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Viterra's Record Performance in Fiscal 2007 Establishes Platform for Growth(Marketwire (English) Via Thomson Dialog NewsEdge) REGINA, SASKATCHEWAN--(Marketwire - Jan. 18, 2008) - Strong sales and margins in each of Viterra's (TSX:VT) business segments and incremental earnings associated with the Company's acquisition of Agricore United ("AU"), drove record net earnings of $106.1 million for the 15 months ended October 31, 2007. This compares to earnings of $531,000 for the 12 months ended July 31 of the prior fiscal year. On a trailing 12-month basis, net earnings reached $111.2 million ($0.80 earnings per share) for the period ended October 31, 2007 compared to earnings of $3.1 million ($0.03 earnings per share) for the same 12-month period in 2006, an increase of more than $108 million. With Viterra's recent change in its fiscal year-end, the current fiscal period results include its performance for a 15-month period ended October 31, 2007, whereas the prior fiscal year was a 12-month period ended July 31, 2006. As a result, to assist with comparability, trailing 12-month numbers have been provided for the periods ended October 31, 2007 and October 31, 2006. Earnings from continuing operations before interest, taxes, amortization, integration costs, gains or losses on asset disposals and pension settlement provisions ("EBITDA") for the 12 months ended October 31, 2007 improved by more than $177.7 million to $258.0 million compared to $80.4 million in the same period of 2006. Increases in EBITDA were a result of improved grain margins, stronger fertilizer sales and margins and incremental EBITDA of $114.5 million contributed from AU since it was acquired in May 2007. Cash flow provided from operations improved by $144.9 million to $203.9 million ($1.47 per share) for the 12 months ended October 31, 2007, compared to $59.1 million ($0.65 per share) reported in the same period of the prior year. "It has definitely been a year of transformation for Viterra. The exceptional effort by employees in all of our business segments have contributed to our financial strength and support the launch of our strategy for continued growth," says Mayo Schmidt, President and CEO. "We completed this year with significantly better operating results and cash flow. We have a diversified business profile; we have enhanced the scope and geography of our operations, and have assembled a highly efficient network of agricultural assets. In short, we've become a company built to change and capture tomorrow's opportunities in agri-business." Annual Highlights: - Consolidated sales and revenues for the 12 months ended October 31, 2007 grew by $1.9 billion to $3.5 billion, compared to $1.6 billion in the same period of 2006, with incremental sales contributed from AU and higher sales in all business segments accounting for the change. - Grain shipments for the 12 months ended October 31, 2007 of 12.5 million tonnes improved by 4.3 million tonnes over the same period of the prior year, mainly a result of the additional shipments through AU facilities in 2007. Higher shipments, combined with improved grain margins of $24.79 per tonne in the 12 months ended October 31, 2007 (2006 - $20.05 per tonne), contributed to an overall $94.3 million increase in EBITDA in the Grain Handling and Marketing segment during this period. Segment EBITDA for the 12 months ended October 31, 2007 was $162.9 million, compared to $68.6 million in the same period of 2006. Gross margins in 2007 include a $4.1 million ($0.33 per tonne) gain accrued on mark-to-market revaluations of AU grain contracts. Despite the competitive environment which influences prices offered at the farm gate, the Company achieved higher margins in 2007 as a result of better inventory management, which contributed to positive country and terminal inventory audit gains. In addition, appreciation in the Company's open market grains (a factor of improved market conditions and crop quality), as well as improved terminal efficiencies, higher blending gains, logistic efficiencies, merchant margin improvements and additional profits on screening byproducts also contributed to higher margins in 2007. Operating, General and Administrative expenses ("OG&A") increased by $50.1 million for the most recent 12-month period, largely due to the addition of AU's operating expenses since May 2007. Excluding the AU expenses, OG&A expenses in the Grain Handling and Marketing segment declined by $819,000, a result of a $4.7 million pension gain associated with the Company's plan in Thunder Bay, offset by higher salaries, wages and repair and maintenance expenses. - Higher Agri-Product sales and margins improved EBITDA in this segment by $95.2 million, increasing to $124.0 million for the 12 months ended October 31, 2007, compared to $28.9 million the year before. Incremental EBITDA contributed from AU since May accounted for $52.2 million of the increase. The balance reflects higher margins across most of the Company's product lines, primarily fertilizer. Improved profitability in fertilizer was a result of both higher fertilizer prices (due to higher commodity prices and tighter fertilizer supplies) and lower fertilizer manufacturing costs compared to the prior year. - Higher sales and volumes in the Company's Agri-Food Processing segment contributed to an 11.7% increase in EBITDA for the 12 months ended October 31, 2007, rising to $18.2 million from $16.3 million in the prior year. Incremental profits in Can-Oat Milling ("Can-Oat") accounted for much of this increase, a result of the annualized contribution of last year's Barrhead acquisition, which was offset, in part, by weaker oat margins because of poorer quality oat crop at the beginning of the year, foreign exchange losses associated with the stronger Canadian dollar, and higher processing overhead. - Incremental EBITDA contributed by the Company's two new business segments, Livestock Feed and Services and Financial Products collectively were $9.4 million. This represents EBITDA earned since May 29, 2007, the date of the AU acquisition. - Consolidated OG&A for the 12 months ended October 31, 2007 was $328.3 million, an increase of $144.8 million over the $183.6 million reported in the same period of the prior year. Incremental expenses from AU accounted for $133.9 million of the increase. Additional increases were due to higher repairs and maintenance, higher salaries and increased benefits associated with the impact of the Company's operating performance and stock price on its short-term and long-term incentive plans, higher compliance and regulatory costs associated with the Company's acquisition of AU, and higher provincial capital taxes associated with the growth in the Company's capital tax base. These were offset, in part, by a pension gain booked in the last quarter of the year. - Amortization of $62.9 million for the 12 months ended October 31, 2007, increased by $34.5 million over the $28.4 million reported in the same period in 2006. Higher amortization includes $30.8 million associated with the acquisition of the AU assets in May 2007, including about $12 million of incremental amortization associated with the higher fair market value attributed to the AU assets at the time of their acquisition. - Earnings from continuing operations before interest, taxes, integration costs, gains or losses on asset disposals, and pension settlement provisions ("EBIT") of $195.1 million for the 12 months ended October 31, 2007 increased by $143.1 million over the same period of 2006, a result of higher gross profits, offset in part by higher OG&A and amortization costs. - Integration costs of $20.0 million were incurred in fiscal 2007, which reflect severance, consulting and advisory costs and other integration costs incurred by the Company during the period. - Financing expenses of $34.0 million for the 12 months ended October 31, 2007 increased by $6.6 million over the same period of the prior year. This is a result of additional funding required to purchase AU, plus additional interest expense on the AU debt that was assumed on the acquisition. The increased interest expense in the current year was offset by a current period reduction associated with the absence of an $11.2 million expense incurred in 2006 for the redemption of the Company's Senior Subordinated Notes. - The Company realized a gain on the disposal of assets of $35.2 million in 2007, largely reflecting a $30.4 million gain on the sale of Viterra's Vancouver North Shore port terminal to Cargill Limited ("Cargill") and a $4.7 million gain on the Company's disposition of its shares in WCE Holdings Inc. This compares to a gain of $3.2 million reported in the 12 months ended October 31, 2006. SEGMENTED INFORMATION Actual (1) 12 Months ended Oct 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- SALES AND OTHER OPERATING REVENUE Grain Handling and Marketing $ 2,279,641 $ 991,090 $ 1,288,551 Agri-Products 934,622 533,357 401,265 Agri-Food Processing 166,861 129,223 37,638 Livestock Feed and Services 181,959 - 181,959 Financial Products 5,579 - 5,579 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 3,568,662 1,653,670 1,914,992 Less: Intersegment Sales(i) (33,488) (10,996) (22,492) ---------------------------------------------------------------------------- $ 3,535,174 $ 1,642,674 $ 1,892,500 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- GROSS PROFIT AND OTHER NET REVENUE Grain Handling and Marketing $ 309,642 $ 165,166 $ 144,476 Agri-Products 219,176 76,692 142,484 Agri-Food Processing 25,576 22,105 3,471 Livestock Feed and Services 25,788 - 25,788 Financial Products 6,227 - 6,227 ---------------------------------------------------------------------------- $ 586,409 $ 263,963 $ 322,446 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBITDA Grain Handling and Marketing $ 162,912 $ 68,571 $ 94,341 Agri-Products 124,033 28,877 95,156 Agri-Food Processing 18,224 16,308 1,916 Livestock Feed and Services 5,459 - 5,459 Financial Products 3,895 - $ 3,895 Corporate (56,486) (33,396) (23,090) ---------------------------------------------------------------------------- $ 258,037 $ 80,360 $ 177,677 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBIT Grain Handling and Marketing $ 135,828 $ 56,675 $ 79,153 Agri-Products 98,482 17,695 80,787 Agri-Food Processing 11,983 10,976 1,007 Livestock Feed and Services 1,570 - 1,570 Financial Products 3,720 - $ 3,720 Corporate (56,486) (33,396) (23,090) ---------------------------------------------------------------------------- $ 195,097 $ 51,950 $ 143,147 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SEGMENTED INFORMATION Actual Actual 15 Months 12 Months ended Oct 31, ended July 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SALES AND OTHER OPERATING REVENUE Grain Handling and Marketing $ 2,537,106 $ 927,580 $ 1,609,526 Agri-Products 983,449 538,984 444,465 Agri-Food Processing 203,209 122,253 80,956 Livestock Feed and Services 181,959 - 181,959 Financial Products 5,579 - 5,579 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 3,911,302 1,588,817 2,322,485 Less: Intersegment Sales(i) (35,486) (13,161) (22,325) ---------------------------------------------------------------------------- $ 3,875,816 $ 1,575,656 $ 2,300,160 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- GROSS PROFIT AND OTHER NET REVENUE Grain Handling and Marketing $ 348,631 $ 159,022 $ 189,609 Agri-Products 225,206 77,104 148,102 Agri-Food Processing 30,189 24,029 6,160 Livestock Feed and Services 25,788 - 25,788 Financial Products 6,227 - 6,227 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- $ 636,041 $ 260,155 $ 375,886 ---------------------------------------------------------------------------- EBITDA Grain Handling and Marketing $ 174,439 $ 63,572 $ 110,867 Agri-Products 119,761 29,064 90,697 Agri-Food Processing 21,322 18,338 2,984 Livestock Feed and Services 5,459 - 5,459 Financial Products 3,895 - $ 3,895 Corporate (64,663) (33,089) (31,574) ---------------------------------------------------------------------------- $ 260,213 $ 77,885 $ 182,328 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EBIT Grain Handling and Marketing $ 144,180 $ 51,993 $ 92,187 Agri-Products 91,420 18,047 73,373 Agri-Food Processing 13,595 13,207 388 Livestock Feed and Services 1,570 - 1,570 Financial Products 3,720 - $ 3,720 Corporate (64,663) (33,089) (31,574) ---------------------------------------------------------------------------- $ 189,822 $ 50,158 $ 139,664 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) These results reflect the actual unuaudited consolidated operating results for the Company for the period November 1 to October 31 to align with the Company's new fiscal period and are provided for comparative purposes only. These results include the results from the operations of Agricore United effective May 29, 2007 (the date of Acquisition). Results for the 12 months ended October 31, 2006 are obtained by deducting the unaudited operating results for the three months ended October 31, 2005 from the audited operating results of the Company for the 12 months ended July 31, 2006, and by adding the unaudited operating results for the Company for the three months ended October 31, 2006. Results for the 12 months ended October 31, 2007 are obtained by deducting the unaudited operating results for the three months ended October 31, 2006 from the audited operating results of the Company for the 15 months ended October 31, 2007. To further assist with comparability, the following table provides a breakdown of EBITDA by business segment. Operating results for AU are for the period since the acquisition date of May 29, 2007 to October 31, 2007. 12 Months ended October 31, Breakdown of EBITDA ------------------------------------ By Segment 2007 2007 2007 2006 ($ millions) AU Pool Viterra Pool ---------------------------------------------------------------------------- Grain Handling and Marketing $ 68.7 $ 94.2 $ 162.9 $ 68.6 Agri-Products 52.2 71.8 124.0 28.9 Agri-Food Processing - 18.2 18.2 16.3 Livestock Feed and Services 5.5 - 5.5 - Financial Products 3.9 - 3.9 - Corporate (15.8) (40.7) (56.5) (33.4) ---------------------------------------------------------------------------- $ 114.5 $ 143.5 $ 258.0 $ 80.4 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 15 Months ended October 31, 12 Months Breakdown of EBITDA ------------------------- ended By Segment 2007 2007 2007 July 31, 2006 ($ millions) AU Pool Viterra Pool ---------------------------------------------------------------------------- Grain Handling and Marketing $ 68.7 $ 105.7 $ 174.4 $ 63.6 Agri-Products 52.2 67.6 119.8 29.1 Agri-Food Processing - 21.3 21.3 18.3 Livestock Feed and Services 5.5 - 5.5 - Financial Products 3.9 - 3.9 - Corporate (15.8) (48.9) (64.7) (33.1) ---------------------------------------------------------------------------- $ 114.5 $ 145.7 $ 260.2 $ 77.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- A summary of the Company's consolidated operating results for 2007 is included in the table below: Select Consolidated Financial Information (in thousands - except percentages and per share amounts) Actual (1) 12 Months ended Oct 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- Sales and other operating revenues $ 3,535,174 $ 1,642,674 $ 1,892,500 ---------------------------------------------------------------------------- Gross profit and net revenues from services $ 586,409 $ 263,963 $ 322,446 Operating, general and administrative expenses (328,372) (183,603) (144,769) ---------------------------------------------------------------------------- EBITDA 258,037 80,360 177,677 Amortization (62,940) (28,410) (34,530) ---------------------------------------------------------------------------- EBIT 195,097 51,950 143,147 Integration expenses (Note 4) (20,029) - (20,029) Provision for pension settlement (Note 14(b)) (5,000) (15,000) 10,000 Gain on disposal of assets (Note 19) 35,234 3,199 32,035 Financing expenses (Note 16) (33,994) (16,184) (17,810) Costs on redemption of Senior Subordinated Notes (Note 16) - (11,209) 11,209 ---------------------------------------------------------------------------- 171,308 12,756 158,552 Provision for corporate taxes (Note 18) Current (2,540) (1,595) (945) Future (57,567) (15,485) (42,082) ---------------------------------------------------------------------------- Earnings (loss) from continuing operations $ 111,201 $ (4,324) $ 115,525 Net recovery from discontinued operations (Note 23) $ - $ 7,375 $ (7,375) ---------------------------------------------------------------------------- Net earnings (loss) $ 111,201 $ 3,051 $ 108,150 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings (loss) per share $ 0.80 $ 0.03 $ 0.77 Select Consolidated Financial Information (in thousands - except perentages and per share amounts) Actual Actual 15 Months 12 Months ended Oct 31, ended July 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- Sales and other operating revenues $ 3,875,816 $ 1,575,656 $ 2,300,160 ---------------------------------------------------------------------------- Gross profit and net revenues from services $ 636,041 $ 260,155 $ 375,886 Operating, general and administrative expenses (375,828) (182,270) (193,558) ---------------------------------------------------------------------------- EBITDA 260,213 77,885 182,328 Amortization (70,391) (27,727) (42,664) ---------------------------------------------------------------------------- EBIT 189,822 50,158 139,664 Integration expenses (Note 4) (20,029) - (20,029) Provision for pension settlement (Note 14(b)) (5,000) (15,000) 10,000 Gain on disposal of assets (Note 19) 35,287 3,272 32,015 Financing expenses (Note 16) (36,178) (19,744) (16,434) Costs on redemption of Senior Subordinated Notes (Note 16) - (11,209) 11,209 ---------------------------------------------------------------------------- 163,902 7,477 156,425 Provision for corporate taxes (Note 18) Current (2,617) (1,726) (891) Future (55,218) (12,595) (42,623) ---------------------------------------------------------------------------- Earnings (loss) from continuing operations $ 106,067 $ (6,844) $ 112,911 Net recovery from discontinued operations (Note 23) $ - $ 7,375 $ (7,375) ---------------------------------------------------------------------------- Net earnings (loss) $ 106,067 $ 531 $ 105,536 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings (loss) per share $ 0.82 $ 0.01 $ 0.81 ---------------------------------------------------------------------------- (1) These results reflect the actual unuaudited consolidated operating results for the Company for the period November 1 to October 31 to align with the Company's new fiscal period and are provided for comparative purposes only. These results include the results from the operations of Agricore United effective May 