MONTREAL, QUEBEC--(Marketwire - Aug. 3, 2011) - (TSX:RSI)
Message to Shareholders: On behalf of the Board of Directors, I am pleased to present the unaudited consolidated financial results of Rogers Sugar Inc. (the "Company") for the three and nine months ended July 2, 2011.
Volume for the third quarter was 163,001 metric tonnes, as opposed to 180,462 metric tonnes in the comparable quarter of last year, a decrease of approximately 17,500 metric tonnes. Year-to-date volume of 478,198 metric tonnes is approximately 11,800 metric tonnes lower than last year. Industrial volume was lower by approximately 1,400 metric tonnes during the quarter but higher by approximately 6,900 metric tonnes year-to-date due in large part to increases from existing customers in their overall business and timing in deliveries. Consumer volume was lower by approximately 4,200 metric tonnes for the quarter but higher by approximately 2,600 metric tonnes year-to-date to the comparable periods of fiscal 2010. The decrease for the quarter was due mainly to aggressive promotions run by certain of our customers during the second quarter. Liquid volume decreased by approximately 2,400 metric tonnes for the quarter and 17,400 metric tonnes year-to-date, as the decline in this segment continued as a result of higher values of raw sugar versus lower priced high fructose corn syrup. Export volume was lower by approximately 9,500 metric tonnes for the quarter as approximately 15,000 metric tonnes were exceptionally shipped in the comparable quarter of fiscal 2010 under the U.S. Tier II duty provisions. The lower sales to the U.S. were somewhat offset with higher export sales to Mexico during the quarter. Year-to-date export sales are lower by approximately 3,900 metric tonnes due again to the lower shipments to the U.S. The export sales last year to the U.S. were as a result of high refined sugar prices in the U.S. combined with lower world raw sugar values, which allowed the Company to absorb the U.S. Tier II duty. These market conditions are thus far not present in fiscal 2011.
Since the adoption of the accounting policies for derivative financial instruments the Company's operating results are now subject to significant fluctuations. These fluctuations are due to the mark-to-market of all derivative financial instruments and embedded derivatives in non-financial instruments at the end of the reporting period. This accounting income does not represent a complete understanding of factors and trends affecting the business. We therefore prepared adjusted gross margin and adjusted earnings results to reflect the performance of the Company during the reporting period comparable to the earnings reported in previous periods. All these non-GAAP adjustments are explained in detail in the Management's Discussion and Analysis prepared for the quarter ended July 2, 2011. At the end of the third quarter, a net loss adjustment of $6.2 million before income taxes was recorded due to mark-to-market evaluation, thus reducing earnings before income taxes by that amount. Year-to-date, a mark-to-market net gain adjustment of $6.5 million before income taxes was recorded. Most of this year-to-date gain is due to the increase in the prices of raw sugar and natural gas since September 30, 2010. These mark-to-market charges are also adjusted in the free cash flow calculation.
For the quarter, adjusted gross margin decreased by approximately $3.7 million, when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margin was $107.42 as compared to $117.56 for the comparable quarter of last year. The reduction in adjusted gross margin per tonne is due mainly to raw sugar premiums incurred on the purchase of raw cane sugar on a spot basis slightly offset by higher margins earned from a better sales mix, and from Taber's domestic beet sugar sales. For the year-to-date adjusted gross margin was $5.5 million lower than last year's comparable period while the adjusted gross margin rate was $120.89 as compared to $129.11 in fiscal 2010. Again the decrease in the year-to-date adjusted gross margin rate is due mainly to raw sugar premiums incurred on approximately 75,000 metric tonnes of raw cane sugar purchased since the start of the year, partially offset by higher margins earned from a better sales mix and from Taber's domestic beet sugar sales.
For the quarter adjusted EBIT of $10.7 million was $3.5 million lower than last year's comparable quarter due mainly to the lower adjusted gross margin of $3.7 million, slightly offset by lower administrative costs. For the year-to-date adjusted EBIT of $37.0 million was $6.3 million lower than last year due again to lower adjusted gross margins of $5.5 million and higher administrative costs of $0.8 million due to reorganization costs of $0.3 million, costs incurred in converting from an income trust of $0.3 million and timing of expenses.
For the quarter, free cash flow was $8.9 million as compared to $12.2 million in fiscal 2010. Year-to-date free cash flow was $30.8 million, a decrease of $7.3 million from last year's comparable period. The decrease in the third quarter and year-to-date free cash flow was due in large part to the new corporate structure where income taxes are paid by the Company on its net income. The income tax expense, for the third quarter and year-to-date was $2.5 and $4.9 million respectively at the parent company level and accounts for a large part of the shortfall in free cash flow from the previous comparable period. The remaining shortfall of $0.8 million for the quarter and of $2.4 million year-to-date was due mainly to lower operating profits. The Company, under the new corporate structure, declared a quarterly dividend of 8.5 cents per share for a total payout of $7.6 million. Year-to date total free cash flow exceeds the payout to shareholders by $5.6 million.
As we stated in our last quarterly releases, raw sugar supply was very tight earlier in the year and still remains tight for prompt shipments. Significant premiums to the #11 raw sugar values were being charged for nearby raw sugar deliveries. In December 2010, the Company completed the purchase of the remaining 25% of its raw sugar needs for fiscal 2011 as the majority had been contracted well in advance under long term agreements. These new contracts were at significant premiums to the market which had a negative impact on our adjusted gross margin rate to date and will continue to negatively impact our gross margin rate, as deliveries occur, for the balance of the fiscal year.
In December 2010 we also negotiated new long-term contracts with raw sugar suppliers for approximately 75% of our estimated raw sugar requirements through June 2014. These contracts will protect the Company from large premiums should the raw sugar market maintain its current supply environment.
Sales volume for fiscal 2011 will be lower than fiscal 2010 as we do not anticipate any special access to the U.S. market in fiscal 2011. The spread between the world raw sugar and the U.S. refined sugar market is not wide enough to allow the Company to pay the Tier II duty of approximately $360 per metric tonne and generate a profit on such a sale. Last fiscal year approximately 41,000 metric tonnes were shipped to the U.S. under Tier II duty provisions. On the other hand we were able to secure some additional volume to Mexico for this fiscal year and have also extended the current contract through fiscal 2012 for approximately 15,000 metric tonnes.
On December 1, 2010, the Canadian Sugar Institute ("CSI") filed an application with the Federal Court of Appeal for judicial review of the decision by the Canadian International Trade Tribunal ("CITT") to rescind its order against dumped and subsidized refined sugar from the European Union ("EU"). The application requested that the matter be referred back to the CITT to reconsider the evidence taking into account any instructions of the Court. The CSI also asked the Federal Court to issue a direction to the CITT that, if the EU order is restored, antidumping and countervailing duties shall be payable on all EU sugar imported into Canada on or after November 1, 2010, as if the EU order had not been rescinded. On January 12, 2011, the CITT sent a letter to the Court indicating that it will not be intervening in the proceeding. On March 11, 2011, the Court granted the Attorney General of Canada leave to withdraw from the proceeding. The CSI's application is continuing unopposed by the CITT and the Government of Canada. A decision is expected later this year.
