Rogers Sugar Income Fund
TSX : RSI.UN

Rogers Sugar Income Fund

November 22, 2006 16:46 ET

Rogers Sugar Income Fund: Interim Report For The Fourth Quarter 2006 Results

Higher gross margin rate for the quarter and fiscal year. Higher distributable cash for the quarter and for the year. Distribution level of 88.5% for the year.

MONTREAL, QUEBEC--(CCNMatthews - Nov. 22, 2006) - Rogers Sugar Income Fund (TSX:RSI.UN) (All dollar amounts are expressed in Canadian funds.)

Message to Unitholders: On behalf of the Board of Trustees, I am pleased to present the unaudited consolidated financial results of Rogers Sugar Income Fund (the "Fund") for the three months and year ended September 30, 2006.

Volume for the fourth quarter was 199,316 metric tonnes, as opposed to 201,818 metric tonnes in the comparable quarter of last year; a decrease of approximately 2,500 metric tonnes. The decrease is due to a combination of factors. As a result of high sugar prices, liquid volume was down by approximately 11,900 metric tonnes due to the loss of volume from HFCS substitutable accounts. There were no thick juice sales in the quarter, as opposed to 8,400 metric tonnes in the comparable quarter of 2005, as thick juice was processed into granulated sugar and sold against the U.S. Canada-specific quota of 25,000 metric tonnes awarded to Canada by the USDA in February 2006. The above volume shortfall was partially offset by an increase of 16,000 metric tonnes in export sales made against the Canada-specific quota and against a new U.S. global quota announced by the USDA on July 27, 2006.

Industrial volume increased by approximately 1,800 metric tonnes due mainly to increased volume from existing accounts, while consumer volume for the quarter was flat compared to the same quarter last year.

For the year, total volume was 9,500 metric tonnes higher than the previous year's volume. The increase in export sales, due to the opening of various U.S. quotas during the year, more than offset the shortfall in the liquid HFCS substitutable volume. For the year, the Company's export sales against the various U.S. quotas were up 49,000 metric tonnes.

For the quarter, gross margin increased by $1.6 million, when compared to the same quarter of last year, even though volume was down. On a per metric tonne basis, gross margins were $161.00 in 2006 compared to $151.02 for the comparable quarter of last year. Higher operational costs incurred in Taber for the process of beet thick juice was more than offset with the higher selling margins achieved on the export sales. In addition, a favourable sales mix with higher margin export sales and lower volume of low HFCS substitutable sales benefited the Company during the quarter. For the year, gross margin rate of $137.52 per metric tonne was $2.71 higher than the previous year. The increase is due mainly to the favourable sales mix.

An unrealized gain on derivative financial instruments of $6.4 million was recorded at September 30, 2006. During the year, Rogers put a pre-hedge program in place for beet sugar to be sold in Canada in fiscal 2007 and 2008. As the price of beet sugar is fixed with the Growers for these two years, this program would allow Rogers to benefit from the higher raw sugar values that prevailed during fiscal 2006. As this pre-hedge program did not meet all the requirements under hedge accounting, these futures positions had to be accounted at fair value (mark to market) at year end. This has no impact on distributable cash as this unrealized gain on financial derivative instrument is a non-cash flow item.

In fiscal 2005, an independent fair value analysis was performed at year-end to identify any impairment in the goodwill of Rogers. Further to that analysis, a goodwill write-down of $95.0 million was recorded in fiscal 2005. There was no impairment in goodwill in fiscal 2006.

For the quarter, distributable cash was $15.9 million, as compared to $11.3 million in fiscal 2005. The increase was due to better operational performance and timing in debt refinancing done in fiscal 2005. Year to date distributable cash of $40.5 million was $1.8 million higher than the previous year. This was due mainly to lower interest costs incurred in fiscal 2006 with the renegotiation of the initial series convertible debenture in March 2006 and Rogers' term debt in August 2005, and to better operational performance. The Fund distributed $35.9 million, 88.5% of its distributable cash in fiscal 2006, compared to $35.6 million or 91.8% of its distributable cash in fiscal 2005.

In Taber, the beet harvest started in mid-September and, to date, the yield per acre harvested is well above average. On beet acreage of approximately 37,000 acres, Taber may produce in excess of 120,000 tonnes of beet sugar in fiscal 2007, approximately 25,000 metric tonnes more than fiscal 2006.

On October 31, 2006, Canada's Minister of Finance made an announcement concerning the imposition of a distribution tax on distributions from publicly traded income trusts. The proposed tax would be imposed on existing trusts, starting in fiscal 2011. The government's action will directly affect the savings of millions of Canadians who have benefited from investing in income trusts, like Rogers Sugar Income Fund. The government must still pass legislation to make the tax levy on income trusts law. We will closely monitor any development with regards to this potential tax legislation change.