29, 2007 (the date of Acquisition). Results for the 12 months ended October 31, 2006 are obtained by deducting the unaudited operating results for the three months ended October 31, 2005 from the audited operating results of the Company for the 12 months ended July 31, 2006, and by adding the unaudited operating results for the Company for the three months ended October 31, 2006. Results for the 12 months ended October 31, 2007 are obtained by deducting the unaudited operating results for the three months ended October 31, 2006 from the audited operating results of the Company for the 15 months ended October 31, 2007. This year's successful operating results contributed to improved cash flow provided by operations of $203.9 million for the 12 months ended October 31, 2007, an increase of $144.9 million compared to the year before. This improvement largely reflects the higher EBITDA realized during the latest 12-month period, offset in part by the integration and higher financing costs incurred by Viterra during the period. Current income taxes are significantly lower than the prevailing rate on pre-tax cash flows due to the tax shield provided by the Company's capital cost allowance and loss carryforwards. As at October 31, 2007, the Company still had $285.2 million of loss carryforwards outstanding to shelter future taxes payable. The Company expects to fully utilize these losses by 2010. Cash Flow Provided by Operations (in thousands - except per share amounts) Actual (1) 12 Months ended Oct 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- EBITDA $ 258,037 $ 80,360 $ 177,677 Add (Deduct): Post employment benefits (3,162) (3,561) 399 Equity loss of significantly influenced companies 1,833 31 1,802 Other items 1,485 (47) 1,532 -------------------------------- Adjusted EBITDA 258,193 76,783 181,410 Integration expenses (Note 4) (20,029) - (20,029) Cash interest expense (31,689) (16,128) (15,561) -------------------------------- Pre-tax cash flow 206,475 60,655 145,820 Current income taxes (2,540) (1,595) (945) -------------------------------- Cash flow provided by operations $ 203,935 $ 59,060 $ 144,875 -------------------------------- Per share $ 1.47 $ 0.65 $ 0.82 ---------------------------------------------------------------------------- Cash Flow Provided by Operations (in thousands - except per share amounts) Actual Actual 15 Months 12 Months ended Oct 31, ended July 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- EBITDA $ 260,213 $ 77,885 $ 182,328 Add (Deduct): Post employment benefits (2,931) (3,334) 403 Equity loss of significantly influenced companies 1,794 72 1,722 Other items 1,635 44 1,591 ---------------------------------------- Adjusted EBITDA 260,711 74,667 186,044 Integration expenses (Note 4) (20,029) - (20,029) Cash interest expense (33,382) (19,192) (14,190) ---------------------------------------- Pre-tax cash flow 207,300 55,475 151,825 Current income taxes (2,617) (1,726) (891) ---------------------------------------- Cash flow provided by operations $ 204,683 $ 53,749 $ 150,934 ---------------------------------------- Per share $ 1.59 $ 0.64 $ 0.95 ---------------------------------------------------------------------------- (1) See Note 1 under the table of Select Consolidated Financial Information above Free cash flow for the most recent 12-month period in 2007 was $515.0 million, compared to $23.3 million in the 12 months ended October 31, 2006. The improvement in free cash flow during the year was due mainly to the proceeds received on the asset divestitures during the latest 12-month period, together with improved cash flow from operations. Proceeds included $255 million for the sale of property, plant and equipment assets to James Richardson International, $84 million for the sale of the Company's Vancouver North Shore port terminal (which was used to purchase the Company's 50% interest in the Cascadia terminal), $70 million for the sale of assets to Cargill, proceeds for AU's Vancouver port terminal, and proceeds received on asset sales in the ordinary course of business. Proceeds of $255 million received from the divested assets were applied to reduce long-term debt. Cash Flow Provided by Operations (in thousands) Actual (1) 12 Months ended Oct 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- Earnings (loss) from continuing operations $ 111,201 $ (4,324) $ 115,525 Adjustments for items not involving cash 92,734 63,384 29,350 ---------------------------------------------------------------------------- Cash flow provided by operations $ 203,935 $ 59,060 $ 144,875 Changes in non-cash working capital items (144,764) (10,334) (134,430) Cash from discontinued operations - 10,778 (10,778) ---------------------------------------------------------------------------- Cash flow provided by operating activities $ 59,171 $ 59,504 $ (333) ---------------------------------------------------------------------------- Free Cash Flow(i) Cash flow provided by operations $ 203,935 $ 59,060 $ 144,875 Property, plant and equipment expenditures (114,884) (38,658) (76,226) Proceeds on sale of property, plant and equipment 433,851 3,726 430,125 Other investing activities (7,924) (871) (7,053) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Free Cash Flow $ 514,978 $ 23,257 $ 491,721 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash Flow Provided by Operations Actual Actual (in thousands) 15 Months 12 Months ended Oct 31, ended July 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- Earnings (loss) from continuing operations $ 106,067 $ (6,844) $ 112,911 Adjustments for items not involving cash 98,616 60,593 38,023 ---------------------------------------------------------------------------- Cash flow provided by operations $ 204,683 $ 53,749 $ 150,934 Changes in non-cash working capital items (150,645) (20,260) (130,385) Cash from discontinued operations - 17,509 (17,509) ---------------------------------------------------------------------------- Cash flow provided by operating activities $ 54,038 $ 50,998 $ 3,040 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Free Cash Flow(i) Cash flow provided by operations $ 204,683 $ 53,749 $ 150,934 Property, plant and equipment expenditures (127,255) (29,985) (97,270) Proceeds on sale of property, plant and equipment 433,950 3,739 430,211 Other investing activities (13,007) (1,174) (11,833) ---------------------------------------------------------------------------- Free Cash Flow $ 498,371 $ 26,329 $ 472,042 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) See Note 1 under the table of Select Consolidated Financial Information above (i) See Non-GAAP terms below As a result of the cash flow generated from operations and the financing activities undertaken during the year, the key financial ratios for the Company are as follows: Key Financial Information (i) (in thousands - except percentages and Actual (1) ratios) 12 Months ended Oct 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- Funded Debt, net of cash and cash equivalents $ 599,526 $ 55,626 $ (543,900) EBITDA $ 258,037 $ 80,360 $ 177,677 Ratios Current Ratio 1.33 x 1.94 x (0.61 pt) Total Debt to Equity 31.1% 21.9% (9.2 pt) Long Term Debt to Equity 14.6% 18.8% 4.2 pt ---------------------------------------------------------------------------- Key Financial Information (i) (in thousands - except Actual Actual percentages and ratios) 15 Months 12 Months ended Oct 31, ended July 31, Better 2007 2006 (Worse) ---------------------------------------------------------------------------- Funded Debt, net of cash and cash equivalents $ 599,526 $ 33,047 $ (566,479) EBITDA $ 260,213 $ 77,885 $ 182,328 Ratios Current Ratio 1.33 x 2.28 x (0.95 pt) Total Debt to Equity 31.1% 22.0% (9.1 pt) Long Term Debt to Equity 14.6% 18.7% 4.1 pt ---------------------------------------------------------------------------- (1) See Note 1 under the table of Select Consolidated Financial Information above (i) See Non-GAAP terms below During the year, Viterra conducted a number of financing activities to support its acquisition of AU, to consolidate the existing debt of the Pool and AU and to position the Company for future growth. Highlights of these initiatives included: - The Company raised about $920 million (before net underwriting fees) through four subscription receipt offerings, comprised of three public market bought deals and a private placement. The 113,905,586 subscription receipts were exchanged into an equivalent number of common shares of the Company on May 29, 2007; - The Company secured a non-revolving Bridge Credit Facility ("Bridge Facility") of $750 million to fund $330 million for the acquisition of the AU shares and to repay $362 million of AU's long-term debt; - Viterra completed an offering for $200 million of 8.5% Senior Unsecured Notes ("Series 2007-1 Notes") due on August 1, 2017. Proceeds were applied to reduce the short-term borrowings under the Bridge Facility; - Viterra secured a $600 million senior secured Revolving Credit Facility to fund the operating requirements of Viterra. The Company exercised its option to increase the limit on this Facility to $800 million in November 2007. The Company intends to refinance the remaining balance of the Bridge Facility ($235.3 million at October 31, 2007) with long-term debt. Further details of Viterra's financing activities are available in the Notes to the Consolidated Financial Statements. Integration Update The full benefit of annualized gross synergies to be achieved on the integration of AU are expected to be delivered in fiscal 2009. These synergies will be generated primarily through efficiency measures over the next 9 to 15 months. As at October 31, 2007, synergies of $9.0 million had been achieved, relative to a target of $6.2 million at that time. As a result, management has revised its estimate of gross synergy targets to $96 million from its most recent estimate of $92 million. It is estimated that about $53 million will be achieved in the Grain Handling and Marketing segment, $14 million in the Agri-Products segment and the remaining $29 million will be realized in the Corporate segment. Total net pre-tax integration costs estimated by the Company, including share issuance and refinancing costs are about $274 million, of which approximately $255 million has already been incurred, including $49.7 million of costs accrued and outstanding. These costs have been financed with the divestiture proceeds of $70 million received from Cargill during the period and from cash flow from operations. Fifth Quarter Results As noted, this transitional year's fiscal period includes an additional quarter of financial results compared to the prior year. As there was no similar quarter in the prior fiscal year, the Company has presented comparable information for the August to October quarter of 2006 to assist with the analysis and understanding of future financial performance and to account for the seasonality of the Company's business. For the final quarter of the Company's fiscal year, Viterra's consolidated EBITDA was $58.2 million, an increase of $56.0 million over the $2.2 million reported in the comparable quarter ended October 31, 2006. The increase over the prior year includes incremental EBITDA contributed from AU of $40.1 million during the last quarter of 2007, as well as strong operating performance across all business segments. In the Grain Handling and Marketing segment, EBITDA increased by $46.8 million to $58.3 million, a factor of both higher shipments and increased margins compared to the same quarter in 2006. Viterra shipped 4.4 million tonnes in the quarter, 2.3 million tonnes more than the same period a year ago, mainly a result of additional volumes flowing through AU facilities. Grain margins also improved, rising to $24.79 per tonne, compared to $18.76 in the quarter ended October 31, 2006. The 32.1% improvement in margins in the most recent quarter included the impact of mark-to-market contract revaluations which improved gross margin by about $4.1 million ($0.94 per tonne) for the three-month period. Margin performance also benefited from a focus on inventory management which contributed to positive country and terminal audit gains, open market grain position basis appreciation (a factor of improved market conditions and crop quality in the period), and merchandising margin improvements. Market share for the Company was 44% and reflects the consolidated market share following the acquisition of AU and the impact of the related divestitures. Agri-Products sales were robust in the fifth quarter, rising by $124.0 million to $172.8 million for the three months ended October 31, 2007. Incremental sales attributable to AU accounted for $102.6 million of the increase. Improved fertilizer sales also contributed to the increase, a result of both higher prices and greater volumes. With improved producer cash flow as a result of higher commodity prices, sales volumes were brisk through the quarter and many producers elected to pre-buy fertilizer products to reduce the risk of rising fertilizer prices in the spring. An early harvest and favourable weather patterns in the fall also contributed to increased fertilizer application relative to the prior year. Margins remained strong through the period, and as a result, consolidated gross profit grew by $35.9 million relative to the comparable quarter of 2006. Overall, EBITDA improved by $13.5 million to $9.2 million in the quarter (2006 - EBITDA loss of $4.3 million), a result of higher gross profit, offset in part by the higher OG&A expenses attributable to AU. In the Company's Agri-Food Processing segment, sales in the fifth quarter were $49.3 million, 35.6% higher than the $36.3 million reported in the same quarter of 2006. EBITDA improved by $2.9 million compared to the same period in 2006, due to improved sales volumes and margins and lower operating expenses. The two new operating segments of Viterra, Livestock Feed and Services and Financial Products, collectively added an additional $5.7 million of EBITDA for the quarter. This includes a $2.0 million loss attributable to the Company's equity share in the Puratone Corporation, a hog production company in which Viterra holds a 31.4% interest. Current period hog operations and investments were negatively impacted by the high Canadian dollar, high feed ingredient prices and cyclically low finished hog prices (denominated in U.S. dollars). Corporate expenses for the quarter were $21.1 million (2006 - $8.2 million) and included $8.9 million of additional expenses from AU. The additional increase in corporate expenses was due mainly to higher wages and increased benefit costs associated with the impact of the Company's operating performance and stock price on its short-term and long-term incentive plans. Higher amortization expenses in the quarter reflect additional amortization associated with the AU assets. In addition, the Company completed its revaluation of the AU assets during the quarter, and in accordance with the purchase method of accounting, Viterra adjusted the carrying value of the assets acquired and liabilities assumed to their estimated fair market value at the acquisition date. With the higher fair values associated with the AU assets, the Company recorded an adjusted amortization expense during the quarter to account for the amortization on those assets since their acquisition date. Despite amortization expenses of $32.3 million for the quarter (compared to $7.5 million in the same quarter last year), consolidated EBIT increased by $31.2 million to $25.9 million, compared to an EBIT loss of $5.3 million the year before. Integration costs incurred during the quarter were $11.1 million, a result of continuing severance, consulting and advisory costs and other integration costs incurred by the Company during the last three months of the fiscal year. Total net pre-tax integration costs estimated by the Company, including share issuance and refinancing costs are about $274 million, of which approximately $255 million has already been incurred, including $49.7 million of costs accrued and outstanding. These costs have been financed with the divestiture proceeds of $70 million received from Cargill during the period and from cash flow from operations. Financing costs incurred during the period increased by $12.0 million to $14.2 million, due mainly to the higher borrowing required to fund the AU purchase and higher levels of short-term debt associated with higher working capital levels. Higher EBIT for the three months ended October 31, 2007, was more than offset by higher integration, financing expenses and income taxes, resulting in a consolidated net loss of $1.9 million (loss of $0.01 per share), which compares to a loss of $5.1 million during the same three-month period of the prior year. Viterra generated cash flow provided by operations of $35.1 million ($0.17 per share) for the three months ended October 31, 2007, compared to $748,000 ($0.01 per share) in the same three months of 2006. The $34.4 million increase reflects higher EBITDA, offset by integration costs, and increased financing costs in the period. Fifth Quarter Operating Highlights (in thousands - except percentages and margins) For the three months ended October 31 Better (Unaudited) 2007 2006 (1) (Worse) ---------------------------------------------------------------------------- Operating Results Sales and other operating revenues $ 1,285,908 340,642 $ 945,266 Gross profit and net revenues from services $ 176,241 $ 49,632 $ 126,609 Operating, general and administrative expenses $ (118,039) $ (47,456) $ (70,583) EBITDA $ 58,202 $ 2,176 $ 56,026 Amortization $ (32,281) $ (7,451) $ (24,830) EBIT $ 25,921 $ (5,275) $ 31,196 Integration expenses $ (11,077) $ - $ (11,077) Gain on disposal of assets $ 2,481 $ 53 $ 2,428 Financing expenses $ (14,151) $ (2,184) $ (11,967) Net earnings (loss) $ (1,930) $ (5,134) $ 3,204 Basic and diluted earnings (loss) per share - continuing operations $ (0.01) $ (0.06) 83.3% Cash flow provided by operations $ 35,099 $ 748 $ 34,351 Cash flow per share - basic and diluted $ 0.17 $ 0.01 $ 0.16 Grain Handling and Marketing Segment Gross profit and net revenues from services $ 108,277 $ 38,989 $ 69,288 EBITDA $ 58,338 $ 11,527 $ 46,811 Sales and other operating revenues $ 963,877 $ 257,465 $ 706,412 (A) Industry receipts - six major grains (tonnes) 8,521 8,545 (0.3%) (B) Industry shipments - six major grains (tonnes) 8,733 8,605 1.5% (C) Primary Elevator receipts - six major grains (tonnes) 3,748 2,131 75.9% Primary Elevator shipments (tonnes) 4,367 2,078 110.2% (D) Six Major Grains 4,219 2,036 107.2% (E) Industry terminal handle - six major grains (tonnes) 6,933 6,261 10.7% (F) Port Terminal receipts (tonnes) 2,640 1,442 83.1% Market Share (%) - Country Receipts (C)/(A) 44.0% 24.9% 19.1 pt Market Share (%) - Shipments (D)/(B) 48.3% 