning market.

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the audited consolidated financial statements and accompanying notes of the Fund for the year ended December 31, 2008, and the unaudited interim consolidated financial statements of the Company for the three and nine month periods ended September 30, 2009. Results are reported in Canadian dollars unless otherwise stated and have been prepared in accordance with Canadian generally accepted accounting principles. Throughout this MD&A references are made to "EBITDA", "adjusted EBITDA", "gross margin", "funds from operations" and "payout ratio". A description of these measures and their limitations are discussed below under "Non-GAAP Measures". See also "Risks and Uncertainties" in our MD&A for the year ended December 31, 2008 and in our Annual Information Form, and "Forward-Looking Statements" below.

Information in this MD&A reflects Ag Growth as a corporation on and subsequent to June 3, 2009 and as the Fund prior thereto. All references to "common shares" refer collectively to Ag Growth's common shares on and subsequent to June 3, 2009 and to the Fund's trust units prior to the Conversion. All references to "dividends" refer to dividends paid or payable to holders of Ag Growth common shares on and subsequent to June 3, 2009 and to distributions paid or payable to Fund unitholders prior to Conversion. All references to "shareholders" or "security holders" refer collectively to holders of Ag Growth's common shares on and subsequent to June 3, 2009 and to Fund unitholders prior to the Conversion. References to the "Share Award Incentive Plan" should be read as references to the "Unit Award Incentive Plan" for all periods prior to the Conversion.

CONVERSION TO A CORPORATION

The Fund's decision to convert to a corporation arose from the federal government's October 31, 2006 announcement and subsequent legislation (the "SIFT legislation") to impose additional income taxes on publicly traded income trusts, including the Fund, effective January 1, 2011. In addition, in order to qualify under new legislation for a tax-free conversion, it was necessary to convert to a corporation before the end of 2013. Management and the Fund's Board of Trustees had been proactively assessing several options available to provide long-term stability of distributions for unitholders while mitigating the impact of the trust taxation legislated by the Federal Government in June 2007. As the tax enhancement value related to the income trust structure diminished, it was determined that the benefits of an early conversion to a corporation outweighed the value of remaining under the trust structure.

The Conversion was completed pursuant to a Plan of Arrangement that was approved at a special meeting (the "Special Meeting") of the Fund's unitholders and holders of exchangeable limited partnership units of AGX Holdings Limited Partnership held on June 3, 2009. Under the Plan of Arrangement, the Fund's unitholders received one common share of Benachee Resources Inc. ("Benachee") in exchange for each Fund unit and/or exchangeable unit held, resulting in the Fund unitholders becoming shareholders of Benachee. Benachee then changed its name to "Ag Growth International Inc." and the existing trustees and management of the Fund became the board and management of Ag Growth. The Conversion was accounted for as a continuity of interests of the Fund since there was no change of control and since Ag Growth continues to operate the business of the Fund. Ag Growth did not retain the business previously carried on by Benachee. Costs incurred with respect to the Conversion in the nine months ended September 30, 2009 are $1.9 million.

Pursuant to the Plan of Arrangement, Ag Growth also issued consideration in the form of $5.0 million cash, an additional 182,588 common shares, and stated value $4.0 million redeemable preferred shares which are convertible into 140,452 common shares. On October 15, 2009, the holder exercised the conversion option on the redeemable preferred shares.

The key benefits of the Conversion include the following:

- Canadian taxable unitholders may benefit from lower income taxes paid on corporate dividends compared to taxes paid on distributions of the Fund;

- The Conversion will enable Ag Growth to reinvest a significant portion of its free cash flow into the business in order to capitalize on future growth opportunities;

- The Conversion may result in greater access to capital in Canada, the United States and other international markets;

- The Conversion removed the "normal growth" and "undue expansion restrictions" in the SIFT legislation which limited the Fund's ability to consider strategic acquisitions.

Complete details of the terms of the Plan of Arrangement are set out in the Arrangement Agreement and the Management Information Circular for the Special Meeting that have been filed by Ag Growth on SEDAR (www.sedar.com).

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. Forward-looking statements may contain such words as "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "will" or similar expressions suggesting future conditions or events. In particular, the forward looking statements in this MD&A include statements relating to the benefits of the Conversion, our business and strategy, including growth in sales to developing markets, the impact of crop conditions in our market areas, the impact of current economic conditions on the demand for our products, our working capital and capital expenditure requirements, capital resources and the payment of dividends. Such forward-looking statements reflect our current beliefs and are based on information currently available to us, including certain key expectations and assumptions concerning anticipated financial performance, business prospects, strategies, product pricing, regulatory developments, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities and the cost of labour and services. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking statements, including changes in international, national and local business conditions, crop yields, crop conditions, seasonality, industry cyclicality, volatility of production costs, commodity prices, foreign exchange rates, and competition. In addition, actual results may be materially impacted by the current economic downturn, including the cost and availability of capital and the possibility of deterioration in the Company's working capital position. These risks and uncertainties are described under "Risks and Uncertainties" in our MD&A for the year ended December 31, 2008, in our Annual Information Form and in the Management Information Circular for the Special Meeting. Although the forward-looking statements contained in this MD&A are based on what we believe to be reasonable assumptions, we cannot assure readers that actual results will be consistent with these forward-looking statements and we undertake no obligation to update such statements except as expressly required by law.

ECONOMIC CONDITIONS

The economic downturn and related economic uncertainty experienced in 2009 has impacted nearly every industry, including certain segments of the agricultural industry. General economic developments have not significantly impacted Ag Growth's results in 2009.

Sales of portable grain handling and aeration equipment historically represent 65% to 75% of Ag Growth's total sales. The primary demand drivers for portable grain handling and aeration equipment are volume of grains grown, storage practices, and commodity prices and these factors have continued to support robust demand.

- The United States Department of Agriculture ("USDA") released its Crop Production report on October 9, 2009, and currently forecast corn production of 13.0 billion bushels and soybean production of 3.25 billion bushels. This would represent the second largest U.S. corn harvest in history and a record harvest for soybeans.

- Management expects the long-term trend towards increased storage to continue due to the increasing prevalence of larger and more sophisticated farming operations and a trend towards increased acreage and crop yields which has resulted from improved land management and enhanced seed technology.

- Agricultural commodity prices have retracted from record highs however they remain well above historical averages. Management believes that higher commodity prices should remain supported by global agricultural fundamentals, continued low stock-to-use ratios, and legislatively mandated ethanol production.

Ag Growth's remaining sales relate primarily to storage bins and stationary grain handling equipment, with a small component related to livestock equipment. Stationary grain handling equipment is geared towards new construction and facility upgrades in the commercial grain handling and value-added food processing space. Macro-economic factors and the availability of credit have had a limited negative impact on these product lines. In addition, availability of credit in certain developing markets is currently tempering international sales growth of storage bins and stationary grain handling equipment. Sales of livestock equipment were depressed prior to the economic downturn due to a weak livestock sector.

Ag Growth does not believe the availability of credit will have a significant impact on demand for its products. The Company's portable equipment is relatively low priced and does not represent a significant investment for a farmer. In addition, the equipment is essential to continuing farming operations and must be replaced on a regular basis. Access to credit is having a limited negative impact on the domestic commercial sector, as discussed above, and is tempering overseas growth in developing markets. Ag Growth's sales to developing markets in 2008 were $6.5 million and accordingly a decrease in sales to these markets in 2009 will not materially impact the Company's financial results.

NORTH AMERICAN CROP PROGRESS

United States

U.S. farmers planted an estimated 87.0 million acres of corn and 77.5 million acres of soybeans in 2009. Plantings of this magnitude are higher than historical averages, however are relatively consistent with recent years as U.S. farmers continue to capitalize on positive agricultural markets. A high level of acres planted coupled with excellent growing conditions have led to expectations of a record soybean harvest and the second largest corn harvest on record. The forecasted yields per acre would be the highest on record for corn and the third highest for soybeans. The yields are in part a reflection of favourable growing conditions, but are also a continuation of a long-term trend toward higher yields that has resulted from the increasing prevalence of larger and more sophisticated farming operations and improved land management and enhanced seed technology. The timing of the harvest is exceptionally late, largely due to delayed plantings in many key states that resulted from cold and wet conditions in the spring, followed by cool and wet weather during the harvest season.

The volume of grains grown is a primary demand driver for Ag Growth and accordingly a trend towards increased acreage and crop yields should be supportive of demand for portable grain handling and aeration equipment.



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Production Forecast Bushels Harvest
(billions of bushels) per Acre % of Completion (2)
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2009 2008 2009 2008 Oct 25, Oct 25, Five
Estimate Actual Estimate Actual 2009 2008 Year
(1) (1) Average
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Corn 13.0 12.1 164.2 153.9 20% 37% 58%
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Soybeans 3.3 3.0 42.4 39.6 44% 75% 80%
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(1) USDA crop production report released October 9, 2009.
(2) USDA crop progress report released October 26, 2009.


Western Canada

A late planting season and mixed growing conditions are expected to result in a decrease in crop production compared to the exceptional crop harvested in 2008, with total production anticipated to more closely approximate historical averages. Wet and cool weather has delayed the harvest in many areas. Lower yields may negatively impact the sales of portable grain handling equipment, however a late harvest and cool and wet weather is supportive of both portable grain handling and aeration sales. For the nine months ended September 30, 2009, Ag Growth had Canadian sales of $54.5 million, compared to $39.1 million in 2008.



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OPERATING RESULTS Three Months Ended Nine Months Ended
(thousands of dollars) September 30 September 30
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2009 2008 2009 2008
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Sales $ 68,316 $ 60,012 $ 190,445 $ 151,100
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Cost of goods sold 39,416 38,134 110,387 97,330
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Gross margin 28,900 21,878 80,058 53,770
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General and administration 7,478 6,730 24,164 19,827
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Other expenses (1) 221 154 574 561
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Stock based compensation 2,372 (70) 5,231 1,337
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Corporate conversion (2) 113 0 1,858 0
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Loss (gain) on foreign exchange (2,228) 1,242 (1,922) 1,537
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Interest expense 1,038 772 2,315 2,001
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Amortization 2,090 2,063 6,182 6,106
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Earnings before tax 17,816 10,987 41,656 22,401
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Current income taxes 1,441 1,094 1,605 2,899
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Future income taxes 1,249 140 (1,633) 400
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Net earnings for the period $ 15,126 $ 9,753 $ 41,684 $ 19,102
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Net earnings per share
Basic $ 1.17 $ 0.75 $ 3.26 $ 1.47
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Fully diluted $ 1.17 $ 0.75 $ 3.24 $ 1.47
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EBITDA (3)(4) $ 21,057 $ 13,822 $ 52,011 $ 30,508
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Adjusted EBITDA (3)(4)(5) $ 18,829 $ 15,064 $ 50,089 $ 32,045
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(1) Research and development, capital taxes and other expense (income).
(2) See "Conversion to a Corporation".
(3) See "non-GAAP Measures".
(4) Excludes Conversion costs.
(5) Excludes the gain (loss) on foreign exchange.

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ASSETS AND LIABILITIES September 30 September 30
(thousands of dollars) 2009 2008
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Total assets $ 301,803 $ 230,888
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Total liabilities $ 135,050 $ 84,495
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Dividends Declared

The table below summarizes dividends and distributions declared to security holders of Ag Growth and the Fund for the three and nine month periods ended September 30, 2009 and 2008. The Company's dividend policy is described in the "Dividends" section of this MD&A.




DIVIDENDS

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Three Months Ended Nine Months Ended
(thousands of dollars) September 30 September 30
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2009 2008 2009 2008
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Trust units $ 0 $ 6,154 $ 10,724 $ 16,921
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Class B units 0 65 116 180
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Common shares 6,598 0 8,797 0
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Total $ 6,598 $ 6,219 $ 19,637 $ 17,101
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Overall Performance

Ag Growth reported record sales and EBITDA for the three and nine month periods ended September 30, 2009. Demand for portable grain handling and aeration equipment remained strong due to the size of the crop in the U.S., a late and wet harvest season in most areas of North America, as well as to positive agricultural fundamentals including successive large harvests and continued high levels of on-farm storage. Sustained capacity gains at the Westfield division played a major role in allowing Ag Growth to capitalize on these positive market drivers.

Sales for the three and nine month periods ended September 30, 2009 were $68.3 million and $190.4 million, respectively, representing increases of 14% and 26% over the same periods in 2008. In addition to positive demand drivers and an increase in capacity at Westfield, sales benefited from the sales price increases announced in 2008 and a weaker Canadian dollar. As expected, sales of commercial equipment decreased, largely due to macro-economic factors.

Gross margin (see "non-GAAP measures") as a percentage of sales for the three and nine months ended September 30, 2009 were 42.3% (2008 - 36.5%) and 42.0% (2008 - 35.6%), respectively. The significant increase in gross margin percentages was largely the result of sales price increases, the impact of foreign exchange, an increase in capacity and efficiency at Westfield (the Westfield capacity improvement initiative was completed in March 2008) and improved results at the Edwards/Twister division.

Adjusted EBITDA for the three and nine months periods ended September 30, 2009 was $18.8 million and $50.1 million (2008 - $15.1 million and $32.0 million). The increases of 25% and 56% over 2008 were due primarily to significant increases in sales and gross margin of portable grain handling and aeration equipment, improved results at Edwards/Twister, and the impact of foreign exchange, offset by a decrease in commercial sales activity.

For financial statement reporting purposes, Ag Growth translated its U.S. dollar denominated debt to Canadian dollars at the rate of exchange in effect on the balance sheet date of September 30, 2009. The unrealized gain on translating U.S. dollar debt into Canadian dollars was $3.4 million and $5.7 million for the three and nine month periods ended September 30, 2009, compared to losses of $1.5 million and $2.5 million for the same periods in 2008. For the three and nine month periods ended September 30, 2009, EBITDA was $21.1 million and $52.0 million (2008 - $13.8 million and $30.5 million), respectively. The increase in EBITDA in 2009 is due to a significant increase in operating income and foreign exchange gains.

Sales

Sales for the three and nine months ended September 30, 2009 were $68.3 million (2008 - $60.0 million) and $190.4 million (2008 - $151.1 million), respectively. The increase in sales over 2008 is largely due to the following:

- Strong demand for portable grain handling and aeration equipment that resulted from the size of the crop in the U.S., a late and wet harvest season in most areas of North America, as well as to positive agricultural fundamentals including successive large harvests and continued high levels of on-farm storage.