FOR THE BOARD OF TRUSTEES,

SIGNED

Edward Y. Baker,



Rogers Sugar Income Fund
Consolidated Balance Sheets
September 30, 2006 and 2005
(In thousands of dollars)
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2006 2005
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ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $14,549 $35,291
Accounts receivable 48,470 58,004
Inventories 76,884 32,065
Prepaid expenses 3,006 2,739
Future income taxes - 2,100
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142,909 130,199

Capital assets 205,857 209,094
Other assets (note 4) 13,647 5,732
Goodwill 223,043 223,043
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$585,456 $568,068
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $57,898 $44,929
Future income taxes 4,576 -
Current portion of convertible unsecured
subordinated debentures (note 5) - 7,016
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62,474 51,945

Employee future benefits 17,409 17,965
Long-term debt 115,000 115,000
Convertible unsecured subordinated
debentures (note 5) 135,000 55,694
Future income taxes 2,689 4,766
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332,572 245,370
UNITHOLDERS' EQUITY
Trust units (note 6) 571,034 578,398
Equity component of convertible
unsecured subordinated debentures (note 5) - 69,207
Contributed surplus 52 -
Deficit (318,202) (324,907)
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(252,884) 322,698
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$585,456 $568,068
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Operations
For the three months and year ended September 30, 2006 and 2005
(In thousands of dollars except amounts per trust units)
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For the three months ended For the year ended
September 30 September 30
(unaudited) (unaudited)
2006 2005 2006 2005
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Revenues $150,994 $120,631 $532,739 $441,283
Cost of sales 118,903 90,153 428,269 340,150
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Gross margin 32,091 30,478 104,470 101,133

Expenses:
Administration and
selling 6,421 5,801 21,524 22,359
Distribution 4,062 4,059 13,536 12,630
Product withdrawal/
recall provision
(note 7) - - 2,000 -
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10,483 9,860 37,060 34,989
Earnings before
interest, provision
for income taxes,
depreciation and
amortization and
unrealized (gain) on
derivative financial
instruments 21,608 20,618 67,410 66,144
Depreciation and
amortization 3,021 3,021 12,211 12,094
Unrealized (gain) on
derivative financial
instruments (note 4) (6,367) - (6,367) -
Impairment of goodwill - 95,000 - 95,000
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Earnings before
interest and provision
for income taxes 24,954 (77,403) 61,566 (40,950)
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Interest on long-term
debt and convertible
debentures 3,793 3,125 13,332 14,732
Amortization of
deferred financing
costs 380 267 1,833 1,073
Debt settlement cost - - 313 -
Short term interest
expense (income) 21 (134) 507 (726)
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4,194 3,258 15,985 15,079
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Earnings before
provision for income
taxes 20,760 (80,661) 45,581 (56,029)

Provision for
(recovery of) income
taxes:
Current (317) 35 60 654
Future 4,443 1,234 4,599 566
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4,126 1,269 4,659 1,220
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Net earnings (loss) 16,634 ($81,930) 40,922 ($57,249)
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Net earnings per
trust unit:
Basic $0.19 ($0.94) $0.43 ($0.72)
Diluted $0.16 ($0.94) $0.41 ($0.72)
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Supplemental disclosure:
Employee future
benefits expense $1,805 $1,188 $4,542 $4,725
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Unitholders' Equity
For the three months and year ended September 30, 2006 and 2005
(In thousands of dollars)
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For the three months ended
September 30 2006
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Equity
component
of convertible
unsecured
subordinated contributed
Trust units debentures surplus Deficit Total
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Balance
beginning
of period $573,164 $- $41($327,785) $245,420
Interest
expense on
equity
portion of
the
convertible
unsecured
Subordinated
debentures - - - - -

Distributions (2,130) - - (7,051) (9,181)
Obligation
under stock
options - - 11 - 11

Net earnings
(loss) - - - 16,634 16,634
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Balance end
of period $571,034 $- $52($318,202) $252,884
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For the three months ended
September 30 2005
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Equity
component
of convertible
unsecured
subordinated
Trust units debentures Deficit Total
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Balance
beginning of
period $580,048 $67,517 ($234,041) $413,524
Interest expense on
equity portion of the
convertible unsecured
Subordinated
debentures - 1,690 (1,690) -

Distributions (1,650) - (7,240) (8,890)
Obligation under stock
options - - - -

Net earnings (loss) - - (81,930) (81,930)
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Balance end of period $578,398 $69,207 ($324,907) $322,704
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For the year ended
September 30 2006
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Equity
component
of convertible
unsecured
subordinated contributed
Trust units debentures surplus Deficit Total
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Balance
beginning
of
period $578,398 $69,207 $-($324,907) $322,698
Issue of
trust units
(note 6) 41 (41) - - -
Interest
expense on
equity
portion of
the
convertible
unsecured
subordinated
debentures - 2,983 - (2,983) -
Redemption of
initial
series of
convertible
debentures
(note 5) - (72,149) - (3,083) (75,232)
Debt
settlement
expense
(note 5) - - - 313 313
Distributions (7,405) - - (28,464) (35,869)
Obligation
under stock
options - - 52 - 52

Net earnings
(loss) - - - 40,922 40,922
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Balance end
of period $571,034 $- $52($318,202) $252,884
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For the year ended
September 30 2005
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Equity
component
of convertible
unsecured
subordinated
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 - 6,407 (6,407) -
Redemption of initial
series of convertible
debentures (note 5) - - - -
Debt settlement
expense (note 5) - - - -
Distributions (5,096) - (30,487) (35,583)
Obligation under
stock options - - - -