FOR THE BOARD OF DIRECTORS,
Signed
Stuart Belkin, Chairman
MANAGEMENTS' DISCUSSION AND ANALYSIS
On January 1, 2011 Rogers Sugar Inc. ("Rogers"), completed the conversion from an income trust to a corporation pursuant to a plan of arrangement under section 192 of the Canada Business Corporation Act. Pursuant to the plan of arrangement, unitholders exchanged each trust unit of Rogers Sugar Income Fund (the "Fund") on a one-for-one basis for shares of Rogers. Rogers is considered a continuation of the Fund and as such the year-to-date results and comparable financial results include the financial results of the Fund to December 31, 2010. All references to shares, dividends and shareholders in this Management's Discussion and Analysis ("MD&A") pertain to common shares and common shareholders subsequent to the conversion and units, distributions and unitholders prior to the conversion.
This MD&A should be read in conjunction with the unaudited financial statements and notes thereto in this quarterly report. The quarterly consolidated financial statements and any amounts shown in this MD&A were not reviewed or audited by our external auditors.
In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with generally accepted accounting principles (GAAP), with a number of non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes (includes) amounts, or is subject to adjustments that have the effect of excluding (including) amounts, that are included (excluded) in most directly comparable measures calculated and presented in accordance with GAAP. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
We use these non-GAAP financial measures in addition to, and in conjunction with, results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting our business.
In the MD&A, we discuss the non-GAAP financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in the MD&A.
This report contains certain forward-looking statements which reflect the current expectations of Rogers and Lantic Inc., (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. These financial statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although this is not an exhaustive list, the Company cautions investors that statements concerning the following subjects are, or are likely to be, forward-looking statements: future prices of raw sugar, natural gas costs, the opening of special refined sugar quotas in the United States, beet production forecasts, the status of labour contracts and negotiations, the level of future dividends and the status of government regulations and investigations. Forward-looking statements are based on estimates and assumptions made by the Company in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. This 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 Rogers and Lantic Inc., 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 August 3, 2011.
Internal controls disclosure
In accordance with Regulation 52-109 respecting certification of disclosure in issuers' interim filings, the Chief Executive Officer and Chief Financial Officer have designed or caused to be designed under their supervision, disclosure controls and procedures.
In addition, the Chief Executive Officer and the Chief Financial Officer have designed or caused to be designed under their supervision internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
The Chief Executive Officer and the Chief Financial Officer have evaluated whether or not there were any changes to its ICFR during the three month period ended July 2, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR. Except for the following event, no such changes were identified through their evaluation.
The Company is in the process of transitioning its financial systems to an ERP system. On April 3, 2011 the Company implemented the second phase of the transition, which included the hedging of raw sugar and foreign exchange system, the sales and invoicing system and the finished goods inventory system. The implementation included both new controls over ICFR and replaced controls in the previous information technology system. The third and last phase of the transition is planned for implementation late in fiscal 2012.
Results of operations
| Consolidated Results | For the three months ended | For the nine months ended | ||||
| (In thousands of dollars, except for volume and per share information) | July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
||
| Volume (metric tonnes) | 163,001 | 180,462 | 478,198 | 489,978 | ||
| Revenues | $150,892 | $156,302 | $451,748 | $443,609 | ||
| Gross margin | 11,509 | 17,335 | 62,960 | 34,402 | ||
| Administration and selling | 4,463 | 4,794 | 14,721 | 13,968 | ||
| Distribution | 2,150 | 2,054 | 5,528 | 5,593 | ||
| Depreciation and amortization | 188 | 125 | 563 | 410 | ||
| Earnings before interest and provision for income taxes (EBIT) |
$4,708 | $10,362 | $42,148 | $14,431 | ||
| Interest, net of interest income and other charges | 3,495 | 4,654 | 8,193 | 10,856 | ||
| Provision for (recovery of) income taxes | 307 | (1,380 | ) | 6,213 | (7,929 | ) |
| Net earnings | $906 | $7,088 | $27,742 | $11,504 | ||
| Net earnings per share – basic | $0.01 | $0.08 | $0.31 | $0.13 | ||
In the normal course of business, the Company uses derivative financial instruments consisting of sugar futures, foreign exchange forward contracts, natural gas futures and interest rate swaps. The Company's operating company sells refined sugar to some clients in US dollars. These sales contracts are viewed as having an embedded derivative if the functional currency of the customer is not US dollars, the embedded derivative being the source currency of the transaction, U.S. dollars. Derivative financial instruments and embedded derivatives are marked-to-market at each reporting date, with the unrealized gain/loss charged to the consolidated statement of operations with a corresponding offsetting amount charged to the balance sheet.
Management believes that the Company's financial results are more meaningful to management, investors, analysts and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments and from embedded derivatives for which adjusted financial results provide a more complete understanding of factors and trends affecting our business. This measurement is a non-GAAP measurement.
Management uses the non-GAAP adjusted results of the operating company to measure and evaluate the performance of the business through its adjusted gross margin, adjusted EBIT, adjusted net earnings and adjusted net earnings per share. In addition, management believes that these measures are important to our investors and parties evaluating our performance and comparing such performances to our past results. Management also uses adjusted gross margin, adjusted EBIT, adjusted net earnings and adjusted net earnings per share when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.
The results of operations would therefore need to be adjusted by the following:
| Income (loss) | For the three months ended |
For the nine months ended |
||||||
| (In thousands) | July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
||||
| Mark-to-market adjustment (excluding interest swap) | $ (11,884 | ) | $ 10,754 | $ (4,591 | ) | $ (15,322 | ) | |
| Cumulative timing differences | 5,884 | (14,634 | ) | 9,744 | (13,538 | ) | ||
| Total adjustment to cost of sales | $ (6,000 | ) | $ (3,880 | ) | $ 5,153 | $ (28,860 | ) | |
A significant part of the above mark-to-market adjustment relates to the movement of raw sugar prices during the quarter and year-to-date. There was an increase in world raw sugar values during the quarter and as a consequence, a mark-to-market loss of $12.6 million was recorded on raw sugar futures contracts for the quarter, while a loss of $7.7 million was recorded year-to-date. In the comparable periods of fiscal 2010 a gain of $4.8 million was recorded for the quarter and a loss of $15.3 million year-to-date. Since the start of the fiscal year natural gas costs increased slightly and as a result, a mark-to-market gain of $4.6 million was recorded year-to-date but a loss of $0.2 million was recorded in the quarter as compared to a loss of $0.3 million for the comparable quarter and a year-to-date loss of $3.9 million in fiscal 2010. Foreign exchange contracts and embedded derivatives on which foreign exchange movements have an impact, had a combined mark-to-market gain of $0.9 million for the quarter and a loss of $1.5 million year-to-date. For the comparable period the combined mark-to-market adjustment for foreign exchange contracts and embedded derivatives was a gain of $6.3 million for the quarter and of $3.9 million for year-to-date. The total net adjustment to cost of sales was a loss of $11.9 million for the quarter and of $4.6 million year-to-date, as opposed to a gain of $10.8 million for the comparable quarter and a loss of $15.3 million year-to-date.
In addition, the Company recorded a mark-to-market loss of $0.2 million for the quarter and a gain of $1.3 million year-to-date, on the mark-to-market of an interest swap under short-term interest expense as opposed to a loss of $0.7 million and a gain of $0.2 million for year-to-date for the comparable periods in fiscal 2010.
