RSIF-Interim Report for the Second Quarter 2005 Results.MONTREAL -- Rogers Sugar Income Fund (TSX:RSI.UN) - All amounts are expressed in Canadian Dollars. Volume up 9,200 metric tonnes from comparable quarter of 2004. Net distributable cash of $4.9 million for the quarter versus $4.2 million for the comparable quarter of 2004. New refinancing structure will result in annual interest savings of approximately $2.5 million. Message to Unitholders: On behalf of the Board of Trustees, I am pleased to present the unaudited consolidated financial results of Rogers Sugar Income Fund (the "Fund") for the three months and six months period ended March 31, 2005. Volume for the second quarter was 178,098 metric tonnes, as opposed to 168,857 in the comparable quarter last year.Industrial volume was up approximately 6,000 metric tonnes, recapturing 60% of the shortfall from the first quarter.Thick juice sales were also up 4,700 metric tonnes due to the higher beet crop in Taber Taber (tā`bər), town (1991 pop. 6,660), S Alta., Canada, NE of Lethbridge. The area is irrigated for crop and livestock raising. The town has a sugar beet refinery and a vegetable cannery. Coal, oil, and natural gas are found nearby. and additional availability of thick juice.Consumer volume was down by 2,300 metric tonnes, bringing the year to date consumer volume 6,200 metric tonnes below last year.This is caused by imports from Costa Rica in the retail segment and lower consumer demand. Gross margins on a per metric tonne basis were $102.13 for the quarter compared to $111.31 for the comparable quarter last year. The decrease in gross margins was mainly due to the increase in natural gas cost and higher gas consumption in Taber due to the larger beet crop. Net distributable cash was $4.9 million compared to $4.2 million for the comparable quarter last year.Timing in capital investment was the major reason for the increase.Year to date net distributable cash was $17.9 million, $1.9 million less than 2004. The decrease is due mainly to lower operating profit in the first quarter of the fiscal year. To date, the Fund distributed $17.8 million, of which $1.8 million was return of capital. On March 31, 2005, the Fund issued second series 6% convertible unsecured subordinated debentures for net proceeds of approximately $47.6 million.The Fund used $47.5 million of the net proceeds to invest in additional common shares of Rogers.Rogers then notified the private debtholders that a partial redemption of $47.5 million would be paid, May 2, 2005, on the $100.0 million debt maturing in August 2005.Rogers is also currently negotiating a $50.0 term loan agreement with a Canadian financial institution to pay the balance of the debt maturing in August 2005.This term loan would be drawn in August 2005 when the remaining 8.173% debt matures.With this new refinancing in place, the Fund and Rogers will save approximately $2.5 million annually in interest costs, starting September 2005.
FOR THE BOARD OF TRUSTEES,
SIGNED
------------------------------
Edward Y. Baker, Chairman
Toronto, Ontario - May 5, 2005
Rogers Sugar Income Fund
Consolidated Balance Sheets
(In thousands of dollars)
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March 31 September 30
2005 2004
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ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $79,115 $52,666
Accounts receivable 31,284 37,597
Inventories 56,467 34,379
Prepaid expenses 1,947 2,975
Future income taxes 174 -
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168,987 127,617
Capital assets 209,574 213,454
Other assets 5,284 3,903
Goodwill 318,043 318,043
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$701,888 $663,017
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $33,076 $40,603
Distribution payable
to unitholders 2,965 2,965
Income taxes payable 395 450
Future income taxes - 505
Current portion of convertible
unsecured subordinated notes 6,697 6,407
Current portion of
long-term debt (Note 3) 100,000 100,000
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143,133 150,930
Employee future benefits 18,095 17,252
Long-term debt (Note 3) 65,000 65,000
Convertible unsecured
subordinated notes (Note 2) 59,291 12,710
Future income taxes 1,762 1,595
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287,281 247,487
UNITHOLDERS' EQUITY
Trust units 583,494 583,494
Equity component of convertible
unsecured subordinated debentures 65,930 62,800
Deficit (234,817) (230,764)
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414,607 415,530
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$701,888 $663,017
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Operations
For the periods ended March 31, 2005 and 2004