Net earnings (loss) - - (57,249) (57,249)
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Balance end of
period $578,398 $69,207 ($324,907) $322,698
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Cash Flows
For the three months and year ended September 30, 2006 and 2005
(In thousands of dollars)
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For the three months ended For the year ended
September 30 September 30
(unaudited) (unaudited)
2006 2005 2006 2005
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Cash flows from
operating activities:
Net earnings (loss) $16,634 ($81,930) $40,922 ($57,249)
Adjustments for items
not involving cash:
Depreciation and
amortization 3,021 3,021 12,211 12,094
Unrealized (gain)
on derivative
financial
instruments (note 4) (6,367) - (6,367) -
Amortization of
deferred financing
costs 380 267 1,833 1,073
Future income taxes 4,443 1,234 4,599 566
Employee future
benefits 414 (554) (556) 713
Other 247 132 886 466
Impairment of
goodwill - 95,000 - 95,000
Loss on disposal of
assets - 33 - 105
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18,772 17,203 53,528 52,768
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Changes in non-cash
operating working
capital:
Accounts receivable 15,980 (23,619) 9,534 (20,407)
Inventories (10,143) 21,344 (44,819) 2,314
Prepaid expenses 987 461 (267) 236
Accounts payable and
accrued liabilities 21,899 13,012 12,857 580
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28,723 11,198 (22,695) (17,277)
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47,495 28,401 30,833 35,491
Cash flows from
financing activities:
(Decrease) in bank
indebtedness (22,000) - - -
Distributions to
Unitholders (9,039) (8,896) (35,727) (35,583)
Interest expense on
the equity portion
of the convertible
unsecured and
subordinated
debentures - (1,690) (2,983) (6,407)
New issue convertible
debentures (note 5) - - 85,000 50,000
Redemption of
convertible debentures,
net of conversion
into trust units
(note 5) - - (84,959) -
Repayment of long-term
debt - (52,500) - (100,000)
Proceeds for long-term
debt - 50,000 - 50,000
Deferred financing
charges - (203) (3,902) (3,368)
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(31,039) (13,289) (42,571) (45,358)
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Cash flows from
investing activities:
Additions to capital
assets (3,563) (3,739) (9,004) (7,508)
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Net change in cash and
cash equivalents 12,893 11,373 (20,742) (17,375)
Cash and cash
equivalents,
beginning of period 1,656 23,918 35,291 52,666
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Cash and cash
equivalents,
end of period $14,549 $35,291 $14,549 $35,291
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Supplemental
disclosure:
Interest paid on the
debt and equity
components of
convertible
debentures 1,692 2,186 17,036 19,921
Income taxes
(received) paid 112 306 403 943
Capital assets
included in accounts
payable and accrued
liabilities 468 498 468 498
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Rogers Sugar Income Fund
Notes to Interim Unaudited Consolidated Financial Statements For the three
months and year ended September 30, 2006 and 2005
(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 an amended and restated declaration of trust dated February 3, 2005 (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 unaudited consolidated 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 unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2005 annual report. These quarterly consolidated financial statements were not reviewed or audited by our external auditors.

Note 2: Revenue recognition

Revenue is recognized at the time sugar products are shipped to customers, at which time all risks and rewards of ownership are transferred to the customers.

Note 3: 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 unaudited consolidated statements of operations.



Note 4: Other assets

---------------------------------------------------------------
---------------------------------------------------------------
2006 2005
---------------------------------------------------------------
Deferred financing charges $6,398 $4,329
Derivative financial instrument 6,367 -
Prepaid interest 823 1,320
Other 59 83
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$13,647 $5,732
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During the quarter, the Fund recorded an unrealized gain of $6,367 on derivative financial instruments regarding certain specific economic hedges for which the Fund elected not to do hedge accounting. The fair value was calculated as the product of the volume and the difference between the hedged price and the corresponding market price.



Note 5: Convertible unsecured subordinated debentures

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Convertible unsecured subordinated debentures 2006 2005
----------------------------------------------------------------------
Equity
Debt Component Debt
Balance -- beginning of year $62,710 $69,207 $19,117
New issues 85,000 - 50,000
----------------------------------------------------------------------
147,710 69,207 69,117

Debt reduction and transfer to
equity component (2,983) 2,983 (6,407)
Issue cost charged to equity at
inception - 3,083 -
Repayment of initial series
debentures (9,727) (75,232) -
Conversion into trust units - (41) -
----------------------------------------------------------------------
135,000 - 62,710
Less: current portion - - 7,016
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Balance -- September 30 $135,000 $- $55,694
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On March 6, 2006, the Fund issued $85.0 million of third series 5.9% convertible unsecured subordinated debentures, maturing June 29, 2013, with interest payable semi-annually in arrears on June 29 and December 29 of each year, starting June 29, 2006. The debentures may be converted at the option of the holder at a conversion price of $5.10 per trust unit at any time prior to maturity, and cannot be redeemed prior to June 29, 2009.

On or after June 29, 2009 and prior to June 29, 2011, the debentures may be redeemed by the Fund only if the weighted average trading price of the trust unit, for 20 consecutive trading days, is at least 125% of the conversion price of $5.10. Subsequent to June 29, 2011, the debentures are redeemable at a price equal to the principal amount thereof plus accrued and unpaid interest.

