Rogers Sugar Income Fund
TSX : RSI.UN

Rogers Sugar Income Fund

May 02, 2007 16:00 ET

Rogers Sugar Income Fund: Interim Report for the Second Quarter 2007 Results

Higher adjusted gross margin rate for the quarter. Higher distributable cash for the quarter. Increase of 4.8% in monthly distributions, effective May 3, 2007.

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 2, 2007) - 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 six months ended March 31, 2007.

Volume for the second quarter was 160,733 metric tonnes, as opposed to 190,384 metric tonnes in the comparable quarter of last year, a decrease of approximately 29,600 metric tonnes. The decrease is due to a combination of factors. As a result of high sugar prices in calendar 2006, liquid volume was down by approximately 7,700 metric tonnes due to the loss of volume from HFCS substitutable accounts, and there were no thick juice sales in the quarter, as opposed to 9,100 metric tonnes in the comparable quarter of 2006. Lastly, export sales are lower by 11,500 metric tonnes for the quarter as the U.S. had, in 2006, opened special refined sugar quotas due to a shortfall in domestic production caused by Hurricane Katrina. Industrial volume was also lower by approximately 1,700 metric tonnes due to timing in shipments. Consumer volume was up 500 metric tonnes from last year's comparable quarter. Year to date volume is lower by 38,700 metric tonnes due mainly to the factors mentioned above.

Due to the adoption of new accounting policies, effective October 1, 2006, for derivative financial instruments, the Fund's operating results will now have large fluctuations. These fluctuations are due to the mark-to-market of all derivative financial instruments and embedded derivatives in non-financial instruments and reversal of transitional balances at the end of the reporting period. This accounting income does not reflect the economic performance of the Fund. We therefore prepared adjusted gross margin and adjusted earnings results to reflect the economic performance of the Fund during the reporting period. This economic performance is comparable to the earnings reported in previous reportings. All these non-GAAP adjustments are explained in detail in the Management's Discussion and Analysis prepared for the quarter ended March 31, 2007. In this press release, and future press releases, we will discuss adjusted gross margins, which reflect the operating income without the impact of the transitional results from adopting this new accounting policy and the mark-to-market of derivative financial instruments and embedded derivatives in non-financial instruments.

For the second quarter, adjusted gross margin increased by $2.4 million, when compared to the same quarter of last year, even though volume was lower. On a per metric tonne basis, adjusted gross margin was $137.98 in 2007 compared to $104.06 for the comparable quarter of last year. The increase in the margin rate is due to a better sales mix, which includes lower liquid HFCS substitutable business, no thick juice volume, improved selling margins and a contribution of approximately $10.00 per metric tonne realized on the Taber pre-hedge program initiated in fiscal 2006. Approximately 12,500 metric tonnes of Taber pre-hedge sales were liquidated during the quarter as products were delivered, for a profit of $1.6 million. Year to date adjusted gross margin per metric tonne is $153.15 in 2007 compared to $124.58 in fiscal 2006, again due in large part to the factors mentioned above.

In Taber, the beet slicing campaign was completed in February 2007. Beet thick juice will be processed in late Spring, and total beet sugar production is now estimated at 126,000 metric tonnes. This is approximately 25,000 metric tonnes higher than expected. Due to limited market opportunities in Western Canada, and for export sales, a portion of this additional production will have to be warehoused for fiscal 2008 sales.

For the second quarter, distributable cash was $9.1 million, as compared to $0.4 million in fiscal 2006. The increase in distributable cash was due to better operational performance of approximately $5.3 million, lower interest costs of $1.7 million, a non-recurring charge of $3.9 million incurred in 2006 on the negotiation of the third series convertible debentures, net of $1.3 million in unit buy-back under the Normal Course Issuer Bid.

During the second quarter, the Fund distributed $9.2 million compared to $8.9 million in fiscal 2006, and $18.5 million year to date as compared to $17.8 million in fiscal 2006.

During the quarter, the Fund bought back 400,000 units at an average price of $3.82 under its Normal Course Issuer Bid. Year to date the Fund bought back 900,000 units. All these units were cancelled by quarter's end, except for 57,300, which were cancelled in April 2007. The Fund will continue to purchase units should the price trade in a range that does not reflect the fair value of the units.