- Sales levels benefited from sales price increases, a more favourable rate of foreign exchange and higher capacity at Westfield (the Westfield capacity improvement initiative was completed in March 2008).

- Total international sales for the three and nine months ended September 30, 2009 were $5.3 million and $11.9 million, respectively (2008 - $3.6 million and $11.6 million). Sales to developing markets were $3.0 million in the nine months ended September 30, 2009, compared to $5.4 million in the prior year.

- Sales of commercial equipment for the three and nine months ended September 30, 2009 decreased compared to the same periods in 2008. The decrease was in line with management expectations as macro-economic factors including the availability of credit impacted commercial sales.

- The Company's financial statements translate U.S. dollar denominated sales into Canadian dollars based on the actual foreign exchange rate in the month of the sale. For the three and nine month periods ended September 30, 2009, the more favourable exchange rates experienced in 2009 resulted in an increase in reported sales of $3.4 million and $17.6 million, respectively, compared to the sales that would have been reported using the exchange rates in effect in those periods in 2008.

Gross Margin

Gross margin as a percentage of sales for the three and nine months ended September 30, 2009 was 42.3% and 42.0%, respectively, compared to 36.5% and 35.6% for the same periods in 2008. The increase in gross margin percentages compared to 2008 was largely due to the following:

- Gross margin percentages on portable grain handling, storage and aeration equipment benefited from the realization of price increases announced in 2008.

- Gross margin at most divisions in 2009 has benefited from lower input costs compared to 2008, particularly lower steel costs.

- The positive impact of foreign exchange added approximately 2% to the nine month gross margin percentage and 1% to the three month gross margin percentage, compared to gross margins that would have been reported using the exchange rates in effect in those periods in 2008.

- Gross margin at Twister has improved significantly in 2009 due to production improvements that resulted largely from the implementation of lean manufacturing practices.

- Completion of the capacity improvement initiative at Westfield increased throughput and efficiency, however gross margin was negatively impacted while the project was implemented in the first quarter of 2008.

Rate of Foreign Exchange

The rate of exchange between the Canadian and U.S. dollars may be a significant factor when comparing financial results to prior periods. A weaker Canadian dollar will result in higher sales and higher expenses as transactions denominated in U.S. dollars are translated to Canadian dollars at a higher rate. For the three and nine months ended September 30, 2009, sales denominated in U.S. dollars accounted for 76% and 70% of total sales, respectively (2008 - 78% and 76%) and U.S. dollar denominated expenses for the periods then ended equated to 34% and 32% of sales, respectively (2008 - 34% and 36%).

Ag Growth's sales denominated in U.S. dollars significantly exceed its purchases denominated in U.S. dollars and as a result a weaker Canadian dollar benefits the Company's financial results. Ag Growth's average rates of exchange per U.S. dollar for the three and nine months ended September 30, 2009 were $1.11 and $1.17, respectively, compared to $1.03 and $1.01 for the same periods in 2008. Accordingly, the weaker Canadian dollar in the first nine months of 2009 positively impacted Ag Growth's financial results compared to the same periods in 2008. The Canadian dollar has strengthened recently, and accordingly the favourable impact of foreign exchange realized in the first nine months of 2009 may not be realized going forward. Ag Growth's average rate of exchange in the fourth quarter of 2008 was $1.15.

Ag Growth translates its U.S. dollar denominated debt into Canadian dollars at each balance sheet date, and the non-cash, unrealized gain or loss that results from this quarterly measurement is included in "gain (loss) on foreign exchange" on the statement of earnings. For the three and nine months ended September 30, 2009, Ag Growth recorded a gain on the measurement of its U.S. dollar denominated debt of $3.4 million and $5.7 million, respectively (2008 - losses of $1.5 million and $2.5 million).

Expenses

Selling, general and administrative expenses for the three months ended September 30, 2009 were $7.5 million or 10.9% of sales (2008 - $6.7 million and 11.2%). The increase of $0.8 million over 2008 is primarily due to the following:

- A number of Ag Growth's selling, general and administrative expenses are denominated in U.S. dollars. Due to a weaker Canadian dollar these expenses were translated to Canadian dollars at a higher rate. The impact of the weaker Canadian dollar for the three month period was to increase expenses by $0.2 million compared to 2008.

- Salary expense increased $0.3 million due to personnel additions to facilitate growth and acquisition integration, wage adjustments, and a number of smaller items.

- Sales and marketing expense increased $0.2 million due largely to the development of an international sales group and wage adjustments.

- A number of miscellaneous items with variances of $0.2 million or less accounted for the remaining change.

Selling, general and administrative expenses for the nine months ended September 30, 2009 were $24.2 million or 12.7% of sales (2008 - $19.8 million or 13.1%). The increase of $4.4 million over 2008 is primarily due to the following:

- A number of Ag Growth's selling, general and administrative expenses are denominated in U.S. dollars. Due to a weaker Canadian dollar these expenses were translated to Canadian dollars at a higher rate. The impact of the weaker Canadian dollar for the nine month period was to increase expenses by $1.1 million compared to 2008.

- Sales and marketing expense increased $1.4 million due largely to the development of an international sales group and wage adjustments.

- Salary expense increased $1.1 million due to personnel additions to facilitate growth and acquisition integration, wage adjustments, and a number of smaller items.

- Commission expense payable to third parties increased $0.5 million largely due to increased sales at Westfield.

- Costs of $0.5 million were incurred with respect to the implementation of lean manufacturing at Twister and Union Iron.

- A number of miscellaneous items with variances of $0.3 million or less accounted for the remaining change.

Other significant items include the following:

- Calculation of the share award incentive plan ("SAIP") expense is based on the trading price of the Company's common shares at the balance sheet date and the vesting provisions of the SAIP. For the three and nine months ended September 30, 2009, Ag Growth recorded an expense related to the SAIP of $1.4 million and $3.1 million, respectively (2008 - recovery of $0.2 million and an expense of $0.6 million).

- Ag Growth's LTIP provides for annual awards based on distributable cash generated. The awards are expensed over the term of the participant's vesting period and as a result the expense in 2009 also includes a component related to fiscal 2007 and 2008. For the three and nine months ended September 30, 2009, Ag Growth recorded an expense related to the LTIP of $1.0 million and $2.1 million, respectively (2008 - $0.2 million and $0.7 million).

- For financial statement reporting purposes, Ag Growth translated its U.S. dollar denominated debt to Canadian dollars at the rate of exchange in effect on the balance sheet date of September 30, 2009. For the three and nine month periods ended September 30, 2009, the Company recorded gains on the translation of its U.S. dollar debt of $3.4 million and $5.7 million, respectively (2008 - losses of $1.5 million and $2.5 million). Also included in "gain (loss) on foreign exchange" are gains or losses on foreign exchange derivative contracts and the gains or losses on the translation of U.S. dollar denominated working capital.

EBITDA and Net Earnings (see discussion of non-GAAP measures)

Adjusted EBITDA for the three and nine months periods ended September 30, 2009 was $18.8 million and $50.1 million (2008 - $15.1 million and $32.0 million). The increases over 2008 are due primarily to significant increases in sales and gross margin at Westfield and at Edwards/Twister and the impact of foreign exchange, offset by a decrease in commercial sales activity.

EBITDA for the three and nine months ended September 30, 2009 was $21.1 million and $52.0 million, respectively, compared to $13.8 million and $30.5 million in 2008. The increase in EBITDA is the result of a significant increase in operating income and the impact of foreign exchange.

The Company's bank indebtedness as at September 30, 2009 was $nil (2008 - $5.9 million) and its outstanding long-term debt was CAD $52.3 million (2008 - $42.6 million), comprised of term loans of USD $37.6 million and CAD $11.9 million. Under the credit facility, the operating and term loans bear interest at prime plus 1.75% to 2.00% per annum based on performance calculations. For the three and nine months ended September 30, 2009, the Company's effective interest rate on its U.S. dollar term debt was 5.0% and 4.2%, respectively (2008 - 6.5% and 6.9%), and after consideration of the effect of its interest rate swaps was 4.9% and 4.5% (2008 - 6.2% and 6.1%). For the three and nine month periods ended September 30, 2009, Ag Growth's effective interest rate on its Canadian dollar term debt was 4.0% and 3.4% (2008 - 4.5% and 4.9%). See "Financial Instruments".

Amortization of capital assets for the three and nine months ended September 30, 2009 was $1.3 million and $4.0 million, respectively (2008 - $1.3 million and $3.9 million). Amortization of intangibles for the same periods was $0.7 million and $2.2 million (2008- $0.7 million and $2.2 million).

For the three and nine months ended September 30, 2009, the Company recorded a current tax expense of $1.4 million and $1.6 million, respectively (2008 - $1.1 million and $2.9 million). The current tax expense relates to certain subsidiary corporations of Ag Growth, including its U.S. based divisions. Ag Growth converted from an income trust to a taxable corporation on June 3, 2009 (see "Conversion to a Corporation"). As at June 3, 2009, Ag Growth had Canadian future tax assets of approximately $69.8 million available to offset the impact of Canadian taxable income. For the periods ended September 30, 2009, the Company reduced its Canadian tax liability to zero through the utilization of $1.4 million of its future tax assets.

For the three months ended September 30, 2009, the Company recorded future tax expense of $1.2 million (2008 - $0.1 million) and for the nine months then ended recorded a future tax recovery of $1.6 million (2008 - expense of $0.4 million). The future tax recovery in the nine months ended September 30, 2009 was largely related to the Conversion. The Company recorded a future tax asset and a related future tax recovery of $2.1 million due to application of corporate tax rates to reversals of temporary differences expected to occur between September 30, 2009 and December 31, 2010. Prior to Conversion, the Fund's effective income tax rate for this period was nil and accordingly a future tax asset was not recorded. This recovery of $2.1 million in the nine months ended September 30, 2009 was partially offset by expenses related to the utilization of future tax assets to offset taxable income.

For the three and nine months ended September 30, 2009, the Company reported net earnings of $15.1 million and $41.7 million, respectively (2008 - $9.8 million and $19.1 million), basic net earnings per unit of $1.17 and $3.26 (2008 - $0.75 and $1.47), and fully diluted net earnings per unit of $1.17 and $3.24 (2008 - $0.75 and $1.47).



Quarterly Financial Information (thousands of dollars):

----------------------------------------------------------------------------
2009
----------------------------------------------------------------------------
Gain (Loss) Net Earnings Diluted earnings
Sales on FX (Loss) per Share
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Q1 $ 55,289 $ (2,028) $ 10,127 $ 0.80
----------------------------------------------------------------------------
Q2 66,840 1,722 16,431 1.27
----------------------------------------------------------------------------
Q3 68,316 2,228 15,126 1.17
----------------------------------------------------------------------------
YTD September 30 $ 190,445 $ 1,922 $ 41,684 $ 3.24
----------------------------------------------------------------------------


----------------------------------------------------------------------------
2008
----------------------------------------------------------------------------
Gain (Loss) Net Earnings Diluted Earnings
Sales on FX (Loss) per Share
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Q1 $ 35,138 $ (586) $ 1,889 $ 0.14
----------------------------------------------------------------------------
Q2 55,950 291 7,460 0.58
----------------------------------------------------------------------------
Q3 60,012 (1,242) 9,753 0.75
----------------------------------------------------------------------------
Q4 48,241 (4,852) 2,110 0.17
----------------------------------------------------------------------------
Fiscal 2008 $ 199,341 $ (6,389) $ 21,212 $ 1.64
----------------------------------------------------------------------------


----------------------------------------------------------------------------
2007
----------------------------------------------------------------------------
Gain (Loss) Net Earnings Diluted Earnings
Sales on FX (Loss) per Share
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Q1 $ 28,085 $ 59 $ 5,618 $ 0.50
----------------------------------------------------------------------------
Q2 34,960 1,078 (4,902) (0.44)
----------------------------------------------------------------------------
Q3 40,762 1,117 8,976 0.80
----------------------------------------------------------------------------
Q4 26,564 1,864 2,674 0.20
----------------------------------------------------------------------------
Fiscal 2007 $ 130,371 $ 4,118 $ 12,366 $ 1.06
----------------------------------------------------------------------------


Interim period revenues and earnings historically reflect some seasonality. The third quarter is typically the strongest primarily due to high in-season demand at the farm level. Due to the seasonality of Ag Growth's working capital movements, cash provided by operations will typically be highest in the fourth quarter. The following factors impact comparability between quarters in the table above:

- Sales, gain (loss) on foreign exchange, net earnings, and net earnings per share are significantly impacted by the rate of exchange between the Canadian and U.S. dollars.

- The second quarter of 2009 includes an expense of $1.7 million related to the Conversion.

- Ag Growth records a foreign exchange gain or loss when translating U.S. dollar denominated debt into Canadian dollars for reporting purposes. A significant loss was recorded in the fourth quarter of 2008 and the first quarter of 2009, and significant gains were recorded in the second and third quarters of 2009.

- The second quarter of 2007 includes a non-cash future tax accrual of $11.1 million related to the enactment of taxation laws related to income trusts for taxation years commencing January 1, 2011. The fourth quarter of 2007 includes a $1.6 million credit to future taxes to reflect a lower expected effective tax rate.

- Subsequent to January 15, 2008, results reflect the acquisition of Applegate.

- Subsequent to November 19, 2007, results reflect the acquisition of Union Iron.

- Subsequent to May 31, 2007, results reflect the acquisition of Twister.

CASH FLOW AND LIQUIDITY

The table below reconciles net earnings to cash provided by operations for the three and nine month periods ended September 30, 2009 and 2008:



----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(thousands of dollars) September 30 September 30
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net earnings for the period $ 15,126 $ 9,753 $ 41,684 $ 19,102
----------------------------------------------------------------------------
Add charges (deduct credits) to
operations not requiring a current
cash payment:
----------------------------------------------------------------------------
Amortization 2,090 2,063 6,182 6,106
----------------------------------------------------------------------------
Future income taxes 1,249 140 (1,633) 400
----------------------------------------------------------------------------
Translation loss (gain) on foreign
exchange (4,952) 1,730 (7,573) 2,832
----------------------------------------------------------------------------
Non-cash interest expense 207 90 413 258
----------------------------------------------------------------------------
Stock based compensation 2,372 (70) 5,231 1,337
--------------------------------------------
----------------------------------------------------------------------------
16,092 13,706 44,304 30,035
--------------------------------------------
----------------------------------------------------------------------------
Net change in non-cash working
capital balances related to
operations:
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Accounts receivable 3,003 (1,549) (15,747) (22,427)
----------------------------------------------------------------------------
Inventory 3,838 (2,941) 3,977 (10,573)
----------------------------------------------------------------------------
Prepaid expenses and other assets 120 (402) 57 (861)
----------------------------------------------------------------------------
Accounts payable and accruals (1,453) 787 2,172 4,103
----------------------------------------------------------------------------
Customer deposits 790 (2,146) (6,260) (8,712)
----------------------------------------------------------------------------
LTIP 47 0 67 0
----------------------------------------------------------------------------
Income taxes payable 1,336 758 1,655 1,186
--------------------------------------------
----------------------------------------------------------------------------
7,681 (5,493) (14,079) (37,284)
--------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Cash provided by (used in)
operations $ 23,773 $ 8,213 $ 30,225 $ (7,249)
--------------------------------------------
----------------------------------------------------------------------------


For the three and nine months ended September 30, 2009, cash provided by operations was $23.8 million and $30.2 million, respectively (2008 - cash provided of $8.2 million and cash used of $7.2 million). The significant improvement in cash flow from operations was achieved largely because sales and net earnings increased without a proportionate investment in working capital.

