Rogers Sugar Income Fund
TSX : RSI.UN

Rogers Sugar Income Fund

February 01, 2006 13:30 ET

Rogers Sugar Income Fund: Interim Report for the First Quarter 2006 Results

MONTREAL, QUEBEC--(CCNMatthews - Feb. 1, 2006) - Rogers Sugar Income Fund (TSX:RSI.UN) - All dollar amounts are expressed in Canadian funds.

- Increased access to the U.S. for refined sugar under the global quota.

- Natural gas cost increases mitigated by selling price increases and switch to low sulphur oil.

- Distributable cash in line with last year.

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-month period ended December 31, 2005.

Volume for the first quarter was 187,722 metric tonnes as opposed to 180,648 metric tonnes in the comparable quarter last year. The increase was mainly in the export segment where volume was 6,500 metric tonnes higher than last year. This was due to additional sales of approximately 1,000 metric tonnes in the Caribbean market and to timing of deliveries of Rogers Sugar Ltd. ("Rogers") U.S. specific quota. For a second quarter in a row, consumer volume for the quarter was above last year by approximately 1,400 metric tonnes. Liquid volume continues to be lower, but the decrease was partially offset with higher industrial volume.

Gross margin of $27.3 million was in line with last year, but was $6.16 lower on a per metric tonne basis. The decrease is due in large part to the higher price of natural gas, which accounts for over $3.00 per metric tonne of the decrease in gross margin rate. The remaining decrease is due mainly to higher maintenance costs at the Montreal refinery, combined with timing in the sale of by-products during the quarter.

Distributable cash of $12.9 million was slightly lower than the $13.0 million achieved in the comparable quarter of the previous year. The decrease was due to the lower operational performance and timing in maintenance capital expenditures. For the quarter, the Fund distributed $8.9 million to Unitholders, of which $835,000 was return of capital.

On December 2, 2005, the United States Department of Agriculture announced an increase of 150,000 short tonnes raw value ("STRV") in the refined global quota to be filled on a first come first served basis. This quota opened in four tranches of 37,500 STRV on December 9 and 29, 2005, January 10 and 24, 2006. After the announcement, Lantic Sugar Limited ("Lantic") and Rogers started to ship sugar to U.S. bonded warehouses with a view to enter sugar against these different tranches. We estimate that Lantic/Rogers will benefit from approximately 15,000 to 18,000 metric tonnes of additional volume against this new export opportunity.

Natural gas prices rose significantly in the Fall. Following these increases, the Montreal plant switched to low sulphur oil in November 2005 and remained on low sulphur oil until the end of January. This will help mitigate the impact of the higher energy prices. In addition, Lantic and Rogers announced price increases to partially offset the rise in natural gas prices. These increases are steadily being implemented as new contracts are negotiated. Lastly, the Montreal refinery's ion exchange investment project is on target to be completed in early Spring of 2006, and will contribute to lower the impact of higher energy costs.

Taber's beet harvest went very well in the Fall. A total of 33,700 acres were harvested, approximately 1,200 acres less than last year. It is estimated that the beet slicing campaign will be completed in the first week of February 2006, about two weeks later than expected. The plant experienced various operational problems, lowering the average slicing results and therefore lengthening the slicing campaign. The total sugar output is estimated at approximately 95,000 metric tonnes, approximately 13% lower than last year due to the lower acreage and yield of beets per acre harvested.

World raw sugar prices have been increasing steadily over the last several months, reaching 15 cents per pound. The higher world raw sugar prices will benefit Taber for any volume not sold against the U.S. specific quota, beet thick juice and HFCS substitutable business. This benefit may be partially offset by the loss of some HFCS substitutable business in Vancouver and Taber, which may not be renewed, as price of raw sugar remains high. These sales have historically been the lowest margin sales of Rogers.



FOR THE BOARD OF TRUSTEES,

SIGNED
----------------------------------
Edward Y. Baker, Chairman,
Toronto, Ontario - February 1, 2006


Rogers Sugar Income Fund
Consolidated Balance Sheets

(In thousands of dollars)
---------------------------------------------------------------------
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December 31 September 30 December 31
2005 2005 2004
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ASSETS (Unaudited) (Audited) (Unaudited)
Current assets:
Cash and cash
equivalents $6,689 $35,291 $29,039
Accounts receivable 62,325 58,004 27,084
Inventories 65,272 32,065 69,430
Prepaid expenses 2,451 2,739 10,284
Future income taxes 2,368 2,100 -
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139,105 130,199 135,837
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Capital assets 207,529 209,094 211,331
Other assets 5,355 5,732 3,351
Goodwill 223,043 223,043 318,043
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$575,032 $568,068 $668,562
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $5,000 $- $-
Accounts payable and
accrued liabilities 41,787 41,797 43,641
Income taxes payable 167 167 438
Future income taxes - - 745
Distribution payable to
unitholders 2,965 2,965 2,965
Current portion of
convertible unsecured
subordinated notes 7,193 7,016 6,555
Current portion of long
term debt - - 100,000
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57,112 51,945 154,344