23.7% 24.6 pt Margin ($ per grain tonne shipped) $ 24.79 $ 18.76 32.1% Agri-Products Segment Gross profit and net revenue from services $ 41,979 $ 6,030 $ 35,949 EBITDA $ 9,214 $ (4,272) $ 13,486 Sales and other operating revenues $ 172,836 $ 48,827 $ 124,009 Fertilizer Sales (i) $ 126,779 $ 33,240 $ 93,539 Crop Protection $ 26,385 $ 10,367 $ 16,018 Seed $ 1,612 $ 496 $ 1,116 Equipment sales and other revenue $ 18,060 $ 4,724 $ 13,336 Average Margin 24.3% 12.3% 12.0 pt Agri-Food Processing Segment Gross profit and net revenues from services $ 7,029 $ 4,613 52.4% EBITDA $ 6,047 $ 3,098 95.2% Sales and other operating revenues $ 49,271 $ 36,348 35.6% Tonnes sold 106 81 30.9% Margin per tonne $ 66.31 $ 56.95 16.4% Livestock Feed and Services Segment Gross profit and net revenues from services $ 14,947 $ - $ 14,947 EBITDA $ 2,532 $ - $ 2,532 Sales and other operating revenues $ 108,529 $ - $ 108,529 Feed sales (tonnes) 374 - 374 Feed margin ($ per feed tonne sold) $ 42.86 $ - $ 42.86 Non-feed gross profit and net revenue from services $ (1,083) $ - $ (1,083) Financial Markets Segment EBITDA $ 3,216 $ - $ 3,216 Sales and other operating revenues $ 3,331 $ - $ 3,331 Corporate Expenses EBITDA $ (21,145) $ (8,177) $ (12,968) (1) These results reflect the actual unaudited operating results for the period August 1, 2006 to October 31, 2006 and are presented for comparative purposes only. Prior year comparatives exclude the results of AU for the period, as these results may only be reported commencing from the acquisition date of May 29, 2007. (i) Consolidated sales from retail operations and Westco third-party sales Outlook In addition to other sections of this news release, this section contains forward-looking information and actual outcomes may differ materially from those expressed or implied therein. For more information, please see the "Forward Looking Information" section of this release below. Western Canadian grain production of the six major grains in 2007 was estimated by Statistics Canada to be about 45.3 million tonnes, compared to last year's production of 47.1 million tonnes and the 10-year average of 47.7 million tonnes. The grain industry typically ships about 64% of the grain produced over the following 12-month period, and as such, the industry would expect to ship about 29 million tonnes of grain in 2008 (excluding drawdowns of carry-out stocks), compared to total shipments of about 33 million tonnes in the most recent 12 months (which included a drawdown of carry-out stocks of about 5 million tonnes). Although management expects CWB exports to decline slightly, canola exports are expected to increase, mitigating the impact on the Company's port terminal operations. With Viterra's leading position in Canada in the merchandising of canola, the Company is well positioned to benefit from a stronger canola program. Strong commodity prices bode well for the Canadian agriculture industry and prices continue to improve due to tightening world supplies, greater demand for both food and feed grains, and expanding ethanol and biodiesel industries. For the Agri-Products segment, crop input sales are expected to benefit from such higher commodity prices. In particular, higher commodity prices have significantly contributed to higher demand for fertilizer and continued supply pressures could increase prices to record highs. Early indicators suggest that producers are planning to increase usage rates of fertilizer in 2008 to replenish depleted soil nutrient levels and maintain yield potential. To date, natural gas prices, the primary input in the production of nitrogen fertilizer, remain comparable to the prior year, which also bodes well for the Company's investment in Western Cooperative Fertilizers Limited ("Westco"). Recent increases in fertilizer prices suggest that the Company can expect strong fertilizer sales and margins in 2008; however, it remains uncertain whether these price increases will be sustained and contribute to inventory appreciation again in the spring. In addition, factors such as weather, pressures on supply and delivery and producers' crop decisions will affect the ultimate timing and level of sales. Oat quality for the most recent crop year was variable, but generally average to very good for Can-Oat's milling operations right across the prairies. While commodity prices for oats are not expected to drive an increase in seeded oat acreage in the coming year, management believes there is a strong carry-out crop this year that will mitigate a decline from the high seeded acre production of 5 million tonnes in 2007. Can-Oat continues to pursue opportunities that will allow it to leverage its processing expertise and relationships with key food manufacturers in the non-oat processing sector. In the livestock sector, higher feed ingredient costs are driving higher feed prices, which at a time when producers are feeling the impact of a stronger Canadian dollar and a downturn in the hog cycle, could negatively affect the Canadian Livestock Feed and Services operations in 2008. Poultry and dairy producers are expected to be less affected as their returns are insulated by supply management programs. However, lower returns for hog farmers, particularly if there is a retraction in the hog industry, could reduce feed volume opportunities and heighten competitive pressures. Viterra's diversification among different species should mitigate some of this risk, as will the added benefit of U.S. operational diversification. On December 14, 2007, the reduction to future federal income tax rates announced in Bill C-28 became substantively enacted. As a result, the Company will re-measure its future income tax assets and liabilities using the reduced rates applicable for 2008 and subsequent years. The Company is currently assessing the impact of these rate reductions and estimates that it will record an income tax recovery of about $12.6 million in the first quarter of fiscal 2008. A complete copy of the Company's annual MD&A which discusses the financial results in more detail will be filed today on Sedar (www.sedar.com), and will be available on the Company's website at www.viterra.ca. The Company will be hosting a conference call for interested parties on January 18, 2008 at 1:00 p.m. Toronto time, (12:00 Regina time) to discuss its annual and quarterly results. Details are available on Viterra's website, under News Releases at www.viterra.ca. Saskatchewan Wheat Pool Inc., doing business as Viterra, is Canada's leading agri-business, with extensive operations and distribution capabilities across Western Canada, and with operations in the United States and Japan. The new company is diversified into sales of crop input services and equipment, grain handling and marketing, livestock feed, agri-food processing and financial products. These operations are complemented by value-added businesses and strategic alliances, which allow Viterra to leverage its pivotal position between Prairie farmers and destination customers. The Company's common shares are listed on the Toronto Stock Exchange under the symbol VT. Non-GAAP Measures EBITDA (earnings from continuing operations before interest, taxes, amortization, integration costs, gains or losses on asset disposals, and pension settlement provisions) and EBIT (earnings from continuing operations before interest, taxes, integration costs, gains or losses on asset disposals, and pension settlement provisions) are non-GAAP measures. Those items excluded in the determination of EBITDA and EBIT represent items that are non-cash in nature, income taxes, financing charges or are otherwise not considered to be in the ordinary course of business. These measures are intended to provide further insight with respect to Viterra's financial results and to supplement its information on earnings (losses) as determined in accordance with GAAP. EBITDA is used by management to assess the cash generated by continuing operations and EBIT is a measure of earnings from continuing operations prior to financing costs and taxes. Both measures also provide important management information concerning business segment performance since the Company does not allocate financing charges, income taxes or other excluded items to these individual segments. Funded debt is provided to assist investors and is used by management in assessing the Company's liquidity position and to monitor how much debt the Company has after taking into account its liquid assets such as cash and cash equivalents. Such measures should not be used in isolation of or as a substitute for current liabilities, short-term debt, or long-term debt as a measure of the Company's indebtedness. Cash flow provided by operations is the cash from (or used in) operating activities excluding non-cash working capital changes and cash from discontinued operations. Viterra uses cash flow provided by operations as a financial measure for the evaluation of liquidity. Management believes that excluding the seasonal swings of non-cash working capital and the extraordinary nature of discontinued operations assists management's evaluation of long-term liquidity. Free cash flow is cash flow provided by operations net of investing activities. For these purposes, investing activities include capital expenditures (excluding business acquisitions), net of proceeds and the net change in cash in trust, investments and other long-term assets. Free cash flow is used by management to assess liquidity and financial strength. This measurement is also useful as an indicator of the Company's ability to service its debt, meet other payment obligations and make strategic investments. Readers should be aware that free cash flow does not represent residual cash flow available for discretionary expenditures. These non-GAAP measures should not be considered in isolation from or as a substitute for GAAP measures such as (i) net earnings (loss), as an indicator of the Company's profitability and operating performance or (ii) cash flow from or used in continuing operations, as a measure of the Company's ability to generate cash. Such measures do not have any standardized meanings prescribed by Canadian generally accepted accounting principles (GAAP) and are therefore unlikely to be comparable to similar measures presented by other corporations. A reconciliation of each of these measures has been provided in the Company's annual MD&A. Forward-Looking Information This release contains forward-looking statements that involve certain risks and uncertainties, which could cause actual results to differ materially from future results expressed or implied by such statements. Important factors that could affect these statements include, without limitation, weather conditions; producer's decisions regarding total planted acreage, crop selection, and utilization levels of farm inputs such as fertilizers and pesticides; crop production and crop quality in Western Canada; Canadian grain export levels; ability of the railways to ship grain to port facilities for export without labour or other service disruptions; changes in government policy and transportation deregulation; world agricultural commodity prices and markets; integration risk associated with the merger of Saskatchewan Wheat Pool and Agricore United; dependence on key personnel; any labour disruptions; the Company's financial leverage and funding requirements; continued availability of credit facilities; credit risk in respect of customers of Viterra; foreign exchange and counterparty risks associated with foreign exchange and commodity hedging programs; changes in competitive forces including pricing pressures; disease and other livestock industry risks; environmental risks; international trade matters; and global political and economic conditions, including grain subsidy actions of the United States and European Union. All of the forward-looking statements in this release are qualified by these cautionary statements and the other cautionary statements and factors contained herein and there can be no assurance that the developments or results anticipated by Viterra and its management will be realized, or, even if substantially realized, that that will have the expected consequences for, or effects on, the Company. CONSOLIDATED BALANCE SHEETS (in thousands) October 31, July 31, AS AT 2007 2006 ---------------------------------------------------------------------------- ASSETS Current Assets Cash $ 24,600 $ 5,071 Cash in trust 16,710 508 Short-term investments 44,051 104,892 Accounts receivable 456,765 123,176 Inventories (Note 5) 768,817 142,925 Prepaid expenses and deposits 51,685 13,074 Future income taxes (Note 18) 70,116 772 ---------------------------------------------------------------------------- 1,432,744 390,418 Investments (Note 6) 19,198 4,904 Property, Plant and Equipment (Note 7) 1,192,620 255,552 Other Long-Term Assets (Note 8) 61,233 20,605 Intangible Assets (Note 4) 20,275 - Goodwill (Note 4) 296,743 - Future Income Taxes (Note 18) 255 102,551 ---------------------------------------------------------------------------- $ 3,023,068 $ 774,030 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Bank indebtedness $ 4,501 $ 13,238 Short-term borrowings (Note 9) 352,527 18,965 Accounts payable and accrued liabilities 712,703 129,940 Long-term debt due within one year (Note 10) 3,736 8,890 ---------------------------------------------------------------------------- 1,073,467 171,033 Long-Term Debt (Note 10) 307,413 101,917 Other Long-Term Liabilities (Note 11) 60,255 37,616 Future Income Taxes (Note 18) 112,606 2,034 ---------------------------------------------------------------------------- 1,553,741 312,600 ---------------------------------------------------------------------------- Shareholders' Equity Share capital (Note 12) 1,422,843 502,760 Contributed surplus 323 308 Retained earnings (deficit) 45,132 (41,638) Currency translation (Note 15) 1,029 - ---------------------------------------------------------------------------- 1,469,327 461,430 ---------------------------------------------------------------------------- $ 3,023,068 $ 774,030 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Commitments, contingencies and guarantees (Note 24) CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DEFICIT) (in thousands) 15 Months 12 Months Ended Ended October 31, July 31, FOR THE PERIOD ENDED 2007 2006 ---------------------------------------------------------------------------- Sales and other operating revenues $ 3,875,816 $ 1,575,656 Cost of sales (3,239,775) (1,315,501) ---------------------------------------------------------------------------- Gross profit and net revenues from services 636,041 260,155 Operating, general and administrative expenses (375,828) (182,270) ---------------------------------------------------------------------------- 260,213 77,885 Amortization (70,391) (27,727) ---------------------------------------------------------------------------- 189,822 50,158 Gain on disposal of assets (Note 19) 35,287 3,272 Integration expenses (Note 4) (20,029) - Provision for pension settlement (Note 14b) (5,000) (15,000) Financing expenses (Note 16) (36,178) (30,953) ---------------------------------------------------------------------------- 163,902 7,477 Provision for corporate taxes (Note 18) Current (2,617) (1,726) Future (55,218) (12,595) ---------------------------------------------------------------------------- Earnings (loss) from continuing operations 106,067 (6,844) Net recovery from discontinued operations - 7,375 ---------------------------------------------------------------------------- Net earnings 106,067 531 Retained earnings (deficit), beginning of period (41,638) (58,487) Future income taxes - adjustment (Note 18) 5,860 17,999 Future income taxes - share issuance costs 12,108 830 Share issuance costs (Note 12) (37,265) (2,511) ---------------------------------------------------------------------------- Retained earnings (deficit), end of period $ 45,132 $ (41,638) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Basic and diluted earnings (loss) per share (Note 3) From continuing operations $ 0.82 $ (0.08) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net earnings $ 0.82 $ 0.01 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 15 Months 12 Months Ended Ended October 31, July 31, FOR THE PERIOD ENDED 2007 2006 ---------------------------------------------------------------------------- Cash From (Used in) Operating Activities Earnings (loss) from continuing operations $ 106,067 $ (6,844) ---------------------------------------------------------------------------- Adjustments for items not involving cash and/or continuing operations Amortization 70,391 27,727 Future income tax provision (Note 18) 55,218 12,595 Equity loss of significantly influenced companies 1,794 72 Provision for pension settlement (Note 14b) 5,000 15,000 Employee future benefits (Note 14a) (2,931) (3,334) Non-cash financing expenses (Note 16) 2,796 11,761 Gain on disposal of assets (Note 19) (35,287) (3,272) Other items 1,635 44 ---------------------------------------------------------------------------- Adjustments for items not involving cash and/or continuing operations 98,616 60,593 ---------------------------------------------------------------------------- 204,683 53,749 ---------------------------------------------------------------------------- Changes in non-cash working capital items Accounts receivable (20,374) 15 Inventories (78,171) (25,509) Accounts payable and accrued liabilities (39,764) (2,429) Prepaid expenses and deposits (12,336) 7,663 ---------------------------------------------------------------------------- Changes in non-cash working capital - continuing operations (150,645) (20,260) ---------------------------------------------------------------------------- Cash from operating activities - continuing operations 54,038 33,489 Cash from discontinued operations - 17,509 ---------------------------------------------------------------------------- Cash from operating activities 54,038 50,998 ---------------------------------------------------------------------------- Cash From (Used in) Financing Activities Proceeds from long-term debt 200,000 100,000 Repayment of long-term debt (374,445) (153,653) Proceeds from (repayment of) short-term borrowings 252,787 (2,903) Repayment of other long-term liabilities, net (1,414) (972) Increase in share capital (Note 12) 920,083 63,275 Share issuance costs (37,291) (3,070) Debt refinancing costs (10,850) (2,808) ---------------------------------------------------------------------------- Cash from (used in) financing activities 948,870 (131) ---------------------------------------------------------------------------- Cash From (Used in) Investing Activities Property, plant and equipment expenditures (127,255) (29,985) Proceeds on sale of property, plant and