In fiscal 2009 we expect that non-cash working capital requirements will more closely approximate historical patterns and will not impact cash flows to the same extent as 2008. Accounts receivable and inventory balances are expected to remain high compared to prior years to support higher levels of sales activity, however we do not expect that Ag Growth will be required to invest significant resources to support further working capital increases as was the case in 2008. Ag Growth's working capital requirements in 2009 will be impacted by sales demand as well as certain risk factors including customer access to credit and fluctuations in input costs. Results to date in 2009 have generally reflected these expectations.

Working Capital Requirements

Interim period working capital requirements typically reflect the seasonality of the business. Ag Growth's collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with historically high sales in the third quarter that result from seasonality, typically lead to accounts receivable levels increasing throughout the year and peaking in the third quarter. Inventory levels typically increase in the first and second quarters and then begin to decline in the third or fourth quarter as sales levels exceed production. As a result of these working capital movements, historically, Ag Growth begins to draw on its operating lines in the first or second quarter. The operating line balance typically peaks in the second or third quarter and normally begins to decline later in the third quarter as collections of accounts receivable increase. Ag Growth has typically fully repaid its operating line balance by early in the fourth quarter. Results to date in 2009 have generally reflected these expectations, however due to the significant increase in cash provided by operations in 2009, the Company has not drawn on its operating lines to the same extent as in prior years.

Results in 2008 differed somewhat from historical patterns as additional cash resources were required to support inventory levels as an increase in purchasing resulted from increased production, higher input prices, and an increased investment in raw material to protect against rising input prices. Accordingly, the consolidated inventory balance did not decrease in the second half as it had done historically. In addition, the accounts receivable balance did not decrease in the fourth quarter to the same extent as prior years due to increased sales activity in the fourth quarter.

Capital Expenditures

Ag Growth had maintenance capital expenditures of $0.3 million and $1.6 million for the three and nine months ended September 30, 2009 (2008 - $0.5 million and $2.0 million). Maintenance capital expenditures in 2009 relate primarily to purchases of manufacturing equipment. Maintenance capital expenditures in a fiscal year are generally funded through cash from operations. Due to seasonality of the Company's cash flows, capital expenditures may be funded on a short-term basis through Ag Growth's credit facilities (see "Capital Resources").

Ag Growth defines maintenance capital expenditures as cash outlays required to maintain plant and equipment at current operating capacity and efficiency levels. Non-maintenance capital expenditures encompass other investments, including cash outlays required to increase operating capacity or improve operating efficiency, and may be financed with long-term debt. Ag Growth had non-maintenance capital expenditures of $0.3 million and $1.7 million for the three and nine months ended September 30, 2009 (2008 - $1.5 million and $7.9 million). The following capital expenditures were classified as non-maintenance in 2009:

i. Union City, Indiana - a manufacturing facility was acquired to allow for the transfer of certain production from western Canada as well as to provide a more efficient facility for Applegate. Ag Growth has expended $0.6 million on this project in 2009 and additional expenditures are not expected to be significant.

ii. Westfield warehousing facility -Westfield invested $0.9 million towards constructing a warehousing facility in Fargo, ND. Additional expenditures in 2009 are expected to be $0.3 million and the Company expects to sell its existing facility in 2010.

iii. Westfield robotics - Westfield invested $0.2 million in additional robotic manufacturing to increase capacity. Additional expenditures in 2009 are not expected to be significant.

iv. Completion of projects from 2008 - an additional $0.3 million was expended with respect to capacity initiatives at Batco and Westfield. Additional expenditures in 2009 are not expected to be significant.

Maintenance capital expenditures in 2009 are expected to approximate 2008 levels and it is anticipated that these expenditures will be financed from operations. Non-maintenance capital expenditures in 2009 are expected to decrease significantly compared to 2008 and these expenditures may be financed with long term debt or through funds generated from operations.

Cash Balance

For the nine months ended September 30, 2009, the Company's cash balance increased $4.4 million (2008 - decreased $20.4 million), and as at September 30, 2009 the Company had a cash balance of $8.8 million (2008 - bank indebtedness of $5.9 million). The significant improvement in cash flow compared to 2008 was achieved largely because sales and net earnings increased without a proportionate investment in working capital.

CONTRACTUAL OBLIGATIONS (thousands of dollars)



----------------------------------------------------------------------------
Total 2009 2010 2011 2012 2013 +
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Long-term debt $ 52,316 $ 8 $ 13,083 $ 39,225 $ 0 $ 0
----------------------------------------------------------------------------
Operating leases 2,475 291 1,078 680 208 218
----------------------------------------------------
----------------------------------------------------------------------------
Total obligations $ 54,791 $ 299 $ 14,161 $ 39,905 $ 208 $ 218
----------------------------------------------------
----------------------------------------------------------------------------


Long-term debt at September 30, 2009 includes non-amortizing term loans of $52.3 million (comprised of U.S. dollar debt of $37.6 million and CAD $11.9 million). On October 29, 2009, the Company entered a new credit facility (see "Capital Resources"). The remaining long-term debt relates to GMAC financed vehicle loans. The operating leases relate primarily to vehicle, equipment, warehousing, and facility leases and were entered into in the normal course of business.


CAPITAL RESOURCES

The Company had a cash balance of $8.8 million as at September 30, 2009 (2008 - bank indebtedness of $5.9 million) and its outstanding long-term debt was CAD $52.3 million (2008 - $42.6 million), comprised of term loans of USD $37.6 million and CAD $11.9 million. Under the credit facility, the operating and term loans bear interest at prime plus 1.75% to 2.00% per annum based on performance calculations. For the three and nine months ended September 30, 2009, the Company's effective interest rate on its U.S. dollar term debt was 5.0% and 4.2%, respectively (2008 - 6.5% and 6.9%), and after consideration of the effect of its interest rate swaps was 4.9% and 4.5% (2008 - 6.2% and 6.1%). For the three and nine month periods ended September 30, 2009, Ag Growth's effective interest rate on its Canadian dollar term debt was 4.0% and 3.4% (2008 - 4.5% and 4.9%). See "Financial Instruments".

Under the terms of the credit facility agreement in effect at September 30, 2009, if the operating and term loan facilities were not extended beyond the October 31, 2009 maturity date, all amounts outstanding under the facilities become repayable in four equal quarterly instalments of principal, commencing November 30, 2010.

Subsequent to September 30, 2009, Ag Growth entered two new credit facilities:

- On October 29, 2009, the Company entered into a new credit facility with three Canadian chartered banks that includes CAD $10.0 million and USD $2.0 million available for working capital purposes, and provides for non-amortizing long-term debt of up to CAD $38.0 million and USD $20.5 million. As at November 11, 2009, no amounts were drawn under these facilities. The facilities bear interest at rates of prime plus 0.50 % to prime plus 1.50% based on performance calculations. The credit facilities mature on October 29, 2012.

- On October 29, 2009, the Company authorized the issue and sale of USD $25.0 million aggregate principal amount of secured notes through a note purchase and private shelf agreement. The notes bear interest at 6.80% and mature October 29, 2016. The net proceeds of the offering will be used for general corporate purposes. The agreement also provides for a possible future issuance and sale of notes of up to an additional USD $75.0 million aggregate principal amount, with maturity dates no longer than ten years from the date of issuance.

Convertible Debentures

On October 27, 2009, the Company issued $100 million aggregate principal amount of 7.0% convertible unsecured subordinated debentures (the "Debentures") at a price of $1,000 per Debenture. The Debentures bear interest at an annual rate of 7.0% payable semi-annually on June 30 and December 31 in each year commencing June 30, 2010. The maturity date of the Debentures is December 31, 2014.

Ag Growth granted the underwriters an over-allotment option to purchase up to 15% of the principal amount of the Debentures on the same terms and conditions as the offering of the Debentures, exercisable in whole or in part at any time up until 30 days after the closing of the offering. The underwriters exercised the over-allotment option in full on November 6, 2009 resulting in the issue of an additional $15 million principal amount of Debentures.

Including the over-allotment option, the net proceeds of the offering, after payment of the underwriters' fee of $4.6 million and expenses of the offering estimated to be $0.5 million, were approximately $109.9 million. The net proceeds of the offering will be used by Ag Growth for general corporate purposes and to repay existing indebtedness of approximately USD$37.6 million and CAD$11.9 million under the Company's credit facility.

Each Debenture is convertible into common shares of the Company at the option of the holder at any time on the earlier of the maturity date and the date of redemption of the Debenture, at a conversion price of $44.98 per common share being a conversion rate of approximately 22.2321 common shares per $1,000 principal amount of Debentures. A total of 2,556,692 common shares are reserved for issue on conversion of the Debentures.

The Debentures are not redeemable before December 31, 2012. On and after December 31, 2012 and prior to December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On and after December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest.

On redemption or at maturity, the Company may, at its option, subject to regulatory approval and provided that no event of default has occurred, elect to satisfy its obligation to pay the principal amount of the Debentures, in whole or in part, by issuing and delivering for each $100 due that number of freely tradeable common shares obtained by dividing $100 by 95% of the volume weighted average trading price of the common shares on the TSX for the 20 consecutive trading days ending on the fifth trading day preceding the date fixed for redemption or the maturity date, as the case may be. Any accrued and unpaid interest thereon will be paid in cash. The Company may also elect, subject to any required regulatory approval and provided that no event of default has occurred, to satisfy all or part of its obligation to pay interest on the Debentures by delivering sufficient freely tradeable common shares to satisfy its interest obligation.

COMMON SHARES

The following common shares were issued and outstanding and participated pro rata in dividends during the periods indicated:



----------------------------------------------------------------------------
# Fund # Class B # Common
Trust Units Units (1) Shares
----------------------------------------------------------------------------

----------------------------------------------------------------------------
December 31, 2007 12,818,915 136,085 0
----------------------------------------------------------------------------
Purchased under normal course
issuer bid (200,000) 0 0
-------------------------------------------
----------------------------------------------------------------------------
Outstanding at December 31, 2008 12,618,915 136,085 0
----------------------------------------------------------------------------
Conversion (2) (12,618,915) (136,085) 12,755,000
----------------------------------------------------------------------------
Common shares issued upon
Conversion (2)(3) 0 0 182,588
-------------------------------------------
----------------------------------------------------------------------------
Outstanding at September 30, 2009 0 0 12,937,588
----------------------------------------------------------------------------
Conversion of redeemable
preferred shares 0 0 140,452
-------------------------------------------
----------------------------------------------------------------------------
Outstanding at November 11, 2009 0 0 13,078,040
-------------------------------------------
----------------------------------------------------------------------------

(1) Prior to Conversion, there were 136,085 Class B Exchangeable units
outstanding in a subsidiary of the Fund that were exchangeable for Fund
Trust units at the option of the holder on a one-for-one basis at any
time.
(2) See "Conversion to a Corporation".
(3) Pursuant to the Plan of Arrangement, consideration issued included an
additional 182,588 common shares.


On October 22, 2008, Ag Growth commenced a normal course issuer bid for up to 1,262,090 common shares, representing 10% of its public float at that time. The normal course issuer bid terminated on October 21, 2009 and was not renewed. Common shares purchased under the normal course issuer bid were cancelled. Common shares were purchased at market price and in accordance with Toronto Stock Exchange ("TSX") requirements. For the period ending December 31, 2008, Ag Growth purchased and cancelled 200,000 common shares at an average share price of $19.47 for total cash consideration of $3.9 million. No common shares were purchased under the normal course issuer bid in the nine months ended September 30, 2009.

Ag Growth has granted 220,000 share awards under its share award incentive plan. The share awards remain outstanding at November 11, 2009 and, subject to vesting and payment of the exercise price, are each exercisable for one common share.

In April 2009, the administrator of Ag Growth's long-term incentive plan (the "LTIP") acquired 11,008 common shares to satisfy its obligations with respect to awards under the LTIP for fiscal 2008. In April 2008, the administrator of the Company's LTIP acquired 70,400 common shares to satisfy its obligations with respect to fiscal 2007. These common shares are not cancelled but rather are held by the administrator until such time as they vest to the LTIP participants. As at September 30, 2009, a total of 23,467 common shares related to the LTIP had vested to the participants.

A total of 6,938 deferred grants of common shares are outstanding under the Company's Director's Deferred Compensation Plan.

Ag Growth's common shares trade on the Toronto Stock Exchange under the symbol AFN.

REDEEMABLE PREFERRED SHARES

Pursuant to the Plan of Arrangement, Ag Growth issued 4,000,000 redeemable preferred shares with a stated value of $1.00 per share. The preferred shares were entitled to receive fixed cumulative preferential cash dividends, as and when declared by the Board, out of monies properly applicable to the payment of dividends at a rate $0.05 per share per annum. Each preferred share was also convertible at the holder's option into 0.035113 of a common share, for a total of 140,452 common shares, at any time up to three years from the date of issuance. Each preferred share was redeemable at any time from the date of issuance until June 30, 2010 at the option of Ag Growth, and retractable at the holder's option at any time on or after June 30, 2010, in each case for $1.00 cash per preferred share plus accrued and unpaid cumulative dividends thereon. The redeemable preferred shares were not publicly traded. On October 15, 2009, the holder of on the redeemable preferred shares exercised the conversion option.

DIVIDENDS

Ag Growth declared dividends to security holders of $6.6 million and $19.6 million for the three and nine month periods ended September 30, 2009, respectively (2008 - $6.2 million and $17.1 million). Total distributions declared to security holders are higher due primarily to an increase in the dividend rate, as Ag Growth increased its monthly dividend level by $0.03 per share to $0.17 per share effective August 2008.