The following table shows the adjusted consolidated results (non-GAAP) without the above mark-to-market adjustment:
| Consolidated Results | For the three months ended |
For the nine months ended |
||||||
| (In thousands except per share information) | July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
||||
| Gross margin as per financial statements | $ 11,509 | $ 17,335 | $ 62,960 | $ 34,402 | ||||
| Adjustment as per above | 6,000 | 3,880 | (5,153 | ) | 28,860 | |||
| Adjusted gross margin | 17,509 | 21,215 | 57,807 | 63,262 | ||||
| EBIT as per financial statements | 4,708 | 10,362 | 42,148 | 14,431 | ||||
| Adjustment as per above | 6,000 | 3,880 | (5,153 | ) | 28,860 | |||
| Adjusted EBIT | 10,708 | 14,242 | 36,995 | 43,291 | ||||
| Net earnings as per financial statements | 906 | 7,088 | 27,742 | 11,504 | ||||
| Adjustment as per above | 6,000 | 3,880 | (5,153 | ) | 28,860 | |||
| Adjustment for mark-to-market of interest swap | 196 | 739 | (1,322 | ) | (176 | ) | ||
| Future taxes (recovery) provision on above | (1,598 | ) | (556 | ) | 1,653 | (7,613 | ) | |
| Adjusted net earnings | $ 5,504 | $ 11,151 | $ 22,920 | $ 32,575 | ||||
| Net earnings per share basic,as per financial statements | $ 0.01 | $ 0.08 | $ 0.31 | $ 0.13 | ||||
| Adjustment for the above | 0.05 | 0.05 | (0.05 | ) | 0.24 | |||
| Adjusted net earnings per share basic | $ 0.06 | $ 0.13 | $ 0.26 | $ 0.37 | ||||
The third quarter volume decreased by approximately 17,500 metric tonnes, as compared to the comparable quarter of fiscal 2010. All sales segments were lower than the comparable quarter of fiscal 2010. Export volume was lower by 9,500 metric tonnes as approximately 15,000 metric tonnes were shipped in the U.S. against the Tier II duty provisions in fiscal 2010. This was somewhat offset with higher export sales to Mexico in fiscal 2011. The export sales last year were as a result of high refined sugar prices in the U.S. combined with lower world raw sugar values, which allowed the Company to absorb the U.S. high Tier II duty of approximately $360.00 per metric tonne. These market conditions are not present in fiscal 2011. Consumer volume decreased by approximately 4,200 metric tonnes during the quarter due in large part to aggressive promotions run by certain retailers in the second quarter of the fiscal year which had a negative impact on the results of the current quarter. Liquid volume decreased by approximately 2,400 metric tonnes due to the loss of some HFCS substitutable business as a result of high raw sugar values versus lower priced HFCS. Industrial volume was lower by approximately 1,400 metric tonnes due in large part to timing in deliveries.
Year-to-date volume decreased by approximately 11,800 metric tonnes due mainly to lower liquid volume of approximately 17,400 metric tonnes and lower export volume of approximately 3,900 metric tonnes slightly offset by higher consumer volume of approximately 2,600 metric tonnes and of higher industrial volume of 6,900 metric tonnes. The year-to-date increase in industrial and consumer volumes and decrease in the liquid volume are for the reasons mentioned above. The year-to-date decrease in the export volume is due to sales in fiscal 2010 against the U.S. Tier II duty provisions.
Revenues for the quarter and year-to-date were $5.4 million lower due mainly to the lower volume. Year-to-date revenues were $8.1 million higher than the previous year comparable period due to the higher price of world raw sugar in fiscal 2011. The price of the world raw sugar traded in a range of 20 to 28 cents per pound for the quarter which was on average higher than the comparable period last year, reaching a low of 20.40 cents per pound in May 2011 but recovering to near contract highs in June 2011.
As previously mentioned, gross margin of $11.5 million for the quarter does not reflect the economic margin of the Company, as it includes a loss of $6.0 million for the mark-to-market of derivative financial instruments, mainly as a result of the increase in world raw sugar values in June 2011. We will therefore comment on adjusted gross margin results.
For the quarter, adjusted gross margin decreased by $3.7 million, when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margins were $107.42 as compared to $117.56 for the comparable quarter of last year. The decrease in adjusted gross margin rate is due mainly to large premiums paid for some of our raw sugar supply bought in the previous quarter. Most of the cane raw sugar is purchased in advance under long term contracts, but some volume is not committed due to the uncertainty of the total sales volume and the size of Taber's beet crop. During the quarter the Company incurred costs of approximately $2.6 million for such premiums over the normal values of the #11 raw sugar values. This was partially offset from higher gross margin due to a better sales mix and from a higher raw sugar value for Taber's domestic beet sugar sales. Year-to-date adjusted gross margin rate per metric tonne was $120.89 as compared to $129.11 for fiscal 2010 as approximately $7.0 million has been incurred for premiums on raw sugar supply which again was partially offset by benefits incurred from a better sales mix and from higher raw sugar values for Taber's domestic beet sugar sales.
Administration and selling costs were $0.3 million lower than the comparable quarter due mainly to timing in expenses but higher by $0.8 million year-to-date as a result of expenses incurred for the conversion from an income trust to a corporation of approximately $0.3 million, to reorganization expenses of approximately $0.3 million and timing in expenses. Distribution costs were slightly higher for the quarter and approximately $0.1 million lower year-to-date due to timing of deliveries between Vancouver and Taber.
Interest expense for the quarter includes a mark-to-market loss of $0.2 million and a gain of $1.3 million year-to-date for the 5-year, $70.0 million interest swap entered into in July 2008, as compared with a loss of $0.7 million for the quarter and a gain of $0.2 million year-to-date for fiscal 2010. Without the above mark-to-market adjustment, interest expense for the quarter and year-to-date was lower by $0.6 and $1.5 million respectively from last year comparable periods. In the third quarter of fiscal 2010 the Company issued new $50.0 million, 5.7% fourth series convertible unsecured subordinated debentures ("Fourth series debentures") in April 2010 and only redeemed the $50.0 million, 6.0% second series convertible unsecured debentures ("Second series debentures) on June 29, 2010, thus incurring additional interest expense for most of the third quarter which accounts for most of the favourable variance in this year's quarterly and year-to-date results.
Statement of quarterly results
The following is a summary of selected financial information of the consolidated financial statements and non-GAAP measures of the Company for the last eight quarters.