equipment 433,950 3,739 Business acquisition (Note 4) (1,329,171) - Decrease (increase) in cash in trust (16,202) 263 Decrease in investments 8,633 363 Increase in other long-term assets (5,438) (1,800) ---------------------------------------------------------------------------- Cash used in investing activities (1,035,483) (27,420) ---------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (32,575) 23,447 Cash and Cash Equivalents, Beginning of Period 96,725 73,278 ---------------------------------------------------------------------------- Cash and Cash Equivalents, End of Period $ 64,150 $ 96,725 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash and cash equivalents consist of: Cash $ 24,600 $ 5,071 Short-term investments 44,051 104,892 Bank indebtedness (4,501) (13,238) ---------------------------------------------------------------------------- $ 64,150 $ 96,725 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Supplemental disclosure of cash paid during the period from continuing operations: Interest paid $ 39,289 $ 20,847 Income taxes paid $ 4,770 $ 1,676 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - In thousands of Canadian dollars, except as noted 1. NATURE OF BUSINESS Saskatchewan Wheat Pool Inc., doing business as Viterra, (the "Company") is a publicly traded, vertically integrated Canadian agri-business. Business operations include five reporting segments: Grain Handling and Marketing, Agri-products, Agri-food Processing, Livestock Feed and Services, and Financial Products. On July 30, 2007, the Company announced a change in year-end from July 31 to October 31, commencing with the 2007 fiscal year. Accordingly, the Company has a 15-month fiscal year ended October 31, 2007 compared to a 12- month fiscal year ended July 31, 2006. The Grain Handling and Marketing segment includes 104 high throughput terminals and 13 specialty crop cleaning and handling facilities strategically located in the prime agricultural growing regions of Western Canada, and two specialty crop cleaning and handling facilities in the United States of America ("U.S."). This segment also includes wholly-owned port terminal facilities located in Vancouver, British Columbia and Thunder Bay, Ontario, and an ownership interest in a facility in Prince Rupert, British Columbia. Activity in this segment consists of the collection of grain through the Company's primary elevator system, shipping to inland or port terminals, cleaning of grain to meet regulatory specifications, and sales to domestic or export markets. Earnings in the Grain Handling and Marketing segment are volume driven and are derived primarily from tariffs charged to producers for elevation and cleaning of Canadian Wheat Board ("CWB") grains and from the sales of non-Board grains. Revenue is also derived through grain handling, blending, drying, storage and other ancillary services, as well as the sale of byproducts. The Agri-products segment includes an ownership interest in a fertilizer manufacturer, ownership of a fertilizer distributor and a retail network of 276 locations throughout Western Canada. Agri-products sales lines include fertilizer, crop protection products, seed and seed treatments, and equipment. The Agri-food Processing segment includes the manufacture and marketing of value-added products associated with oats and malt barley for domestic and export markets. The Livestock Feed and Services segment formulates and manufactures feed products at seven feed mills and two pre-mix facilities across Western Canada and at three feed mill locations in Texas and New Mexico in the U.S. The Financial Products segment acts as an agent for a Canadian Schedule I chartered bank, which provides unsecured trade credit to agricultural customers and secured loans to livestock producers. Weather conditions are the primary risk in the agri-business industry. Grain volumes, grain quality, the volume and mix of crop inputs sold and ultimately, the financial performance of the Company are highly dependent upon weather conditions throughout the crop production cycle. The Company's earnings follow the seasonal pattern of Prairie grain production. Activity peaks in the spring as new crops are sown and in the fall as mature crops are harvested. The volume of grain shipments are relatively stable through the quarters, but can be influenced by destination customer demand, the CWB export program, and producers' marketing decisions. Sales of the Company's Agri-products peak in May through July, corresponding with the growing season, supplemented by additional crop nutrient sales in the late fall. Although relatively steady throughout the year, sales in the Livestock Feed and Services segment tend to peak during the winter months as feed consumption increases. In the agri-food processing business, earnings are more fluid with continuous demand for products throughout each quarter. Financial Products agency fees follow the related pattern of sales of the underlying activity in the Agri-products and Livestock Feed and Services segments. 2. ACCOUNTING POLICIES The Company's accounting policies are in accordance with Canadian generally accepted accounting principles ("GAAP"). All amounts are reported in Canadian dollars unless specifically stated to the contrary. The following accounting policies are considered to be significant: a) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Management believes the estimates are reasonable; however, actual results could differ as confirming events occur. b) Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company, its controlled subsidiaries and its proportionate share of the accounts of its joint ventures. The Company's interest in its joint ventures is recognized using the proportionate consolidation method at rates that approximate either the Company's ownership interest in, or the volume of business with, the respective joint venture. Subsidiaries Ownership Interest Agricore United ("AU") (1)(2) and its wholly-owned subsidiaries(i) 100% XCAN Far East Ltd. ("XCAN") (3) Agricore United Holdings Inc. (4), and its wholly-owned subsidiaries Demeter (1993) Inc. ("Demeter") (4) Unifeed Hi-Pro Inc. (4) Unifeed Inc. (4) Pacific Elevator Limited (2) Western Pool Terminals Ltd. Canadian Pool Agencies Ltd. (5) 100% Can-Oat Milling 100% Pool Insurance Company (5) 100% Western Co-operative Fertilizers Limited ("Westco") (5) 100% Joint Ventures Ownership Interest Alberta Industrial Mustard Company Limited (6) 50% CMI Terminal Joint Venture (6) 50% Gardiner Dam Terminal Joint Venture (6) 50% Prairie Malt Limited 42.4% (1) Acquired on May 29, 2007 (2) Effective November 1, 2007, AU and Pacific Elevator Limited were amalgamated with the Company (3) A Japanese Corporation (4) A U.S. Corporation (5) Prior to May 29, 2007, the Company owned the following joint venture interest in these companies: - Canadian Pool Agencies Ltd. - 33% - Pool Insurance Company - 50% - Western Co-operative Fertilizers Limited - 43% (6) From May 29, 2007 - see Note 4 (i) Effective October 31, 2007, Cascadia Terminal Partnership was wound up The Pacific Gateway Terminals Limited ("PGTL") joint venture was dissolved with the sale of the Vancouver port terminal to Cargill Limited ("Cargill"). See Note 4. c) Revenue Recognition Revenues from grain handling are recognized upon delivery of grain commodities to the customer. Transactions in which the Company acts as an agent for the CWB are recorded on a net basis with only the amount of the CWB tariff included in revenue. Revenues from the sale of agri-products, agri-food processing, livestock feed and related products are recognized upon delivery to the customer. Service-related revenues are recognized upon performance of the service. d) Cash and Cash Equivalents Cash and cash equivalents include cash, short-term investments and bank indebtedness. Bank indebtedness consists primarily of current outstanding cash tickets and cheques. All components are liquid with an original maturity of less than three months. Funds on deposit within joint ventures may not be immediately available to the Company. e) Inventories Grain inventories include both hedgable and non-hedgable commodities. Hedgable grain inventories are valued on the basis of closing market quotations less freight and handling costs and also reflect gains and losses on open grain purchase and sale contracts. Non-hedgable grain inventories are valued at the lower of cost and net realizable value. Agri-products, livestock feed, and other inventories consist of raw materials, work in progress and finished goods, and are valued at the lower of cost and net realizable value. f) Investments The Company accounts for its investments in affiliated companies over which it has significant influence using the equity basis of accounting whereby the investments are initially recorded at cost and subsequently adjusted to recognize the Company's share of earnings or losses of the investee companies and reduced by dividends received. Short-term investments are recorded at the lower of cost and market. Other investments are recorded at cost. Through a consortium, the Company has a joint and several interest in Prince Rupert Grain terminal ("PRG"). The Company's non-controlling interest in PRG is recorded at a nominal amount since the value of the debt exceeds the depreciated value of the terminal. At October 31, 2007, PRG had approximately $301 million in loans due to a third party. The loans mature in 2015 ($187 million) and 2035 ($114 million) and are secured by the terminal without recourse to the consortium members. g) Property, Plant and Equipment and Amortization Property, plant and equipment are recorded at cost, which includes interest costs incurred on construction of major new facilities prior to the facilities becoming available for operation, less amortization. The Company reviews the carrying value of its property, plant and equipment whenever there is a change in circumstance that suggests the carrying value may not be recoverable, and any resulting writedowns are charged to earnings. Amortization is provided for property, plant and equipment over their estimated useful lives using primarily the straight-line method. The rates used are as follows: Land 0% Buildings 3 - 10% Machinery and equipment 7 - 33% Site and leasehold improvements 3 - 20% h) Turnaround Assets The Company's proportionate share of an investee's expenditures related to major manufacturing plant turnarounds (periodic scheduled major maintenance) are deferred when incurred and amortized on a straight- line basis during the period until the next scheduled turnaround, which ranges from three to five years. Unamortized capitalized turnaround costs are included in other assets. i) Corporate Income Taxes The Company follows the liability method of tax allocation in accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, and measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on future income tax assets and liabilities of a change in tax rates is recognized in income in the period in which the tax rates became substantively enacted. A valuation allowance would be provided to the extent that it is more likely than not that future income tax assets would not be realized. j) Deferred Financing Costs Costs incurred to obtain financing are deferred and amortized over the term of the associated debt. Amortization is a non-cash charge to interest expense. k) Employee Future Benefits The Company maintains both defined benefit and defined contribution pension plans for employees. The Company also has a closed retirement allowance plan and a wholly-owned subsidiary of the Company provides other employee future benefits, largely in respect of extended health and dental plans and life insurance, to eligible employees upon retirement. The cost of all future benefits is accrued in the year in which the employee services are rendered, based on actuarial valuations. The actuarial determination of the accrued benefit obligations for pensions and other retirement benefits uses the projected benefit method pro-rated on service, which incorporates management's best estimate of future salary levels, other cost escalation, retirement ages of employees and other actuarial factors. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. Past service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees expected to receive benefits under the benefit plan. The Company also contributes to a multi-employer defined benefit pension plan which is accounted for as a defined contribution plan as the Company has insufficient information to apply defined benefit plan accounting. l) Intangible Assets Intangible assets consist primarily of supply and merchandising contracts and marketing related assets with defined lives. These assets are amortized over their estimated useful lives which range from two to ten years. Should the carrying amount of the intangible asset exceed its fair value, an impairment loss would be recognized and charged to earnings at that time. m) Goodwill Goodwill represents the excess of the purchase price over the fair values assigned to identifiable net assets acquired. The Company assesses annually whether there has been an impairment in the carrying value of goodwill based on the fair value of the related business operations. Should the carrying amount of the goodwill exceed its fair value, an impairment loss would be recognized and charged to earnings at that time. n) Financial and Other Instruments The Company uses derivative financial and other instruments to manage its exposure to market risks relating to interest rates, commodity prices and foreign currency exchange rates. The Company does not use derivative financial instruments for speculative trading purposes. i) Foreign Exchange Contracts - The Company enters into forward foreign exchange and futures contracts to offset and manage exposure to foreign currency exchange risk resulting from transactions denominated in foreign currencies. Certain areas of the Company not related to the handling and marketing of grain follow the Hedging Relationships guidance of the Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline 13. Under hedge accounting the gains, losses, revenues and expenses associated with a hedged item and the hedging instrument are recognized in income in the same period. The Company regularly assesses hedging transactions to ensure they are highly effective in offsetting changes in fair values or cash flows of hedged items. In the remaining areas of the Company, forward foreign exchange and futures contracts are marked-to-market and unrealized gains and losses are recognized in income in the period in which they occur. ii) Commodity Futures Contract Transactions - The Company is involved in the purchase, sale and processing of raw agricultural commodities. Agricultural commodities are subject to price fluctuations due to numerous unpredictable factors that may create price risk. The Company enters into derivative contracts, primarily exchange-traded futures and options, with the objective of managing exposure to adverse price movements in agricultural commodities. The unrealized gains and losses for commodity futures contracts are recognized in income in the period in which they occur. o) Foreign Currency Transactions The Company's wholly-owned U.S. subsidiaries represent self-sustaining operations, and the respective accounts have been translated into Canadian dollars using the current rate method. Monetary and non-monetary assets and liabilities are translated at the period-end exchange rate while revenues and expenses are translated at the rate of exchange prevailing at the transaction date. Exchange gains and losses arising from the translation of the financial statements are deferred and included in a currency translation account within shareholders' equity. The Company's other foreign wholly-owned subsidiary represents an integrated operation and the respective accounts have been translated into Canadian dollars using the temporal method. Monetary assets and liabilities are translated at the period-end exchange rate while non-monetary assets, liabilities, revenues and expenses are translated at the rate of exchange prevailing at the transaction date. Exchange gains and losses arising from the translation of the financial statements are reflected in earnings during the period in which they occur. For other foreign currency balances of the Company, monetary assets and liabilities are translated into Canadian dollars at the rate in effect at the balance sheet date and non-monetary items are translated at the rate in effect on the transaction date. Exchange gains or losses arising from translations are recognized in income in the period in which they occur. p) Stock-Based Compensation Plans The Company accounts for stock-based compensation grants under these plans in accordance with the fair value based method of accounting for stock-based compensation. Deferred share units, performance share units and restricted share units are amortized over their vesting periods and re-measured at each reporting period, until settlement, using the quoted market value. The Company expenses stock options over the vesting period of options granted, based on the fair value method as determined by the Black-Scholes pricing model, and records the offsetting amount to contributed surplus. 3. EARNINGS PER SHARE 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 --------------------------------------------------------------------------- Net earnings $ 106,067 $ 531 Less: Net earnings (loss) from continuing operations 106,067 (6,844) --------------------------------------------------------------------------- Net recovery from discontinued operations $ - $ 7,375 --------------------------------------------------------------------------- Denominator for basic earnings per share amounts: Weighted average number of shares outstanding 129,133 84,343 Basic earnings (loss) per share: Continuing operations $ 0.82 $ (0.08) Discontinued operations $ - $ 0.09 --------------------------------------------------------------------------- Net earnings per share $ 0.82 $ 0.01 --------------------------------------------------------------------------- Denominator for diluted earnings per share amounts: Weighted average number of shares outstanding 129,137 84,343 Diluted earnings (loss) per share: Continuing operations $ 0.82 $ (0.08) Discontinued operations $ - $ 0.09 --------------------------------------------------------------------------- Net earnings per share $ 0.82 $ 0.01 --------------------------------------------------------------------------- For periods in which there was a loss applicable to common shares, stock options with exercise prices at or below the average market price for the year were excluded from the calculation of diluted net earnings per share, as inclusion of these securities would have been anti-dilutive to the net earnings per share. 