Ag Growth's policy is to pay monthly dividends. The Company's Board of Directors reviews financial performance and other factors when assessing dividend levels. An adjustment to dividend levels may be made at such time as the Board determines an adjustment to be in the best interest of the Company and its shareholders.

FUNDS FROM OPERATIONS

Funds from operations, defined under "non-GAAP measures", is the equivalent of Adjusted EBITDA, less interest expense, current cash taxes and maintenance capital expenditures, plus the non-cash component of interest expense and stock based compensation. The objective of presenting this measure is to provide a measure of free cash flow. The definition excludes changes in working capital as they are necessary to drive organic growth and are expected to be financed by the Company's operating facility (See "Capital Resources"). Funds from operations should not be construed as an alternative to cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows.



----------------------------------------------------------------------------
(thousands of dollars) Three months ended Nine months ended
September 30 September 30
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------

----------------------------------------------------------------------------
EBITDA $ 21,057 $ 13,822 $ 52,011 $ 30,508
----------------------------------------------------------------------------
Stock based compensation 2,372 (70) 5,231 1,337
----------------------------------------------------------------------------
Non-cash interest expense 207 90 413 258
----------------------------------------------------------------------------
Translation loss (gain) on foreign
exchange (4,952) 1,730 (7,573) 2,832
----------------------------------------------------------------------------
Interest expense (1,038) (772) (2,315) (2,001)
----------------------------------------------------------------------------
Current income tax (1,441) (1,094) (1,605) (2,899)
----------------------------------------------------------------------------
Maintenance capital expenditures (313) (483) (1,582) (1,969)
----------------------------------------------------------------------------
Funds from operations (2) $ 15,892 $ 13,223 $ 44,580 $ 28,066
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Funds from operations can be reconciled to cash provided by operating
activities as follows:

----------------------------------------------------------------------------
(thousands of dollars) Three months ended Nine months ended
September 30 September 30
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Cash provided by
(used in) operating
activities $ 23,773 $ 8,213 $ 30,225 $ (7,249)
----------------------------------------------------------------------------
Change in non-cash
working capital (7,681) 5,493 14,079 37,284
----------------------------------------------------------------------------
Conversion costs 113 0 1,858 0
----------------------------------------------------------------------------
Maintenance capital
expenditures (313) (483) (1,582) (1,969)
----------------------------------------------------------------------------
Funds from
operations (2) $ 15,892 $ 13,223 $ 44,580 $ 28,066
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Weighted average
shares outstanding 12,879,627 12,955,000 12,780,568 12,955,000
----------------------------------------------------------------------------
Dividends declared
per share $ 0.51 $ 0.48 $ 1.53 $ 1.32
----------------------------------------------------------------------------
Funds from
operations per
share (2) $ 1.23 $ 1.02 $ 3.49 $ 2.17
----------------------------------------------------------------------------
Payout ratio 41% 47% 44% 61%
----------------------------------------------------------------------------

(1) See "EBITDA and Net Earnings".
(2) See "non-GAAP Measures".

The following table displays total funds from operations and total dividends
declared since Ag Growth's 2004 initial public offering:

----------------------------------------------------------------------------
Funds from Operations
----------------------------------------------------------------------------
Dividends Payout
(in thousands of dollars) Generated Declared (1) Ratio
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Period Ended December 31, 2004 $ 9,887 $ 9,109 92%
----------------------------------------------------------------------------
Year Ended December 31, 2005 22,676 18,918 83%
----------------------------------------------------------------------------
Year Ended December 31, 2006 21,974 18,858 86%
----------------------------------------------------------------------------
Year Ended December 31, 2007 25,553 19,585 77%
----------------------------------------------------------------------------
Year Ended December 31, 2008 38,554 26,701 69%
----------------------------------------------------------------------------
Nine months ended September 30,
2009 44,580 19,639 44%
--------------------------------------------
----------------------------------------------------------------------------
Cumulative since inception $ 163,224 $ 112,810 69%
--------------------------------------------
----------------------------------------------------------------------------

(1) Includes special distributions of the Fund of $1,329 in 2004, $3,368 in
2005, and $3,061 in 2008.


Dividends in a fiscal year are typically funded entirely through cash from operations, although due to seasonality dividends may be funded on a short-term basis by the Company's operating lines. In 2008, due to increased working capital investments required to maintain growth, total dividends exceeded cash provided by operations. As a result, a portion of 2008 dividends were financed from the Company's opening cash balance. In fiscal 2009 it is expected that dividends will be funded entirely through cash from operations.

Ag Growth's Board of Directors reviews financial performance and other factors when assessing dividend levels. An adjustment to dividend levels may be made at such time as the Board determines an adjustment to be in the long-term best interest of the Company and its shareholders.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. By their nature, these estimates are subject to a degree of uncertainty and are based on historical experience and trends in the industry. Management reviews these estimates on an ongoing basis. While management has applied judgment based on assumptions believed to be reasonable in the circumstances, actual results can vary from these assumptions. It is possible that materially different results would be reported using different assumptions.

Ag Growth believes the accounting policies that are critical to its business relate to the use of estimates regarding the recoverability of accounts receivable and the valuation of inventory, intangibles, goodwill, and future income taxes. Ag Growth's accounting policies are described in Note 2 to the audited financial statements for the year ended December 31, 2008.

Allowance for Doubtful Accounts

Due to the nature of Ag Growth's business and the credit terms it provides to its customers, estimates and judgments are inherent in the on-going assessment of the recoverability of accounts receivable. Ag Growth maintains an allowance for doubtful accounts to reflect expected credit losses. A considerable amount of judgment is required to assess the ultimate realization of accounts receivable and these judgments must be continuously evaluated and updated. Ag Growth is not able to predict changes in the financial conditions of its customers, and the Company's judgment related to the recoverability of accounts receivable may be materially impacted if the financial condition of the Company's customers deteriorates.

Valuation of Inventory

Assessments and judgments are inherent in the determination of the net realizable value of inventories. The cost of inventories may not be fully recoverable if they are slow moving, damaged, obsolete, or if the selling price of the inventory is less than its cost. Ag Growth regularly reviews its inventory quantities and reduces the cost attributed to inventory no longer deemed to be fully recoverable. Judgment related to the determination of net realizable value may be impacted by a number of factors including market conditions.

Goodwill and Intangible Assets

Assessments and judgments are inherent in the determination of the fair value of goodwill and intangible assets. Goodwill and indefinite life intangible assets are recorded at cost and finite life intangibles are recorded at cost less accumulated amortization. Goodwill and intangible assets are tested for impairment at least annually. Assessing goodwill and intangible assets for impairment requires considerable judgment and is based in part on current expectations regarding future performance. Changes in circumstances including market conditions may materially impact the assessment of the fair value of goodwill and intangible assets.

Future Income Taxes

Future income taxes are calculated based on assumptions related to the future interpretation of tax legislation, future income tax rates, and future operating results, acquisitions and dispositions of assets and liabilities, and dividend policy. Ag Growth periodically reviews and adjusts its estimates and assumptions of income tax assets and liabilities as circumstances warrant. A significant change in any of the Company's assumptions could materially affect Ag Growth's estimate of future tax assets and liabilities.

Future Benefit of Tax-loss Carryforwards

Ag Growth should only recognize the future benefit of tax-loss carryforwards where it is more likely than not that sufficient future taxable income can be generated in order to fully utilize such losses and deductions. We are required to make significant estimates and assumptions regarding future revenues and earnings, and our ability to implement certain tax planning strategies, in order to assess the likelihood of utilizing such losses and deductions. These estimates and assumptions are subject to significant uncertainty and if changed could materially affect our assessment of the ability to fully realize the benefit of the future income tax assets. Future tax asset balances would be reduced and additional income tax expense recorded in the applicable accounting period in the event that circumstances change and we, based on revised estimates and assumptions, determined that it was no longer more likely than not that those future tax assets would be fully realized.

Ag Growth does not believe that recent economic developments significantly impact its critical accounting estimates. Accordingly, the Company does not believe that current economic conditions materially impact the valuation of its accounts receivable, inventory, intangibles, goodwill, future income taxes or tax loss carryforwards.

FINANCIAL INSTRUMENTS

Foreign exchange contracts

Risk from foreign exchange arises as a result of variations in exchange rates between the Canadian and the U.S. dollar. Ag Growth has entered into foreign exchange contracts with two Canadian chartered banks to partially hedge its foreign currency exposure on anticipated U.S. dollar sales transactions and the collection of the related accounts receivable. As at September 30, 2009, the Company had outstanding the following foreign exchange contracts:



----------------------------------------------------------------------------
Forward Foreign Exchange Contracts
----------------------------------------------------------------------------
Settlement Dates Face Amount Average Rate CAD Amount
USD (000's) CDN (000's)
----------------------------------------------------------------------------
October - December 2009 $ 21,000 $ 1.0374 $ 21,785
----------------------------------------------------------------------------
January - December 2010 $ 50,000 $ 1.1722 $ 58,610
----------------------------------------------------------------------------
January - September 2011 $ 30,000 $ 1.1073 $ 33,218
----------------------------------------------------------------------------


At September 30, 2009, the fair value of the outstanding forward foreign exchange contracts was a gain of $5.4 million. Consistent with prior periods, the Company has elected to apply hedge accounting for these contracts and the unrealized gain has been recognized in other comprehensive income for the period ended September 30, 2009. Subsequent to September 30, 2009, the company added a USD $7.0 million contract for the month of October 2011 at a rate of $1.0720.

As at September 30, 2009, the Company also had outstanding a series of call and put options as follows:



Buyer: Ag Growth

----------------------------------------------------------------------------
Expiration Date Call Amount Put Amount
CAD (000's) USD (000's)
----------------------------------------------------------------------------
March 30, 2010 $ 2,440 $ 2,000
----------------------------------------------------------------------------
October 28, 2010 $ 6,100 $ 5,000
----------------------------------------------------------------------------
December 31, 2010 $ 3,660 $ 3,000
----------------------------------------------------------------------------


Seller: Ag Growth

----------------------------------------------------------------------------
Expiration Date Call Amount Put Amount
USD (000's) CAD (000's)
----------------------------------------------------------------------------
March 30, 2010 $ 4,000 $ 5,220
----------------------------------------------------------------------------
October 28, 2010 $ 10,000 $ 13,050
----------------------------------------------------------------------------
December 31, 2010 $ 6,000 $ 7,830
----------------------------------------------------------------------------


At September 30, 2009, the fair value of the outstanding call and put options was a gain of $1.5 million. These call and put options are not considered to be an effective hedge for accounting purposes and the unrealized gain has been included in the Company's foreign exchange gain (loss) for the period ended September 30, 2009.

Interest rate swap transactions

Ag Growth is subject to risks associated with fluctuating interest rates on its long-term debt. To manage this risk, the Company had three interest rate swap transactions with a Canadian chartered bank with a total notional amount of USD $26.5 million that resulted in interest charges to the Company of 2.88% plus a variable rate based on performance calculations. The swap transactions expired August 29, 2009.

At September 30, 2009, there were no interest rate swap transactions outstanding. Ag Growth entered a new credit facility on October 29, 2009. See "Capital Resources".

OUTLOOK

Cool and wet weather during both planting and harvest seasons have led to a very late harvest in the U.S. cornbelt. As a result, in-season sales of portable grain handling and aeration equipment to the end user farmer may increase in the fourth quarter of 2009 compared to the prior year. However, increased production capacity, particularly at the Westfield division, allowed the Company to provide its dealer network with sufficient levels of inventory in advance of harvest and accordingly management expects the late harvest to provide only a limited positive impact to the fourth quarter. In addition, the late harvest may delay the introduction of certain pre-season sales programs that traditionally impact the fourth quarter of a fiscal year. Overall, due to the size of the crop being harvested and the continuing positive fundamentals in the portable grain handling and aeration space, management anticipates demand in the fourth quarter of 2009 to approximate the record levels experienced in 2008.

The primary demand drivers for portable grain handling and aeration equipment are volume of grains grown, storage practices, and commodity prices, and management believes these factors will continue to be supportive of high levels of demand in 2010. Entering 2010, management expects the impact of strong sales in 2009 and a late harvest will result in low levels of inventory throughout its distribution network which is supportive of demand in the first and second quarters of 2010. Consistent with prior years, demand in 2010, particularly in the second half, will be influenced by crop conditions.

Demand for Hi Roller and Union Iron stationary grain handling equipment has historically been seasonally weighted towards the second and third quarters. The fourth quarter of 2008 was very strong, particularly at Hi Roller, and management does not expect the fourth quarter of 2009 to match the prior year. Demand in 2010 is contingent on a number of factors, including the availability of credit and the impact of other macro-economic factors. Based on existing conditions, management currently anticipates domestic sales activity to increase slightly compared to 2009. In addition, early indicators appear to suggest an improving credit situation in emerging markets which may result in increased international sales.

Ag Growth's financial results are impacted by the rate of exchange between the Canadian and U.S. dollars. A weaker Canadian dollar positively impacts sales and gross margin percentages compared to prior periods. For the three and nine months ended September 30, 2009, the Canadian dollar traded at lower levels compared to the prior year and accordingly sales and gross margin percentages benefited. The Canadian dollar has strengthened recently, and accordingly the favourable impact of foreign exchange realized in the first nine months of 2009 may not be realized in the fourth quarter or in 2010. However, the potential negative impact of a stronger Canadian dollar in 2010 would be mitigated as a large portion of the Company's 2010 foreign exchange exposure has been hedged with contracts at an average rate of $1.18.

Overall, management expects strong demand for portable grain handling and aeration equipment in the fourth quarter of 2009. Sales levels are expected to be slightly below the record sales recorded in 2008, while the gross margin on these products, which account for approximately two-thirds of Ag Growth's total sales, are expected to remain strong and well above 2008 levels as the impact of sales price increases and lower input costs are partially offset by the impact of a stronger Canadian dollar. Sales of stationary grain handling equipment in the fourth quarter of 2009 are expected to decrease from the prior year, however gross margins are expected to meet or exceed 2008 levels.