On redemption or at maturity, the Fund will repay the indebtedness of the convertible debentures by paying an amount equal to the principal amount of the outstanding convertible debentures, together with accrued and unpaid interest thereon. The Fund may, at its option, elect to satisfy its obligation to repay the principal amount of the convertible debentures, which are to be redeemed or which have matured, by issuing trust units to the holders of the convertible debentures. The number of trust units to be issued will be determined by dividing $1,000 of principal amount of the convertible debentures by 95% of the weighted average trading price of the trust units on the Toronto Stock Exchange for the 20 consecutive trading days ending on the fifth trading day preceding the date fixed for redemption or the maturity date, as the case may be.

The proceeds of the debentures, net of the issue costs, were approximately $81.1 million. The net proceeds, with the addition of funds received in the ordinary course from Lantic and Rogers, were used to redeem the initial series debentures on March 7, 2006. The total redemption of principal was for $84.959 million as an amount of $41, 000 was converted to trust units by holders of the convertible debentures prior to the redemption date of March 7, 2006.

Of the initial series of convertible debentures issued in 2002, a portion of the principal was treated as equity on the balance sheet. Therefore, as interest payments were made, the value of the debt was drawndown and the equity portion was increased. At March 6, 2006, the debt portion was $9.727 million while the equity portion was $72.19 million for a total of $81.917 million. At inception, an amount of $3.083 million of issue cost was applied against the equity portion, and upon redemption of the initial series, was added back to the equity portion.

In accordance with Emerging Issues Committee (the "EIC") EIC-96 of the CICA handbook, the future stream of interest payments on the initial series was discounted at the rate of 5.9%, being the rate of the third series convertible debentures. This generated a debt settlement expense of $313,000, which was recorded in long-term interest expense for convertible debentures.

The Fund has not allocated any of the third series 5.9% convertible debentures into an equity component, as the calculation of the equity component is not significant using an approximate interest rate that would have been applicable to the issuance of similar debt, without the conversion features at the time the debentures were issued.

Note 6: Trust units

During the second quarter, some holders of the initial convertible debentures converted the debt instrument into trust units prior to the redemption of the convertible debentures on March 7, 2006. A total amount of $41 thousand was submitted for conversion. A total number of 8,631 trust units were issued at a value of $4.75 per trust unit.




2006 2005
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Number of Number of
Trust Units Amount Trust Units Amount
Balance --
beginning of year 88,779,760 $578,398 88,779,760 $583,494
Issued from
conversion
of debentures 8,631 41 - -
Return of capital - (7,405) - (5,096)
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Balance --
September 30 88,788,391 $571,034 88,779,760 $578,398
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Note 7: Product withdrawal / recall costs

On March 22, 2006, Lantic announced a product withdrawal/recall due to metallic strands inadvertently entering the distribution system for certain products shipped to the Ontario and Maritime markets. After having reviewed the incident with the Canadian Food Inspection Agency ("CFIA"), it was decided to recall all sugar and in some cases, products manufactured with such sugar during the concerned period.

Lantic has insurance coverage in relation to the withdrawal of products produced with the sugar that was recalled, but it will still absorb significant costs related to the withdrawal, shipping and re-processing of all sugar thought to contain the metallic strands, as well as the insurance deductible for the claim. After further review and initial discussions with the insurers, an amount of $2.0 million has been recorded as a provision for costs to be incurred over and above the insurable costs in regards to this incident.

Note 8: 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.



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For the three months ended September 30 (unaudited)
2006
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues $92,389 $59,258 ($653) $150,994
Earnings before interest,
provision for income taxes,
depreciation and amortization
and unrealized (gain) on
derivative financial
instruments 13,173 8,603 (168) 21,608

Depreciation and amortization 1,772 936 313 3,021

Unrealized (gain) on derivative
financial instruments - (6,367) - (6,367)

Impairment of goodwill - - - -

Interest expense, net 7,172 5,483 (8,461) 4,149

Net earnings (loss) $3,588 $5,066 $7,980 $16,634

Additions to property, plant
and equipment 2,484 1,079 - 3,563
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2005
-------------------------------------------------------------------------
Eastern Western Intersegment
Canada Canada and other Total
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Revenues $74,425 $46,786 ($580) $120,631
Earnings before interest,
provision for income taxes,
depreciation and amortization
and unrealized (gain) on
derivative financial
instruments 12,498 8,280 (160) 20,618

Depreciation and amortization 1,757 954 310 3,021

Unrealized (gain) on derivative
financial instruments - - - -

Impairment of goodwill - 81,592 13,408 95,000

Interest expense, net 6,611 5,641 (8,996) 3,258

Net earnings (loss) $3,479 ($80,523) ($4,886) ($81,930)
Additions to property, plant
and equipment 3,059 680 - 3,739
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For the year ended September 30 (unaudited)
2006
-------------------------------------------------------------------------
Eastern Western Intersegment
Canada Canada and other Total
-------------------------------------------------------------------------
Revenues $330,665 $212,069 ($9,995) $532,739
Earnings before interest,
provision for income taxes,
depreciation and amortization
and unrealized (gain) on
derivative financial
instruments 40,486 27,582 (658) 67,410