(In thousands of dollars - except amounts per trust units)
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For the three months For the six months
ended March 31, ended March 31,
2005 2004 2005 2004
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Revenues $102,876 $91,574 $209,297 $200,308
Cost of sales 84,687 72,778 163,729 152,157
Gross margin 18,189 18,796 45,568 48,151
Expenses:
Administration
and selling 5,061 5,125 10,283 10,262
Distribution 2,219 2,617 5,202 5,287
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7,280 7,742 15,485 15,549
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Earnings before
interest, provision
for income taxes,
depreciation and
amortization 10,909 11,054 30,083 32,602
Depreciation and
amortization 3,262 3,237 6,527 6,476
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Earnings before
interest and
provision for income
taxes 7,647 7,817 23,556 26,126
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Interest on long-term
debt and convertible
debentures 3,466 3,648 7,071 7,394
Interest income (103) (29) (332) (131)
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3,363 3,619 6,739 7,263
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Earnings before
provision for income
taxes 4,284 4,198 16,817 18,863
Provision for
income taxes:
Current 178 82 461 366
Future (1,606) (1,662) (512) (669)
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(1,428) (1,580) (51) (303)
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Net earnings $5,712 $5,778 $16,868 $19,166
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Net earnings per
trust unit:
Basic $0.05 $0.05 $0.16 $0.18
Diluted $0.05 $0.05 $0.16 $0.18
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Supplemental
disclosure:
Employee future
benefits expense $1,144 $1,278 $2,289 $2,556
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Unitholders' Equity
For the periods ended March 31, 2005 and 2004
(In thousands of dollars)
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2005
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Equity
component
of convertible
unsecured
subordinated
Trust units debentures Deficit Total
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For the three months
ended March 31, 2005
Balance
beginning
of period 583,494 $64,316 ($230,020) $417,790
Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - 1,614 (1,614) -
Distributions - - (8,895) (8,895)
Net earnings - - 5,712 5,712
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Balance end of period 583,494 $65,930 ($234,817) $414,607
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2004
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Equity
component
of convertible
unsecured
subordinated
Trust units debentures Deficit Total
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For the three months
ended March 31, 2005
Balance
beginning
of period 583,494 $58,341 ($229,374) $412,461
Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - 1,471 (1,471) -
Distributions - - (8,895) (8,895)
Net earnings - - 5,778 5,778
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Balance end of period 583,494 $59,812 ($233,962) $409,344
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2005
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Equity
component
of convertible
unsecured
subordinated
Trust units debentures Deficit Total
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For the six months
ended March 31, 2005
Balance
beginning
of period 583,494 $62,800 ($230,764) $415,530
Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - 3,130 (3,130) -
Distributions - - (17,791) (17,791)
Net earnings - - 16,868 16,868
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Balance end of period 583,494 $65,930 ($234,817) $414,607
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2004
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Equity
component
of convertible
unsecured
subordinated
Trust units debentures Deficit Total
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For the six months
ended March 31, 2005
Balance
beginning
of period 583,494 $56,960 ($232,430) $408,024
Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - 2,852 (2,908) (56)
Distributions - - (17,790) (17,790)
Net earnings - - 19,166 19,166
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Balance end of period 583,494 $59,812 ($233,962) $409,344
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Cash Flows
For the periods ended March 31, 2005 and 2004
(In thousands of dollars)
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For the three months For the six months
ended March 31, ended March 31,
2005 2004 2005 2004
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Cash flows from
operating activities:
Net earnings $5,712 $5,778 $16,868 $19,166
Adjustments for
items not
involving cash:
Depreciation and
amortization 3,262 3,237 6,527 6,476
Loss on disposal
of assets - - - 18
Future income
taxes (1,606) (1,662) (512) (669)
Employee future
benefits 163 953 843 1,910
Other 227 310 539 173
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7,758 8,616 24,265 27,074
Changes in non-cash
operating working
capital:
Accounts receivable (4,200) 9,275 6,313 16,807
Inventories 12,963 5,323 (22,088) (19,551)
Prepaid expenses 8,337 (543) 1,028 409
Accounts payable
and accrued
liabilities (10,899) (6,551) (7,691) 3,299
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6,201 7,504 (22,438) 964
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13,959 16,120 1,827 28,038
Cash flows from
financing activities:
Interest expense on
the equity portion
of the convertible
unsecured
subordinated
debentures (1,614) (1,471) (3,130) (2,908)
Distributions to
Unitholders (8,895) (8,895) (17,791) (25,479)
New issue
convertible
debentures 50,000 - 50,000 -
Deferred financing
charges (2,400) - (2,400) -
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37,091 (10,366) 26,679 (28,387)
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Cash flows from
investing activities:
Additions to capital
assets (974) (1,930) (2,057) (2,630)
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Net change in cash and
cash equivalents 50,076 3,824 26,449 (2,979)
Cash and cash
equivalents, beginning
of period 29,039 19,068 52,666 25,871
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Cash and cash
equivalents, end
of period $79,115 $22,892 $79,115 $22,892
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Supplemental
disclosure:
Interest paid on
the debt and equity
components of
convertible
debentures $2,972 $2,600 $9,750 $9,951
Income taxes paid 185 8 491 314
Capital assets
included in
accounts payable
and accrued
liabilities 352 340 352 340
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Rogers Sugar Income Fund
Notes to Interim Unaudited Consolidated Financial Statements
For the periods ended March 31, 2005 and 2004
(Tabular amounts are expressed in thousands of dollars.)
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Rogers Sugar Income Fund (the "Fund") is an open-ended, limited
purpose trust created under the laws of Ontario by a declaration of
trust made as of September 15, 1997 as amended and restated on
September 30, 1997 (the "Declaration of Trust"). An unlimited number
of trust units may be issued pursuant to the Declaration of Trust.
Note 1: Basis of presentation
These interim financial statements have been prepared in accordance
with Canadian generally accepted accounting principles. The same
accounting policies as disclosed in the consolidated financial
statements of the Fund included in our latest Annual Report have been
used. Accordingly, these interim financial statements should be
read in conjunction with the consolidated financial statements and
the notes thereto included in our 2004 Annual Report. These
quarterly financial statements were not reviewed or audited by our
external auditors.
Note 2: Convertible unsecured subordinated debentures
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-------------------------------------------------------------
Convertible unsecured subordinated debentures
-------------------------------------------------------------
Balance - September 30, 2004 $19,117
New issue - March 31, 2005 50,000
69,117
Debt reduction and transfer to equity
component for the six-month period ended
March 31, 2005 3,129
65,988
Less current portion 6,697
Balance - March 31, 2005 $59,291
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On March 31, 2005, the Fund issued $50.0 million of second series
6.0% convertible unsecured subordinated debentures, maturing June 29,
2012, with interest payable semi-annually in arrears on June 29 and
December 29 of each year, starting June 29, 2005. The debentures
may be converted at the option of the holder at a conversion price
of $5.30 per trust unit at any time prior to maturity, and cannot
be redeemed prior to June 29, 2008. On or after June 29, 2008 and
prior to June 29, 2010, the debentures may be redeemed by the Fund
only if the weighted average trading price of the trust unit, for
20 consecutive trading days, is at least 125% of the conversion
price of $5.30. Subsequent to June 29, 2010, the debentures are
redeemable at a price equal to the principal amount thereof plus
accrued and unpaid interest.
The proceeds of the debentures, net of the issue costs, is estimated
at $47.6 million. An amount of $47.5 million was used by the Fund
to buy additional common shares in Rogers Sugar Ltd., ("Rogers") a
wholly owned subsidiary of the Fund.