4. BUSINESS ACQUISITION On May 29, 2007, the Company acquired effective control of AU, a Canadian agri-business. On June 15, 2007, the Company acquired all of the remaining Limited Voting Common Shares of AU under a court approved Plan of Arrangement at which time AU became a wholly-owned subsidiary of the Company. The results of the operations of AU are included in the Company's Consolidated Financial Statements commencing May 29, 2007. The total purchase price of $1,271.8 million consists of $1,233.9 million paid for the AU common shares, $27.1 million for the AU preferred shares (comprised of $14.6 million paid by the Company and $12.5 million redeemed by AU, including accrued dividends) and transaction costs paid by the Company. The total purchase price was financed by the Company issuing 113,905,586 common shares for proceeds of $882.8 million, net of share issue costs of $37.3 million (Note 12), borrowings of $330 million under a Bridge Credit Facility (Note 9) and the remainder by cash or cash equivalents and other short-term borrowings. The acquisition has been accounted for using the purchase method, whereby the purchase consideration was allocated to the estimated fair values of the assets acquired and liabilities assumed at the effective date of the purchase. The Company allocated the purchase consideration as follows based upon the work of third-party valuation experts. The following table summarizes the final allocation of the fair value of assets acquired and liabilities assumed: -------------------------------------------------------------------------- Net assets acquired at Fair Value: Current assets $ 926,976 Property, plant and equipment 1,254,170 Intangible assets 21,303 Goodwill 296,743 Other long-term assets 45,395 Current liabilities (798,863) Future income tax liabilities, net (75,261) Term debt (all current) (375,730) Other long-term liabilities (22,900) -------------------------------------------------------------------------- Total purchase price 1,271,833 Add: Bank indebtedness acquired, net(1) 57,338 -------------------------------------------------------------------------- Cash consideration, including bank indebtedness assumed $ 1,329,171 -------------------------------------------------------------------------- -------------------------------------------------------------------------- (1) Cash and short-term investments are deducted from bank indebtedness. At October 31, 2007, the allocation of the purchase consideration compared to July 31, 2007 resulted in an increase to Property, plant and equipment of $410.9 million, an increase in Intangible assets of $21.3 million and an increase in Future income tax liabilities (net) of $117.7 million. In addition, the allocation resulted in an increase to Current assets of $0.5 million, a decrease in Other long-term assets of $10 million, an increase in Current liabilities of $19.9 million, a decrease in Other long-term liabilities of $4 million and a decrease in Bank indebtedness acquired of $2.1 million. Acquisition costs incurred or accrued in the above purchase price allocation are comprised of $64.2 million of employee related costs (primarily retention and severance), professional fees of $37.1 million, change in control expenses related to the repayment of AU debt of $41 million, a break-fee paid to James Richardson International ("JRI") of $35 million and $18 million of other related costs, offset by $7 million in interest on subscription receipts funds held in escrow and funds not yet disbursed to AU shareholders. Of these amounts, $49.7 million remained outstanding and unpaid at October 31, 2007. For the 15-month period ended October 31, 2007 the Company incurred $22.7 million of costs arising from the post acquisition integration of AU and the consolidation of operations of which $2.7 million were capitalized and $20 million were expensed. The Company's plan for the integration of AU and the consolidation of operations consists of further costs, of either a capital or operating nature, related to re-financing activities, employees, information technology hardware and software, signage and branding and other integration related activities. The Company plans to complete the integration of AU and the consolidation of operations over the next nine to 15 months. As a result of the acquisition, the Company reinstated $21.0 million of its own pre-existing future income tax assets that had previously been subject to a valuation allowance and recognized $9.2 million of capital losses that had previously not been recognized. These amounts have reduced future income tax liabilities assumed in the purchase price allocation. AU, its subsidiaries and other entities in which it owns an interest, are parties to various financing and operating contracts, some of which may provide a right of termination or other remedy in favour of third parties upon occurrence of a change of control. Due to the extent of such arrangements and the uncertainty whether these provisions will be exercised, the occurrence of the confirming events is not determinable. Management believes that the estimates used for the above allocation are reasonable, however actual results could differ as confirming events occur which could require future adjustments to goodwill and related accruals. Asset Dispositions Concurrent with the acquisition of AU, the Company entered into an agreement with Cargill to sell an interest in certain assets acquired from AU and the Company's Vancouver port terminal to Cargill for total fixed consideration of $155 million. The consideration the Company received was Cargill's 50% interest in the Cascadia Terminal Partnership and $70 million of cash consideration, plus amounts related to working capital and other closing adjustments. As a result of this transaction, the Company recorded a gain on disposal of assets of $30.4 million related to its Vancouver port terminal. The Company also sold certain assets acquired from AU to JRI for proceeds of $255 million, plus amounts related to working capital and other closing adjustments, for no gain or loss. The proceeds of disposition on the asset sale to JRI were used to reduce the Company's Bridge Facility (Note 9) and the proceeds of disposition on the asset sale to Cargill, as well as the working capital and other closing adjustments related to both the Cargill and JRI asset dispositions, were used to reduce other short-term borrowings. With the sale of its Vancouver port terminal, the Company dissolved Pacific Gateway Terminals Limited, a joint venture with JRI, without penalty, effective June 29, 2007. 5. INVENTORIES October 31, July 31, As at 2007 2006 --------------------------------------------------------------------------- Grain $ 444,397 $ 55,872 Agri-products 280,797 74,974 Livestock feed 24,915 - Agri-food Processing 18,708 12,079 --------------------------------------------------------------------------- $ 768,817 $ 142,925 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 6. INVESTMENTS October 31, July 31, As at 2007 2006 --------------------------------------------------------------------------- Investments in significantly influenced companies - equity method $ 11,379 $ 1,435 Other long-term investments - cost method 7,819 3,469 --------------------------------------------------------------------------- $ 19,198 $ 4,904 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 7. PROPERTY, PLANT AND EQUIPMENT Accumulated Accumulated Amortization Amortization October 31, October 31, July 31, July 31, As at 2007 2007 2006 2006 --------------------------------------------------------------------------- Land $ 48,983 $ - $ 1,598 $ - Site and leasehold improvements 57,714 3,056 9,515 1,553 Buildings 545,868 28,435 117,544 15,690 Machinery and Equipment 662,926 105,035 198,979 70,065 Construction in progress 13,655 - 15,224 - --------------------------------------------------------------------------- 1,329,146 $ 136,526 342,860 $ 87,308 Accumulated amortization (136,526) (87,308) --------------------------------------------------------------------------- Net book value $ 1,192,620 $ 255,552 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Amortization of property, plant and equipment related to continuing operations for the year ended October 31, 2007 is $67.9 million (2006 - $27 million). 8. OTHER LONG-TERM ASSETS Accumulated Accumulated Amortization Amortization October 31, October 31, July 31, July 31, As at 2007 2007 2006 2006 --------------------------------------------------------------------------- Deferred pension assets (Note 14) $ 28,054 $ - $ 9,395 $ - Deferred financing costs 18,449 5,004 7,533 2,207 Turnaround assets 13,335 2,699 3,480 1,209 Other 9,115 17 3,613 - --------------------------------------------------------------------------- 68,953 $ 7,720 24,021 $ 3,416 Accumulated Amortization (7,720) (3,416) --------------------------------------------------------------------------- Net book value $ 61,233 $ 20,605 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Deferred financing costs are amortized over the term of the associated debt. Amortization of deferred financing costs of $2.8 million (2006 - $1.7 million) is included in financing expenses. Amortization of other assets of $1.5 million (2006 - $0.7 million) is included in amortization. 9. SHORT-TERM BORROWINGS October 31, July 31, As at 2007 2006 --------------------------------------------------------------------------- Bridge Facility (a) $ 235,281 $ - Revolving Credit Facility (b) 60,000 - Members' Demand Loans (c) 16,566 18,965 Subsidiaries and proportionate share of joint ventures (d) 40,680 - --------------------------------------------------------------------------- $ 352,527 $ 18,965 --------------------------------------------------------------------------- --------------------------------------------------------------------------- a) Bridge Facility On May 28, 2007, the Company entered into a $750 million non-revolving Bridge Facility ("Bridge Facility") with a syndicate of financial institutions expiring May 27, 2008 and bearing interest at prime plus 1.5% increasing to 1.75% after November 24, 2007 and 2.25% after February 22, 2008; or Banker's Acceptance/London Interbank Offered Rate ("LIBOR") based plus 2.5%, increasing to 2.75% after November 24, 2007 and 3.25% after February 22, 2008. The Bridge Facility is secured by a first charge on property, plant and equipment and a second charge on accounts receivable and inventory. An underwriting fee is charged on any outstanding portion of the Bridge Facility. The Company paid an underwriting fee of $0.6 million on August 26, 2007 and November 24, 2007 and will pay 0.5% on February 22, 2008 of the uncancelled balance at that time. The Company drew $330 million to fund the balance of the acquisition price for AU shares and $362 million to fund the repayment of outstanding long-term debt held by AU, inclusive of pre-payment penalties of $33.6 million. The pre-payment penalties are related to AU change in control provisions and have been included in the purchase price allocation as an adjustment to the fair value of the long-term debt assumed. Concurrent with the settlement of AU's $525 million revolving credit facility, $255 million of the proceeds related to the JRI asset disposition (Note 4) were used by the Company to reduce the amount owing under the Bridge Facility. The Company also used the net proceeds from the issuance of its Series 2007-1 Notes (Note 10) to reduce the amount owing under the Bridge Facility. b) Revolving Credit Facility On August 10, 2007, the Company entered into a $600 million senior secured revolving credit facility with a syndicate of financial institutions. On November 19, 2007, the Company exercised its option to increase the facility to $800 million. The facility is secured by a first charge on accounts receivable and inventory and a second charge on all other assets. The Company may draw on the facility at an interest rate of Banker's Acceptance plus 0.9% to 1.5%, or at prime to prime plus 0.50% subject to the Company's fixed charge ratio. The facility expires on August 10, 2010, and may be extended at the option of the Company for an additional two years. The facility replaced the Company's $250 million senior secured revolving credit facility and AU's $525 million revolving credit facility. Concurrent with the Company entering into the senior secured revolving credit facility, AU terminated its securitization agreement with an independent trust and repurchased, for $40.3 million, the co-ownership interest in its right to receive reimbursement of amounts advanced to producers arising from the delivery of grains that are held in accordance with an agency contract between AU and the CWB. At October 31, 2007, availability under the revolving credit facility was $351 million. c) Members' Demand Loans Members' demand loans are unsecured funds loaned to the Company by non-institutional investors and employees. At October 31, 2007, the loans bear interest at 4.05% (2006 - 3.6%). d) Subsidiaries and Proportionate Share of Joint Ventures' Debt The Company's wholly-owned Japanese subsidiary, XCAN, has a U.S.D. $16 million revolving credit facility bearing interest at 0.75% per annum over LIBOR and maturing on February 29, 2008. The revolving credit facility is secured by a standby Letter of Credit and a guarantee from the Company (Note 24). In addition, this subsidiary has a Japanese Yen ("JPY") 2 billion credit facility, secured by a guarantee from the Company (Note 24), and a JPY 100 million credit facility, both at local short-term market rates with no fixed expiry date. On September 18, 2007, the Company repaid the revolving credit facility of the Company's wholly-owned U.S. subsidiary, Demeter. Other subsidiaries and proportionate share of joint ventures' short-term borrowings consist of bank operating loans, which are secured by a first charge against present and future assets. 10. LONG-TERM DEBT October 31, July 31, As at 2007 2006 --------------------------------------------------------------------------- Series 2007-1 Notes (a) $ 200,000 $ - Series 2006-1 Notes (b) 100,000 100,000 Members' term loans (c) 3,494 5,276 --------------------------------------------------------------------------- Sub total 303,494 105,276 Subsidiaries' and proportionate share of joint ventures' secured debt (d) 7,655 5,531 --------------------------------------------------------------------------- Total consolidated long-term debt 311,149 110,807 Less portion due within one year: Members' term loans 693 3,359 Subsidiaries' and proportionate share of joint ventures' debt 3,043 5,531 --------------------------------------------------------------------------- Long-term debt due within one year 3,736 8,890 --------------------------------------------------------------------------- Total long-term debt $ 307,413 $ 101,917 --------------------------------------------------------------------------- --------------------------------------------------------------------------- a) Series 2007-1 Notes On August 1, 2007, the Company completed the offering of $200 million in Senior Unsecured Notes ("Series 2007-1 Notes") bearing interest at 8.5% and maturing August 1, 2017. The Company has certain optional redemption rights with respect to the Series 2007-1 Notes. Prior to August 1, 2012, the Company may redeem up to 35% of the aggregate principal amount of the Series 2007-1 Notes at a redemption price of 108.5% of their principal amount, plus accrued and unpaid interest to the redemption date, with the net proceeds received by the Company from one or more public equity offerings. Prior to August 1, 2012, the Company may redeem all or part of the Series 2007-1 Notes at a redemption price equal to 100% of the principal amount thereof, plus the Applicable Redemption Premium (as defined in the Second Supplemental Trust Indenture between the Company and CIBC Mellon Trust Company dated August 1, 2007) and accrued and unpaid interest to the redemption date. On or after August 1, 2012 and prior to maturity, the Company may redeem all or part of the Series 2007-1 Notes at the following redemption prices (expressed as percentages of the principal amount at maturity), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing August 1 in the applicable year: 2012 at 104.25%, 2013 at 103.1875%, 2014 at 102.125%, 2015 at 101.0625% and 2016 at 100%. The Unsecured Series 2007-1 Notes rank pari passu with the Unsecured Series 2006-1 Notes and the Bridge Facility (Note 9), which includes a first charge on the Company's property, plant and equipment. The Company used the net proceeds to repay a portion of the short-term borrowings outstanding under its Bridge Facility. The fair market value of the Series 2007-1 Notes at October 31, 2007 was approximately $204 million, based upon the quoted market price. b) Series 2006-1 Notes On April 6, 2006, the Company completed the offering of $100 million in Senior Unsecured Notes ("Series 2006-1 Notes") bearing interest at 8% and maturing April 8, 2013. The Company has certain optional redemption rights with respect to the Series 2006-1 Notes. Prior to April 8, 2009, the Company may redeem up to 35% of the aggregate principal amount of the Series 2006-1 Notes at a redemption price of 108% of their principal amount, plus accrued and unpaid interest, to the redemption date, with the net proceeds received by the Company from one or more public equity offerings. Prior to April 8, 2009, the Company may redeem all or part of the Series 2006-1 Notes at a redemption price equal to 100% of the principal amount thereof, plus the Applicable Redemption Premium (as defined in the First Supplemental Trust Indenture between the Company and CIBC Mellon Trust Company dated April 6, 2006) and accrued and unpaid interest to the redemption date. On or after April 8, 2009 and prior to maturity, the Company may redeem all or part of the Series 2006-1 Notes at the following redemption prices (expressed as percentages of the principal amount at maturity), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing April 8 in the applicable year: 2009 at 104%, 2010 at 102%, 2011 at 101% and 2012 at 100%. The unsecured Series 2006-1 Notes rank pari passu with the Bridge Facility (Note 9), which includes a first charge on the Company's property, plant and equipment. The fair market value of the Series 2006-1 Notes at October 31, 2007 was approximately $101.3 million (2006 - $102.4 million) based upon the quoted market price. c) Members' Term Loans Members' term loans are unsecured and consist of one-year to seven-year loans with non-institutional investors and employees. Interest is payable semi-annually at interest rates that vary from 3.8% to 8.25% (2006 - 4% to 9%) and a weighted average interest rate of 5.1% (2006 - 6.4%) based on