| QUARTERS | |||||||||||
| 2011 (Unaudited) |
2010 (Unaudited) |
2009 (Unaudited) |
|||||||||
| (In thousands of dollars, except for volume, margin rate and per share information) | 3-Q | 2-Q | 1-Q | 4-Q | 3-Q | 2-Q | 1-Q | 4-Q | |||
| Volume (MT) | 163,001 | 155,501 | 159,697 | 192,171 | 180,462 | 153,103 | 156,413 | 187,538 | |||
| Total revenues | 150,892 | 149,418 | 151,438 | 163,264 | 156,302 | 143,851 | 143,456 | 154,596 | |||
| Gross margin (loss) | 11,509 | 11,559 | 39,892 | 53,237 | 17,335 | (11,396 | ) | 28,463 | 40,559 | ||
| EBIT (loss) | 4,708 | 4,160 | 33,280 | 44,773 | 10,362 | (17,638 | ) | 21,707 | 32,434 | ||
| Net earnings (loss) | 906 | 817 | 26,019 | 33,710 | 7,088 | (12,136 | ) | 16,552 | 24,004 | ||
| Gross margin rate per MT | 70.61 | 74.33 | 249.80 | 277.03 | 96.06 | (74.43 | ) | 181.97 | 216.27 | ||
| Per share | |||||||||||
| Net earnings (loss) | |||||||||||
| Basic | 0.01 | 0.01 | 0.30 | 0.39 | 0.08 | (0.14 | ) | 0.19 | 0.27 | ||
| Diluted | 0.01 | 0.01 | 0.25 | 0.32 | 0.08 | (0.14 | ) | 0.17 | 0.23 | ||
| Non-GAAP Measures | |||||||||||
| Adjusted gross margin | 17,509 | 13,880 | 26,418 | 23,098 | 21,215 | 15,573 | 26,474 | 33,208 | |||
| Adjusted EBIT | 10,708 | 6,481 | 19,806 | 14,634 | 14,242 | 9,331 | 19,718 | 25,083 | |||
| Adjusted net earnings | 5,504 | 2,120 | 15,296 | 12,136 | 11,151 | 6,548 | 14,876 | 18,638 | |||
| Adjusted gross margin rate per MT | 107.42 | 89.26 | 165.43 | 120.20 | 117.56 | 101.72 | 169.26 | 177.07 | |||
| Adjusted net earnings per share | |||||||||||
| Basic | 0.06 | 0.02 | 0.17 | 0.14 | 0.13 | 0.08 | 0.17 | 0.21 | |||
| Diluted | 0.06 | 0.02 | 0.16 | 0.13 | 0.12 | 0.08 | 0.15 | 0.18 | |||
Historically the first quarter (October to December) of the fiscal year is the best quarter for adjusted gross margins and adjusted net earnings due to the favourable sales mix of products sold. This is due to the increased sales of baked goods during that period of the year. At the same time, the second quarter (January to March) is historically the lowest volume quarter, resulting in lower adjusted gross margins, adjusted gross margin rate and adjusted net earnings.
Liquidity
The cash flow generated by the operating company, Lantic Inc., is paid to Rogers by way of dividends and return of capital on the common shares of Lantic, and by the payment of interest on the subordinated notes of Lantic Inc. held by Rogers, after having taken a reasonable reserve for capital expenditures and working capital. The cash received by Rogers is used to pay dividends to its shareholders.
Cash flow from operations was $17.2 million in the third quarter of 2011, as opposed to $35.3 million in the comparable quarter of fiscal 2010. Year-to-date cash flow from operations is negative $15.6 million as opposed to positive $14.1 million for the comparable period of fiscal 2010. The major reason for the decreased cash flow balances for the quarter and year-to-date is due to the much higher level of inventories and value of raw sugar in fiscal 2011 than for the same period last year. Raw sugar deliveries were delayed last year due to congestion at the Brazilian shipping ports and as a result the Company ran out of raw sugar on two different occasions. To prevent this from happening again the Company increased raw sugar inventories by approximately 20,000 metric tonnes. These inventories are expected to be reduced to a more standard level by the end of the fiscal year. The increase in the overall value of the inventories at the end of the period combined with the additional volume, accounts for most of the cash flow movement.
Total capital expenditures were lower than the previous year, due mainly to timing in projects when compared to fiscal 2010.
The additional cash flow requirements year-to-date were funded by available cash reserves and additional short-term borrowings of $10.0 million from the bank credit facility. For the quarter the generated cash flow was used mainly to reduce short-term borrowings by $10.0 million.
In order to provide additional information the Company believes it is appropriate to measure free cash flow that is generated by the operations of the Company and can be compared to the level of dividend paid by Rogers. Free cash flow is defined as cash flow from operations excluding changes in non-cash working capital, mark-to-market and derivative timing adjustments, financial instruments non-cash amount and including capital expenditures. Free cash flow is a new non-GAAP measure presented in the second quarter of fiscal 2011 in connection with the conversion to an incorporated entity. Free cash flow for prior periods has been presented on a consistent basis.
Free cash flow is as follows:
| For the three months ended | For the nine months ended | ||||||||
| (In thousands of dollars) | July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
July 2, 2011 (Unaudited) |
June 30, 2010 (Unaudited) |
|||||
Cash flow from operations |
$ 17,214 | $ 35,347 | $ (15,577 | ) | $ 14,147 | ||||
| Adjustments: | |||||||||
| Changes in non-cash working capital |
(13,775 | ) | (27,783 | ) | 51,574 | 3,654 | |||
| Mark-to-market and derivative timing adjustment |
6,196 | 4,619 | (6,475 | ) | 28,684 | ||||
| Financial instruments non-cash amount | 228 | 3,215 | 4,343 | (1,962 | ) | ||||
| Capital expenditures | (1,076 | ) | (1,165 | ) | (3,511 | ) | (4,377 | ) | |
| Investment capital expenditures | 115 | 27 | 160 | 27 | |||||
| Issue of shares | - | 277 | 275 | 277 | |||||
| Financing costs | - | (2,365 | ) | - | (2,365 | ) | |||
| Free cash flow | $ 8,902 | $ 12,172 | $ 30,789 | $ 38,085 | |||||
| Declared dividends | $ 7,552 | $ 10,046 | $ 25,163 | $ 30,130 | |||||
Free cash flow was $3.3 million lower than the comparable quarter in fiscal 2010 and $7.3 lower year-to-date. With the new corporate structure, Rogers is now fully taxed and a provision of $2.5 million for current income taxes was recorded in the current quarter and of $4.9 million year-to-date, versus nil for the comparable periods last year. The remaining shortfall of $0.8 million in the quarter is due mainly to the lower profitability at the operating level. The year-to-date shortfall in free cash flow of $7.3 million can similarly be explained by the additional current tax provision of $4.9 million and lower profitability at the operating level.
Changes in non-cash operating working capital represents quarter-over-quarter movement in current assets such as accounts receivable, inventories and current liabilities like accounts payable. Movement in these accounts are due mainly to timing in the collection of receivables, receipts of raw sugar and payment of liabilities. Increases or decreases in such accounts do not therefore constitute available cash for distribution. Such increases or decreases are financed from available cash or from the Company's available credit facility of $200 million. Increases or decreases in short-term bank indebtedness are also due to timing issues from the above, and therefore do not constitute available free cash flow.
Mark-to-market and financial instruments adjustments are due mainly to unrealized gains or losses on financial derivative instruments and are therefore non-cash amounts except for margin calls on net sugar positions.
Investment capital expenditures are added back to free cash flow as these capital projects are not necessary for the operation of the plants, but are undertaken due to their substantial operational savings to be realized once these projects are completed.
In fiscal 2011, 70,000 shares were issued under the Stock Option Plan for total proceeds of $0.275 million.
In fiscal 2010 an amount of $2.4 million was paid in financing fees on the issuance of the Fourth series unsecured convertible debentures.
The Company, under the new corporate structure, is now paying a quarterly dividend of 8.5 cents per share for a total payout of $7.6 million for the quarter. This amount is comparable to the distribution which was paid by the Fund on an after-tax basis, for taxable Canadian shareholders.
Contractual obligations
There are no material changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 30, 2010 Annual Report.
At July 2, 2011, the operating company had commitments to purchase a total of 1,487,500 metric tonnes of raw sugar, of which only 89,400 metric tonnes had been priced, for a total dollar commitment of $55.8 million.
Capital resources
Lantic has $200.0 million as authorized line of credit available to finance its operation. At quarter's end, $80.0 million had been drawn from the working capital facility for working capital purposes. The increase from September 2010 is due mainly to the additional level of inventories and additional cost of such inventories as a result of higher world raw sugar values in June 2011.
Cash requirements for working capital and other capital expenditures are expected to be paid from available credit resources and funds generated from operations.