The Fund has not allocated any of the second series 6% convertible
debentures into an equity component, as the calculation of the
equity component is not significant using an approximate interest
rate that would have been applicable to the issuance of similar debt
without the conversion features at the time the debentures were
issued.
Note 3: Long-term debt
Rogers has $100.0 million of 8.173% debentures maturing on August
26, 2005. On March 31, 2005, Rogers advised the Debentureholders,
that $47.5 million, being the net proceeds from additional common
shares issued to the Fund, would be paid on May 2, 2005 to the
Debentureholders prior to maturity. A pre-payment penalty will
also be paid on the same date.
At March 31, 2005, Rogers was in a breach of one of its financial
covenants under its lending agreements. The financial covenant
breached is rolling EBITDA to rolling interest for the last four
quarters being less than 3 to 1, as required. The breach is being
remedied with the repayment of $47.5 million of the 8.173%
debentures on May 2, 2005. This will reduce future interest
payments by almost $4.0 million.
Rogers is also currently negotiating, with a Canadian financial
institution, a new term loan of $50.0 million, to be drawn in
August 2005, when the remaining $52.5 million debentures mature,
which should further reduce interest expense in Rogers.
Note 4: Segment disclosures
The Fund, through its operating companies, operates in the sugar
industry. Management organizes the results into two principal
operating segments for making operating decisions and assessing
performance: Eastern Canada and Western Canada. These segments
are managed separately, since they require specific market
strategies. The Fund assesses the performance of each segment based
on operating income. Accounting policies relating to each segment
are identical to those used for the purposes of the consolidated
financial statements.
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For the three months ended March 31 (unaudited)
2005
---------------------------------------------------------------------
Eastern Western Intersegment
Canada Canada and other Total
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Revenues 62,945 40,557 (626) 102,876
Earnings before interest,
provision for income
taxes and depreciation
and amortization 8,341 2,810 (242) 10,909
Depreciation and
amortization 1,841 1,033 388 3,262
Interest expense 6,339 6,684 (9,660) 3,363
Net income (loss) 33 (3,351) 9,030 5,712
Additions to property,
plant and equipment 439 535 - 974
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2004
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues 56,680 37,631 (2,737) 91,574
Earnings before interest,
provision for income
taxes and depreciation
and amortization 6,659 4,802 (407) 11,054
Depreciation and
amortization 1,866 983 388 3,237
Interest expense 6,740 6,696 (9,817) 3,619
Net income (loss) (1,293) (2,032) 9,103 5,778
Additions to property,
plant and equipment 1,117 813 - 1,930
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For the six months ended March 31 (unaudited)
2005
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues 127,898 82,660 (1,261) 209,297
Earnings before interest,
provision for income
taxes and depreciation
and amortization 21,718 8,692 (327) 30,083
Depreciation and
amortization 3,682 2,068 777 6,527
Interest expense 12,743 13,339 (19,343) 6,739
Net income (loss) 3,316 (4,688) 18,240 16,868
Additions to property,
plant and equipment 792 1,265 - 2,057
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2004
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues 123,838 79,873 (3,403) 200,308
Earnings before interest,
provision for income
taxes and depreciation
and amortization 19,687 12,865 50 32,602
Depreciation and
amortization 3,732 1,967 777 6,476
Interest expense 15,621 13,710 (22,068) 7,263
Net income (loss) 66 (2,152) 21,252 19,166
Additions to property,
plant and equipment 1,425 1,205 - 2,630
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Revenues were derived from customers in the following geographic
areas:
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For the three months For the six months
ended March 31, ended March 31,
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2005 2004 2005 2004
Canada 93,908 84,629 193,030 187,171