BUSINESS RISK

A detailed discussion of our significant business risks is provided in the MD&A for the year ended December 31, 2008, the 2009 Annual Information Form and the Management Information Circular for the Special Meeting, all of which can be found at www.sedar.com. The following is a list of certain risk factors relating to the activities of Ag Growth and its subsidiaries and the ownership of Ag Growth common shares:

- Future dividend payments by Ag Growth and the level thereof is uncertain, as Ag Growth's dividend policy and the funds available for the payment of dividends from time to time will be dependent upon, among other things, operating cash flow generated by Ag Growth and its subsidiaries, financial requirements for Ag Growth's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors beyond the control of Ag Growth;

- Deteriorating economic conditions and the uncertainty of future developments in the domestic and global economies may negatively impact the demand for Ag Growth's products;

- Prices of commodities are influenced by a variety of unpredictable factors that will be beyond the control of Ag Growth;

- Ag Growth competes directly with other companies that have greater resources and access to capital;

- Ag Growth may expand its operations, depending on certain conditions, by acquiring additional businesses, products or technologies. There can be no assurance that Ag Growth will be able to identify, acquire, or profitably manage additional businesses, or successfully integrate any acquired business, products, or technologies into the business without substantial expense, delay or other operational or financial difficulty;

- Achieving the anticipated benefits of the Conversion will depend in part on Ag Growth's ability to realize the anticipated growth opportunities from reorganizing the Fund into a corporate structure;

- In the ordinary course of business, Ag Growth may be subject to audits by tax authorities. While management anticipates that Ag Growth's tax filing positions will be appropriate and supportable, it is possible that tax matters, including the calculation and determination of revenue, expenditures, deductions, credits and other tax attributes, taxable income and taxes payable, may be reviewed and challenged by the tax authorities. If such challenge were to succeed, it could have a material adverse effect on Ag Growth's tax position. Further, the interpretation of and changes in tax laws, whether by legislative or judicial action or decision, and the administrative policies and assessing practices of taxation authorities, could materially adversely affect Ag Growth's tax position; and

- In the ordinary course of its business, Ag Growth may be party to various legal actions, the outcome of which cannot be predicted with certainty.

ACCOUNTING POLICY CHANGES

Capital Disclosures and Financial Instruments - Presentation and Disclosure

On January 1, 2009, Ag Growth adopted the CICA Handbook Section 3064, "Goodwill and Intangible Assets", which replaced the existing "Goodwill and Intangible Assets" standard. The new standard revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

On January 1, 2009, Ag growth adopted Emerging Issues Committee ("EIC") Abstract EIC-173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". EIC-173 provides further information on the determination of the fair value of financial assets and financial liabilities under Section 3855, "Financial Instruments - Recognition and Measurement". It states that an entity's own credit and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and liabilities, including derivative instruments. EIC-173 is applied retrospectively, without restatement of prior periods, to all financial assets and liabilities measured at fair value. The adoption of EIC-173 did not have a have a material impact on the Company's consolidated financial statements.

NEW ACCOUNTING STANDARDS

Section 1582, "Business Combinations"

In January 2009, the CICA issued the new Handbook Section 1582, "Business Combinations" effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of Section 1582 is permitted. This pronouncement further aligns Canadian GAAP with U.S. GAAP and International Financial Reporting Standards ("IFRS") and changes the accounting for business combinations in a number of areas. It establishes principles and requirements governing how an acquiring company recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and goodwill acquired. The section also establishes disclosure requirements that will enable users of the acquiring company's financial statements to evaluate the nature and financial effects of its business combinations. Ag Growth is considering the impact of the adoption of this pronouncement on its consolidated financial statements in fiscal 2011 in connection with its conversion to IFRS.

Section 1601, "Consolidated Financial Statements" and Section 1602, "Non-Controlling Interests"

In January 2009, the CICA issued the new Handbook Section 1601, "Consolidated Financial Statements", and Section 1602, "Non-Controlling Interests", effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of these recommendations is permitted. These pronouncements further align Canadian GAAP with U.S. GAAP and IFRS. Sections 1601 and 1602 change the accounting and reporting of ownership interests in subsidiaries held by parties other than the parent. Non-controlling interests are to be presented in the consolidated statement of financial position within equity but separate from the parent's equity. The amount of consolidated net income attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of income. In addition, these pronouncements establish standards for a change in a parent's ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. They also establish reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. Ag Growth is currently considering the impact of the adoption of these pronouncements on its consolidated financial statements in fiscal 2011 in connection with its conversion to IFRS.

Conversion to International Financial Reporting Standards

In February 2008, the AcSB confirmed that IFRS will replace Canadian GAAP in 2011 for profit-oriented Canadian publicly accountable enterprises. Ag Growth will be required to report its results in accordance with IFRS starting in 2011. Under IFRS, the primary audience is capital markets and as a result there may be significantly more disclosure required, particularly for quarterly reporting. Further, while IFRS uses a conceptual framework similar to Canadian GAAP, there may be significant differences in accounting policy that must be addressed.

The Company formally commenced an IFRS conversion project in the third quarter of 2008 and engaged the services of an external advisor with IFRS expertise to work with management. Regular reporting is provided to Ag Growth's senior management and to the Audit Committee of the Board of Directors. An assessment was initiated to examine the extent of the impact that the conversion may have on financial reporting, business processes, internal controls and information systems. The Company's plan is aimed in particular at identifying the differences between IFRS and the Company's current accounting policies, as well as assessing the impact of various accounting alternatives offered pursuant to IFRS. Ag Growth's assessment of key areas including Income Taxes, Foreign Exchange, and Property Plant and Equipment continued in the second quarter of 2009. The Company will continue to evaluate these and other key areas in the coming quarters. The financial impact of the transition to IFRS cannot be reasonably estimated at this time, however, there will likely be changes in accounting policies and these may materially impact the Company's financial statements.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including Ag Growth's Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure.

Management of Ag Growth is responsible for designing internal controls over financial reporting for the Company as defined under National Instrument 52-109 issued by the Canadian Securities Administrators. Management has designed such internal controls over financial reporting, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP.

There have been no changes in Ag Growth's internal controls over financial reporting that occurred in the three month period ended September 30, 2009, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

NON-GAAP MEASURES

References to "EBITDA" are to earnings before interest, income taxes, depreciation amortization and Conversion costs. References to "Adjusted EBITDA" are to EBITDA before the gain (loss) on foreign exchange. Management believes that, in addition to net income or loss, EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. EBITDA and Adjusted EBITDA are not financial measures recognized by GAAP and do not have a standardized meanings prescribed by GAAP. Management cautions investors that EBITDA and Adjusted EBITDA should not replace net income or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. Ag Growth's method of calculating EBITDA and Adjusted EBITDA may differ from the methods used by other issuers.

References to "gross margin" are to sales less cost of goods sold. Management believes that, in addition to net income or loss, gross margin provides a useful supplemental measure in evaluating Ag Growth's performance. Gross margin is not a financial measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Management cautions investors that gross margin should not replace net income or loss as an indicator of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. Ag Growth's method of calculating gross margin may differ from the methods used by other issuers.

References to "funds from operations" are to cash flow from operating activities, before the net change in non-cash working capital balances related to operations, less capital expenditures. Management believes that, in addition to cash provided by (used in) operating activities, funds from operations provide a useful supplemental measure in evaluating its performance. Funds from operations is not a financial measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. The method of calculating funds from operations may differ from similar computations as reported by similar entities. Management cautions investors that funds from operations should not replace net income or loss as an indicator of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows.

References to "payout ratio" are to dividends declared as a percentage of funds from operations. Payout ratio is not a financial measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. The method of calculating the Company's payout ratio may differ from similar computations as reported by similar entities and, accordingly, may not be comparable to the payout ratio as reported by such entities.

ADDITIONAL INFORMATION

Additional information relating to Ag Growth and the Fund, including the Fund's most recent Annual Information Form, is available on SEDAR (www.sedar.com).



Ag Growth International Inc.

UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS

(See Corporate Conversion - note 2)

As at As at
September 30, December 31,
2009 2008
$ $
------------------------------
(000's) (000's)
ASSETS (notes 11 and 19)
Current
Cash and cash equivalents 8,805 4,391
Accounts receivable 41,129 25,382
Income taxes recoverable (note 12) - 873
Inventory 39,355 43,332
Prepaid expenses and other assets 1,130 1,187
Derivative instruments (note 14) 3,386 -
Future income taxes (note 12) 16,240 -
------------------------------
Total current assets 110,045 75,165
------------------------------
Property, plant and equipment, net 28,556 28,973
Goodwill 52,337 52,337
Intangible assets, net 69,765 71,989
Derivative instruments (note 14) 3,435 -
Future income taxes (note 12) 37,665 -
------------------------------
301,803 228,464
------------------------------
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 13,961 11,789
Customer deposits 3,855 10,115
Income taxes payable (note 12) 781 -
Dividends payable 2,199 5,230
Accrued transaction costs (notes 6 and 20) 780 -
Long-term incentive plan (note 16) 1,853 191
Redeemable preferred shares (notes 8 and 25(b)) 3,730 -
Derivative instruments (note 14) - 9,519
Current portion of deferred credit (note 12) 12,502 -
Current portion of long-term debt (note 19) 17 18
------------------------------
Total current liabilities 39,678 36,862
------------------------------
Long-term debt (note 19) 52,299 52,791
Deferred credit (note 12) 37,155 -
Future income taxes (note 12) 744 10,162
Derivative instruments (note 14) - 1,041
Share award incentive plan (note 17) 5,174 2,072
------------------------------
Total liabilities 135,050 102,928
------------------------------
Shareholders' equity (notes 7 and 8)
Common shares 153,142 148,255
Accumulated other comprehensive income (loss) 3,516 (10,560)
Contributed surplus 1,758 1,551
Retained earnings (accumulated deficit) 8,337 (13,710)
------------------------------
Total shareholders' equity 166,753 125,536
------------------------------
301,803 228,464
------------------------------
------------------------------
See accompanying notes

On behalf of the Board of Directors:

(signed) Bill Lambert (signed) John R. Brodie, FCA
Director Director

Ag Growth International Inc.
UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(ACCUMULATED DEFICIT)


Three-month period ended Nine-month period ended
------------------------------------------------------
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
$ $ $ $
------------------------------------------------------
(000's) (000's) (000's) (000's)

Sales 68,316 60,012 190,445 151,100
Cost of goods sold 39,416 38,134 110,387 97,330
------------------------------------------------------
Gross margin 28,900 21,878 80,058 53,770
------------------------------------------------------
Expenses
Selling, general and
administrative 7,478 6,730 24,164 19,827
Stock-based
compensation
(notes 16, 17 and 18) 2,372 (70) 5,231 1,337
Research and
development 275 262 867 797
Other income (54) (108) (293) (236)
Corporate conversion
(note 6) 113 - 1,858 -
Foreign exchange
loss (gain) (2,228) 1,242 (1,922) 1,537
Interest expense
(note 24) 1,038 772 2,315 2,001
Amortization (note 24) 2,090 2,063 6,182 6,106
------------------------------------------------------
11,084 10,891 38,402 31,369
------------------------------------------------------
Earnings before
income taxes 17,816 10,987 41,656 22,401
------------------------------------------------------
Provision for
(recovery of) income
taxes (note 12)
Current 1,441 1,094 1,605 2,899
Future 1,249 140 (1,633) 400
------------------------------------------------------
2,690 1,234 (28) 3,299
------------------------------------------------------
Net earnings for the
period 15,126 9,753 41,684 19,102
------------------------------------------------------
------------------------------------------------------
Accumulated deficit,
beginning of period (191) (8,218) (13,710) (6,685)
Dividends to
shareholders (6,598) (6,219) (19,637) (17,101)
Net earnings for
period 15,126 9,753 41,684 19,102
------------------------------------------------------
------------------------------------------------------
Retained earnings
(accumulated
deficit,) end of
period 8,337 (4,684) 8,337 (4,684)
------------------------------------------------------
------------------------------------------------------
Earnings per share -
basic (note 22) $ 1.17 $ 0.75 $ 3.26 $ 1.47
------------------------------------------------------
------------------------------------------------------
Earnings per share -
diluted (note 22) $ 1.17 $ 0.75 $ 3.24 $ 1.47
------------------------------------------------------
------------------------------------------------------

See accompanying notes


Ag Growth International Inc.

UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


Three-month period ended Nine-month period ended
---------------------------------------------------

September 30, September 30, September 30, September 30,
2009 2008 2009 2008
$ $ $ $
--------------------------------------------------------
(000's) (000's) (000's) (000's)

Net earnings for the
period 15,126 9,753 41,684 19,102
--------------------------------------------------------

Other comprehensive
income (loss)
Change in fair value
of derivatives
designated as
cash flow hedges 7,502 (1,573) 10,729 (1,582)
Realized losses (gains)
on derivatives
designated as cash
flow hedges recognized
in net earnings in the
current period 1,875 (31) 5,196 (207)
Unrealized gains (losses)
on dual purpose
derivatives designated
as cash flow hedges
in prior periods (589) 137 (384) 340
Income tax effect on
items enumerated
above (2,679) - (1,465) -
--------------------------------------------------
Other comprehensive
income (loss) for
the period 6,109 (1,467) 14,076 (1,449)
--------------------------------------------------------
Comprehensive income 21,235 8,286 55,760 17,653
--------------------------------------------------------
--------------------------------------------------------

See accompanying notes


Ag Growth International Inc.

UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS

Three-month period ended Nine-month period ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
$ $ $ $
-------------------------------------------------------
(000's) (000's) (000's) (000's)
OPERATING ACTIVITIES
Net earnings for the
period 15,126 9,753 41,684 19,102
Add (deduct) items not
affecting cash
Amortization 2,090 2,063 6,182 6,106
Future income taxes 1,249 140 (1,633) 400
Translation loss (gain)
on foreign exchange (4,952) 1,730 (7,573) 2,832
Non-cash component of
interest expense 207 90 413 258
Stock-based
compensation 2,372 (70) 5,231 1,337
-------------------------------------------------------
16,092 13,706 44,304 30,035

Net change in
non-cash working
capital balances
related to operations
(note 23) 7,681 (5,493) (14,079) (37,284)
-------------------------------------------------------
Cash provided by
(used in)
operating activities 23,773 8,213 30,225 (7,249)
-------------------------------------------------------

INVESTING ACTIVITIES
Acquisition of
property, plant
and equipment (934) (2,026) (3,642) (9,869)
Acquisition of assets
of Applegate Steel
Inc., net of cash
acquired (note 13) - - - (3,324)
Acquisition of assets of
Benachee Resources Inc.
(note 6) - - (5,000) -
Payments in current
period with respect
to acquisitions
in prior periods
(note 13) - 9 - (2,427)
Transaction costs
payable (note 6) (189) - 780 -
Proceeds from sale of
property, plant
and equipment 35 37 101 37
-------------------------------------------------------
Cash used in investing
activities (1,088) (1,980) (7,761) (15,583)
-------------------------------------------------------


Ag Growth International Inc.

UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS

Three-month period ended Nine-month period ended
-------------------------------------------------------
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
$ $ $ $
-------------------------------------------------------
(000's) (000's) (000's) (000's)
FINANCING ACTIVITIES
Increase (decrease)
in bank indebtedness (7,257) (6,484) - 5,851
Increase (decrease) in
long-term debt (4) 6,105 4,988 14,259
Dividends paid (6,603) (5,830) (22,676) (16,712)
Increase in deferred
financing costs
on long-term debt (16) (14) (26) (21)
Share issuance costs - - (50) (9)
Transfer from cash
held in trust
(note 13) - (10) - 1,223
Purchase of common
shares in the market
under the LTIP
(note 16) - - (286) (2,170)
-------------------------------------------------------
Cash provided by
(used in) financing
activities (13,880) (6,233) (18,050) 2,421
-------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents during
the period 8,805 - 4,414 (20,411)
Cash and cash
equivalents,
beginning of period - - 4,391 20,411
-------------------------------------------------------
Cash and cash
equivalents, end of
period 8,805 - 8,805 -
-------------------------------------------------------
-------------------------------------------------------


Supplemental cash flow
information
Interest paid 1,022 788 2,282 1,982
Income taxes paid
(recovered) - 372 (87) 1,693
-------------------------------------------------------
-------------------------------------------------------

See accompanying notes


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of dollars, except where otherwise noted and share and per share amounts)

1. DESCRIPTION OF BUSINESS

Ag Growth International Inc. ("Ag Growth" or the "Company") acquired all of the trust units of its predecessor, Ag Growth Income Fund (the "Fund") in exchange for common shares of Ag Growth pursuant to an arrangement completed under Section 192 of the Canada Business Corporations Act effective June 3, 2009 (the "Conversion") (note 2). Ag Growth conducts business in the grain handling, storage and conditioning market.

Included in these unaudited interim consolidated financial statements are the accounts of Ag Growth and its predecessor, the Fund, (collectively hereinafter referred to as "Ag Growth" or the "Company") and all of its subsidiary limited partnerships and incorporated companies.

2. CORPORATE CONVERSION

The Conversion was completed pursuant to a Plan of Arrangement with, among others, Ag Growth (then known as Benachee Resources Inc. ("Benachee")) (note 6). As a result of the Conversion, holders of Fund trust units and Class B exchangeable units of a subsidiary of the Fund received one common share of Benachee in exchange for every unit held on the effective date of the Conversion, and Benachee changed its name to Ag Growth International Inc.

The Conversion was accounted for as a continuity of interests of the Fund since there was no change of control and since Ag Growth continues to operate the business of the Fund. These unaudited interim consolidated financial statements reflect Ag Growth as a corporation on and subsequent to June 3, 2009 and as Ag Growth Income Fund prior thereto. All references to "common shares" refer collectively to Ag Growth's common shares on and subsequent to June 3, 2009 and to Fund units prior to the Conversion. All references to "dividends" refer to dividends paid or payable to holders of Ag Growth common shares on and subsequent to June 3, 2009 and to distributions paid or payable to Fund unitholders prior to the Conversion. All references to "shareholders" refer collectively to holders of Ag Growth's common shares on and subsequent to June 3, 2009 and to Fund unitholders prior to the Conversion. References to the "Share Award Incentive Plan" should be read as references to the "Unit Award Incentive Plan" for all periods prior to the Conversion.

3. BASIS OF PRESENTATION

The unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). They have been prepared using the same accounting policies and methods of application as disclosed in Ag Growth's audited consolidated financial statements for the year ended December 31, 2008, except as described in note 4.

These unaudited interim consolidated financial statements do not include all of the information and notes to the financial statements required by Canadian GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and notes included in Ag Growth's annual report for the year ended December 31, 2008.

Accounting measurements at interim dates inherently involve a greater reliance on estimates than at year end. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature to present fairly the consolidated financial position of the Company as at September 30, 2009.

4. CHANGES IN ACCOUNTING POLICIES AND PRACTICES

On January 1, 2009, Ag Growth adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook Sections:

Section 3064, "Goodwill and Intangible Assets"

On January 1, 2009, Ag Growth adopted the CICA Handbook Section 3064, "Goodwill and Intangible Assets", which replaced the existing "Goodwill and Intangible Assets" standard. The new standard revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have a material impact on Ag Growth's unaudited interim consolidated financial statements.

EIC-173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities"

On January 1, 2009, Ag Growth adopted Emerging Issues Committee ("EIC") Abstract 173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". EIC-173 provides further information on the determination of the fair value of financial assets and financial liabilities under CICA Handbook Section 3855, "Financial Instruments - Recognition and Measurement". It states that an entity's own credit and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and liabilities, including derivative instruments. EIC-173 is applied retrospectively, without restatement of prior periods, to all financial assets and liabilities measured at fair value. The adoption of EIC-173 did not have a material impact on Ag Growth's unaudited interim consolidated financial statements.

5. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2009, the CICA issued the new Handbook Section 1582, "Business Combinations" effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of Section 1582 is permitted. This pronouncement further aligns Canadian GAAP with U.S. GAAP and International Financial Reporting Standards ("IFRS") and changes the accounting for business combinations in a number of areas. It establishes principles and requirements governing how an acquiring company recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and goodwill acquired. The section also establishes disclosure requirements that will enable users of the acquiring company's financial statements to evaluate the nature and financial effects of its business combinations. Ag Growth is considering the impact of the adoption of this pronouncement on its consolidated financial statements in fiscal 2011 in connection with its conversion to IFRS.

In January 2009, the CICA issued the new Handbook Section 1601, "Consolidated Financial Statements", and Section 1602, "Non-Controlling Interests", effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of these recommendations is permitted. These pronouncements further align Canadian GAAP with U.S. GAAP and IFRS. Sections 1601 and 1602 change the accounting and reporting of ownership interests in subsidiaries held by parties other than the parent. Non-controlling interests are to be presented in the consolidated balance sheets within equity but separate from the parent's equity. The amount of consolidated net income attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of earnings and retained earnings (accumulated deficit). In addition, these pronouncements establish standards for a change in a parent's ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. They also establish reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. Ag Growth is currently considering the impact of the adoption of these pronouncements on its consolidated financial statements in fiscal 2011 in connection with its conversion to IFRS.

In February 2008, the Accounting Standards Board confirmed that IFRS will replace Canadian GAAP in 2011 for profit-oriented Canadian publicly accountable enterprises. Ag Growth will be required to report its results in accordance with IFRS starting in 2011. Ag Growth formally commenced an IFRS conversion project in the third quarter of 2008 and has engaged the services of an external advisor with IFRS expertise to work with management. Ag Growth will continue to invest in training and resources to ensure a timely and effective conversion. Regular reporting is provided to Ag Growth's senior management and to the Audit Committee of the Board of Directors. To date, an initial diagnostic assessment has been completed and an IFRS conversion plan has been developed. A diagnostic assessment has been initiated to examine the extent of the impact that the conversion may have on financial reporting, business processes, internal controls and information systems. Ag Growth's current plan is aimed in particular at identifying the differences between IFRS and Ag Growth's current accounting policies, as well as assessing the impact of various accounting alternatives offered pursuant to IFRS. In addition, a high level assessment of Ag Growth's information technology systems and tax processes will be conducted, and is underway. The financial impact of the transition to IFRS cannot be reasonably estimated at this time, however, there will likely be changes in accounting policies and these may materially impact Ag Growth's unaudited interim consolidated financial statements.

6. PLAN OF ARRANGEMENT

The Conversion was completed effective June 3, 2009 pursuant to a Plan of Arrangement with, among others, Benachee. As a result of the Plan of Arrangement, holders of Fund trust units and Class B exchangeable units of the Fund received one common share of Benachee in exchange for every unit held on the effective date of the Conversion, and Benachee changed its name to Ag Growth International Inc. Pursuant to the Plan of Arrangement, consideration in the form of $5.0 million cash, 182,588 common shares at an estimated fair value of $24.65 per share, being the volume weighted trading price of the Fund's units on the two days before and the two days after April 19, 2009, the date the Fund's trustees approved and announced the terms of the transaction, and par value $4.0 million of redeemable preferred shares, convertible into 140,452 common shares, was issued to the parent corporation of Benachee, a participant in the Plan of Arrangement. Prior to June 3, 2009, Benachee transferred substantially all of its assets and all of its liabilities to a related company and as a result Ag Growth did not acquire the business operations of Benachee.

The Conversion was accounted for as a continuity of interests of the Fund since there was no change of control and since Ag Growth continues to operate the business of the Fund. Transaction costs related to the Conversion of $0.1 million and $1.9 million have been expensed in the three- and nine-month periods ended September 30, 2009, respectively.

On June 3, 2009, the effective date of the Plan of Arrangement, the following assets and liabilities have been recorded in the consolidated financial statements:



$
--------

Future income tax asset 69,800
Deferred credit (note 12) 56,300
--------
Total consideration 13,500
--------
--------

Total consideration is comprised of:

$
--------

Cash 5,000
Common shares of Ag Growth International Inc. 4,500
Redeemable preferred shares (note 8) 4,000
--------
Total consideration 13,500
--------
--------


7. SHAREHOLDERS' EQUITY

(a) Common shares

Authorized - Unlimited number of voting common shares without par value

Issued - 12,879,647 common shares



Total
Fund Trust
Fund Trust Class B and Class B Common
units units units Shares
$ $ $ $
----------------------------------------------
(000's) (000's) (000's) (000's)
(notes 2
and 6)
Balance, December 31, 2007 151,439 1,361 152,800 -
Purchase of units under
long-term incentive plan
("LTIP") (2,170) - (2,170) -
Purchase of units under normal
course issuer bid (2,363) - (2,363) -
Issuance costs (12) - (12) -
----------------------------------------------
Balance, December 31, 2008 146,894 1,361 148,255 -
Purchase of units under LTIP
(note 16) (286) - (286) -
Settlement of LTIP obligation 723 - 723 -
----------------------------------------------
Balance prior to Conversion 147,331 1,361 148,692 -
Conversion (147,331) (1,361) (148,692) 148,692
Issuance of common shares
pursuant to Plan of Arrangement - - - 4,500
Issuance costs - - - (50)
----------------------------------------------
Balance, September 30, 2009 - - - 153,142
----------------------------------------------
----------------------------------------------


Fund Trust Class B Common
units units Shares
# # #
----------------------------------------------
(notes 2 and 6)
Balance, December 31, 2007 12,818,915 136,085 -
Purchase of units under LTIP (70,400) - -
Purchase of units under normal
course issuer bid (200,000) - -
----------------------------------------------
Balance, December 31, 2008 12,548,515 136,085 -
Purchase of units under LTIP
(note 16) (11,008) - -
Settlement of LTIP obligation
(note 16) 23,467 - -
----------------------------------------------
Balance prior to Conversion 12,560,974 136,085 -
Conversion (12,560,974) (136,085) 12,697,059
Issuance of common shares
pursuant to Plan of
Arrangement - - 182,588
----------------------------------------------
Balance, September 30, 2009 - - 12,879,647
----------------------------------------------
----------------------------------------------


Prior to the Conversion, there were 136,085 Class B Exchangeable units outstanding in a subsidiary of the Fund that were exchangeable for Fund Trust units at the option of the holder on a one-for-one basis at any time. In conjunction with the Conversion, these Class B units were exchanged for common shares of Ag Growth.

Issuance of common shares

In conjunction with the Conversion, Ag Growth issued 182,588 common shares from treasury to the sole shareholder of Benachee. The fair value of the common shares of $24.65 per common share was based on the average trading price of the Fund's units on the two days before and the two days after April 19, 2009, the date the Fund's Trustees approved and announced the terms of the transaction.

Normal course issuer bid

On October 22, 2008, Ag Growth commenced a normal course issuer bid for up to 1,262,090 common shares, representing 10% of the Company's public float at that time. The normal course issuer bid terminated on October 21, 2009 and was not renewed. Ag Growth did not purchase any common shares under the normal course issuer bid in the nine-month period ended September 30, 2009.



(b) Contributed surplus

$
---------

Balance, December 31, 2007 -
Settlement of LTIP obligation 1,551
---------
Balance, December 31, 2008 1,551
Equity component of preferred shares (note 8) 400
Equity settled director compensation (note 18) 29
Settlement of LTIP obligation (note 16) (222)
---------
Balance, September 30, 2009 1,758
---------
---------


(c) Accumulated other comprehensive income (loss)

$
---------
Balance, December 31, 2007 539
Other comprehensive income (loss) in period (11,099)
---------
Balance, December 31, 2008 (10,560)
Other comprehensive income in period 14,076
---------
Balance, September 30, 2009 3,516
---------
---------


8. REDEEMABLE PREFERRED SHARES

Pursuant to the Plan of Arrangement completed on June 3, 2009, Ag Growth issued 4,000,000 redeemable preferred shares with a stated value of $1.00 per share. The preferred shares are entitled to receive fixed cumulative preferential cash dividends, as and when declared by the Board of Directors, out of monies properly applicable to the payment of dividends at a rate $0.05 per share per annum. Each redeemable preferred share is also convertible at the holder's option into 0.035113 of a common share, for a total of 140,452 common shares, at any time up to three years from the date of issuance. Each redeemable preferred share is redeemable at any time from the date of issuance until June 30, 2010 at the option of Ag Growth and retractable, at the holder's option, at any time on or after June 30, 2010 in each case for $1.00 cash per redeemable preferred share plus accrued and unpaid cumulative dividends thereon. Effective October 15, 2009, the redeemable preferred shares were converted to common shares (note 25(b)).

The Company presents and discloses its financial instruments in accordance with the substance of its contractual arrangement. Accordingly, on the effective date of the Conversion, $3.6 million of the Company's redeemable preferred shares were classified as a liability since the Company is obligated to pay cash to redeem these preferred shares. The liability component has been accreted using the effective interest rate method until October 15, 2009 when the liability was settled for common shares, and in the three and nine months ended September 30, 2009, the Company recorded accretion of $130 and related interest expense of $46. The estimated fair value of the holder's option to convert the Class A preferred shares to common shares in the amount of $0.4 million has been separated from the fair value of the liability and has been included in shareholders' equity.