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 government must still pass legislation to make the tax levy on income trust law. To the extent the proposed changes are enacted, tax would be imposed on existing trusts, starting in 2011.

The Board of Trustees approved an increase of 4.8% to the current distribution level, effective May 3, 2007. On an annualized basis, this represents an increase of 2 cents per unit for a total yearly distribution of 44 cents per unit.

FOR THE BOARD OF TRUSTEES,

SIGNED

Edward Y. Baker,

Vancouver, British Columbia -- May 2, 2007



Rogers Sugar Income Fund
Consolidated Balance Sheets
March 31, 2007 and 2006
(In thousands of dollars)
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March 31 September 30 March 31
2007 2006 2006
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ASSETS (unaudited) (audited) (unaudited)
Current assets:
Cash and cash equivalents $24,943 $14,549 $2,782
Accounts receivable 37,287 48,470 72,267
Inventories 85,589 76,884 57,782
Prepaid expenses 2,861 3,006 3,166
Derivative financial
instruments (Note 5) 3,899 - -
Future income taxes - - 1,199
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154,579 142,909 137,196
Capital assets 202,975 205,857 206,958
Derivative financial
instruments (Note 5) 888 6,367 -
Other assets (Note 4) 396 7,280 8,362
Goodwill (Note 6) 223,043 223,043 223,043
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$581,881 $585,456 $575,559
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LIABILITIES AND
UNITHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $- $- $19,000
Accounts payable and
accrued liabilities 42,975 57,898 40,013
Future income taxes 9,443 4,576 -
Derivative financial
instruments (Note 5) 152 - -
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52,570 62,474 59,013
Employee future benefits 16,662 17,409 17,536
Derivative financial
instruments (Note 5) 5 - -
Long-term debt (Note 7) 113,872 115,000 115,000
Convertible unsecured
subordinated debentures
(Note 8) 129,918 135,000 135,000
Future income taxes 6,562 2,689 4,410
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319,589 332,572 330,959
UNITHOLDERS' EQUITY
Trust units (Note 9) 564,295 571,034 575,828
Contributed surplus
(Note 9) 2,369 52 29
Accumulated other
comprehensive income - - -
Deficit (304,372) (318,202) (331,257)
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262,292 252,884 244,600
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$581,881 $585,456 $575,559
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Operations
For the periods ended March 31, 2007 and 2006
(In thousands of dollars - except
amounts per trust units)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the three months For the six months
ended March 31 ended March 31
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited)(unaudited)
--------------------------------------------------------------------------