Depreciation and amortization 7,088 3,873 1,250 12,211

Unrealized (gain) on derivative
financial instruments - (6,367) - (6,367)

Impairment of goodwill - - - -

Interest expense, net 28,606 22,053 (34,674) 15,985

Net earnings (loss) $3,540 $4,616 $32,766 $40,922

Additions to property, plant
and equipment 5,747 3,257 - 9,004
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2005
-------------------------------------------------------------------------
Eastern Western Intersegment
Canada Canada and other Total
-------------------------------------------------------------------------
Revenues $268,621 $175,136 ($2,474) $441,283
Earnings before interest,
provision for income taxes,
depreciation and amortization
and unrealized (gain) on
derivative financial
instruments 43,536 23,231 (623) 66,144

Depreciation and amortization 7,028 3,816 1,250 12,094

Unrealized (gain) on derivative
financial instruments - - - -

Impairment of goodwill - 81,592 13,408 95,000

Interest expense, net 26,033 26,036 (36,990) 15,079

Net earnings (loss) $7,324 ($86,282) $21,709 ($57,249)

Additions to property, plant
and equipment 4,837 2,671 - 7,508
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Revenues were derived from customers in the following geographic areas:
------------------------------------------------------------------------
For the three months ended For the year ended
September 30, September 30,
(unaudited) (unaudited)
------------------------------------------------------------------------
2006 2005 2006 2005

Canada $133,653 $110,096 $473,863 $403,760
United States and Other 17,341 10,535 58,876 37,523
------------------------------------------------------------------------
$150,994 $120,631 $532,739 $441,283
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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.

The Fund has issued its Annual Audited Financial Statements and related Management's Discussion and Analysis for the year ended September 30, 2006 on SEDAR. Readers should refer to these reports for consolidated financial results and full year discussions and analysis.

This Management's Discussion and Analysis is dated November 22, 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 year ended September 30, 2006. Generally, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's control procedures provide reasonable assurance that (i) information required to be disclosed by the Company in its annual 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.

In addition, the Chief Executive Officer and Chief Financial Officer have designed or caused it to be designed under their supervision, internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. There have been no changes in internal controls during the year that have had a material effect on the Company's internal controls.



Results of operations:

For the three months ended For the year ended
Consolidated Results September 30 September 30
(unaudited) (unaudited)
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(In thousands of dollars,
except for volume and per
trust unit information) 2006 2005 2006 2005

Volume (metric tonnes) 199,316 201,818 759,689 750,195
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Revenues $150,994 $120,631 $532,739 $441,283

Gross margin 32,091 30,478 104,470 101,133
Administration and selling 6,421 5,801 21,524 22,359
Distribution 4,062 4,059 13,536 12,630
Product withdrawal / recall
provision - - 2,000 -
-------------------------------------------------------------------------
Earnings before interest,
provision for income
taxes, depreciation and
amortization and unrealized
(gain) on derivative
financial instruments 21,608 20,618 67,410 66,144

Depreciation and
amortization 3,021 3,021 12,211 12,094
Unrealized (gain) on
derivative
financial instrument (6,367) - (6,367) -
Impairment of goodwill - 95,000 - 95,000
Interest, net of interest
income and other charges 4,194 3,258 15,985 15,079
Provision for income taxes 4,126 1,269 4,659 1,220
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Net earnings (loss) $16,634 ($81,930) $40,922 ($57,249)
-------------------------------------------------------------------------
Net earnings (loss) per trust
unit - basic $0.19 ($0.94)$ 0.43 ($0.72)
-------------------------------------------------------------------------


Fourth quarter volume decreased by 2,500 metric tonnes from the comparable quarter in fiscal 2005. The decrease is due to a combination of factors. As a result of high sugar prices, liquid volume was down by approximately 11,900 metric tonnes due to the loss of volume from HFCS substitutable accounts. There were no thick juice sales in the quarter, as opposed to 8,400 metric tonnes in the comparable quarter of 2005, as thick juice was processed into granulated sugar and sold against the U.S. Canada specific quota of 25,000 metric tonnes awarded to Canada by the USDA in February 2006. The above volume shortfall was partially offset by an increase of 16,000 metric tonnes in export sales made against the Canada specific quota and against a new U.S. global quota announced by the USDA on July 27, 2006. The volume for the year is 9,500 metric tonnes higher than fiscal 2005 all due to additional export sales to the U.S. under the various U.S. quotas opened in fiscal 2006.

For the quarter, industrial volume increased by approximately 1,800 metric tonnes due mainly to increased volume from existing accounts.

Consumer volume for the quarter was flat with last year's comparable quarter. Year to date volume was 1,600 metric tonnes lower than last year, a smaller reduction than experienced last year.

Revenues for the quarter were $30.4 million higher than the previous year's comparable quarter and $91.5 million higher for the year due to the higher price of world raw sugar in fiscal 2006.

For the quarter, gross margin increased by $1.6 million, when compared to the same quarter of last year, even though volume was down. On a per metric tonne basis, gross margins were $161.00 in 2006 compared to $151.02 for the comparable quarter of last year. Higher operational costs incurred in Taber for the process of beet thick juice was more than offset with the higher selling margins achieved on the export sales. In addition, a favourable sales mix with higher margins export sales and lower volume of low HFCS substitutable sales benefited the Company during the quarter.