United States and Other 8,968 6,945 16,267 13,137
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102,876 91,574 209,297 200,308
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MANAGEMENT'S DISCUSSION AND ANALYSIS: This Management's Discussion and Analysis should be read in conjunction with the unaudited financial statements and notes thereto in this quarterly report. This report contains certain forward-looking statements, which reflect the current expectations of the Fund, Lantic and Rogers (collectively the "Company") with respect to future events and performance.Wherever used, the words "may," "will," "anticipate," "intend," "expect," "plan," "believe," and similar expressions identify forward-looking statements.Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. Forward-looking statements are based on information available at the time they are made, assumptions made by management, and management's good faith belief with respect to future events, and are subject to the risks and uncertainties outlined in this report that could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations." Additional information relating to the Fund, Lantic and Rogers, including the Annual Information Form, Quarterly and Annual reports and supplementary information is available on SEDAR at www.sedar.com. This Management's Discussion and Analysis is dated April 25, 2005. Results of operations:
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Consolidated Results For the three months For the six months
ended March 31, ended March 31,
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(In thousands of dollars,
except for volume
and per trust unit information) 2005 2004 2005 2004
Volume (metric tonnes) 178,098 168,857 358,746 356,837
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Revenues $102,876 $91,574 $209,297 $200,308
Gross margins 18,189 18,796 45,568 48,151
Distribution 2,219 2,617 5,202 5,287
Selling and administration 5,061 5,125 10,283 10,262
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Earnings before depreciation,
amortization, interest
and income taxes (EBITDA) 10,909 11,054 30,083 32,602
Interest, net 3,363 3,619 6,739 7,263
Depreciation and amortization 3,262 3,237 6,527 6,476
Income taxes (1,428) (1,580) (51) (303)
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Net earnings $5,712 $5,778 $16,868 $19,166
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Net earnings per trust unit $0.05 $0.05 $0.16 $0.18
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For the quarter, volume was approximately 9,200 metric tonnes higher
than last year's comparable quarter. Thick juice and industrial
volume were respectively 4,700 and 6,000 metric tonnes over last
year. The increase in industrial sales is due to the timing in
deliveries as the first quarter volume was approximately 10,000
metric tonnes lower. Year to date industrial sales are lower by
almost 4,000 metric tonnes from the previous year. Thick juice sales
will continue to be higher, as the Taber beet crop was larger in
fiscal 2005 than fiscal 2004.
Consumer volume continues to decrease. For the second quarter,
volume was almost 2,300 metric tonnes lower, bringing the year to
date shortfall to 6,200 metric tonnes. Continued access by Costa
Rica in the retail market combined with continued lower consumer
demand, are the major reasons for the decreasing trend.
Gross margins of $18.2 million were $600,000 lower than the
comparable quarter of last year. On a per metric tonne basis, gross
margins were $102.13 in 2005 compared to $111.31 for last year's
comparable quarter. The decrease is due mainly to the increase in
natural gas cost and to the higher consumption of natural gas in
Taber due to the larger crop. Year to date gross margins are $127.02
compared to $134.94 in 2004. The decrease is due mainly to higher
energy costs in 2005.
Distribution costs were almost $400,000 lower than last year's
comparable quarter due to more direct shipments from Taber with the
higher crop and therefore less transfers from Vancouver to the
Prairie market.
Interest expense was lower due mainly to the additional interest
revenue generated on the large cash balance during the quarter, and
to a lower interest expense charged on the debt component of the
convertible unsecured subordinated debenture of the Fund.