Revenues $115,448 $128,842 $250,328 $246,882
Cost of sales 88,152 109,032 182,818 199,777
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Gross margin 27,296 19,810 67,510 47,105
Expenses:
Administration
and selling 4,075 4,639 8,594 10,206
Distribution 2,425 2,861 5,350 5,899
Product withdrawal /recall
provision - 2,000 - 2,000
--------------------------------------------------------------------------
6,500 9,500 13,944 18,105
Earnings before
interest, provision for
income taxes and
depreciation and
amortization 20,796 10,310 53,566 29,000
Depreciation and
amortization 3,127 3,056 6,284 6,123
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Earnings before interest
and provision for income
taxes 17,669 7,254 47,282 22,877
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Interest on long-term
debt and convertible
debentures 3,730 3,291 7,554 6,051
Amortization of deferred
financing costs 381 747 761 1,070
Short term interest
(income) (200) 266 (437) 173
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3,911 4,304 7,878 7,294
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Earnings before provision
for income taxes 13,758 2,950 39,404 15,583
Provision for (recovery of)
income taxes:
Current 93 227 (350) 454
Future 2,328 (701) 8,740 545
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2,421 (474) 8,390 999
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Net earnings $11,337 $3,424 $31,014 $14,584
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Net earnings per trust
unit:
Basic $0.13 $0.02 $0.35 $0.13
Diluted $0.12 $0.02 $0.31 $0.13
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Supplemental disclosure:
Employee future benefits
expense $726 $827 $1,440 $1,905
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Unitholders' Equity
For the periods ended March 31, 2007 and 2006
(In thousands of dollars)
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For the three months ended March 31 2007
--------------------------------------------------------------------------
Accumu-
lated
other
Contri- compre-
Trust buted hensive
units surplus income Deficit Total
------------------------------------------------------------------------
Balance beginning of
period $566,494 $1,458 $(1,334) $(306,470) $260,148
Issue of trust units - - - - -
Distributions - - - (9,239) (9,239)
Obligation under
stock options - 12 - - 12
Buy back of trust
units (Note 9) (2,199) 899 - - (1,300)
Adjustment for
change in accounting
policies, effective
October 1, 2006
(Note 5) - - 1,334 - 1,334
Reversal to cost of
sales of accumulated
other comprehensive
income (Note 5) - - - - -
Interest expense on
equity portion of the
convertible unsecured
subordinated debentures - - - - -
Redemption of
initial series
of convertible
debentures - - - - -
Debt settlement
expense - - - - -
Net earnings - - - 11,337 11,337
------------------------------------------------------------------------
Balance end of
period $564,295 $2,369 $- $(304,372) $262,292
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For the three months ended March 31 == 2006
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--------------------------------------------------------------------------
Equity
component
of
convertible
unsecured
Trust subordinated Contributed
units debentures surplus Deficit Total
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Balance
beginning of
period $577,563 $70,870 $11 $(323,471) $324,973
Issue of trust
units 41 (41) - - -
Distributions (1,776) - - (7,120) (8,896)
Obligation
under stock
options 18 - 18
Buy back of
trust units
(Note 9) - - - - -
Adjustment for
change in
accounting
policies,
effective
October 1,
2006
(Note 5) - - - - -
Reversal to
cost of
sales of
accumulated
other
comprehensive
income
(Note 5) - - - - -
Interest
expense on
equity portion
of the
convertible
unsecured
subordinated
debentures - 1,320 - (1,320) -
Redemption of
initial series
of convertible
debentures - (72,149) - (3,083) (75,232)
Debt settlement
expense - - - 313 313
Net earnings - - - 3,424 3,424
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Balance end of
period $575,828 $- $29 $(331,257) $244,600
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For the six months ended March 31 2007
-------------------------------------------------------------------------
Accumu-
lated
other
Contri- compre-
Trust buted hensive
units surplus income Deficit Total
-------------------------------------------------------------------------
Balance beginning
of period $571,034 $52 $- $(318,202) $252,884
Issue of trust
units - - - - -
Distributions (1,324) - - (17,220) (18,544)
Obligation under
stock options - 24 - - 24
Buy back of trust
units (Note 9) (5,415) 2,293 - - (3,122)
Adjustment for
change in
accounting
policies,
effective October 1,
2006 (Note 5) - - (3,282) 36 (3,246)
Reversal to cost of
sales of accumulated
other comprehensive
income (Note 5) - - 3,282 - 3,282
Interest expense on
equity portion of
the convertible
unsecured subordinated
debentures - - - - -
Redemption of
initial series
of convertible
debentures - - - - -
Debt settlement
expense - - - - -
Net earnings - - - 31,014 31,014
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Balance end of
period $564,295 $2,369 $- $(304,372) $262,292
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For the six months ended March 31 2006
--------------------------------------------------------------------------
Equity
component
of
convertible
unsecured
Trust subordinated Contri-
units debentures buted Deficit Total
surplus
--------------------------------------------------------------------------
Balance
beginning
of period $578,398 $69,207 $- $(324,907) $322,698
Issue of trust
units 41 (41) - - -
Distributions (2,611) - - (15,181) (17,792)
Obligation under
stock options - - 29 - 29
Buy back of
trust units
(Note 9) - - - - -
Adjustment for
change in
accounting
policies,
effective
October 1,
2006
(Note 5) - - - - -
Reversal to cost
of sales of
accumulated
other
comprehensive
income (Note 5) - - - - -
Interest expense
on equity
portion of the
convertible
unsecured
subordinated
debentures - 2,983 - (2,983) -
Redemption of
initial
series
of convertible
debentures - (72,149) - (3,083) (75,232)
Debt settlement
expense - - - 313 313
Net earnings - - - 14,584 14,584
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Balance end of
period $575,828 $- $29 $(331,257) $244,600
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Cash Flows
For the periods ended March 31, 2007 and 2006
(In thousands of dollars)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the three months For the six months ended
ended March 31 ended March 31
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)