Outstanding securities
For the quarter 63,918 shares were issued following the conversion of $0.326 million of the third series convertible unsecured subordinated debentures ("Third series debentures"). Year-to-date, 1,233,515 shares have been issued following the conversion of $6.291 million of the Third Series convertible unsecured subordinated debentures, at a conversion price of $5.10 per share. In addition 70,000 shares were issued under the Stock Option Plan year-to-date. As at August 3, 2011, there were 88,837,628 shares outstanding.
With the conversion of the Fund to a corporation on January 1, 2011, the stated capital of Rogers was reduced by the accumulated deficit as at December 31, 2010, of $276.5 million to $284.1 million. In addition following a Special Resolution passed by shareholders at the February 1, 2011 shareholders meeting, the stated capital was reduced by a further $200.0 million, to $84.1 million.
Changes in accounting policies and critical accounting estimates
Our accounting policies and critical accounting estimates 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, 2010.
International financial reporting standards ("IFRS")
In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that publicly accountable enterprises will be required to adopt IFRS for interim and annual reporting purposes, for fiscal years beginning on or after January 1, 2011. The Company will be required to begin reporting under IFRS for the quarter ending December 31, 2011 and will be required to prepare an opening balance sheet and provide information that conforms to IFRS for comparative periods presented.
The Company began planning the transition from current Canadian GAAP to IFRS by establishing a project plan and a project team. The project team is led by senior finance executives that provide overall project governance, management and support. The project team reports quarterly the progress made on the project to the Audit Committee, and discusses key findings and future accounting requirements.
The project plan consists of three phases: the initial assessment, detailed assessment and design, and implementation. The Company has completed the initial assessment phase, which included the completion of a high level review of the major differences between current Canadian GAAP and IFRS. The initial assessment also included training sessions for project team members and discussions with the Company's external auditors and advisors.
The Company is now engaged in the detailed assessment and design phase. The detailed assessment and design phase involves completing a comprehensive analysis of the impact of the IFRS differences identified in the initial assessment phase. The design of solutions to resolve these IFRS differences is progressing according to plan. The following are some of the significant differences between Canadian GAAP and IFRS that have been identified to date and which are currently being evaluated:
- Property, Plant and Equipment (International Accounting Standard ("IAS") 16): Under IFRS, components of capital assets with different useful lives must be identified to calculate depreciation. The Company is well advanced in the process of examining the componentization of capital assets having completed one plant and being in the process of completing the two remaining plants. After this process is complete the impact on depreciation under IFRS will be measured.
- Borrowing Costs (IAS 23): Under IFRS, borrowing costs incurred during the period in which a qualifying capital asset is being constructed must be capitalized as part of the cost of the asset. Under the Company's current accounting policy, all borrowing costs are charged to earnings and included in interest expense. The Company expects to use an optional exemption in order to capitalize borrowing costs only for assets for which the commencement date for capitalization is on or after the transition date. Accordingly, the Company does not expect to record an opening IFRS balance sheet adjustment for borrowing costs incurred prior to the transition date.
- Impairment of Assets (IAS 36): Under IFRS, assets need to be grouped in cash generating units ("CGUs") on the basis of independent cash inflows for impairment testing purposes, using a single-step-approach. The Company has determined its group of cash units to be used for the purpose of goodwill impairment testing. The Company has determined that there will be no goodwill impairment as at the date to the transition to IFRS.
- Leases (IAS 17): The Company has entered into various leases which are accounted for as operating leases under Canadian GAAP. The Company has preliminarily determined that there will not be significant changes in classification of its operating leases to a finance (capital) lease under IFRS.
- Employee benefits (IAS 19): Under IFRS, vested past service costs under a defined benefit plan are immediately recognized in net earnings. As of the transition date, the Company is expected to record the balance of all vested past service costs against retained earnings. In addition, as permitted under IFRS, the Company is expect to recognize actuarial gains and losses as they occur in other comprehensive income, with no impact on net earnings.
- Consolidation (IAS 27) and Special Purpose Entities (Standing Interpretations Committee ("SIC") 12): The Variable Interest Entity model of consolidation does not exist under IFRS. The Company completed its assessment of the impact of IAS 27 and SIC 12 and has determined that Lantic Inc., the wholly-owned subsidiary of Rogers should be consolidated. As a result, we do not expect any changes as at the date of transition under IFRS.
- Financial Instruments (IAS 32 and 39): From the transition date of October 1, 2010 to the day before the Fund converted to a corporation on January 1, 2011, the classification of the trust units have been determined to be equity classified, consistent with Canadian GAAP, due to modifications made to the Declaration of Trust on September 29, 2010. However, for that period, the conversion options of the convertible debentures have been determined to be embedded derivatives and the Unit Option Plan has been determined to be liability-classified share-based payment awards. The conversion options and share-based payment awards will become equity-classified on January 1, 2011 at the time of conversion to a corporation. The Company is currently in the process of computing the impact, which will be a non-cash amount limited to the first quarter of fiscal 2011.
- First time Adoption of IFRS (IFRS 1): The Company intends to use the business combinations exemption and not restate the accounting of past business acquisitions. The Company does not intend to apply the exemption to use fair value as deemed cost, rather it intends to keep property, plant and equipment at their original costs.
The transition plan remains on-track and the Company believes it is well positioned to transition to IFRS in accordance with the timelines mandated by the AcSB. The work completed to date suggests that there should be minimal impact on the Company's business processes, IT systems, disclosure controls and procedures, and internal controls over financial reporting. However, these preliminary conclusions may change as the Company continues to progress through its transition plan and considers any new IFRS developments leading up to the Company's changeover date.
Risk factors
Risk factors in the Company's business and operations are discussed in the Management's Discussion and Analysis of our Annual Report for the year ended September 30, 2010. This document is available on SEDAR at www.sedar.com or on our website at www.rogerssugar.com.
OUTLOOK
The world raw sugar supply was very tight earlier in the fiscal year and as a result substantial premiums over the # 11 raw sugar values are being charged for nearby shipments. For fiscal 2011 the Company had contracted approximately 75% of its raw sugar requirement and the balance was contracted in December 2010 at significant premiums over the raw sugar values. These premiums had a negative impact on the first nine months results and will continue to negatively impact the financial results for the remaining quarter of the fiscal year.
New long term sugar supply contracts were negotiated earlier this year with raw sugar suppliers for over 90% of our estimated raw sugar requirements of fiscal 2012. These contracts will protect the Company from large premiums should the world raw sugar market retain its tight supply environment.
Sales volume will be lower than the previous year as we do not anticipate any special access to the U.S. market in fiscal 2011. The spread between the world raw sugar market and the U.S. refined sugar market is not wide enough to allow Rogers to pay the Tier II duty of approximately $360 per metric tonne and generate a profit on such sale. Last fiscal year approximately 41,000 metric tonnes were shipped to the U.S. under the Tier II duty program.
In the current quarter we were able to secure some additional sales to Mexico for this fiscal year and extend our current contract through fiscal 2012 for approximately 15,000 metric tonnes. This sugar has to be supplied from beet sugar as it needs to be Canadian origin sugar.
The higher world raw sugar values currently in the market place will be beneficial for the approximately 10,000 metric tonnes of beet sugar remaining to be sold domestically this year. We will continue to monitor the current raw sugar environment. To take advantage of the current high prices some beet pre-hedge has already been put in place for approximately half of the volume to be sold in fiscal 2012.
A total of approximately 34,000 acres were planted this spring in Taber. Under normal growing and harvesting conditions, this should result in approximately 110,000 metric tonnes of beet sugar for fiscal 2012. Depending on the weather growing conditions, the Taber plant may start the slicing campaign in early September, which should reduce distribution costs of Vancouver bulk transfers to Taber and improve the extraction rate of next year's sugar beets.