the face value of the debt instrument. The fair market value of members' term loans at October 31, 2007 was approximately $3.6 million (2006 - $5.4 million). d) Subsidiaries' and Proportionate Share of Joint Ventures' Debt On September 18, 2007, the Company repaid the term facility of its wholly-owned U.S. subsidiary, Demeter. The subsidiaries' and the proportionate share of joint ventures' debts bear interest at variable rates. The weighted average interest rate of subsidiaries' and the proportionate share of joint ventures' debts is 5.7% (2006 - 5.2%) based on the face value of the debt instrument. The debts mature in 2007 to 2012. The debts are secured by certain assets and some are subject to meeting certain covenants. The fair market value at October 31, 2007 of subsidiaries' and the proportionate share of joint ventures' debts was approximately $12.6 million (2006 - $5.5 million). e) Scheduled Repayments of Long-Term Debt The following summarizes the aggregate amount of scheduled repayments of long-term debt in each of the next five years and thereafter: --------------------------------------------------------------------------- For the Years Subsidiaries and Ended Proportionate October 31 Viterra Share of Joint Ventures Total --------------------------------------------------------------------------- 2008 $ 693 $ 3,043 $ 3,736 2009 1,297 2,346 3,643 2010 894 1,014 1,908 2011 582 1,002 1,584 2012 28 250 278 Subsequent Years 300,000 - 300,000 --------------------------------------------------------------------------- $ 303,494 $ 7,655 $ 311,149 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 11. OTHER LONG-TERM LIABILITIES October 31, July 31, As at 2007 2006 --------------------------------------------------------------------------- Asset retirement obligations (a) $ 13,071 $ 9,956 Contributions in aid of construction (b) 6,308 8,032 Grain handling agreements 5,600 - Stock-based compensation plans (Note 13) 12,758 4,284 Other future benefits (Note 14) 13,994 5,701 Pension (Note 14) 4,548 3,653 Loan loss provision (Note 24) - 3,808 Other 3,976 2,182 --------------------------------------------------------------------------- $ 60,255 $ 37,616 --------------------------------------------------------------------------- --------------------------------------------------------------------------- a) Asset retirement obligations In 1987, a joint venture, which manufactured phosphate and nitrate fertilizers, closed two of its facilities. The asset retirement obligations represent the best estimate by Westco management of the legal obligations it would incur during the reclamation process. Reclamation involves the demolition of the manufacturing facilities and the reclamation of the phosphogypsum stacks. Uncertainty exists regarding the estimation of future decommissioning and reclamation costs. At October 31, 2007, the Company estimated that the undiscounted cash flow required to settle the asset retirement obligations was approximately $22.3 million (2006 - $13.2 million), which is expected to be settled over the 2008 through 2015 period. The credit adjusted risk-free rates at which the estimated cash flows have been discounted range from 4% to 5.15%. b) Contributions in aid of construction Contributions in aid of construction represent payments received from producers pursuant to grain storage licence agreements. 12. SHARE CAPITAL a) Common Voting Shares Authorized Unlimited Common Voting Shares The following table summarizes the Common Voting Shares for the 15-month period ended October 31, 2007 and 12-month period ended July 31, 2006: Common Voting Shares -------------------------- Number(1) Amount --------------------------------------------------------------------------- Balance, July 31, 2005 81,834,137 $ 439,485 Share issuance for cash 8,416,627 63,275 --------------------------------------------------------------------------- Balance, July 31, 2006 90,250,764 502,760 Share issuance for cash 113,905,586 920,083 --------------------------------------------------------------------------- Balance, October 31, 2007 204,156,350 $ 1,422,843 --------------------------------------------------------------------------- --------------------------------------------------------------------------- (1)Number of shares are not shown in thousands Share Issuance 2007 The acquisition of the Limited Voting Common Shares of AU (Note 4) was substantially funded by net proceeds from four subscription receipt offerings, comprised of three public market bought deals and a private placement, generating gross proceeds of $920.1 million. The following table summarizes the subscription receipt offerings and proceeds: Under- Writer Fees and Subscription Number of Gross Other Net Receipt Close Date Receipts(1) Proceeds Costs Proceeds --------------------------------------------------------------------------- Private Placement February 15, 2007 15,753,086 $ 125,048 $ (2,697) $ 122,351 First Public Offering February 15, 2007 14,202,500 115,040 (5,572) 109,468 Second Public Offering April 19, 2007 39,100,000 316,710 (13,597) 303,113 Third Public Offering May 3, 2007 44,850,000 363,285 (15,399) 347,886 --------------------------------------------------------------------------- Total 113,905,586 $ 920,083 $ (37,265) $ 882,818 --------------------------------------------------------------------------- --------------------------------------------------------------------------- (1) Number of receipts are not shown in thousands. The 113,905,586 subscription receipts were exchanged into an equivalent number of common shares of the Company upon the take-up by the Company of the AU Limited Voting and Common Shares on May 29, 2007. In accordance with the capital nature of these transactions, underwriter fees and other costs of $25.2 million, net of taxes, were reflected as a charge to retained earnings in shareholders' equity. 13. STOCK-BASED COMPENSATION PLANS The Company operates three active stock-based compensation plans: a Deferred Share Unit Plan ("DSU") for independent directors and a Restricted Share Unit Plan ("RSU") and a Performance share unit plan ("PSU") for designated executives. In addition the Company has a management stock option plan, which became inactive during fiscal 2004. a) Deferred Share Units Under the Company's DSU plan, 40% of each director's annual retainer is paid in DSUs. A DSU is a notional unit that reflects the market value of a single common share of the Company. In addition, on an annual basis directors can elect to receive any percentage from 40% to 100% of their annual retainer and any additional fees for the immediately succeeding year in the form of DSUs. Each DSU fully vests upon award. The DSUs will be redeemed for cash, or for common shares of the Company purchased on the open market, at the director's option upon a director leaving the Board. The redemption amount will be based upon the weighted average of the closing prices of the common shares of the Company on the Toronto Stock Exchange for the last 20 trading days prior to the redemption date, multiplied by the number of DSUs held by the director. The directors were granted 95,856 DSUs during the 15-month period ended October 31, 2007 (2006 - 84,882). The Company recorded compensation costs related to outstanding DSUs of $1.6 million for the 15-month period ended October 31, 2007 (2006 - $0.6 million). b) Restricted Share Units Under the Company's RSU Plan, each designated executive receives an annual grant of RSUs as part of their compensation. Each RSU represents one notional common share that entitles the participant to a payment of one common share of the Company, purchased on the open market, or an equivalent cash amount at the Company's discretion. RSUs vest at the end of a three-year period. Holders of RSUs have the option of converting to an equivalent number of DSUs 60 days prior to vesting. During the 15-month period ended October 31, 2007, 63,762 RSUs were granted (2006 - 160,875). The Company recorded compensation costs related to outstanding RSUs of $1.1 million for the 15-month period ended October 31, 2007 (2006 - $0.4 million). c) Performance Share Units Under the Company's PSU Plan, the Company provides each designated executive an annual grant of PSUs as part of their compensation. The performance objectives under the plan are designed to further align the interest of the designated executive with those of shareholders by linking the vesting of awards to EBITDA over the three-year performance period. The number of PSUs that ultimately vest will vary based on the extent to which actual EBITDA matches budgeted EBITDA for the three-year period. Each PSU represents one notional common share that entitles the participant to a payment of one common share of the Company, purchased on the open market, or an equivalent cash amount at the Company's discretion. PSUs vest at the end of a three-year period. The final value of the PSUs will be based on the value of the Company's stock at the end of the three-year period and the number of PSUs that ultimately vest. Vesting of PSUs at the end of the three-year period will be based on total EBITDA and whether the participating executive remains employed by the Company at the end of the three-year vesting period. Holders of PSUs have the option of converting to an equivalent number of DSUs 60 days prior to vesting. As at October 31, 2007, 191,287 PSUs were held by the designated executive (2006 - 482,625). The Company recorded compensation costs related to outstanding PSUs of $7.1 million for the 15-month period ended October 31, 2007 (2006 - $1.6 million). d) Management Stock Option Plan During fiscal 2004, this plan became inactive. Options previously granted under the Management Stock Option Plan were approved by the Board of Directors. To date, 187,475 shares have been allocated to the plan. Under this plan, options are exercisable in increments over a maximum of 10 years beginning on the first anniversary date of the option grant. Options granted under this plan primarily vest at a rate of 25% per year commencing on the first anniversary date of the grant. The expense related to stock options is based on the fair value of options vested in the period, and is determined by the Black-Scholes option pricing model with the following assumptions: risk-free rate 4.4% to 4.85%, dividend yield 0%, a volatility factor of the expected market price of the Company's shares of 100%, and a weighted average expected option life of five years. For the 15-month period ended October 31, 2007 and the 12-month period ended July 31, 2006, a negligible amount was expensed as stock-based compensation related to stock options. A continuity of the stock options is as follows: For the 15 Months For the 12 Months Ended Ended October 31, 2007 July 31, 2006 -------------------------------------------------------------------------- Weighted Weighted Average Average Number of Exercise Number of Exercise Options(1) Price(1) Options(1) Price(1) -------------------------------------------------------------------------- Outstanding, beginning of period 88,424 $ 84.45 89,957 $ 84.86 Granted - $ - - $ - Exercised - $ - - $ - Cancelled (8,097) $ 153.42 (1,533) $ 108.51 Outstanding, end of period 80,327 $ 77.50 88,424 $ 84.45 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Options exercisable, end of period 80,327 $ 77.50 81,353 $ 90.42 -------------------------------------------------------------------------- (1)The exercise prices and number of options referred to above are not in thousands. Of the 80,327 outstanding and exercisable stock options at October 31, 2007, 13.5% have an exercise price of $6.50 or less; the remainder have an exercise price at, or greater than, $31.00. At October 31, 2007, the Company's shares closed at $12.77. The stock options have a variety of expiry dates and all are vested as at October 31, 2007. 14. EMPLOYEE FUTURE BENEFITS a) Defined Benefit Plans and Future Benefits The Company, not including subsidiaries and affiliates, has three defined benefit plans, which are based on years of service and final average salary: Hourly Employees' Retirement Plan (Hourly), Out of Scope Defined Benefit Pension Plan (OSDB), and Supplementary Executive Retirement Plan (SERP). The Company is on a contribution holiday for the Hourly and OSDB plans due to income tax regulations relating to surpluses in these pension plans. These plans have bridged benefits that allow for early retirement. The SERP is unfunded and the employer makes contributions as the retirement benefits are paid. The unfunded balance of the SERP at October 31, 2007 is $3.4 million (2006 - $3.4 million). The Company's retirement allowance benefit is a closed benefit plan. Certain groups of the Company's employees are eligible for a retiring allowance if, as of February 1, 2000, the employee had 15 or more years of service. Those employees currently qualifying for this plan will receive a lump-sum payment upon retirement based on a formula comprising years of service and salary in effect at retirement. AU maintains several defined benefit pension plans, all of which are closed benefit plans, with the exception of the Thunder Bay Hourly plan. These plans are based on years of service and final average salary. For one of AU's defined benefit plans, pension benefits may increase annually based on the performance of the fund. During the period, with permission from the Office of the Superintendent of Financial Institutions ("OSFI"), AU harmonized the employee pension arrangements of certain pension plans and merged the assets of these same plans. Although the combination of the assets of two of the plans was still in progress at October 31, 2007, these plans are being treated as if they were fully merged at that date. AU also provides other post-employment benefits, largely in respect of extended health and dental plans and life insurance, to eligible employees upon retirement. Two wholly owned subsidiaries each have a defined benefit plan with an aggregate deficit of $1.7 million. Total consolidated company cash payments for employee future benefits for the 15-month period ended October 31, 2007 were $3.8 million (2006 - $0.6 million), consisting of cash contributed to its funded pension plans and cash payments directly to beneficiaries for other future benefits. The consolidated information presented for 2007 in the table below is based on actuarial valuation results as of December 31, 2006, with extrapolations to October 31, 2007 for the Company plans, and actuarial valuation results of December 31, 2005, with extrapolations to October 31, 2007 for AU plans. Consolidated information presented for 2006 is based on actuarial valuation results as of December 31, 2004, with extrapolations to July 31, 2006 for the Company plans. The projected accrued benefit actuarial cost method pro-rated on service is used for this valuation. The assets are valued at market value on October 31, 2007 and July 31, 2006. The effective date of the next required actuarial valuation is December 31, 2009 for Company plans and December 31, 2008 for AU plans. Pension Benefit Plans Other Future Benefits -------------------------------------------------------------------------- October 31, July 31, October 31, July 31, As at 2007 2006 2007 2006 -------------------------------------------------------------------------- Plan Assets Fair value, beginning of period $ 286,931 $ 272,857 $ - $ - Fair value of assets added May 29, 2007 141,905 - Actual return on plan assets 44,232 30,133 - - Employer contributions 979 558 2,793 313 Employees' contributions 387 262 - - Benefits paid (25,941) (16,879) (2,793) (313) -------------------------------------------------------------------------- Fair value, end of period 448,493 286,931 - - -------------------------------------------------------------------------- Accrued Benefit Obligation Balance, beginning of period 198,534 208,558 4,614 5,020 Obligations added May 29, 2007 129,404 - 9,733 - Current service cost 2,299 1,693 274 160 Interest cost 16,615 11,033 532 254 Benefits paid (25,941) (16,879) (2,793) (313) Actuarial loss (gain) (5,828) (5,871) (140) (507) -------------------------------------------------------------------------- Balance, end of period 315,083 198,534 12,220 4,614 -------------------------------------------------------------------------- Funded status - plan surplus (deficit) 133,410 88,397 (12,220) (4,614) Unamortized net actuarial gain (56,902) (34,869) (1,774) (1,087) -------------------------------------------------------------------------- Accrued benefit asset (liability) 76,508 53,528 (13,994) (5,701) Valuation allowance (53,002) (47,786) - - -------------------------------------------------------------------------- Consolidated accrued benefit asset (liability), net of valuation allowance $ 23,506 $ 5,742 $ (13,994) $ (5,701) -------------------------------------------------------------------------- -------------------------------------------------------------------------- The consolidated accrued benefit asset (liability), net of valuation allowance, is reflected in these statements as follows: Pension Benefit Plans Other Future Benefits -------------------------------------------------------------------------- October 31, July 31, October 31, July 31, As at 2007 2006 2007 2006 -------------------------------------------------------------------------- Other long-term assets (Note 8) $ 28,054 $ 9,395 $ - $ - Other long-term liabilities (Note 11) (4,548) (3,653) (13,994) (5,701) -------------------------------------------------------------------------- Consolidated accrued benefit asset (liability), net of valuation allowance $ 23,506 $ 5,742 $ (13,994) $ (5,701) -------------------------------------------------------------------------- -------------------------------------------------------------------------- The percentage of plan assets by major category is: Pension Benefit Plans ------------------------------------------------- October 31, July 31, As at 2007 2006 ------------------------------------------------- Canadian Equities 25% 31% Global Equities 24% 32% Bonds 26% 30% Other 25% 7% ------------------------------------------------- 100% 100% ------------------------------------------------- ------------------------------------------------- The significant weighted average actuarial assumptions adopted in measuring the Company's accrued benefit assets are as follows: Pension Benefit Plans Other Future Benefits --------------------------------------------------------------------------- October 31, July 31, October 31, July 31, As at 2007 2006 2007 2006 --------------------------------------------------------------------------- Discount rate (Accrued Benefit Obligation) 5.70% 5.80% 5.70% 5.8% May 29, 2007 discount rate - AU 5.25% - 5.5% - Expected long-term rate of return on plan assets 6.40% 6.50% - - Rate of compensation