--------------------------------------------------------------------------
Cash flows from
operating
activities:
Net earnings $11,337 $3,424 $31,014 $14,584
Adjustments for items
not involving cash:
Depreciation and
amortization 3,127 3,056 6,284 6,123
Amortization of
deferred financing
costs 381 747 761 1,070
Future income taxes 2,328 (701) 8,740 545
Employee future
benefits (312) (277) (747) (429)
Stock based compensation
expenses 12 18 24 29
Derivative financial
instruments (4,799) - 1,737 -
Reversal of accumulated
other comprehensive
income 1,334 - - -
Other 142 459 (51) 513
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13,550 6,726 47,762 22,435
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Changes in non-cash
operating working
capital:
Accounts receivable 5,159 (9,942) 11,183 (14,263)
Inventories (4,340) 7,490 (8,705) (25,717)
Prepaid expense (1,412) (715) 145 (427)
Accounts payable
and accrued
liabilities (3,161) (5,399) (15,037) (5,279)
---------------------------------------------------------------------------
(3,754) (8,566) (12,414) (45,686)
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9,796 (1,840) 35,348 (23,251)
Cash flows from financing
activities:
Increase in bank
indebtedness - 14,000 - 19,000
Distributions
to Unitholders (9,239) (8,896) (18,544) (17,792)
Buy back of trust
units (1,300) - (3,122) -
New issue convertible
debentures - 85,000 - 85,000
Redemption of
convertible
debentures,
net of conversion
into trust units - (84,959) - (84,959)
Deferred financing
charges - (3,900) - (3,900)
Interest expense on
the equity portion of
the convertible unsecured
and subordinated
debentures - (1,320) - (2,983)
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(10,539) (75) (21,666) (5,634)
--------------------------------------------------------------------------
Cash flows from investing
activities:
Additions to capital
assets (1,873) (1,992) (3,288) (3,624)
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Net change in cash
and cash equivalents (2,616) (3,907) 10,394 (32,509)
Cash and cash
equivalents, beginning
of period $27,559 $6,689 $14,549 $35,291
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Cash and cash equivalents,
end of period $24,943 $2,782 $24,943 $2,782
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Supplemental disclosure:
Interest paid on
the debt and equity
components of
convertible
debentures 1,184 3,349 6,626 10,309
Income taxes paid 23 273 200 546
Capital assets included
in accounts
payable and accrued
liabilities 114 861 114 861
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Rogers Sugar Income Fund

Notes to Interim Unaudited Consolidated Financial Statements

For the periods ended March 31, 2007 and 2006

(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. Other than the changes in accounting policies noted in Note 2 below, 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 2006 annual report. These quarterly consolidated financial statements were not reviewed or audited by our external auditors.

Note 2: Changes in accounting policies

Financial Instruments

On October 1, 2006, the Fund adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Sections 3855 Financial Instruments -- Recognition and Measurement ("HB-3855"), 3861 Financial Instruments -- Disclosure and Presentation ("HB-3861") and 3865 Hedges ("HB-3865"). These sections were required to be adopted, together with CICA Handbook Sections 1530 Comprehensive Income ("HB-1530") and 3251 Equity, for fiscal years beginning on or after October 1, 2006, on a prospective basis. Under these standards, all financial instruments are classified into one of the following five categories: available-for-sale financial assets, loans and receivables, other financial liabilities, held-for-trading, and held to maturity. Initial measurement of financial instruments is at fair value for all financial statements and subsequent measurement and recognition in changes in value of financial instruments depend on their initial classification. Available-for-sale instruments are measured at fair value at each reporting period and unrealized gains or losses arising from changes in fair value are recorded in other comprehensive income until such time as the asset or liability is removed from the balance sheet. The Fund's short-term liquid investments included in cash and cash equivalents have been classified as available-for-sale assets. The Fund does not carry any loans receivable, and its accounts receivable are measured at amortized cost, which approximates cost. Changes in fair value are recognized in net earnings only if realized, or impairment in the value of an asset occurs. The Fund's accounts payable and accrued liabilities have been classified as other financial liabilities. Financial assets and liabilities classified as held-for-trading are measured at fair value at each reporting period with changes in fair value in subsequent periods included in net earnings. The balance sheet contains derivative financial instruments and certain embedded derivatives, which have been classified as held-for-trading. Held-to-maturity assets and other liabilities are measured at amortized cost and interest income or expense is accrued over the expected life of the instrument. The Company does not hold any assets or liabilities in this category.