Statement of quarterly results:
(In thousands of dollars, except volume
and per trust unit information)
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2005 2004
---------------------------------------------------------------------
(Unaudited) Q2 Q1 Q4 Q3 Q2 Q1
Volume (MT) 178,098 180,648 218,777 191,685 168,857 187,980
Revenues 102,876 106,421 123,687 104,158 91,574 108,734
Gross margins 18,189 27,379 32,929 24,149 18,796 29,355
EBITDA 10,909 19,174 22,161 15,868 11,054 21,548
Net earnings 5,712 11,156 15,115 8,864 5,778 13,388
Net earnings
per trust unit $0.05 $0.11 $0.16 $0.08 $0.05 $0.13
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(In thousands of dollars, except volume and per trust unit
information)
-------------------------------------------------------------
2003
-------------------------------------------------------------
(Unaudited) Q4 Q3
Volume (MT) 189,537 179,428
Revenues 109,713 103,813
Gross margins 27,176 22,488
EBITDA 18,486 13,383
Net earnings 1,614 4,863
Net earnings
per trust unit $0.00 $0.04
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Liquidity: Cash flow from operations was positive $14.0 million for the quarter compared to $16.1 million for the comparable quarter in fiscal 2004.The major reason for the decrease is the higher level of inventories in Taber.On a year to date basis, cash flow from operations is $1.8 million positive compared to $28.0 million.This decrease is due mainly to the movement of non-cash working capital assets and liabilities. The distributable cash generated by the operating companies, Lantic and Rogers, is paid to the Fund by payment of interest on the subordinated notes of Lantic and Rogers held by the Fund, after having taken reasonable reserve for capital expenditures and working capital.The cash received by the Fund is used to pay distributions to its Unitholders. The Fund measures distributable cash.Distributable cash is not intended to be representative of cash flow or results of operations determined in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and does not have a standardized meaning prescribed by GAAP.It may also not be comparable to similar measures used by other companies or income trusts.
The reconciliation of the EBITDA to distributable cash is as follows:
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For the three months For the six months
ended March 31, ended March 31,
---------------------------------------------------------------------
(Unaudited) 2005 2004 2005 2004
Operating activities:
Earnings before depreciation,
amortization, interest
and income taxes (EBITDA) $10,909 $11,054 $30,083 $32,602
Add/(deduct):
Bank, debentures and
convertible debentures
interest (3,363) (3,619) (6,739) (7,263)
Interest amortization
for swap agreement 125 124 249 248
Interest expense on
the equity portion of the
convertible unsecured
subordinated debentures (1,614) (1,471) (3,130) (2,908)
Income taxes paid (185) (8) (491) (314)
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Distributable cash
from operations $5,872 $6,080 $19,972 $22,365
---------------------------------------------------------------------
Investing activities:
Capital expenditures (974) (1,930) (2,057) (2,613)
---------------------------------------------------------------------
(974) (1,930) (2,057) (2,613)
Financing activities:
---------------------------------------------------------------------
Distributable cash from
financing activities - - - -
---------------------------------------------------------------------
Net distributable cash 4,898 4,150 17,915 19,752
Declared distributions
to Unitholders (8,896) (8,895) (17,791) (17,790)
---------------------------------------------------------------------
Available cash ($3,998) ($4,745) $123 $1,962
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Net distributable cash was $4.9 million compared to $4.2 million for the comparable quarter of last year.This was due mainly to the timing in capital expenditures investment.Year to date net distributable cash of $17.9 million is $1.9 million lower than last year due mainly to lower EBITDA from the operating companies. The decrease for the quarter and year to date in interest payments is due mainly to the higher cash balance and lower interest charged on the convertible unsecured subordinated debenture of the Fund. Capital expenditures were lower in the second quarter than last year due to investment timing. During the quarter, the Fund issued $50.0 million of convertible unsecured subordinated notes for net proceeds of approximately $47.6 million.The Fund invested $47.5 million in Rogers' common shares. Rogers will use these funds to repay $47.5 million of the long-term debt that matures in August 2005.The debtholders were notified on March 31, 2005 that this repayment would be done May 2, 2005. Contractual obligations: There are two items that have changed materially in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 30, 2004 Annual Report. With the issue of $50.0 million of convertible unsecured subordinated debentures, the Fund now has an additional contractual obligation for