A significant portion of fiscal 2011's natural gas requirement has been hedged at average prices comparable to those realized in fiscal 2010. Any un-hedged volume should benefit from the current low prices of natural gas and therefore increase the adjusted gross margin rate. In addition, some futures positions for fiscal 2012 to 2014 have also been taken. Some of these positions are at prices higher than the current market values, but are at the same or at better levels than what was achieved in fiscal 2010. We will continue to monitor natural gas market dynamics with the objective of minimizing natural gas costs.
In the current volatile financial environment, return on pension plan assets may vary from historical plan performance. This, combined with the discount rate used in assessing the plan liabilities, may impact pension plan expenses in future years. The actuarial valuation of the remaining three plans was completed this year. As a result a one-time payment of approximately $1.8 million is to be paid this calendar year and future cash contributions will increase by approximately $1.0 million per year.
On December 1, 2010, the Canadian Sugar Institute ("CSI") filed an application with the Federal Court of Appeal for judicial review of the decision by the Canadian International Trade Tribunal ("CITT") to rescind its order against dumped and subsidized refined sugar from the European Union ("EU"). The application requested that the matter be referred back to the CITT to reconsider the evidence taking into account any instructions of the Court. The CSI also asked the Federal Court to issue a direction to the CITT that, if the EU order is restored, antidumping and countervailing duties shall be payable on all EU sugar imported into Canada on or after November 1, 2010, as if the EU order had not been rescinded. On January 12, 2011, the CITT sent a letter to the Court indicating that it will not be intervening in the proceeding. On March 11, 2011, the Court granted the Attorney General of Canada leave to withdraw from the proceeding. The CSI's application is continuing unopposed by the CITT and the Government of Canada. A decision is expected later this year.
| Rogers Sugar Inc. Unaudited Consolidated Balance Sheets July 2, 2011 and June 30, 2010 (In thousands of dollars) |
|||||||
| July 2 2011 |
September 30 2010 |
June 30 2010 |
|||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ 4,805 | $ 38,781 | $ 6,952 | ||||
| Accounts receivable | 60,020 | 58,231 | 60,522 | ||||
| Inventories | 100,398 | 51,358 | 66,437 | ||||
| Prepaid expenses | 3,985 | 1,885 | 3,087 | ||||
| Future income taxes | 3,041 | 1,030 | 11,300 | ||||
| Derivative financial instruments (Note 3) | 933 | 24 | 866 | ||||
| 173,182 | 151,309 | 149,164 | |||||
| Capital assets | 176,198 | 183,361 | 182,797 | ||||
| Defined benefits pension plan assets | 18,994 | 19,672 | 17,260 | ||||
| Derivative financial instruments (Note 3) | - | 1 | 410 | ||||
| Other assets | 541 | 510 | 556 | ||||
| Goodwill | 229,952 | 229,952 | 229,952 | ||||
| $ 598,867 | $ 584,805 | $ 580,139 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Short-term borrowings | $ 80,000 | $ 70,000 | $ 94,000 | ||||
| Accounts payable and accrued liabilities | 44,000 | 42,716 | 37,345 | ||||
| Derivative financial instruments (Note 3) | 10,330 | 8,989 | 10,241 | ||||
| Current capital lease obligation | 89 | 82 | 23 | ||||
| 134,419 | 121,787 | 141,609 | |||||
| Employee future benefits | 29,138 | 29,545 | 28,788 | ||||
| Derivative financial instruments (Note 3) | 7,567 | 12,343 | 11,153 | ||||
| Long-term capital lease obligation | 144 | 181 | 94 | ||||
| Convertible unsecured subordinated debentures (Note 6) | 124,957 | 130,599 | 130,383 | ||||
| Future income taxes | 20,684 | 17,542 | 19,485 | ||||
| 316,909 | 311,997 | 331,512 | |||||
| SHAREHOLDERS' EQUITY | |||||||
| Share capital (Note 6) | 90,655 | 560,543 | 559,986 | ||||
| Contributed surplus | 204,677 | 4,683 | 4,713 | ||||
| Deficit | (13,374 | ) | (292,418 | ) | (316,072 | ) | |
| 281,958 | 272,808 | $ 248,627 | |||||
| $ 598,867 | $ 584,805 | $ 580,139 | |||||
| Rogers Sugar Inc. Unaudited Consolidated Statements of Operations and Comprehensive Income For the periods ended July 2, 2011 and June 30, 2010 (In thousands of dollars – except per share amounts) |
||||||||
| For the three months ended | For the nine months ended | |||||||
| July 2, 2011 |
June 30, 2010 |
July 2, 2011 |
June 30, 2010 |
|||||
| Revenues | $ 150,892 | $ 156,302 | $ 451,748 | $ 443,609 | ||||
| Cost of sales | 139,383 | 138,967 | 388,788 | 409,207 | ||||
| Gross margin | 11,509 | 17,335 | 62,960 | 34,402 | ||||
| Expenses: | ||||||||
| Administration and selling | 4,463 | 4,794 | 14,721 | 13,968 | ||||
| Distribution | 2,150 | 2,054 | 5,528 | 5,593 | ||||
| Depreciation and amortization | 188 | 125 | 563 | 410 | ||||
| 6,801 | 6,973 | 20,812 | 19,971 | |||||
| Earnings before interest and provision for income taxes | 4,708 | 10,362 | 42,148 | 14,431 | ||||
| Interest on convertible debentures | 1,902 | 2,649 | 5,749 | 6,634 | ||||
| Amortization of deferred financing costs | 262 | 351 | 787 | 1,500 | ||||
| Short-term interest | 1,331 | 1,654 | 1,657 | 2,722 | ||||
| 3,495 | 4,654 | 8,193 | 10,856 | |||||
| Earnings before provision for income taxes | 1,213 | 5,708 | 33,955 | 3,575 | ||||
| Provision for (recovery of) income taxes: | ||||||||
| Current | 1,286 | (1,294 | ) | 5,083 | (189 | ) | ||
| Future | (979 | ) | (86 | ) | 1,130 | (7,740 | ) | |
| 307 | (1,380 | ) | 6,213 | (7,929 | ) | |||
| Net earnings and other comprehensive income | 906 | $ 7,088 | $ 27,742 | $ 11,504 | ||||
| Net earnings per share: | ||||||||
| Basic | $ 0.01 | $ 0.08 | $ 0.31 | $ 0.13 | ||||
| Diluted | $ 0.01 | $ 0.08 | $ 0.31 | $ 0.13 | ||||
| Supplemental disclosure: | ||||||||
| Employee future benefits expense | $ 1,442 | $ 1,209 | $ 4,157 | $ 3,455 | ||||
| Rogers Sugar Inc. Unaudited Consolidated Statements of Shareholders' Equity For the periods ended July 2, 2011 and June 30, 2010 (In thousands of dollars – except per share amounts) |
|||||||||
| For the nine months ended July 2, 2011 |
|||||||||
| Number of Shares |
Shares | Contri- buted Surplus |
Deficit | Total | |||||
| Balance, at September 30, 2010 | 87,534,113 | $ 560,543 | $ 4,683 | $ (292,418 | ) | $ 272,808 | |||
| Distributions | - | - | - | (10,066 | ) | (10,066 | ) | ||