9. CAPITAL STRUCTURE

Ag Growth's capital structure is comprised of shareholders' equity and long-term debt. Ag Growth's objectives when managing its capital structure are to maintain and preserve its access to capital markets, continue its ability to meet its financial obligations, including the payment of dividends, and finance organic growth and acquisitions.

Ag Growth monitors its capital structure using non-GAAP financial metrics including long-term debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") for the immediately preceding 12-month period and long-term debt to shareholders' equity.

Ag Growth's optimal capital structure targets to maintain its long-term debt to EBITDA ratio at levels below 2.5, after taking into consideration the impacts of industry cyclicality and acquisitions. The table below calculates the ratio based on EBITDA achieved in the previous 12 months:



As at As at
September 30, 2009 December 31, 2008
----------------------------------------
Long-term debt $ 52.3 million $ 52.8 million
EBITDA $ 54.2 million $ 34.6 million
Ratio 0.97 times 1.53 times


Ag Growth's optimal capital structure targets to maintain its long-term debt to shareholders' equity ratio at levels below 1.0, after taking into consideration the impacts of industry cyclicality and acquisitions:



As at As at
September 30, 2009 December 31, 2008
----------------------------------------
Long-term debt $ 52.3 million $ 52.8 million
Shareholders' equity $ 166.8 million $ 125.5 million
Ratio 0.31 times 0.42 times


Ag Growth's capital management objectives, evaluation measures, definitions and targets have remained unchanged over the periods presented. Ag Growth is subject to certain financial covenants in its credit facility agreement which must be maintained to avoid acceleration of the termination of the agreement. Ag Growth is in compliance with all financial covenants.

10. SEASONALITY OF BUSINESS

Interim period sales and earnings historically reflect some seasonality. The third quarter is typically the strongest primarily due to high in-season demand at the farm level. Ag Growth's collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with seasonally high sales in the third quarter, result in accounts receivable levels increasing throughout the year and normally peaking in the third quarter. As a result of these working capital movements, Ag Growth's use of its bank revolver is typically highest in the first and second quarters. Historically, the revolver balance begins to decline in the third quarter as collections of accounts receivable increase. Ag Growth would expect to repay its revolver in the third or fourth quarter of each year.

11. BANK INDEBTEDNESS

Ag Growth's credit facility includes Cdn. $25 million and U.S. $2.0 million available for working capital and general corporate purposes. The facilities bear interest at a rate of prime plus 1.75% to prime plus 2.0% per annum based on performance calculations. The effective interest rate during the three-month and nine-month periods ended September 30, 2009 on Ag Growth's Canadian dollar term debt was 4.0% and 3.4%, respectively (2008 - 4.5% and 4.9%), and on its U.S. dollar term debt was 5.0% and 4.2%, respectively (2008 - 6.5% and 6.9%). At September 30, 2009, there was nil outstanding under these facilities (December 31, 2008 - nil). Collateral for the operating facilities includes a general security agreement over all assets, first position collateral mortgages on land and buildings and assignments of rents and leases and security agreements for patents and trademarks.

12. INCOME TAXES

Ag Growth converted from a publicly traded income trust to a publicly traded corporation on June 3, 2009 (notes 2 and 6). Accordingly, Ag Growth's calculation of current and future income taxes for the periods ended September 30, 2009 is based on the conversion to a corporate structure, whereas the calculation of current and future income taxes for the periods ended September 30, 2008 is based on Ag Growth being a publicly traded income trust.

In June 2007, the Government of Canada enacted legislation to impose additional taxes on income trusts, including the Fund, effective January 1, 2011. Under this legislation, and updated legislation enacted in 2008, the Fund estimated its future income taxes on the reversal of certain temporary differences between amounts recorded for book and income tax purposes based on effective tax rates of between 28.0% and 29.5%, applied only to reversals subsequent to January 1, 2011. Due to its status as an income trust, temporary differences reversing before 2011 still gave rise to future income taxes of nil. Subsequent to the Conversion, Ag Growth is no longer an income trust and, accordingly, is required to estimate its future income taxes on the reversals of all temporary differences, including those reversing before 2011. As a result, an additional future income tax recovery of $1,598 was recorded as of the effective date of the conversion.

For the three-and nine-month periods ended September 30, 2009, Ag Growth has recorded a current income tax expense of $1,441 and $1,605, respectively (2008 - $1,094 and $2,899), primarily related to income of its U.S. corporation subsidiaries.

Ag Growth's future income tax asset and liability are comprised of the following components:



September 30, December 31,
2009 2008
$ $
-----------------------------
(000's) (000's)

Future tax liability related to investments (897) -
Future tax asset related to property, plant
and equipment, intangible assets, non-capital
losses, exploration and development expenses,
and investment tax credits 37,038 -
Future tax asset related to other temporary
differences 1,524 -
-----------------------------
Future Tax Asset - Long-term 37,665 -
-----------------------------
-----------------------------

Future tax liability related to investments (997) -
Future tax asset related to non-capital losses 15,500 -
Future tax asset related to other temporary
differences 1,737 -
-----------------------------
Future Tax Asset - Current 16,240 -
-----------------------------
-----------------------------

Future tax liability related to property, plant
and equipment - US Operations (744) (190)
Future tax asset related to other temporary
differences - 616
Future tax liability related to property, plant
and equipment intangible assets, non-capital
losses, exploration and development expenses,
and investment tax credits - (10,588)
-----------------------------
Future Tax Liability - Long-term (744) (10,162)
-----------------------------
-----------------------------


The Company recorded a deferred credit relating to the difference between the future income tax asset and the amount of the consideration paid pursuant to the Plan of Arrangement (note 6). The credit is being amortized to income in proportion to reversal of the future tax asset.

Income tax provisions, including current and future income tax assets and liabilities, require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to Ag Growth's specific situation. The amount and timing of reversals of temporary differences will also depend on Ag Growth's future operating results, acquisitions and dispositions of assets and liabilities. Therefore, it is possible that the ultimate value of Ag Growth's income tax assets and liabilities could change in the future and that change to these amounts could have a material effect on these consolidated financial statements.

13. ACQUISITIONS

Prior year acquisitions

As described in the December 31, 2008 audited consolidated financial statements, Ag Growth acquired substantially all of the operating assets of Applegate Steel Inc. effective January 15, 2008, the operating assets of Twister Pipe Ltd. effective May 31, 2007 and the outstanding shares of Union Iron Inc. effective November 19, 2007. Subsequent to December 31, 2007, transaction costs were paid from cash and cash held in trust. Cash held in trust relating to these acquisitions was released in 2008.

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS

Ag Growth has the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, long-term debt, foreign exchange contracts and redeemable preferred shares.

Ag Growth is exposed to financial risks arising from financial assets and liabilities. The Company's objectives in managing these risks are to protect from volatility in net earnings and to minimize exposure from fluctuations in market rates. The financial risks include foreign exchange risk, interest rate risk, credit risk and liquidity risk as follows:

(a) Foreign exchange risk

Ag Growth operates primarily in North America and as a result fluctuations in the rate of exchange between the U.S. and Canadian dollar can have a significant effect on its cash flows and reported results. To mitigate exposure to the fluctuating rate of exchange, Ag Growth enters into foreign exchange contracts and denominates a portion of its debt in U.S. dollars. At September 30, 2009, Ag Growth's U.S. dollar denominated debt totalled U.S. $37.6 million and the Company had entered into the following foreign exchange contracts to sell U.S. dollars in order to hedge their foreign exchange risk:



Settlement dates Face value Average rate
U.S. $ Cdn. $
---------------------------
(000's)

October 2009 to December 2009 21,000 1.0374
January 2010 to December 2010 50,000 1.1722
January 2011 to September 2011 30,000 1.1073
---------------------------
---------------------------

At September 30, 2009, Ag Growth had outstanding a series of foreign
exchange call and put options not designated as a hedge instrument as
follows:

CALLS Strike
Expiration date Face value price
U.S. $ $
---------------------------
(000's)

March 30, 2010 2,000 1.2200
October 28, 2010 5,000 1.2200
December 31, 2010 3,000 1.2200
---------------------------
---------------------------

PUTS Strike
Expiration date Face value price
U.S. $ $
---------------------------
(000's)

March 30, 2010 4,000 1.3050
October 28, 2010 10,000 1.3050
December 31, 2010 6,000 1.3050
---------------------------
---------------------------


Ag Growth's sales denominated in U.S. dollars for the nine-month period ended September 30, 2009 were U.S. $113.3 million, and the total of its cost of goods sold and its selling, general and administrative expenses denominated in that currency were U.S. $53.4 million. Accordingly, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in a $11.3 million increase or decrease in sales and a total increase or decrease of $5.3 million in its cost of goods sold and its selling, general and administrative expenses. In relation to Ag Growth's foreign exchange hedging contracts, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in an increase or decrease in the foreign exchange loss of $5.0 million and an increase or decrease to other comprehensive income of $10.8 million. In relation to Ag Growth's U.S. dollar denominated long-term debt, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in an increase or decrease in the foreign exchange gain of $4.0 million.

(b) Interest rate risk

Ag Growth is subject to risks associated with fluctuating interest rates on its long-term debt. To manage this risk, the Company historically has entered into a number of interest rate swap transactions with a Canadian chartered bank to limit its exposure to changes in interest rates on its variable rate debt. At September 30, 2009, there were no interest rate swap transactions outstanding. The Company entered a new credit facility on October 29, 2009 (note 25(c)).

At September 30, 2009, if interest rates on debt were to fluctuate by 1%, and all other variables were held constant, the impact on Ag Growth's earnings before income taxes would be $0.2 million.

(c) Credit risk

Credit risk is the risk that a customer will fail to perform an obligation or fail to pay amounts due causing a financial loss A substantial portion of Ag Growth's accounts receivable are with customers in the agriculture industry and are subject to normal industry credit risks. This credit exposure is mitigated through the use of credit practices that limit transactions according to the customer's credit quality, through the use of insurance on certain international accounts receivable, and due to the accounts receivable being spread over a large number of customers. Ag Growth establishes a reasonable allowance for non-collectible amounts with this allowance netted against the accounts receivable on the consolidated balance sheets. Ag Growth does not hold collateral as security of these balances.

Ag Growth does not believe it has significant concentration risk. The maximum credit risk exposure associated with accounts receivable is the total carrying value.

As is typical in the agriculture sector, Ag Growth may offer extended terms on its accounts receivable to match the cash flow cycle of its customer. The table below sets out the details of the accounts receivable balances outstanding as at September 30, 2009, based on the status of the receivable in relation to when the receivable was due and payable:



$
--------
(000's)

Neither impaired nor past due 29,571
Not impaired and past the due date as follows
Within 30 days 5,200
31 to 60 days 2,452
61 to 90 days 566
Over 90 days 3,792
Allowance for doubtful accounts (452)
--------
Balance, September 30, 2009 41,129
--------
--------

The following table represents a summary of the movement of the allowance
for doubtful accounts:

September 30, December 31,
2009 2008
$ $
-----------------------------
(000's) (000's)
Balance, beginning of period 528 197
Allowance for doubtful accounts 165 361
Write-off of specific accounts receivable (241) (30)
-----------------------------
Balance, end of period 452 528
-----------------------------
-----------------------------


(d) Liquidity risk

Liquidity risk is the risk that Ag Growth will encounter difficulties in meeting its financial liability obligations. Ag Growth manages its liquidity risk through cash and debt management. In managing liquidity risk, the Company has access to committed short and long-term debt facilities as well as to equity markets, the availability of which is dependent on market conditions. Ag Growth believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements. Trade payables are due within one year and long-term debt is due October 31, 2009. Under the terms of the Company's credit facility arrangement, if the bank elects not to extend the credit facilities beyond the current October 31, 2009 maturity date, all amounts outstanding under the facilities become repayable in four equal quarterly instalments of principal, commencing on November 30, 2010.

Fair value

As disclosed in the December 31, 2008 annual audited consolidated financial statements, Ag Growth has made the following classifications of its financial instruments:

- Cash and cash equivalents are classified as "assets held for trading" and are measured at fair value. Gains and losses resulting from the periodic revaluation are recorded in net earnings.

- Accounts receivable are classified as "loans and receivables" and are recorded at fair value upon initial measurement. Subsequent measurements are recorded at amortized cost using the effective interest rate method.

- Accounts payable and accrued liabilities are classified as "other financial liabilities" and are measured at their fair value upon initial measurement. Subsequent measurements are recorded at amortized cost using the effective interest rate method.

- Long-term debt is classified as an "other financial liability" and is initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest rate method. The deferred financing costs are netted against the carrying value of the related debt and amortized into interest expense using the effective interest rate method.

- Derivative financial instruments are measured at fair value, even when they are part of a hedging relationship. All changes in fair value are recorded in earnings unless cash flow hedge accounting is used, in which case the effective portion of the changes in fair value is recorded in other comprehensive income.

- Preferred shares are classified as an "other financial liability" and are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest rate method.

At September 30, 2009, the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and preferred shares approximates their fair value due to the relatively short period to maturity. Long-term debt with a variable interest rate is carried at amortized cost, which approximates fair value. Derivatives are valued based on market quotations. However, when financial instruments lack an available trading market, fair value is determined using management's estimates and is calculated using market factors with similar characteristics and risk profiles. At September 30, 2009, the fair value and carrying value of the foreign exchange contracts was an unrealized gain of $6,821 (December 31, 2008 - loss of $10,101). The Company was not party to interest rate swap transactions at September 30, 2009. The fair value and carrying value of the interest rate swaps that are part of an effective hedging relationship at December 31, 2008 was an unrealized loss of $459. At June 30, 2009, the fair value of the liability component of the preferred shares was estimated by discounting the future payments of interest and principal and will be accreted to their face value over the earlier of the redemption or retraction date or June 30, 2010. Based on the share price at September 30, 2009, the fair value of the shares to settle if converted would be $4,757. Effective October 15, 2009, the redeemable preferred shares were converted to common shares (note 25(b)).


Over the next 12 months, Ag Growth expects to realize an estimated $3 million in net gains reported in accumulated other comprehensive income as unrealized gains as at September 30, 2009.