increase 3.90% 3.50% 3.75% 3.25 Average remaining service period - years 4 - 12 3 - 12 3 - 13 2 - 7 Assumed health care cost trend rates(i) - - 7 - 13% - --------------------------------------------------------------------------- --------------------------------------------------------------------------- (i)The health care cost trend rate varies depending on the employee group being valued and will decline by 1.00% per year to an ultimate increase rate of 3.0%. A one percentage-point change in assumed health care cost trend rates would have the following effects for 2007: Increase Decrease --------------------------------------------------------------------------- Interest cost $ 5 $ (5) Accrued benefit obligation $ 299 $ (270) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Net benefit expense (income) is comprised of: Pension Benefit Plans Other Future Benefits --------------------------------------------------------------------------- 15 Months 12 Months 15 Months 12 Months Ended Ended Ended Ended October 31, July 31, October 31, July 31, 2007 2006 2007 2006 --------------------------------------------------------------------------- Actual return on plan assets $ (44,232) $ (30,133) $ - $ - Difference between actual and expected return on plan assets 17,963 12,939 - - --------------------------------------------------------------------------- Expected return on plan assets (26,269) (17,194) - - Current service cost 1,912 1,431 274 160 Interest cost 16,615 11,033 532 254 Amortization of net actuarial (gain) loss (1,758) 104 547 (80) Valuation allowance provided against accrued benefit asset 5,216 968 - - --------------------------------------------------------------------------- (4,284) (3,658) 1,353 334 Net benefit expense of proportionately consolidated companies - (10) - - --------------------------------------------------------------------------- Net benefit expense (income) $ (4,284) $ (3,668) $ 1,353 $ 334 --------------------------------------------------------------------------- --------------------------------------------------------------------------- b) Defined Contribution Plans The Company, including subsidiaries and affiliates, contributes to several defined contribution plans including four multi-employer plans. The Company's total consolidated defined contribution plan expense for the 15- month period ended October 31, 2007, is $7.2 million (2006 - $3.8 million). One of the plans that the Company contributes to is the Saskatchewan Wheat Pool/Grain Services Union Pension Plan, a closed negotiated cost plan that provides defined benefits on the basis of fixed contributions, negotiated between the Company and the Grain Services Union (GSU), to approximately 1,200 former employees and 500 active employees. Since the cost is negotiated, the Company accounts for this Plan as a defined contribution plan; however, it must be valued for regulatory purposes as a defined benefit plan. The Plan is administered by a board of trustees (the "Trustees"), three of whom are appointed by the Company and three of whom are appointed by the GSU. The Trustees have limited powers to amend the Plan without agreement of the GSU and the Company. On September 22, 2005, OSFI expressed concern about the solvency of the Plan and based on its own financial tests, ordered that transfers from the Plan made by members exercising portability rights be restricted to 80% of the accrued value of their benefits. The remaining portion would be paid out over the following five-year period, assuming the Plan does not wind up. A formal actuarial valuation on the Plan as at December 31, 2005 was filed with OSFI in June 2006. The report indicated a solvency deficiency of $38.8 million and a going concern surplus of $7.9 million. Pension regulations require the solvency deficiency as at December 31, 2005 to be addressed over a five-year period through equal quarterly instalments plus interest. With a $38.8 million solvency deficiency, additional contributions (deficiency payments) of approximately $2.2 million per quarter would be required over a five-year period or until termination of the Plan. The Plan cannot be wound up or amended to address the solvency issue without the agreement of the Company and the GSU. In written correspondence in March and April 2006, OSFI indicated it was the duty of the GSU and the Company to act in good faith to restore the solvency of the Plan and pointed out that the Pension Benefits Standards Act does not provide for different funding requirements for a closed negotiated cost plan that provides defined benefits, and that accordingly in respect of such plans, OSFI's view is that the employer is responsible for making special and normal cost payments to the pension fund. On October 26, 2006, OSFI notified the Company of its intention to direct the Company to make deficiency payments as they fall due and all overdue payments. On November 20, 2006, after reviewing submissions from the Company and the GSU, OSFI issued a Direction requiring the Company to make payments of deficiency arrears of $6.8 million before November 30, 2006 and ongoing quarterly instalments relating to the solvency deficiency of approximately $2.2 million as they fall due thereafter. The Company sought judicial review of the Direction and an order to terminate the Plan in the Federal Court of Canada. The Company's position is that it is in compliance with all of its funding obligations in respect of the Plan, that it is not responsible for deficiency payments while the Plan remains ongoing, and that in the absence of an agreement with the GSU to amend the Plan to bring it into compliance with applicable pension legislation (which requires Plan terms to provide for funding in accordance with prescribed tests and standards for solvency) the Plan should be terminated. In August 2007 a formal actuarial report on the Plan as at December 31, 2006 was filed with OSFI. The report indicates a solvency deficiency of $23.3 million and a going concern surplus of $17.5 million. Based on the December 31, 2006 valuation, the quarterly installment relating to the solvency deficiency would be reduced from $2.2 million to $1 million a quarter commencing in 2007 or until the termination of the plan. In October 2007 in accordance with an agreement with OSFI, the Company set aside $12 million in a trust and agreed to set aside future quarterly solvency instalments pending resolution of the court proceedings. On November 23, 2007, the Company entered into a settlement agreement with the GSU executive (and acceptable to OSFI), that resulted in adjournment of the court proceedings, pending ratification of the settlement by Union membership. Under the settlement the Company will withdraw its court application and assume financial responsibility for funding all shortfalls in exchange for the right to manage the Plan, including the sole right to choose Plan investments, terminate the Plan or amend the Plan provided no amendment reduces accrued benefits or rights to benefits. The proposal also results in Plan members ceasing future accruals under the Plan and moving to a defined contribution arrangement by July 2008. Upon ratification of the settlement, monies set aside by the Company in trust will be transferred to the Plan fund and Viterra will begin making quarterly instalments of approximately $1 million to retire the remaining deficit. In fiscal 2006, the Company recorded a charge of $15 million in connection with potential obligations with respect to the Plan. In the second quarter of fiscal 2007, the Company recorded an additional charge of $5 million to reflect the best estimate of the minimum cost to the Company of resolving the dispute. While it is uncertain as to the manner in which this matter will be ultimately resolved, in the opinion of management, it is likely that the minimum cost to the Company will be $20 million. There is a continuing risk that the Company may ultimately be held responsible for an increase in contributions beyond this $20 million provision. 15. CURRENCY TRANSLATION The currency translation account reflects the net changes in the respective book values of the Company's investments in self-sustaining foreign operations due to exchange rate fluctuations since the respective dates of their acquisition. The Company acquired investments in self-sustaining foreign operations through its acquisition of AU (Note 4). The changes in this account arise from changes in the U.S. currency relative to the Canadian currency and changes in the Company's net investment in the book values of international operations. Changes in the account were as follows: October 31, July 31, As at 2007 2006 -------------------------------------------------------------------------- Balance at the beginning of the period $ - $ - Translation of self-sustaining foreign operations 1,029 - -------------------------------------------------------------------------- Balance at the end of the period $ 1,029 $ - -------------------------------------------------------------------------- -------------------------------------------------------------------------- 16. FINANCING EXPENSES 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 -------------------------------------------------------------------------- Interest on: Long-term debt $ 17,329 $ 17,170 Short-term debt 14,658 332 Bridge financing expenses 5,573 - Securitization expenses 511 - CWB carrying charge recovery (4,689) (1,310) -------------------------------------------------------------------------- 33,382 16,192 Interest accretion - 1,862 Amortization of deferred financing costs 2,796 1,690 Expenses associated with the redemption of Senior Subordinated Notes: Adjustment of carrying value to face value - 8,209 Early repayment premium - 3,000 -------------------------------------------------------------------------- $ 36,178 $ 30,953 -------------------------------------------------------------------------- -------------------------------------------------------------------------- 17. RELATED PARTY TRANSACTIONS The Company has transactions with related parties in the normal course of business at commercial rates and terms. Related parties include investees Prince Rupert Grain and The Puratone Corporation. Total sales to related parties were $7.8 million (2006 - $3.4 million). As at October 31, 2007, accounts receivable from related parties totalled $11.6 million (2006 - $3.4 million). 18. CORPORATE TAXES a) The provision for corporate income taxes consists of: 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 ---------------------------------------------------------------------------- Current $ 2,617 $ 1,726 Future 55,218 12,595 ---------------------------------------------------------------------------- $ 57,835 $ 14,321 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- b) The variation between the provision calculated at the statutory income tax rate and the Company's provision is explained as follows: 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 ---------------------------------------------------------------------------- Earnings from before corporate taxes $ 163,902 $ 7,477 Effective federal and provincial tax rate 34.3% 36.0% ---------------------------------------------------------------------------- Pre-tax accounting income at statutory income tax rate $ 56,218 $ 2,691 Change in effective tax rate on future income taxes 302 11,834 Items not deductible (taxable) for income tax purposes 2,256 (468) Non-taxable portion of capital gain (1,602) - Tax-paid equity earnings 446 - Federal large corporation's tax - 295 Other 215 (31) ---------------------------------------------------------------------------- $ 57,835 $ 14,321 ---------------------------------------------------------------------------- c) Income taxes allocated to future years are comprised of the following: October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Future income tax assets: Undepreciated capital cost in excess of net book value $ - $ 71,543 Losses available for carryforward 91,247 55,235 Refinancing and restructuring costs not deducted for tax 25,450 5,267 Accrued expenses not currently deductible for tax 41,776 9,542 Research and development costs not deducted for tax 4,398 3,124 Reclamation costs not deducted for tax 9,115 2,570 Other 1,479 - ---------------------------------------------------------------------------- Sub total 173,465 147,281 Valuation allowance(1) (7,800) (39,839) ---------------------------------------------------------------------------- Total future income tax assets $ 165,665 $ 107,442 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) The valuation allowance represents management's best estimate of the allowance necessary to reflect the future income tax assets at an amount that the Company considers is more likely than not to be realized. Included in the $165.7 million future income tax asset (2006 - $107.4 million) is an adjustment of $5.9 million (2006 - $18 million) made directly to retained earnings and an adjustment of $21.0 million (2006 - nil) made directly to goodwill for a decrease in the future income tax assets' valuation allowance (see note 4). ---------------------------------------------------------------------------- October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Future income tax liabilities: Net book value in excess of undepreciated capital cost $ 196,880 $ 4,888 Deferred charges currently deductible for tax 8,136 - Other 2,884 1,265 ---------------------------------------------------------------------------- Total future income tax liabilities $ 207,900 $ 6,153 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net future income tax asset (liability) (42,235) 101,289 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Classified in the Consolidated Financial Statements as: Current future income tax assets $ 70,116 $ 772 Long-term future income tax assets 255 102,551 Long-term future income tax liabilities (112,606) (2,034) ---------------------------------------------------------------------------- $ (42,235) $ 101,289 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- d) The expiry dates associated with the losses available for carryforward are: 2008 $ 91,162 2009 130,699 2012-2013 63,375 -------------- $ 285,236 -------------- -------------- e) The company has unrecognized federal and provincial investment tax credits totalling approximately $18.7 million available to reduce income taxes payable in future years. These credits have not been recognized as assets on the Company's balance sheet as it cannot be determined that the realization of these credits prior to expiry is reasonably assured. These tax credits expire in varying amounts between 2008 and 2016. 19. GAIN ON DISPOSAL OF ASSETS On August 28, 2007, Intercontinental Exchange Inc. ("ICE") and WCE Holdings Inc., the parent company of Winnipeg Commodity Exchange Inc., announced the closing of ICE's acquisition of WCE Holdings Inc. Based on the purchase price for the transaction of $77.59 per WCE Holdings Inc. common share, the Company recorded a gain on disposal of $4.7 million. The remaining gain on sale of assets of $30.6 million is primarily associated with the sale of the Vancouver Port Terminal (Note 4). 20. FINANCIAL AND OTHER INSTRUMENTS AND HEDGING Risk Management The Company is exposed to changes in commodity prices, foreign exchange rates and interest rates. The Company utilizes a number of financial instruments to manage these exposures. Financial instruments are not used for trading or speculative purposes. The Company mitigates risk associated with these financial instruments through Board-approved policies, limits on use and amount of exposure, internal monitoring, and compliance reporting to senior management and the Board. a) Commodity Price Risk The Company uses exchange-traded futures and options contracts to minimize the effects of changes in the prices of hedgable agricultural commodities on its agri-business inventories and agricultural commodities forward cash purchase and sales contracts. Exchange-traded futures and options contracts are valued at the quoted market prices. Forward purchase contracts and forward sales contracts are valued at the quoted market prices, which are based on exchange quoted prices adjusted for freight and handling costs. b) Foreign Exchange Risk The Company also uses derivative financial instruments, such as foreign currency forward contracts and futures contracts, to limit exposures to changes in foreign currency exchange rates with respect to its recorded foreign currency denominated assets and liabilities. As outlined in Note 2n(i), certain areas of the Company not related to the handling and marketing of grain follow the hedge accounting guidance in the CICA's AcG-13, whereby the gains, losses, revenues and expenses associated with the hedged item and the hedging instrument are recognized in income in the same period. In the remaining areas of the Company, forward foreign exchange and futures contracts are marked-to-market and unrealized gains and losses are recognized in income in the period in which they occur. The terms of the forward foreign exchange contracts listed below are for up to three years and include the Company's proportionate share of joint venture contracts: October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Notional U.S. dollars sold $ 486,345 $ 137,443 Notional Euros sold Euros 8,992 Euros 2,674 Notional Pounds sold Pounds Sterling 73 Pounds Sterling - Canadian equivalent $ 527,239 $ 164,853 Fair value $ 471,605 $ 157,940 Unrealized gain $ 55,634 $ 6,913 Average foreign exchange rate $ 1.0642 $ 1.1765 ---------------------------------------------------------------------------- Of the $55.6 million unrealized gain at October 31, 2007, approximately $42.8 million is recognized in these financial statements (2006 - $0.1 million). The remainder will be recognized on a basis consistent with the recognition of the underlying hedged transaction. c) Interest Rate Risk The Company is exposed to interest rate risk on long-term debt (Note 10), however, this risk is considered low and there are no financial contracts in place to offset interest rate risk. d) Cash Flow Risk The Company is exposed to future cash flow risk in its unsecured long-term debt. The Company's subsidiaries and joint ventures are also exposed to future cash flow risk in their long-term debt, which is secured by certain assets and subject to certain covenants. If secured assets are sold or certain covenants are not fulfilled, there is a requirement by the Company's subsidiaries and joint ventures to provide partial redemption of the associated long-term debt. e) Credit Risk The Company is exposed to credit risk from customers in all the business segments. In the Grain Handling and Marketing segment, a significant amount is receivable from the CWB or is secured by letters of credit or documentary collections. Under Viterra Financial(TM) and Unifeed Financial(R), the Company has limited its exposure to credit risk by limiting the financial institution's recourse against the Company for indemnification losses incurred on certain accounts receivable. The customer base in all other segments is diverse, which minimizes significant concentration of credit risk. Credit risk is limited due to the large number of customers in differing industries and geographic areas. The Company is exposed to credit loss in the event of non-performance by counterparties to the derivative financial instruments but does not anticipate non-performance by these counterparties. All counterparties are highly rated financial institutions. Fair Value The carrying value of long-term debt that bears interest at variable rates approximates fair value (see Note 10d). The fair value of long-term debt that bears interest at fixed rates is based on its quoted market price or on discounted future cash flows using rates currently available for debt of similar terms and maturities if the quoted market price was not available. The carrying value of other financial instruments, cash, cash in trust, short-term investments, accounts receivable, bank indebtedness, short-term borrowings, members' demand loans, accounts payable and accrued liabilities approximate fair value due to the short period to maturity or redeemable nature. The fair value of derivative financial instruments, consisting of foreign exchange contracts, reflects the estimated amounts that the Company, its subsidiaries and its proportionate share of the joint ventures would receive or pay to settle the contracts at the reporting date. However, this does not represent the total gain or loss to the Company, its subsidiaries or its proportionate share of the joint ventures as the hedged position is matched to certain of the related assets or liabilities. Foreign Exchange Gains and Losses Foreign exchange gains of $2 million are included in Sales and Other Operating Revenues for the 15-month period ended October 31, 2007 (2006 - $0.8 million gain). 