| Stock-based compensation | - | - | 3 | - | 3 | ||||
| Net earnings | - | - | - | 26,019 | 26,019 | ||||
| Balance at January 1, 2011 | 87,534,113 | 560,543 | 4,686 | (276,465 | ) | 288,764 | |||
| Elimination of opening deficit to contributed surplus at January 1, 2011 (Note 7) | - | - | (276,465 | ) | 276,465 | - | |||
| Reduction of stated capital (Note 6) | - | (276,465 | ) | 276,465 | - | - | |||
| Reduction of stated capital at February 1,2011 (Note 7) |
- | (200,000 | ) | 200,000 | - | - | |||
| Dividends | - | - | - | (15,097 | ) | (15,097 | ) | ||
| Stock-based compensation | - | - | 2 | - | 2 | ||||
| Conversion of convertible debentures into common shares (Note 6) |
1,233,515 | 6,291 | - | - | 6,291 | ||||
| Issuance of shares (Note 6) |
70,000 | 286 | (11 | ) | 275 | ||||
| Net earnings | - | - | - | 1,723 | 1,723 | ||||
| Balance at July 2, 2011 | 88,837,628 | $ 90,655 | $ 204,677 | $ (13,374 | ) | $ 281,958 | |||
| For the nine months ended June 30, 2010 |
||||||||
| Number of Shares |
Shares | Contri- buted Surplus |
Deficit | Total | ||||
| Balance, beginning of period | 87,327,887 | $ 559,662 | $ 4,712 | $ (297,446 | ) | $ 266,928 | ||
| Distributions | - | - | - | (30,130 | ) | (30,130 | ) | |
| Stock-based compensation | 64,000 | 291 | 1 | - | 292 | |||
| Conversion of convertible debentures into common shares (Note 6) |
6,226 | 33 | - | - | 33 | |||
| Net earnings | - | - | - | 11,504 | 11,504 | |||
| Balance, end of period | 87,398,113 | $ 559,986 | $ 4,713 | $ (316,072 | ) | $ 248,627 | ||
| Rogers Sugar Inc. Unaudited Consolidated Statements of Cash Flows For the periods ended July 2, 2011 and June 30, 2010 (In thousands of dollars) |
||||||||
| For the three months ended | For the nine months ended | |||||||
| July 2, 2011 |
June 30, 2010 |
July 2, 2011 |
June 30, 2010 |
|||||
| Cash flows from operating activities: | ||||||||
| Net earnings (loss) | $ 906 | $ 7,088 | $ 27,742 | $ 11,504 | ||||
| Adjustments for items not involving cash: | ||||||||
| Depreciation and amortization | 3,558 | 3,294 | 10,574 | 10,146 | ||||
| Amortization of deferred financing costs | 262 | 351 | 787 | 1,500 | ||||
| Future income taxes | (979 | ) | (86 | ) | 1,130 | (7,740 | ) | |
| Employee future benefits | (93 | ) | 126 | 271 | 386 | |||
| Change in derivative financial instruments | (228 | ) | (3,215 | ) | (4,343 | ) | 1,962 | |
| Stock based compensation expenses | 1 | 6 | 5 | 15 | ||||
| Other | 12 | - | (169 | ) | 28 | |||
| 3,439 | 7,564 | 35,997 | 17,801 | |||||
| Changes in non-cash working capital: | ||||||||
| Accounts receivable | (3,079 | ) | (7,543 | ) | (1,789 | ) | (10,885 | ) |
| Inventories | 20,487 | 33,748 | (49,040 | ) | 8,699 | |||
| Prepaid expense | (813 | ) | (645 | ) | (2,100 | ) | (754 | ) |
| Accounts payable and accrued liabilities | (2,820 | ) | 2,223 | 1,355 | (714 | ) | ||
| 13,775 | 27,783 | (51,574 | ) | (3,654 | ) | |||
| 17,214 | 35,347 | (15,577 | ) | 14,147 | ||||
| Cash flows from financing activities: | ||||||||
| Short-term (repayment) borrowings | (10,000 | ) | (15,399 | ) | 10,000 | 24,000 | ||
| Dividends | (7,552 | ) | (10,046 | ) | (25,163 | ) | (30,130 | ) |
| Issue of shares | - | 277 | 275 | 277 | ||||
| Issuance of convertible unsecured debentures | - | 50,000 | - | 50,000 | ||||
| Redemption of convertible unsecured debentures | - | (49,967 | ) | - | (49,967 | ) | ||
| Deferred financing charges | - | (2,365 | ) | - | (2,365 | ) | ||
| (17,552 | ) | (27,500 | ) | (14,888 | ) | (8,185 | ) | |
| Cash flows from investing activities: | ||||||||
| Additions to capital assets | (1,076 | ) | (1,165 | ) | (3,511 | ) | (4,377 | ) |
| Net change in cash and cash equivalents | (1,414 | ) | 6,682 | (33,976 | ) | 1,585 | ||
| Cash and cash equivalents, beginning of period | $ 6,219 | $ 270 | $ 38,781 | $ 5,367 | ||||
| Cash and cash equivalents, end of period | $ 4,805 | $ 6,952 | $ 4,805 | $ 6,952 | ||||
| Supplemental disclosure: | ||||||||
| Interest paid on debt | 5,228 | 5,287 | 11,283 | 11,145 | ||||
| Income taxes (received) paid | (1,237 | ) | 180 | (884 | ) | 1,159 | ||
| Capital assets included in accounts payable and accrued liabilities and capital lease obligation |
378 | 698 | 378 | 698 | ||||
Rogers Sugar Inc.
Notes to Interim Unaudited Consolidated Financial Statements
For the nine months ended July 2, 2011 and June 30, 2010
(In thousands of dollars unless otherwise noted)
On January 1, 2011 Rogers Sugar Inc. ("Rogers" or the "Corporation"), completed the conversion from an income trust to a corporation pursuant to a Plan of Arrangement (the "Arrangement") under section 192 of the Canada Business Corporation Act. Pursuant to the Arrangement, unitholders exchanged each trust unit of Rogers Sugar Income Fund (the "Fund") for a common share of Rogers on a one-for-one basis.
The interim Consolidated Financial Statements follow the continuity of interest basis of accounting whereby the Corporation is considered a continuation of the Fund because there was no change in ownership of the Fund upon conversion. As a result, the comparative consolidated balance sheets, consolidated statements of operations and comprehensive income, consolidated statements of shareholders' equity and consolidated statements of cash flows include the Fund's results of operations for the period up to and including December 31, 2010 as previously reported and the Corporation's results of operations thereafter. All references to shares, dividends and shareholders in the interim Consolidated Financial Statements and notes pertain to common shares and common shareholders subsequent to the conversion and units, distributions and unitholders prior to conversion.
Note 1: Basis of presentation
These interim unaudited consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). These interim unaudited consolidated financial statements do not include all disclosures required by the Canadian GAAP and therefore should be read in conjunction with the consolidated financial statements and the notes thereto for the most recently prepared annual financial statements for the year ended September 30, 2010. These quarterly consolidated financial statements were not reviewed or audited by our external auditors.
Note 2: Accounting policies
These financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements of the Fund for the year ended September 30, 2010.