For the year, gross margin was $137.52 per metric tonne compared to $134.81 in fiscal 2005. The higher rate is all due to a favourable sales mix due to higher selling margins export sales. This was partially offset by higher maintenance costs at the Montreal facility, and higher energy and processing costs at Rogers.

Distribution costs were comparable during the quarter, while administration expenses were approximately $0.6 million higher in 2006 than the comparable quarter of 2005. The increase is due to a $0.7 million year-end bad debt provision for an account that defaulted on its payment to Lantic. For the year, distribution costs were higher by $0.9 million due to higher freight rates and higher volume of direct shipments by Lantic to the Ontario market. For the year, administration costs were lower due mainly to costs associated with the anti-dumping case review in 2005.

During the year, Rogers put in place a pre-hedge program for some of its beet sugar sold in Canada. As beet sugar input price is fixed with the Growers for fiscal 2007 and 2008, this pre-hedge program would allow Rogers to benefit from the higher raw sugar values that were present in fiscal 2006. As the pre-hedge program did not meet all the requirements under hedge accounting, these futures positions had to be accounted at fair value at year end. Approximately 33,000 metric tonnes were pre-hedged for fiscal 2007 and 29,000 metric tonnes for fiscal 2008, at values above 15 cents per pound. The fair value of these financial derivative instruments resulted in an unrealized gain of $6.4 million at year end. This has no impact on distributable cash, as this unrealized gain on financial derivative instrument is a non-cash flow item.

Interest expense for the quarter was higher by approximately $0.9 million due mainly to the refinancing of the initial series debentures where a large portion of interest paid on the initial series convertible debenture was charged to equity, while all interest incurred on the new third series convertible debenture is all charged to interest expense. In the comparable quarter of 2005, an amount of $1.7 million of interest had been charged directly to equity for the initial series convertible debentures. In addition, due to the higher price of world raw sugar in fiscal 2006, margin requirements were paid and short term interest expense was incurred while interest income was earned last year on temporary cash investments. This amounts to approximately $0.15 million for the quarter and $1.2 million for the year.

Goodwill is tested for impairment annually, on September 30. There was no impairment in goodwill in fiscal 2006. In fiscal 2005, an independent valuation of Rogers' was done due to the decrease in profitability of the western operation. The independent study concluded that Rogers' carrying value exceeded its fair value, resulting in a goodwill write down of $95.0 million on September 30, 2005. This write down reduced 2005 net earnings for the quarter from $13.1 million to a loss of $81.9 million and net earnings per trust unit from 13 cents to a loss of 94 cents. This write down had no impact on distributable cash.



Statement of quarterly results:
(In thousands of dollars, except volume and per trust unit information)
---------------------------------------------------------------------
---------------------------------------------------------------------
2006
---------------------------------------------------------------------
Q4 Q3 Q2 Q1
---------------------------------------------------------------------
Volume (MT) 199,316 182,267 190,384 187,722
---------------------------------------------------------------------
Revenues $150,994 $134,863 $128,842 $118,040
Gross margin 32,091 25,274 19,810 27,295
EBITDA 21,608 16,802 10,310 18,690
---------------------------------------------------------------------
Net earnings (loss) $16,634 9,704 $3,424 $11,160
---------------------------------------------------------------------
Net earnings (loss)
per trust unit $0.19 $0.11 $0.02 $0.11
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
2005
---------------------------------------------------------------------
Q4 Q3 Q2 Q1

Volume (MT) 201,818 189,631 178,098 180,648
---------------------------------------------------------------------

Revenues $120,631 $111,355 $102,876 $106,421
Gross margin 30,478 25,087 18,189 27,379
EBITDA 20,618 15,443 10,909 19,174
---------------------------------------------------------------------
Net earnings (loss) ($81,930) $7,813 $5,712 $11,156
---------------------------------------------------------------------
Net earnings (loss)
per trust unit ($0.94) $0.07 $0.05 $0.11
---------------------------------------------------------------------


Liquidity:

The distributable cash generated by the operating companies, Lantic and Rogers, is paid to the Fund by way of dividends and return of capital on the common shares of Lantic and Rogers, and by the 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 flows or results of operations determined in accordance with GAAP, and does not have a standardized meaning prescribed by Canadian 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 based on 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 Canadian Securities Administrators (the "CSA") issued CSA Staff Notice 52-306R clarifying their expectations about the presentation of distributable cash. It concludes that distributable cash is fairly presented only when reconciled to cash flows from operating activities, as presented in the issuers' financial statements.

In the past, the Fund reconciled distributable cash from earnings before interest, provision for income taxes, depreciation and amortization and unrealized (gain) on derivative financial instruments. In reconciling from cash from operations, there are two major differences. First, movement in long term assets or liabilities like pension accounts were not taken into consideration and left in the distributable cash level at the amount charged to the profit and loss statement. For fiscal 2005 and 2006, the expense amount exceeded the cash flow amount. Second, deferred financing costs incurred on long term debt financing were amortized over the life of the debt instrument, and added on a yearly basis to the interest amount in the distributable cash. Now this amount is shown in the year incurred.