(i) Cash and cash equivalents

In accordance with HB-3855, the Fund classifies its cash and cash equivalents as available-for-sale assets and values them at fair value. Cash and cash equivalents include cash on hand, bank balances, and short-term liquid investments with maturities of three months or less, and bank overdraft when the latter forms an integral part of the Fund's cash management. Due to the nature of the elements in cash and cash equivalents, the impact in comprehensive income for the quarter was nil. The adoption of HB-3855 has not resulted in changes to the Fund's classification of cash and cash equivalents.

(ii) Derivative financial instruments and embedded derivatives

In accordance with HB-3855, the Fund classifies derivative financial instruments and embedded derivatives which have not been designated as hedges for accounting purposes as held-for-trading, and values them at fair value. The derivative financial instruments consist of sugar futures, foreign exchange forward contracts and natural gas futures, and the embedded derivatives relate to the foreign exchange component of certain sales contracts, all of which the Funds' operating companies enter into during the regular course of business. The Fund no longer designates these derivative financial instruments and embedded derivatives as hedges as a result of new requirements for hedge accounting (HB - 3865), which came into effect October 1, 2006.

(iii) Comprehensive income

HB-1530 establishes standards for reporting and displaying comprehensive income.

Comprehensive income is defined as the change in equity (net assets) from transactions and other events from non-owners sources. Other comprehensive income is defined as revenues, expenses gains and losses that, in accordance with primary sources of GAAP, are recognized in comprehensive income, but excluded from net income. The adoption of new accounting policies (see Note 2) has given rise to transitional balances as at October 1, 2006 recorded in accumulated other comprehensive income. The reversal of these balances will be charged to cost of sales over the life of the hedged item.

Note 3: Significant accounting policies

(a) Hedge accounting

The Fund uses raw sugar futures and foreign currency forward contracts in its raw sugar purchasing programs, and uses natural gas futures to economically hedge natural gas purchases used in its manufacturing operations. The Fund's policy is not to utilize derivative financial instruments for trading or speculative purposes. Prior to the adoption of new accounting policies, effective October 1, 2006 (see Note 2), eligible gains and losses on raw sugar futures and foreign currency forward contracts were deferred and recognized as part of the cost of inventory purchases and charged or credited to cost of sales when such inventory was sold. Eligible gains and losses on natural gas futures were deferred off balance sheet and recognized as part of the cost of the natural gas purchases and charged to cost of sales in the period during which the related manufactured products were sold.

As a result of accounting policies adopted by the Fund on October 1, 2006 (see Note 2), the Fund concluded that it would no longer designate its financial derivatives for sugar, foreign exchange and natural gas as accounting hedges. Therefore, all movements in fair value of derivative financial instruments are now immediately recognized in cost of sales in the consolidated statement of operations with a corresponding amount included in "Derivative financial assets / Derivative financial liabilities" in the balance sheet.



Note 4: Other assets
--------------------------------------------------------------------
March 31 September 30 March 31
2007 2006 2006
--------------------------------------------------------------------
Deferred financing charges (a) $- $6,398 $7,156
Prepaid swap interest (a) - 823 1,071
Other 396 59 135
--------------------------------------------------------------------
$396 $7,280 $8,362
--------------------------------------------------------------------


(a) Due to the adoption of new accounting policies, as identified in Note 2, the October 1, 2006 balance of deferred financing charges of $6.4 million and prepaid swap interest of $0.8 million were reclassified to offset the respective debt for which they were incurred. See Note 7 - Long-term debt and Note 8 - Convertible unsecured subordinated debentures for additional details.

Note 5: Derivative financial assets/Derivative financial liabilities

As indicated in Note 2 of the financial statements, the Fund adopted HB-3855 and HB-3865 on October 1, 2006. HB-3855 expanded on section HB-3860 by prescribing when a financial instrument is to be recognized on the balance sheet and at what amount and how gains and losses are recognized. More specifically, the adoption of this section has resulted in the requirement for the Fund to mark-to-market all financial derivative instruments outstanding at the end of the reporting period, which have not been designated as hedges for accounting purposes.