Note 3: Derivative Financial Instruments
Details of recorded gains/losses for the quarter, in marking-to-market all derivative financial instruments and embedded derivatives are noted below. For sugar futures contracts (derivative financial instruments), the amounts noted below are netted with the variation margins paid or received to/from brokers at the end of the reporting period. Natural gas forwards and sugar futures have been marked-to-market using published quoted values for these commodities, while foreign exchange forward contracts have been marked-to-market using rates published by the financial institution which is counter-party to these contracts. The fair value of natural gas contracts, foreign exchange forward contracts and interest swap calculation include a credit risk adjustment for the Company's or counterparty's credit, as appropriate.
| Financial Instrument Assets |
Financial Instrument Liabilities |
Gain / (Loss) | |||||||||||||
| MARK-TO-MARKET | Short-term | Long-term | Short-term | Long-term | Three months ended | Nine months ended | |||||||||
| July 2, 2011 | June 30, 2010 | July 2, 2011 | June 30, 2010 | ||||||||||||
| Sugar futures contracts and options | $ 933 | $ - | $ - | $ (956 | ) | $ (12,617 | ) | $ 4,774 | $ (7,659 | ) | $ (15,291 | ) | |||
| Natural gas futures contracts | - | - | (5,477 | ) | (4,640 | ) | (200 | ) | (324 | ) | 4,584 | (3,902 | ) | ||
| Foreign exchange forward contracts | - | - | (1,759 | ) | (35 | ) | 794 | 3,136 | (644 | ) | 1,651 | ||||
| Embedded derivatives | - | - | (1,380 | ) | (129 | ) | 139 | 3,168 | (872 | ) | 2,220 | ||||
| Interest swap | - | - | (1,714 | ) | (1,807 | ) | (196 | ) | (739 | ) | 1,322 | 176 | |||
| $ 933 | $ - | $ (10,330 | ) | $ (7,567 | ) | $ (12,080 | ) | $ 10,015 | $ (3,269 | ) | $ (15,146 | ) | |||
| Charged to: | |||||||||||||||
| Cost of sales | (11,884 | ) | 10,754 | (4,591 | ) | (15,322 | ) | ||||||||
| Interest expenses | (196 | ) | (739 | ) | 1,322 | 176 | |||||||||
| Total | $ (12,080 | ) | $ 10,015 | $ (3,269 | ) | $ (15,146 | ) | ||||||||
Note 4: Income taxes
With the conversion of the Company to a corporation on January 1, 2011, the entity is now subject to the combined federal and provincial income taxes like any conventional corporation. The income tax provision for the nine months ended July 2, 2011 is as follows:
| July 2, 2011 | ||
| Earnings before provision for income taxes: | $ 33,955 | |
| Adjustments: | ||
| Income directly taxed into the hands of unitholders to December 31, 2010 | (10,066 | ) |
| Other | (1,782 | ) |
| 22,107 | ||
| Expected tax rate | 27.13 | % |
| Expected expense | 6,002 | |
| Adjustments: | ||
| Tax rate adjustment due to conversion to corporation | (47 | ) |
| Other | 258 | |
| 211 | ||
| Income tax expense | $ 6,213 | |
Temporary differences have not changed significantly as a result of the conversion because temporary differences at the Fund level were already recorded for the post-conversion reversal period as required pursuant to Canadian GAAP, and as the structure of the corporate subsidiary Lantic Inc. has not changed as a result of the conversion.
Note 5: Convertible debentures
On April 8, 2010, Rogers issued 50,000 Fourth Series, 5.70% convertible unsecured subordinated debentures, ("Fourth Series debentures") maturing on April 30, 2017, with interest payable semi-annually in arrears on April 30 and October 31 of each year, for gross proceeds of $50,000. The debentures may be converted at the option of the holder at a conversion price of $6.50 per share at any time prior to maturity.
On June 29, 2010, the net proceeds from the insurance of the Fourth Series debentures combined with funds from working capital were used to redeem the Second Series 6% convertible unsecured subordinated debentures. The total redemption was $49,967 as an amount of $33 was converted to shares by holders of the convertible debenture prior to its redemption date of June 29, 2010.
Financing fees of $2,365 were incurred on the insurance of the Fourth Series debentures.
Note 6: Common shares
During the third quarter, $326 of the Third Series convertible unsecured subordinated debenture was converted by holders of the securities, for a total number of 63,918 common shares. Year-to-date $6,291 of the Third Series convertible unsecured subordinated debentures were converted by holders of the securities, for a total number of 1,233,515 common shares. This conversion is a non-cash transaction and therefore is not reflected in the statement of cash flows. In addition a total of 70,000 common shares were issued after two executives exercised some options under the Share Option Plan earlier in fiscal 2011. In the third quarter and year-to-date of fiscal 2010, $18 and $33 of the Second Series convertible unsecured subordinated debenture, outstanding at the time, was converted by holders of the securities for a total of 3,396 and 6,226 common shares respectively.
Note 7: Share capital
The authorized capital of the corporation consists of : (i) an unlimited number of voting common shares entitling its holders to receive, subject to the rights of the holders of preferred shares and any other class of shares ranking prior to the common shares, (a) non-cumulative dividends of the corporation and (b) the remaining property of the corporation upon its dissolution or winding-up; and (ii) a number of preferred shares issuable in series, at all times limited to fifty percent (50%) of the common shares outstanding at the relevant time, provided that no such preferred shares shall be used to block any takeover. On July 2, 2011 there were 88,837,628 common shares outstanding and no preferred shares issued or outstanding.
On January 1, 2011 the Directors of the Corporation approved the reduction of the share capital of Rogers Sugar Inc. without payment or reduction to its stated capital, by its accounting deficit at January 1, 2011. As a result the accounting deficit of $276,465 was reduced to nil and the same amount was applied against stated capital reducing the stated capital to $284,078.
In addition a Special Resolution to reduce the stated capital of the Corporation by $200,000 was approved at the shareholders meeting of February 1, 2011, and as a result the stated capital of the Corporation was further reduced to $84,078 and contributed surplus was increased by $200,000 to $204,686.
The net earnings per share has been computed consistently with the earnings per trust unit in prior periods, as there have been no substantive changes to the equity instruments as a result of the conversion.
Note 8: Stock-based compensation plan
On January 1, 2011 all options outstanding under the Unit Option Plan of the Fund were transferred to a Share Option Plan of the new Corporation on a one-for-one basis. There were no substantive changes to the terms of the Share Option Plan and as a result, no accounting impact to the modification. Year-to-date a total of 70,000 shares has been issued under the Share Option Plan. In addition following the termination of an executive a total of 80,000 options were forfeited. The following table summarizes information about the Share Option Plan as at July 2, 2011:
| Exercise price per option | Out- standing number of options at September 30, 2010 |
Options exercised during fiscal 2011 |
Options forfeited during fiscal 2011 |
Out- standing number of options at July 2, 2011 |
Weighted average remaining life |
Number of options exercisable |
Weighted average exercise price |
|||||||||
| $ | 3.61 | 200,000 | 50,000 | - | 150,000 | 4.42 | 70,000 | $ | 3.61 | |||||||
| 4.70 | 100,000 | 20,000 | 80,000 | - | - | - | - | |||||||||
Note 9: Segmented information
Revenues were derived from customers in the following geographic areas:
| For the three months ended | For the nine months ended | |||
| July 2, 2011 |
June 30, 2010 |
July 2, 2011 |
June 30, 2010 |
|
| Canada | $ 141,742 | $ 142,798 | $ 425,306 | $ 416,276 |
| United States and Other | 9,150 | 13,504 | 26,442 | 27,333 |
| $ 150,892 | $ 156,302 | $ 451,748 | $ 443,609 | |
Contact Information:
SVP Finance, CFO and Secretary
(514) 940-4350
(514) 527-1610 (FAX)
www.rogerssugar.com