The reconciliation of the EBITDA to distributable cash is as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended For the year ended
September 30 September 30
(In thousands of dollars) (unaudited) (unaudited)
-------------------------------------------------------------------------
2006 2005 2006 2005
Operating activities:
Cash flow from operating
activities $47,495 $28,401 $30,833 $35,491
Changes in non-cash
operating working capital (28,723) (11,198) 22,695 17,277
-------------------------------------------------------------------------
18,772 17,203 53,528 52,768
-------------------------------------------------------------------------

Investing activities:
Total capital expenditures (3,563) (3,739) (9,004) (7,508)
Less: Investment capital
expenditures 738 2,241 2,839 3,272
-------------------------------------------------------------------------
Maintenance capital
expenditures (2,825) (1,498) (6,165) (4,236)
-------------------------------------------------------------------------

Financing activities:
New issue long term debt - 50,000 85,000 100,000
Repayment of long term debt - (52,500) (84,959)(100,000)
Interest expense on the
equity portion of the
convertible unsecured and
subordinated debentures - (1,690) (2,983) (6,407)
Deferred financing costs - (203) (3,902) (3,368)
-------------------------------------------------------------------------
- (4,393) (6,844) (9,775)
-------------------------------------------------------------------------
Net distributable cash 15,947 11,312 40,519 38,757

Declared distributions
to Unitholders (9,181) (8,896) (35,869) (35,583)
-------------------------------------------------------------------------
Available cash $6,766 $2,416 $4,650 $3,174
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Net distributable cash for the quarter was $4.6 million higher than the comparable quarter in fiscal 2005, and $1.8 million higher for the year when compared to fiscal 2005. The increase in the quarter is due to the timing of $2.5 million in debt repayment in fiscal 2005 and to the portion of interest on the initial series of convertible debentures that was treated as equity. In addition, operational performance was better in fiscal 2006.

Changes in non-cash operating working capital represents quarter-over-quarter and year-over-year movement in current assets like accounts receivables and inventories, and current liabilities like accounts payable. Movements 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 are due to timing issues and therefore do not constitute available cash for distribution. Such increases or decreases are financed from available cash or from the Company's available credit facilities.

For the quarter, consolidated cash flow for operating activities, adjusted for changes in non-cash working operating working capital, was $18.8 million compared to $17.2 in fiscal 2005. This was due mainly to higher operational income of Lantic and Rogers. For the year, cash flow for operating activities was $53.5 million compared to $52.8 million in fiscal 2005, which again was due mainly to higher operational income of the operating companies.

For the quarter, maintenance capital expenditures were higher in fiscal 2006 than 2005. Fiscal 2005 level was lower as Lantic's engineering team concentrated their efforts on the ion exchange project. For the year, maintenance capital expenditures of $6.2 million is in line with the historical level of spending. In addition to the above, Lantic and Rogers spent $2.8 million in fiscal 2006 and $3.3 million in fiscal 2005 on two investment capital projects. Distributable cash is not reduced by this investment as these projects are not necessary for the operation of the plants, but are done due to their substantial operational savings to be realized once these projects are completed.

In fiscal 2006, Lantic completed its ion exchange process project to replace the bone char decolourization process. This project completed in May 2006 at a cost of $5.2 million is estimated to generate annual savings of almost $3.0 million. Taber also completed an investment project consisting of a new beet pulp press. The project was commissioned in September 2006 before the start of the new slicing campaign. The project cost of $1.2 million is estimated to generate annual savings of $0.6 to $0.7 million.

There was no financing activity during the quarter. In fiscal 2005, the Company refinanced Rogers' $100.0 million term debt, which matured in August 2005, with the issue of second series 6.0% convertible unsecured debentures of $50.0 million in March 2005 and a new term bank loan of $50.0 million secured in August 2005.

During the year, the Fund repaid the $85.0 million initial series 9.5% convertible debentures from the proceeds of an $85.0 million third series 5.9% convertible debenture. Prior to the redemption of the initial series, an amount of $41,000 was converted to trust units by holders of the initial convertible debentures.

A portion of the interest expense of the Fund's initial series of convertible debentures, which was fully repaid on March 7, 2006, was credited to equity on the balance sheet. As the interest payments were made, they drew down the value of the debt and increase the value of the equity. The amount for fiscal 2006 was $3.0 million for the period of October 1, 2005 to March 7, 2006.

The deferred financial charges of $3.9 million in fiscal 2006 and $3.4 million in fiscal 2005, relate to the above refinancings.

Contractual obligations:

At September 30, 2006, the operating companies had commitments to purchase a total of 1,015,000 metric tonnes of raw sugar, of which only 315,694 metric tonnes had been priced, for a total dollar commitment of $117.6 million.

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 year end, no amount was drawn from either of the working capital facilities, Lantic and Rogers had respectively $4.4 and $10.0 million of cash available.

At year end, inventories are high compared to September 30, 2005 due to higher level of inventories due to timing of raw sugar vessel receipt and earlier start of Taber's beet slicing campaign.

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 88,788,391 units were outstanding as at September 30, 2006, the same balance as at June 30, 2006.

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, except for the provision of $2.0 million taken during the second quarter for product recall. Our estimate of $2.0 million was based on the volume of sugar returned for further reprocessing and to initial cost estimates supplied by certain customers and discussions with Lantic's insurers.