21. INTERESTS IN JOINT VENTURES The following summarizes the Company's proportionate interest in joint ventures before inter-company revenue and expense eliminations: October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Current assets $ 23,318 $ 65,438 Long-term assets $ 18,291 $ 39,694 Current liabilities $ 15,916 $ 22,857 Long-term liabilities $ 2,257 $ 12,486 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 ---------------------------------------------------------------------------- Revenue $ 188,417 $ 258,521 Expenses $ 172,928 $ 246,321 ---------------------------------------------------------------------------- Net earnings $ 15,489 $ 12,200 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash from operating activities $ 5,537 $ 910 Cash used in financing activities $ (39,324) $ (22,193) Cash used in investing activities $ 8,198 $ (3,398) The pre-tax earnings of certain joint ventures are taxed at the owner level therefore the associated corporate tax expense is not included in expenses or earnings of the joint venture. 22. SEGMENTED INFORMATION The Company has not provided revenues from external customers by geographic location as it is not practicable to do so. Total sales and revenue from services include export sales of $1.3 billion (2006 - $381 million). The segments' accounting policies are consistent with those described in Accounting Policies (Note 2). The Company accounts for inter-segment sales at current market prices under normal trade terms. The following information is from continuing operations: 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 ---------------------------------------------------------------------------- Sales and Other Operating Revenues ---------------------------------------------------------------------------- Grain Handling and Marketing $ 2,537,106 $ 927,580 Agri-products 983,449 538,984 Agri-food Processing 203,209 122,253 Livestock Feed and Services 181,959 - Financial Products 5,579 - ---------------------------------------------------------------------------- 3,911,302 1,588,817 Less: Intersegment Sales 35,486 13,161 ---------------------------------------------------------------------------- $ 3,875,816 $ 1,575,656 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 ---------------------------------------------------------------------------- Intersegment Sales ---------------------------------------------------------------------------- Grain Handling and Marketing $ 35,772 $ 12,984 Agri-food Processing (286) 177 ---------------------------------------------------------------------------- $ 35,486 $ 13,161 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Gross Profit and Net Revenues from Services ---------------------------------------------------------------------------- Grain Handling and Marketing $ 348,631 $ 159,022 Agri-products 225,206 77,104 Agri-food Processing 30,189 24,029 Livestock Feed and Services 25,788 - Financial Products 6,227 - ---------------------------------------------------------------------------- $ 636,041 $ 260,155 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Operating, General and Administrative Expenses ---------------------------------------------------------------------------- Grain Handling and Marketing $ (174,192) $ (95,450) Agri-products (105,445) (48,040) Agri-food Processing (8,867) (5,691) Livestock Feed and Services (20,329) - Financial Products (2,332) - Corporate (64,663) (33,089) ---------------------------------------------------------------------------- $ (375,828) $ (182,270) ---------------------------------------------------------------------------- EBITDA(1) ---------------------------------------------------------------------------- Grain Handling and Marketing $ 174,439 $ 63,572 Agri-products 119,761 29,064 Agri-food Processing 21,322 18,338 Livestock Feed and Services 5,459 - Financial Products 3,895 - Corporate (64,663) (33,089) ---------------------------------------------------------------------------- $ 260,213 $ 77,885 ---------------------------------------------------------------------------- (1) EBITDA - Earnings from continuing operations before interest, taxes, depreciation and amortization, gain on disposal of assets, integration expenses and provision for pension settlement Amortization ---------------------------------------------------------------------------- Grain Handling and Marketing $ (30,259) $ (11,579) Agri-products (28,341) (11,017) Agri-food Processing (7,727) (5,131) Livestock Feed and Services (3,889) - Financial Products (175) - ---------------------------------------------------------------------------- $ (70,391) $ (27,727) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 15 Months 12 Months Ended Ended October 31, July 31, 2007 2006 ---------------------------------------------------------------------------- EBIT(2) ---------------------------------------------------------------------------- Grain Handling and Marketing $ 144,180 $ 51,993 Agri-products 91,420 18,047 Agri-food Processing 13,595 13,207 Livestock Feed and Services 1,570 - Financial Products 3,720 - Corporate (64,663) (33,089) ---------------------------------------------------------------------------- $ 189,822 $ 50,158 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (2) EBIT - earnings from continuing operations before interest, taxes, gain on disposal of assets, integration expenses and provision for pension settlement Capital Expenditures ---------------------------------------------------------------------------- Grain Handling and Marketing $ 106,539 $ 17,262 Agri-products 8,206 5,739 Agri-food Processing 12,510 6,984 Livestock Feed and Services - - Financial Products - - ---------------------------------------------------------------------------- $ 127,255 $ 29,985 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Assets ---------------------------------------------------------------------------- Grain Handling and Marketing(3) $ 1,467,609 $ 305,458 Agri-products 953,649 173,573 Agri-food Processing 109,552 91,076 Livestock Feed and Services(3) 199,731 - Financial Products 82,361 - Corporate 210,166 203,923 ---------------------------------------------------------------------------- $ 3,023,068 $ 774,030 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (3) Includes assets of foreign operations of $59.8 million Goodwill ---------------------------------------------------------------------------- Grain Handling and Marketing $ 35,821 $ - Agri-products 187,036 - Agri-food Processing - - Livestock Feed and Services 7,531 - Financial Products 66,355 - ---------------------------------------------------------------------------- $ 296,743 $ - Intangible Assets ---------------------------------------------------------------------------- Grain Handling and Marketing $ - $ - Agri-products 17,058 - Agri-food Processing - - Livestock Feed and Services(5) 2,552 - Financial Products 665 - ---------------------------------------------------------------------------- $ 20,275 $ - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (5) Includes intangible assets of foreign operations of $2.6 million 23. DISCONTINUED OPERATIONS During fiscal 2004 the Company sold the assets of its Heartland Pork, Heartland Feeds and Aquaculture operations. The Company does not have any continuing involvement in these operations. The results of these operations for the prior periods have been classified as discontinued operations, in accordance with CICA 3475 Disposal of Long-Lived Assets and Discontinued Operations. In the 15-month period ended October 31, 2007, no amounts were recovered or expensed for discontinued operations. The fiscal 2006 recoveries from discontinued operations represent $7.4 million in after-tax recoveries related to filings under the Canadian Agricultural Income Stabilization Program ("CAIS"), a joint federal/provincial risk management program. The CAIS filings represent a recovery of a portion of the operating losses incurred by these discontinued operations in prior years 24. COMMITMENTS, CONTINGENCIES AND GUARANTEES a) Lease Commitments The Company, including its subsidiaries and its proportionate share of joint ventures, has operating leases relating primarily to rail cars, buildings and equipment. Future minimum lease payments having initial or remaining lease terms in excess of one year at October 31, 2007 are as follows: 2008 $17,382 2009 14,844 2010 11,259 2011 8,087 2012 6,793 b) Letters of Credit At October 31, 2007, the Company had outstanding letters of credit and similar instruments of $81.8 million related to operating an agri-business (July 31, 2006 - $35.1 million). The terms range in duration and expire at various dates from December 31, 2007 to January 31, 2009. The amounts vary depending on underlying business activity or the specific agreements in place with the third parties. These instruments effectively reduce the amount of cash that can be drawn on the revolving credit facility. c) Loan Loss Provision Under the terms of an agreement, a financial institution provides credit for the purchase of crop inputs to certain customers of the Company in the Agri-products segment. Loans are stratified based on program years. Producer loans are generally due to this financial institution on January 31 following the program year. Loans under the program are secured by a general security agreement granted by the customer covering the crop and farm assets. The Company collects loan payments from producer customers in trust for this financial institution and forwards collections the next business day. Under the agreement, the Company has agreed to reimburse this financial institution for loan losses in excess of a reserve (see the table below). Reimbursement amounts are payable to this financial institution at the end of December or 11-months following the due date of the producers' loan. When the Company remits payments for delinquent accounts to the financial institution with respect to this program, the delinquent account is assigned to the Company and the Company is then to collect the amounts payable by the customer. Subsequent collections of these delinquent accounts are to the benefit of the Company. The Company expects that loan losses will not differ significantly from those provided for in these financial statements. October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Company Producer Reimbursement Producer Producer Due Date - Date - Balance Balance January 31 December 31 Outstanding Outstanding ---------------------------------------------------------------------------- 2005 loan program 2006 2006 $ - $ 6,047 2006 loan program 2007 2007 1,346 182,315 2007 loan program 2008 (i) 191,139 - ---------------------------------------------------------------------------- $ 192,485 $ 188,362 ---------------------------------------------------------------------------- October 31, July 31, As at 2007 2006 ---------------------------------------------------------------------------- Total Company provision, net of loan loss share $ 1,808 $ 3,251 Net portion due within one year (1,808) (969) ---------------------------------------------------------------------------- Long-term portion, net of loan loss share $ - $ 2,282 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i) Effective January 31, 2008, the Company will terminate the loan program agreement with the financial institution. Under a sales program, the Company shares in loan losses on a 50/50 basis with a financial institution. At October 31, 2007, the maximum exposure was $0.8 million. The Company does not expect to incur any significant losses on this program and has accrued no obligation. d) Indemnification of Accounts Receivable Viterra Financial(TM)- the Company has a rolling five-year agreement with a Canadian Schedule I chartered bank to provide credit for qualifying agricultural producers to purchase crop inputs. The agreement may be terminated at an earlier date by mutual consent or by either party upon one year's written notice. Viterra indemnifies the bank for 50% of future losses to a maximum of 5% of the aggregate qualified portfolio balance. The Company's aggregate indemnity will vary at any given time with the size of the underlying portfolio. As at October 31, 2007, Viterra had provided $4.9 million for actual and expected future losses. Unifeed Financial(R) - AU has a rolling five-year agreement with a Canadian Schedule I chartered bank to provide loans to customers to purchase feeder cattle and feeder hogs, as well as related feed inputs, with terms that do not require payment until the livestock is sold. The agreement may be terminated at an earlier date by mutual consent or by either party upon one year's written notice. Viterra indemnifies the bank for credit losses based on the first 20% to 33% of new credit issued on an individual account, dependent on the account's underlying credit rating, with losses in excess of these amounts shared on an equal basis with the bank up to 5% on the aggregate qualified portfolio balance. The Company's aggregate indemnity will vary at any given time with the credit rating of the underlying accounts and the aggregate credit outstanding. As at October 31, 2007, AU has provided $0.4 million for actual and expected future losses. e) Loan Guarantees AU is contingently liable under several guarantees given to third-party lenders who have provided long-term financing to certain independent hog producers. As at October 31, 2007, the current outstanding balance of these guarantees is $3 million. These guarantees diminish as the underlying loans are repaid and expire between 2009 and 2014. AU is contingently liable under two guarantees given to two third-party lenders who have provided certain financing facilities to its wholly-owned foreign subsidiaries. As at October 31, 2007, the maximum amounts of the guarantees are U.S. $150,000 and JPY 2 billion, or approximately $16.6 million in aggregate. The Company has provided guarantees to a finance company related to equipment leases and fertilizer bins entered into by producers. As of October 31, 2007, the outstanding balance was $0.2 million (2006 - $0.5million). Given historically low delinquent rates in conjunction with collateral values of assets, the Company has accrued no obligation. f) Pension Plan Contingency Funding of the Saskatchewan Wheat Pool/Grain Services Union Pension Plan (Note 14b). g) Director and Officer Indemnification The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers as well as those of certain affiliated companies. h) Other Indemnification Provisions From time to time, the Company enters into agreements in the normal course of operations and in connection with business or asset acquisitions or dispositions. By their nature, these agreements may provide for indemnification of counterparties. The varying nature of these indemnification agreements prevents the Company from making a reasonable estimate of the maximum potential amount it could incur. Historically, the Company has not made any significant payments in connection with these indemnification provisions. i) Other Contingencies As at October 31, 2007, there are claims against the Company in varying amounts for which a provision in the financial statements is not considered necessary. The occurrence of the confirming future event is not determinable or it is not possible to determine the amounts that may ultimately be assessed against the Company with respect to these claims. Management believes that any such amounts would not have a material impact on the business or financial position of the Company. 25. SUBSEQUENT EVENTS Effective November 1, 2007, AU and Pacific Elevator Limited were amalgamated with Saskatchewan Wheat Pool Inc. On November 23, 2007, the Company entered into a settlement agreement with the GSU executive. See note 14 b). On December 14, 2007, the reduction to future federal corporate income tax rates announced in Bill C-28 became substantively enacted. As a result, the Company will be required to re-measure its future income tax assets and liabilities using the reduced rates applicable for 2008 and subsequent years. The Company is currently assessing the impact of these rate reductions and estimates that it will record an income tax recovery of approximately $12.6 million in the first quarter of fiscal 2008. 26. COMPARATIVE AMOUNTS Certain prior period amounts have been reclassified in order to conform to the financial statement presentation adopted in the current year. Contact: Colleen Vancha, Vice-PresidentViterraInvestor Relations and Corporate Affairs(306) 569-4782Audio webcast:http://events.onlinebroadcasting.com/swp/011808/index.php Peter FlengerisViterraMedia Relations(306) 569-4810Website: www.viterra.ca ? 2007 - Marketwire |