Employee future benefits 17,813 17,965 17,932
Long-term debt 115,000 115,000 65,000
Convertible unsecured
subordinated notes 53,854 55,694 11,047
Future income taxes 6,280 4,766 2,449
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250,059 245,370 250,772

UNITHOLDERS' EQUITY
Trust units 577,563 578,398 583,494
Equity component of
convertible unsecured
subordinated debentures 70,870 69,207 64,316
Deficit (323,460) (324,907) (230,020)
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324,973 322,698 417,790
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$575,032 $568,068 $668,562
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Operations
For the three months ended December 31, 2005 and 2004
(In thousands of dollars - except amounts per trust units)
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For the three months ended
December 31
2005 2004
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Revenues $118,040 $106,421
Cost of sales 90,745 79,042
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Gross margin 27,295 27,379

Expenses:
Administration and selling 5,567 5,222
Distribution 3,038 2,983
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8,605 8,205
Earnings before interest,
provision for income taxes,
depreciation and amortization 18,690 19,174
Depreciation and amortization 3,227 3,265
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Earnings before interest and
provision for income taxes 15,463 15,909
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Interest on long-term debt
and convertible debentures 2,923 3,605
Interest income, net of
other charges (93) (229)
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2,830 3,376
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Earnings before provision for
income taxes 12,633 12,533
Provision for income taxes:
Current 227 283
Future 1,246 1,094
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1,473 $1,377
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Net earnings $11,160 $11,156
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Net earnings per trust unit:
Basic $0.11 $0.11
Diluted $0.10 $0.11
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Supplemental disclosure:
Employee future benefits
expense $1,078 $1,145
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Unitholders' Equity
For the three months ended December 31, 2005 and 2004
(In thousands of dollars)

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For the three months ended
December 31 2005
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Equity
component of
convertible
unsecured
subordinated
(unaudited) Trust units debentures Deficit Total
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Balance beginning
of period $578,398 $69,207 ($324,907) $322,698

Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - 1,663 (1,663) -

Distributions (835) - (8,061) (8,896)

Obligation under stock
options - - 11 11

Net earnings - - 11,160 11,160
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Balance end of period $577,563 $70,870 ($323,460) $324,973
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For the three months ended
December 31 2004
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Equity
component of
convertible
unsecured
subordinated
(unaudited) Trust units debentures Deficit Total
---------------------------------------------------------------------
Balance beginning
of period $583,494 $62,800 ($230,764) $415,530
Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - 1,516 (1,516) -
Distributions - - (8,896) (8,896)
Obligation under stock
options - - - -
Net earnings - - 11,156 11,156
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Balance end of period $583,494 $64,316 ($230,020) $417,790
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Cash Flows
For the three months ended December 31, 2005 and 2004
(In thousands of dollars)
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For the three months ended
December 31
2005 2004
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Cash flows from operating
activities:
Net earnings $11,160 $11,156
Adjustments for items not
involving cash:
Depreciation and
amortization 3,227 3,265
Future income taxes 1,246 1,094
Employee future benefits (152) 680
Other 228 312
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15,709 16,507
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Changes in non-cash operating
working capital:
Accounts receivable (4,321) 10,513
Inventories (33,207) (35,051)
Prepaid expenses 288 (7,309)
Accounts payable and accrued
liabilities 120 3,208
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(37,120) (28,639)
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(21,411) (12,132)

Cash flows from financing
activities:
Increase in bank
indebtedness 5,000 -
Interest expense on the
equity portion of the
convertible unsecured and
subordinated debentures (1,663) (1,516)
Distributions to Unitholders (8,896) (8,896)
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(5,559) (10,412)
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Cash flows from investing
activities:
Additions to capital assets (1,632) (1,083)
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Net change in cash and cash
equivalents (28,602) (23,627)

Cash and cash equivalents,
beginning of period 35,291 52,666
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Cash and cash equivalents,
end of period $6,689 $29,039
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Supplemental disclosure:
Interest paid on the debt
and equity components of
convertible debentures $6,960 $6,778

Income taxes paid 273 306
Capital assets included in
accounts payable and accrued
liabilities 368 58
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Rogers Sugar Income Fund
Notes to Interim Unaudited Consolidated Financial Statements
For the three months ended December 31, 2005 and 2004
(Tabular amounts are expressed in thousands of dollars.)