On October 1, 2006, the Fund will adopt the new requirements of Sections 3855 and 3861 of the CICA Handbook for financial instruments and hedge accounting. It will require the Company to mark to market at each reporting period all financial derivatives outstanding, which have not been designated as hedges. Due to a new definition and requirements of hedge items, the Company has concluded that all of its financial derivatives for sugar, foreign exchange and natural gas will no longer qualify under the new rules. As a result, the Company will have to recognize, on a quarterly basis on its profit and loss statement all price movements of these financial instruments. This will create large fluctuations on the earnings of the Fund, but none of these adjustments will impact distributable cash, as they will be non-cash transactions. The Company will continue its rigorous hedging program for sugar, foreign exchange and natural gas.

Financial derivative instruments:

A significant portion of the Company's sales is made under fixed price, forward sales contracts, which extend up to two years. The Company also contracts to purchase raw cane sugar substantially in advance of the time it delivers the refined sugar produced from the purchase. To mitigate its exposure to future price changes, the Company attempts to manage the volume of refined sugar sales contracted for future delivery in relation to the volume of raw cane sugar contracted for future delivery, when feasible.

The Company uses derivative instruments to manage exposures to changes in raw sugar prices and natural gas prices. The Company's objective for holding derivatives is to minimize risk using the most efficient methods to eliminate or reduce the impacts of these exposures.

Raw Sugar

At September 30, 2006, the Company had a short position of $96.1 million in net contract amounts with a fair value of $73.5 million. This is offset by a long position of sugar priced from suppliers over and above contracted sales to customers.

Natural gas

At September 30, 2006, the Company had $26.8 million in natural gas contracts, with a fair value of $23.1 million.

Foreign Exchange contracts

At September 30, 2006, the Company had $19.7 million in foreign currency contracts with a fair value of $20.8 million.

Risk factors:

Risk factors in Lantic's and Rogers' businesses and operations are discussed in the Management's Discussion and Analysis of our Annual Report for the year ended September 30, 2005 and updated in our Annual Report for the year ended September 30, 2006. These documents are available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugar.com.

Outlook:

In Taber, the beet harvest started in mid-September and, to date, the yield per acre harvested is well above average. On beet acreage of approximately 37,000 acres, Taber may produce in excess of 120,000 metric tonnes of beet sugar in fiscal 2007, approximately 25,000 metric tonnes more than in fiscal 2006.

World raw sugar prices declined significantly in the last quarter of fiscal 2006, closing the year at 11.75 cents per pound, almost the same level as at October 1, 2005. A lower price of raw sugar combined with a tightness in HFCS supply may give Rogers the opportunity to reacquire, in calendar 2007, some of the HFCS substitutable liquid business lost in calendar 2006. This could represent up to 40,000 metric tonnes of volume.

Demand for refined sugar in Canada has declined slightly over the last few years due mainly to changing eating habits. The shift in sales mix from consumer to industrial sales is likely to continue, which could negatively impact overall gross margins.

In May 2006, the Court of New Brunswick agreed to the sale of the assets of CanSugar, which had been in receivership for over one year, to an investment group led by one of the former owners of CanSugar. The new owners are investing in the plant with the intent of being able to produce and market sugar by the end of this calendar year under the name Sucor. This new competition may negatively impact the future volume and margins earned by Lantic. Initiatives to protect our market share will only be aggressively pursued when Sucor can demonstrate its ability to provide a quality product on a regular basis.

Natural gas prices have decreased over the last few months, and the Company has hedged most of its winter usage at average prices below last year's prices. At the present time, there is no hedge in place for Spring and Summer requirements. Currently, natural gas inventories in storage are at record highs, hence the reason for the lower spot prices. This has not yet translated into lower Spring and Summer prices which, lately, have traded as high as Winter prices. Unless a cold winter is experienced, natural gas prices should decline in the Spring of 2007. We will continue to monitor the natural gas inventories and market dynamics in order to minimize our natural gas costs.

In May 2006, Lantic completed its ion exchange process for decolourization. The project was commissioned in June 2006 and performed as anticipated in the last quarter of fiscal 2006. Annual savings to be realized as a result of this investment project are estimated at $3.0 million. In September 2006, Taber completed the installation of a new beet pulp press. The new pulp press has been in operation since the start of the new slicing campaign. The new beet pulp press is performing very well and should generate annual estimated savings of $0.6 to $0.7 million. Lantic and Rogers will continue to investigate these types of projects, which have quick paybacks and large returns. It is the Company's intent to invest between $2.0 and $3.0 million per year in these types of projects. Lantic is currently investigating new robotics in the packaging area that would again offer substantial savings.

During the year, Rogers announced to its customers that effective January 1, 2007, all sales will be made on an FOB basis from its Vancouver and Taber plants. This will mitigate the impact of rising transportation costs in the future and reduce total distribution costs.

On October 31, 2006, Canada's Minister of Finance made an announcement concerning the imposition of a distribution tax on distributions from publicly traded income trusts. The proposed tax would be imposed on existing trusts, starting in fiscal 2011. The government must still pass legislation to make the tax levy on income trusts law. We will closely monitor any development in regards to this potential tax legislation change.

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