that amount to be repaid after 5 years. At March 31, 2005, the operating companies had commitments to purchase a total of 1,962,700 metric tonnes of raw sugar, of which only 149,020 metric tonnes had been priced, for a total dollar commitment of $40.5 million, compared to 230,800 metric tonnes for a total dollar commitment of $59.5 million at September 30, 2004.The decrease is due to raw sugar received year to date, while fewer pricings done by the sellers of raw sugar. Capital resources: Lantic and Rogers each have an authorized line of credit of $50 million available to finance their operations.At quarter's end, no amount was drawn from either of the working capital facilities, and Lantic had $26.5 million of cash available, while Rogers had $52.0 million of cash available.Rogers received on March 31, 2005, $47.5 million from the Fund for the purchase of additional common shares. These proceeds will be used, in May 2005, to partially repay the $100.0 million long-term debt, maturing August 26, 2005. At March 31, 2005, Rogers was in a breach of one of its financial covenants under its lending agreements.The financial covenant breached is rolling EBITDA to rolling interest for the last four quarters being less than 3 to 1, as required.The breach is being remedied with the repayment of $47.5 million of the 8.173% debentures on May 2, 2005.This will reduce future interest payments by almost $4.0 million.Rogers is currently negotiating with a Canadian financial institution a term loan to be drawn in August 2005, to repay the remaining balance of the debentures when they mature, which will further reduce future interest cost for Rogers. At quarter's end, inventory level was high compared to year end due to the processing of all sugar beets in Taber, Alberta during the period of October 2004 to January 2005. Cash requirements for working capital and other capital expenditures are expected to be paid from available cash resources and from funds generated from operations. Outstanding securities: A total of 88,779,760 units were outstanding at March 31, 2005, the same level as at December 31, 2004. Changes in accounting policies and critical accounting estimates: Our critical accounting estimates and assumptions, as well as changes in accounting policies that we made in fiscal 2004 remain substantially unchanged from those that were disclosed in our Management's Discussion and Analysis of the Annual Report for the year ended September 30, 2004. Financial derivative instruments: A significant portion of the Company's sales is made under fixed price, forward sales contracts, which extend up to two years.The Company also contracts to purchase raw cane sugar substantially in advance of the time it delivers the refined sugar produced from the purchase.To mitigate its exposure to future price changes, the Company attempts to manage the volume of refined sugar sales contracted for future delivery in relation to the volume of raw cane sugar contracted for future delivery, when feasible. The Company uses derivative instruments to manage exposures to changes in raw sugar prices and natural gas prices.The Company's objective for holding derivatives is to minimize risk using the most efficient methods to eliminate or reduce the impacts of these exposures. Raw sugar The Company's risk management policy is to manage the forward pricing of purchases of raw sugar in relation to its forward refined sugar sales to reduce price risk.The Company attempts to meet this objective by entering into futures contracts to reduce its exposure. The Company has designated its futures contracts as fair value hedging instruments. The pricing mechanism of the futures contracts and the respective forecasted raw sugar purchase transactions are the same.As a result, there is no hedge ineffectiveness and, therefore, the following gain or loss is not and will not be reflected in earnings. At March 31, 2005, the Company had $21.8 million in contract amounts with a fair value of $24.6 million. Natural gas The Company uses futures contracts to help manage its natural gas costs.The Company has designated as fair value hedge instruments natural gas futures matched against variable price forecasted gas purchases. The change in the fair value of the designated futures are matched to forecasted natural gas purchases and will be recognized in earnings in the period the related manufactured product is sold.At March 31, 2005, the Company had $1.9 million in natural gas contracts, with a fair value of $1.9 million. Foreign exchange contracts The Company's activities, which result in exposure to fluctuations in foreign exchange rates, consist of the purchasing of raw sugar, the selling of refined sugar and the purchase of natural gas.The Company manages this exposure by creating offsetting positions through the use of financial instruments.These instruments include forward contracts, which are commitments to buy or sell at a future date, and may be settled in cash. Forward foreign exchange contracts have maturities of less than two years and relate exclusively to U.S. currency.The counterparty to these