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 2005 annual report. These quarterly financial statements were not reviewed or audited by our external auditors.


Note 2: Stock based compensation plan

During the first quarter of 2006, 400,000 units option were granted at a market price of $3.61 per unit. The compensation expense is amortized over the vesting period of the corresponding optioned units and is expensed in the consolidated statements of operations.



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For the three months ended
December 31,
(unaudited)
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2005 2004

Outstanding, beginning of period 350,000 -
Granted during the period 400,000 -
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Outstanding, end of period 750,000 -
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Note 3: Segmented information

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.



For the three months ended December 31 (unaudited)
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2005
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues $73,317 $47,374 ($2,651) $118,040
Earnings before interest,
provision for income taxes
and depreciation and
amortization 11,610 7,233 (153) 18,690
Depreciation and amortization 1,856 983 388 3,227
Interest expense, net 7,018 5,314 (9,502) 2,830
Net income (loss) $1,711 $488 $8,961 $11,160
Additions to property,
plant and equipment 1,028 604 - 1,632
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For the three months ended December 31 (unaudited)
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2004
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues $64,953 $42,103 ($635) $106,421
Earnings before interest,
provision for income taxes
and depreciation and
amortization 13,377 5,882 (85) 19,174
Depreciation and amortization 1,841 1,035 389 3,265
Interest expense, net 6,404 6,655 (9,683) 3,376
Net income (loss) $3,283 ($1,337) $9,210 $11,156
Additions to property,
plant and equipment 353 730 - 1,083
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Revenues were derived from customers in the following geographic
areas:

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For the three months ended
December 31,
(unaudited)
---------------------------------------------------------------------
2005 2004

Canada $107,282 $99,122
United States and Other 10,758 7,299
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$118,040 $106,421
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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 Sugar Limited ("Lantic") and Rogers Sugar Ltd. ("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 January 25, 2006.

Effectiveness of internal disclosure controls:

In accordance with Regulation 52-109 respecting certification of disclosure in issuers' annual and interim filings, the Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's internal disclosure controls as of the quarter ended December 31, 2005. Generally, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's control procedure provide reasonable assurance that (i) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under applicable securities legislation is recorded, processed, summarized and reported within the prescribed time periods, and (ii) material information regarding the Company is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer in a timely manner.



Results of operations:

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Consolidated Results For the three months
ended December 31
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(In thousands of dollars, except for volume
and per trust unit information) 2005 2004
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Volume (metric tonnes) 187,722 180,648
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Revenues $118,040 $106,421
Gross margin 27,295 27,379
Distribution 3,038 2,983
Administration and selling 5,567 5,222
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Earnings before interest,
provision for income taxes,
depreciation and amortization (EBITDA) $18,690 $19,174
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Depreciation and amortization 3,227 3,265
Interest net of interest income
and other charges 2,830 3,376
Provision for income taxes 1,473 1,377
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Net earnings $11,160 $11,156
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Net earnings per trust unit $0.11 $0.11
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Volume for the first quarter was 187,722 metric tonnes, as apposed to 180,648 in the comparable quarter last year. Most of the increase was in the export segment where volume was up 6,500 metric tonnes in the first quarter. Approximately 1,000 metric tonnes of that increase are additional sales made by Lantic in the Caribbean market, while the remaining 5,500 metric tonnes is due to timing in the shipments of Rogers' Canadian specific US Quota. Consumer sales were up 1,400 metric tonnes for the quarter continuing the positive trend of the last quarter of fiscal 2005.

An increase of 1,200 metric tonnes in industrial sales partially offset the decrease of approximately 2,000 metric tonnes in liquid sales volume. Liquid sales volume decrease is due to the loss of an HFCS substitutable account earlier in 2005.

Revenues for the quarter were $11.6 million higher than the comparable quarter due mainly to the higher price of raw sugar compared to the first quarter of last year.

Gross margin of $27.3 million was comparable to last year's first quarter results. On a per metric tonne basis, gross margins were $145.40 this year, compared to $151.56 in fiscal 2005, a decrease of $6.16 per metric tonne. Approximately half of the decrease is due to higher natural gas cost for the quarter, while timing in sales of by-products, combined with higher maintenance costs at Lantic's Montreal refinery, accounts for most of the remaining decrease in gross margin rates.

Distribution costs were in line with the previous year, while timing is the major reason for the increase in administrative costs.