15. SEGMENTED DISCLOSURE

Ag Growth operates in one business segment related to the manufacturing and distributing of portable and stationary grain handling, storage and conditioning equipment. Geographic information about the Company's sales is based on the product shipment destination. Assets are based on their physical location as at the period end:



Sales Property, plant and
---------------------------------------- equipment, goodwill
Three-month Nine-month and intangible
period ended period ended assets as at
-------------------------------------------------------------
September September September September September December
30, 2009 30, 2008 30, 2009 30, 2008 30, 2009 31, 2008
$ $ $ $ $ $
-------------------------------------------------------------
(000's) (000's) (000's) (000's) (000's) (000's)

Canada 15,857 16,926 54,532 39,072 107,524 108,585
United States 47,127 39,513 124,013 100,441 43,134 44,714
International 5,332 3,573 11,900 11,587 - -
-------------------------------------------------------------
68,316 60,012 190,445 151,100 150,658 153,299
-------------------------------------------------------------
-------------------------------------------------------------


16. LONG-TERM INCENTIVE PLAN

Effective January 1, 2007, Ag Growth adopted an amended LTIP. Pursuant to the LTIP, the Company establishes the amount to be allocated to eligible participants based upon the amount by which distributable cash, as defined in the LTIP, exceeds a predetermined threshold. The amount owing to participants is recorded as a long-term incentive plan liability with the offset recorded to net earnings. At such time that the common shares are purchased the liability is reclassified to contributed surplus under shareholders' equity. In April 2009, the administrator purchased 11,008 common shares in the market for $286 to satisfy its obligation related to fiscal 2008. During the nine months ended September 30, 2009, $222 was reclassified from the long-term incentive plan liability to contributed surplus.

The common shares awarded vest over a three-year period commencing one year after the fiscal year of the award. As at September 30, 2009, 23,467 LTIP common shares have vested to the participants. Cash dividends paid on common shares held by the administrator are retained and are payable to participants in the plan on the vesting date. The expense related to the LTIP is recorded in relation to the vesting period and accordingly the total award will be expensed as to 36% in the initial fiscal year and 36%, 20% and 8% in the next three fiscal years, respectively, subsequent to the current year. For the three-and nine-month periods ended September 30, 2009, Ag Growth has recorded an expense with respect to the LTIP of $950 and $2,100, respectively (2008 - $150 and $700). The amount to be expensed in future periods with respect to the LTIP for fiscal 2007 and 2008 is $286 and $105, respectively.

17. SHARE AWARD INCENTIVE PLAN

The Company has a share award incentive plan which authorizes the Directors to grant awards ("Share Awards") to employees or officers of Ag Growth or any affiliates of the Company or who are consultants or other service providers to the Company and its affiliates ("Service Providers"). Share Awards may not be granted to non-management Directors.

Under the terms of the Share Award Incentive Plan (the "Share Award Plan"), any Service Provider may be granted Share Awards. Each Share Award will entitle the holder to be issued the number of common shares designated in the Share Award, upon payment of an exercise price of $0.10 per common share and the common shares will vest and may be issued as to one third on each of January 1, 2010, January 1, 2011 and January 1, 2012 or such earlier or later dates as may be determined by the Directors. In lieu of receiving common shares, the holder, with the consent of Ag Growth, may elect to be paid cash for market value of the common shares in excess of exercise price of the common shares. The Share Award Plan provides for immediate vesting of the Share Awards in the event of retirement, death, termination without cause or in the event the Service Provider becomes disabled.

The shareholders reserved for issuance 220,000 common shares, subject to adjustment in lieu of dividends, if applicable. The aggregate number of Share Awards granted to any single Service Provider shall not exceed 5% of the issued and outstanding common shares of Ag Growth. In addition:

(a) The number of common shares issuable to insiders at any time, under all security based compensation arrangements of the Company, shall not exceed 10% of the issued and common shares of Ag Growth; and

(b) The number of common shares issued to insiders, within any one-year period, under all security based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding common shares of Ag Growth.

220,000 Share Awards have been granted and remain outstanding as at September 30, 2009. For the three-and nine-month periods ended September 30, 2009, Ag Growth recorded an expense of $1,408 and $3,102, respectively, for the Share Awards (2008 - recovery of $220 and expense of $637).

18. DIRECTORS' DEFERRED COMPENSATION PLAN

On May 8, 2008, the shareholders of Ag Growth approved the adoption by the Company of the Directors' Deferred Compensation Plan (the "Plan"), which provides that a minimum of 20% of the remuneration of non-management Directors be payable in common shares of the Company. The principal purpose of the Plan is to encourage non-management Director ownership of common shares. A Director will not be entitled to receive the common shares granted for three years from the date of grant or until the Director ceases to be a Director, whichever is earlier. Director remuneration under the Plan will be expensed over the three-year vesting period of the share grants. For the three-and nine-month periods ended September 30, 2009, Ag Growth recorded an expense of $14 and $29 for the share grants, respectively, and a corresponding amount has been recorded to contributed surplus.

The price to be used for determining the number of common shares to be granted will be the weighted average trading price of common shares for the ten trading days preceding the Company's financial quarter. The total number of common shares issuable pursuant to the Plan shall not exceed 35,000, subject to adjustment in lieu of dividends, if applicable. Mandatory participation in the Plan commenced January 1, 2009. As at September 30, 2009, a total of 6,938 common shares had been granted under the Plan and no common shares had been issued.



19. LONG-TERM DEBT

September 30, December 31,
2009 2008
$ $
-----------------------------
(000's) (000's)
Term loans of U.S. $37,630 (2008 - U.S. $37,630)
and $11,920 (2008 - $6,920), interest payable
monthly at prime plus 1.75% to prime plus 2.0%
per annum based on performance calculations. For
the period January 1, 2009 to August 29, 2009,
the Company was party to interest rate swap
contracts to fix its interest rate at 2.88% on
U.S. $26,500 plus 2.75% to 3.0% per annum based
on performance calculations. The effective
interest rate on the U.S. term loan during the
nine-month period ended September 30, 2009 after
consideration of the effect of the interest rate
swap was 4.5% (2008 - 6.1%). The effective
interest rate on the Canadian dollar term loan
for the period ended September 30, 2009 was 3.4%
(2008 4.8%) 52,268 53,002
GMAC loans, 0% maturing in 2011 and 2014. Vehicles
financed are pledged as collateral 48 61
-----------------------------
52,316 53,063
Less current portion 17 18
Less deferred financing costs - 254
-----------------------------
52,299 52,791
-----------------------------
-----------------------------


Ag Growth's credit facility provides for long-term debt of up to U.S. $54,500.

Collateral for the operating facility and term loans (note 11) includes a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks.

The term loans mature October 31, 2009. Under the terms of the credit facility agreement, if the operating loan and term loan facilities are not extended, all amounts outstanding under the facilities become repayable in four equal quarterly installments of principal, commencing on November 30, 2010. Subsequent to September 30, 2009, the Company entered into a new credit facility (note 25(c)).

Principal repayments due within the next three fiscal years, if the term loans are not renewed and are repayable commencing November 30, 2010, are as follows:



$
--------
(000's)

2009 8
2010 13,083
2011 39,225
--------
52,316
--------
--------


20. RELATED PARTY TRANSACTION

Burnet, Duckworth and Palmer LLP provides legal services to the Company and a Director of Ag Growth is counsel to Burnet, Duckworth and Palmer LLP. The total cost of these legal services related to the Conversion during the nine-month period ended September 30, 2009 was $0.7 million (2008 - nil) which has been included in accrued transaction costs. These transactions are measured at the exchange amount and were incurred during the normal course of business on similar terms and conditions to those entered into with unrelated parties.

21. STOCK OPTION PLAN

On June 3, 2009, the shareholders of Ag Growth approved a stock option plan (the "Option Plan") under which options may be granted to officers, employees and other eligible service providers in order to provide an opportunity for these individuals to increase their proprietary interest in Ag Growth's long-term success.

The Company's Board of Directors or a Committee thereof shall administer the Option Plan and designate the individuals to whom options may be granted and the number of common shares to be optioned to each. The maximum number of common shares issuable on exercise of outstanding options at any time may not exceed 7.5% of the aggregate number of issued and outstanding common shares, less the number of common shares issuable pursuant to all other security based compensation agreements. The number of common shares reserved for issuance to any one individual may not exceed 5% of issued and outstanding common shares.

Options will vest and be exercisable as to one-third of the total number of common shares subject to the options on each of the first, second and third anniversaries of the date of the grant. The exercise price of the options shall be fixed by the Board of Directors or a Committee thereof on the date of the grant and may not be less than the market price of the common shares on the date of the grant. The options must be exercised within five years of the date of the grant.

As at September 30, 2009, a total of 970,319 options are available for grant. No options have been granted as at September 30, 2009.



22. NET EARNINGS PER SHARE

Three-month Nine-month
period ended period ended
September 30, September 30,
2009 2009
-----------------------------
(000's) (000's)

Net earnings available to common shareholders 15,126 41,684
Add back: cumulative preferred interest 176 189
-----------------------------
Numerator for diluted earnings per share 15,302 41,873
-----------------------------
-----------------------------

Basic weighted average number of shares 12,879,627 12,780,568
Dilutive effect of redeemable preferred shares 140,452 60,708
Dilutive effect of share award incentive plan 86,148 86,148
-----------------------------
Diluted weighted average number of shares 13,106,227 12,927,424
-----------------------------
-----------------------------

Basic earnings per share $ 1.17 $ 3.26
Diluted earnings per share $ 1.17 $ 3.24
-----------------------------
-----------------------------

23. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATIONS

Three-month Nine-month
period ended period ended
-----------------------------------------
September September September September
30, 2009 30, 2008 30, 2009 30, 2008
$ $ $ $
-----------------------------------------

Decrease (increase) in current assets
Accounts receivable 3,003 (1,549) (15,747) (22,427)
Inventory 3,838 (2,941) 3,977 (10,573)
Prepaid expenses and other assets 120 (402) 57 (861)
-----------------------------------------
6,961 (4,892) (11,713) (33,861)
-----------------------------------------

Increase (decrease) in current
liabilities
Accounts payable and accrued
liabilities (1,453) 787 2,172 4,103
Customer deposits 790 (2,146) (6,260) (8,712)
Income taxes payable 781 758 781 1,186
Income taxes recoverable 555 - 874 -
Long-term incentive plan 47 - 67 -
-----------------------------------------
720 (601) (2,366) (3,423)
-----------------------------------------
7,681 (5,493) (14,079) (37,284)
-----------------------------------------
-----------------------------------------

24. SUPPLEMENTAL EXPENSE INFORMATION

(a) Amortization

Three-month Nine-month
period ended period ended
-----------------------------------------
September September September September
30, 2009 30, 2008 30, 2009 30, 2008
$ $ $ $
-----------------------------------------

Amortization of property, plant
and equipment 1,349 1,322 3,958 3,868
Amortization of intangible
assets 741 741 2,224 2,238
-----------------------------------------
2,090 2,063 6,182 6,106
-----------------------------------------
-----------------------------------------

(b) Interest expense

Three-month Nine-month
period ended period ended
-----------------------------------------
September September September September
30, 2009 30, 2008 30, 2009 30, 2008
$ $ $ $
-----------------------------------------

Interest on short-term debt 58 115 107 251
Interest on long-term debt 804 657 2,019 1,750
Interest on redeemable preferred
shares 176 - 189 -
-----------------------------------------
1,038 772 2,315 2,001
-----------------------------------------
-----------------------------------------


25. SUBSEQUENT EVENTS

(a) Convertible debentures

On October 27, 2009, the Company issued $100 million aggregate principal amount of 7.0% convertible unsecured subordinated debentures (the "Debentures") at a price of $1,000 per Debenture. The Debentures bear interest at an annual rate of 7.0% payable semi-annually on June 30 and December 31 in each year commencing June 30, 2010. The maturity date of the Debentures is December 31, 2014.

Ag Growth has granted to the underwriters an over-allotment option to purchase up to 15% of the principal amount of the Debentures issued at a price of $1,000 per Debenture on the same terms and conditions as the offering of the Debentures, exercisable in whole or in part at any time up until 30 days after the closing of the offering. Effective November 6, 2009, the underwriters exercised the entire over-allotment option.

The net proceeds of the offering, after payment of the underwriters' fee of $4.0 million and expenses of the offering estimated to be $0.5 million, will be approximately $95.5 million. If the over-allotment option is exercised in full, the net proceeds of the offering, after payment of the underwriters' fee of $4.6 million and expenses of the offering estimated to be $0.5 million, will be approximately $109.9 million. The net proceeds of the offering will be used by Ag Growth for general corporate purposes and to repay existing indebtedness of approximately USD$37.6 million and CAD$11.9 million under the Company's credit facility.

The Debentures are not redeemable before December 31, 2012. On and after December 31, 2012 and prior to December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On and after December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest.

Each Debenture is convertible into common shares of the Company at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the date of redemption of the Debenture, at a conversion price of $44.98 per common share being a conversion rate of approximately 22.2321 common shares per $1,000 principal amount of Debentures.

On redemption or at maturity, the Company may, at its option, subject to regulatory approval and provided that no event of default has occurred, elect to satisfy its obligation to pay the principal amount of the Debentures, in whole or in part, by issuing and delivering for each $100 due that number of freely tradeable common shares obtained by dividing $100 by 95% of the volume weighted average trading price of the common shares on the TSX for the 20 consecutive trading days ending on the fifth trading day preceding the date fixed for redemption or the maturity date, as the case may be. Any accrued and unpaid interest thereon will be paid in cash. The Company may also elect, subject to any required regulatory approval and provided that no event of default has occurred, to satisfy all or part of its semi-annual obligation to pay interest on the Debentures by delivering sufficient freely tradeable common shares to satisfy its interest obligation.

(b) Redeemable preferred shares

Effective October 15, 2009, the holder of 4,000,000 redeemable preferred shares converted its preferred shares into 140,452 common shares of the Company. Subsequent to this conversion there were no preferred shares outstanding.


(c) Credit facilities

On October 29, 2009, the Company entered into a new credit facility with three Canadian chartered banks that includes CAD$10.0 million and USD$2.0 million available for working capital purposes, and provides for long-term debt of up to CAD$38.0 million and USD$20.5 million. As at October 29, 2009, no amounts were drawn under these facilities. Interest rates on both facilities are based on performance calculations. The credit facilities mature on October 29, 2012.

On October 29, 2009, the Company authorized the issue and sale of USD$25.0 million aggregate principal amount of secured notes through a note purchase and private shelf agreement. The notes bear interest at 6.80% and mature October 29, 2016. The net proceeds of the offering will be used for general corporate purposes. The agreement also provides for the issuance and sale of notes of up to an additional USD$75.0 million aggregate principal amount, with maturity dates no longer than ten years from the date of issuance.

26. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current period's presentation.

Contact Information

  • Ag Growth International Inc.
    Steve Sommerfeld
    Investor Relations
    (204) 489-1855
    steve@aggrowth.com