contracts is a major Canadian financial institution.The Company does not anticipate any material adverse effect on its financial position resulting from its involvement in these types of contracts, nor does it anticipate non-performance by the counterparties. At March 31, 2005, the Company had $21.3 million in foreign currency contracts with a fair value of $20.8 million. Risk factors: Risk factors in Lantic's and Rogers' businesses and operations are discussed in the Management's Discussion and Analysis of our Annual Report for the year ended September 30, 2004 and remain substantially unchanged.This document is available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugar.com. Outlook: The sugar market declined slightly again in the second quarter of fiscal 2005 when compared to the same period of 2004.It is still too early to assess if this decline is due to timing or due to consumers changing their eating habits.The shift in sales mix from consumer to industrial sales is likely to continue, which could negatively impact overall gross margins.In addition, the market remains highly competitive, and Lantic / Rogers will continue defending its market share against local and import competition. A potential competitor was expected to start operations in 2003 in New Brunswick, but filed in December 2003 with the Court of New Brunswick for protection under the Companies' Creditors Arrangement Act ("CCAA").Since then, numerous extensions were granted by the Court to find financial alternatives for that potential competitor. The latest extension is to May 10, 2005.It would appear that a potential buyer is seeking financing to complete the purchase.In the event a purchase deal is completed in May 2005, it is unlikely that this new potential customer would be operational before Fall 2005. Natural gas prices have been fairly unstable in the last few months.As per our hedging policy, we have few hedged positions for the balance of the year.Although not related, natural gas prices tend to follow the movement of crude oil prices and could be open to significant fluctuations over the next few months.Our strategy will be to hedge some positions on the downward trends in order to mitigate the costs to the operations. Lantic is currently working on a bid proposal for the development of a cogeneration project, further to a call for tender made by Hydro-Quebec Distribution.The bid has to be submitted on May 10, 2005.Hydro-Quebec will announce the winning bids in the Fall of 2005. On February 17, 2005, a five-year review was initiated of the antidumping and countervailing duties imposed on imports of refined sugar from the United States and the European Union.A similar review, completed in 2000, resulted in the continuation of the duties.The duties are scheduled to expire on November 2, 2005, unless continued for a further five-year period.The review is currently in the first stage wherein the Canada Border Services Agency (CBSA CBSA - California Bean Shippers Association CBSA - Canada Border Services Agency CBSA - Canadian Babyfoot Soccer Association CBSA - Canadian Billiards & Snooker Association CBSA - Canadian Blind Sports Association CBSA - Canadian Burn Survivors Association CBSA - Cargo Bay Stowage Assembly (NASA) CBSA - Catholic Boarding Schools Associations CBSA - Cavity-Backed Slot Antenna CBSA - Center for Biological Sciences Archives) will determine whether there is a likelihood of resumed dumping and subsidization should the duties expire.The determination is due on June 17, 2005.If the determination is affirmative, the review will proceed to the next stage wherein the Canadian International Trade Tribunal (CITT CITT - Canadian Institute for Theatre Technology (Canadian equivalent of USITT) CITT - Canadian Institute of Traffic and Transportation CITT - Canadian International Trade Tribunal CITT - Citizens’ Independent Transportation Trust CITT - Commander's Integrated Training Tool) will determine whether there is a likelihood of injury to the Canadian sugar industry should the duties expire.The CITT determination is due on November 2, 2005.Although some changes have been made to the United States and European Union sugar programs, they have not materially changed the factors that led to the continuation of the duties in 2000.There is no assurance that the duties will be continued for a further five years. The Taber beet slicing campaign terminated late January with almost 109,000 metric tonnes of beet sugar production.The planting for next fiscal crop started in early April with acreage of approximately 34,000, which is slightly less than last year. Rogers' long-term debt of $100.0 million matures in August 2005. A partial redemption of $47.5 million will be done on May 2, 2005, while a term loan is currently being negotiated with a Canadian financial institution for the repayment of the balance of the loan upon maturity.The Fund and Rogers will save approximately $2.5 million annually in interest costs from the refinancing of Rogers' long-term debt. ROGERS SUGAR INCOME FUND (TSX:RSI.UN) |
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