The decrease in interest expense relates to savings achieved in the refinancing of Rogers' long-term debt in March and August of 2005, at lower interest rates.



Statement of quarterly results:

(In thousands of dollars, except volume and per trust unit
information)
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2006 2005
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Q1 Q4 Q3 Q2 Q1

Volume (MT) 187,722 201,818 189,631 178,098 180,648
Revenues $118,040 $120,631 $111,355 $102,876 $106,421
Gross margin 27,295 30,478 25,087 18,189 27,379
EBITDA 18,690 20,618 15,443 10,909 19,174
Net earnings (loss) $11,160 ($81,930) $7,813 $5,712 $11,156
Net earnings (loss)
per trust unit $0.11 ($0.94) $0.07 $0.05 $0.11
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(In thousands of dollars, except volume and per trust unit
information)
-----------------------------------------------------------
2004
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Q4 Q3 Q2

Volume (MT) 218,777 191,685 168,857
Revenues $123,687 $104,158 $91,574
Gross margin 32,928 24,149 18,796
EBITDA 22,161 15,868 11,054
Net earnings (loss) $15,115 $8,864 $5,778
Net earnings (loss)
per trust unit $0.16 $0.08 $0.05
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Liquidity:

Cash flow from operations was negative $21.4 million for the quarter compared to negative $12.1 million for the comparable quarter in fiscal 2005. The major reason for the decrease is due to higher levels of inventories and receivables at December 31. The Taber beet crop is harvested and in large part processed in the first quarter of the fiscal year. This increases the level of inventories at December 31. Accounts receivable continue to be high due to the high level of margin requirements on hedged sugar futures. At quarter's end, the Company had paid over $29 million in margin requirements. These funds will be returned to the Company when the sugar futures are unwound, or if the price of the world raw sugar market declines.

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. Distributable cash is meant to show to the Unitholders the ability of the Fund to pay distributions from the operating performance of the Fund, and its operating subsidiaries during the specified period. It is not meant to explain the cash flow from operations shown in the financial statements.



The reconciliation of the EBITDA to distributable cash is as follows:
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For the three months ended
December 31
--------------------------------------------------------------------
2005 2004
Operating activities:

Earnings before interest, provision
for income taxes, depreciation and
amortization (EBITDA) $18,690 $19,174
Add/(deduct):
Bank, debentures and convertible
debentures interest (2,830) (3,376)
Amortization of financing activities 200 124
Interest expense on the equity portion
of the convertible unsecured
subordinated debentures (1,663) (1,516)
Income taxes paid (273) (306)
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Distributable cash from operations 14,124 14,100
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Investing activities:
Maintenance capital expenditures (1,195) (1,083)
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(1,195) (1,083)
--------------------------------------------------------------------
Financing activities:
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- -
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Net distributable cash 12,929 13,017
Declared distributions to Unitholders 8,896 8,896
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Available cash $4,033 $4,121
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Net distributable cash was $12.9 million compared to $13.0 million for the comparable quarter of last year. The lower EBITDA of $0.5 million was mostly offset with lower interest cost of $0.5 million, while timing in maintenance capital expenditures account for the $0.1 million decrease in net distributable cash.

The decrease in interest expenses is due to the refinancing of Rogers' senior debentures in March and August 2005 at lower interest rates.

Maintenance capital expenditures were higher than last year due to investment timing. Lantic also spent $400,000 in investment capital expenditures during the quarter on the ion exchange project, due to be completed in the Spring of this year.

During the quarter, the Fund paid $8.9 million in distributions, of which $0.8 million was return of capital and $8.1 interest income for the Unitholders.

Contractual obligations:

There are no material changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 30, 2005 Annual Report.

At December 31, 2005, the operating companies had commitments to purchase a total of 1,411.500 metric tonnes of raw sugar, of which only 356,729 metric tonnes had been priced, for a total dollar commitment of $107.9 million, compared to 325,492 metric tonnes for a total dollar commitment of $92.1 million at September 30, 2005. The increase is due to additional pricings done by the sellers of raw sugar as raw sugar prices are increasing.

Capital resources:

Lantic and Rogers each have respectively $50.0 million and $40.0 million as authorized lines of credit available to finance their operations. At quarter's end, Rogers had drawn $5.0 million from its working capital facility. Lantic had $4.8 million cash available at quarter's end.

At quarter's end, inventories were higher due to Taber's beet crop. Up to 75% of the total beet sugar crop is paid to the Growers during the first quarter. In addition, receivables are high compared to September 30, 2005 year-end due to higher level of margin requirements on sugar futures, as the price of sugar has been steadily increasing during the quarter.

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 as at December 31, 2005, the same level as at September 30, 2005.


Changes in accounting policies and critical accounting estimates:

Our critical accounting estimates and assumptions 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, 2005.

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.

There are no material changes from the information disclosed in the Management's Discussion and Analysis of the September 30, 2005 Annual Report except for the following:

Raw Sugar

At December 31, 2005, the Company had a short position of $42.7 million in net contract amounts with a fair value of $69.6 million. This is offset with a long position of sugar priced from suppliers over and above contracted sales to customers.

Natural gas

At December 31, 2005, the Company had $4.7 million in natural gas contracts, with a fair value of $5.1 million.

Foreign Exchange contracts

At December 31, 2005, the Company had $17.3 million in foreign currency contracts with a fair value of $16.6 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, 2005 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:

On December 2, 2005, the United States Department of Agriculture (the "USDA") announced an increase of 150,000 short tonnes raw value ("STRV") to the U.S. refined global quota on a first come first served basis. This quota opened in four distinct tranches of 37,500 STRV on December 9 and 29, 2005, January 10 and 24, 2006. Shortly after the USDA announcement, Lantic and Rogers started to ship sugar into U.S. bonded warehouses to be entered against these different tranches. It is estimated that the Company will benefit from approximately 15,000 to 18,000 metric tonnes of additional volume in relation to this export opportunity. Most of these sales will be recorded in the Company's second quarter, when goods are delivered to U.S. customers after being released by the U.S. authorities from the bonded warehouses.

Domestic sugar demand, excluding HFCS substitutable business, is expected to increase with population growth in 2006. Consumer sales have stabilized over the last six months showing minimal growth after months of continuous decline.

The world raw sugar prices (#11 sugar market) have increased drastically over the last three months, closing above US 15 cents per pound for the first time since 1994. It is expected that the # 11 world raw sugar prices will remain strong for the next several months, as world consumption continues to outpace world production and as more sugar is converted into ethanol. This benefits Taber for any volume not sold as beet thick juice, exports to the U.S. and HFCS substitutable business. For this year, it represents approximately 30,000 metric tonnes. On the other hand, the higher raw sugar values could make Rogers uncompetitive on certain liquid sales made to HFCS substitutable customers in Vancouver and Taber. These sales have historically been the lowest margin sales of Rogers.

Natural gas prices rose dramatically in the first quarter of the year. Lantic switched from natural gas to low sulphur oil for the months of November and December, and continued using low sulphur oil in January 2006. This helped mitigate the increase of energy costs. Most of the second quarter's energy requirements have been hedged at prices higher than the previous year. At the present time, natural gas prices for the Spring and Summer months remain high, but nearby month prices have been declining due to warmer temperatures and higher inventories. We expect prices to decline from their current levels and our strategy will be to further hedge positions for the Spring and Summer on any downward trends. We are forecasting higher energy costs in the range of 0.50 cents to $1.50 per gigajoule over the previous year on a consumption of approximately 3.5 million gagajoules.

The ion exchange investment project started in fiscal 2005 is progressing well and should be completed in early Spring. This project will reduce energy consumption and will help mitigate cost increases related to natural gas. This investment project of $5.5 million should generate annualized operating savings of approximately $3.0 million at current natural gas prices.

In the Fall of 2005, the Company announced price increases to help mitigate the impact of higher natural gas prices incurred over the last few years. These increases are steadily being implemented as new contracts are being negotiated.

Taber's beet harvest went very well in the Fall, where a total of 33,700 acres were harvested, approximately 1,200 acres less than last year. It is estimated that the beet slicing campaign will be completed in the first week of February 2006, about two weeks later than expected. The plant experienced various operational problems, lowering the average slicing results and therefore lengthening the slicing campaign. The total sugar output is estimated at approximately 95,000 metric tonnes, about 13% lower than last year.

Taber's labour contract expires March 31, 2006. Negotiations started in mid-January and we are expecting to reach an agreement before the end of March. Lantic has been recently notified that two of the five union locals at its Montreal refinery, representing the majority of the unionized employees, have filed with the Quebec Labour Board a request to change their union affiliation to the CSN (a Quebec Union Federation). A hearing has been set for February 13, 2006 to determine if the change to CSN to replace the present Local 333 of the Bakery, Confectionery and Tobacco Workers International Union will be approved.

As at February 1, 2006, the Fund will have the ability to redeem the initial series of 9.5% unsecured convertible debentures. The Company is currently evaluating various financing alternatives to potentially redeem these convertible debentures with other debt instruments, at a lower interest cost.

Contact Information