HB-3865 provides specific criteria for when and how hedge accounting is to be applied and accounted for in a Company's financial statements. Due to a new definition and requirements for hedging as per HB-3865, the Fund concluded that all of its operating companies' financial derivatives for sugar, foreign exchange and natural gas, all of which the Fund's operating companies enter into during the regular course of business, would no longer be designated as accounting hedges.

Also, in order to comply with HB-3855, the Fund had to review all contracts in place at October 1, 2006 to identify non-financial derivatives. The Fund chose to review all contracts in place on October 1, 2006 that were entered into after October 1, 2002 for any embedded derivatives within these contracts to determine if any such embedded derivatives needed to be accounted for separately at fair value from the base contract. The Fund has concluded that embedded derivatives existed in certain sales contracts denominated in U.S. currency, for customers whose functional currency is not the U.S. dollar.

The impact related to the adoption of these new accounting policies is twofold. Firstly, it has given rise to the initial recognition of unrealized gains/losses for derivative financial instruments and embedded derivatives, which no longer qualify for hedge accounting as of October 1, 2006. These amounts have been calculated and labeled as transitional balances and will be amortized, prospectively, as they come to maturity. Secondly, on a going forward basis, effective October 1, 2006, these derivative financial instruments and embedded derivatives will be marked to market at each reporting date with the unrealized gain/loss charged to the consolidated statement of operations with a corresponding offsetting amount charged to the balance sheet.

Details of recorded gains/losses for the quarter, in marking-to-market all derivative financial instruments and embedded derivatives, as well as the reversal of the transitional balances are noted below. For sugar and natural gas futures contracts (derivative financial instruments), the amounts noted below are netted with the variation margins paid or received to/from these brokers at the end of the reporting period. Natural gas forwards and sugar futures have been marked-to-market using published quoted values for these commodities, while foreign exchange forward contracts have been marked-to-market using rates published by the financial institution which is counter-party to these contracts.



--------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated Statement
other of operations
TRANSITIONAL Assets/ comprehensive cost of
BALANCES (Liabilities) Deficit income sales
--------------------------------------------------------------------------
Gain/(Loss)

Opening balance
recorded -
October 1, 2006

Sugar futures
contracts (2,450) - - (2,450)
Natural gas
futures contracts (3,282) - (3,282) -
Foreign exchange
forward contracts - - - -
Embedded derivatives (36) 36 - -
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Sub-total n/a 36 (3,282) (2,450)
Reversal of
transitional
balances during
the first
quarter
Sugar futures
contracts - - - 4,720
Natural gas
futures contracts - - 1,948 (1,948)
Foreign exchange
forward contracts - - - 128
Embedded derivatives - - - -
--------------------------------------------------------------------------
First Quarter Total $n/a $36 $(1,334) $450
--------------------------------------------------------------------------

Reversal of
transitional
balances during
the second
quarter
Sugar futures
contracts - - - (561)
Natural gas
futures contracts - - 1,334 (1,334)
Foreign exchange
forward contracts - - - (195)
Embedded derivatives - - - -
--------------------------------------------------------------------------
Second Quarter Total $n/a $36 $- $(2,090)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Financial Financial Statement of
Instrument Assets Instrument Liabilities operation
MARK-TO-MARKET Short-term Long-term Short-term Long-term cost of
sales
--------------------------------------------------------------------------
Sugar futures
contracts
$- $- $27 $5 $11,652
Natural gas
futures contracts 3,174 792 - - 6,414
Foreign exchange
forward contracts 725 96 - - (735)
Embedded derivatives - - 125 - (161)
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Total as at
March 31, 2007
$3,899 $ 888 $152 $5 $17,170
-------------------------------------------------------------

Cost of sales impact of transitional
balances for the six months ended March 31, 2007 (1,640)
---------------
Total for the six months
and period ended March 31, 2007 15,530

Total for the three months ended December 31, 2006 10,411
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Total for the quarter ended March 31, 2007 $5,119
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---------------------------------------------------------------------------


Note 6: Goodwill

Goodwill is not amortized and is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the operating segment is compared to its fair value. When the fair value exceeds its carrying amount, goodwill is considered not to be impaired, and the second step of the impairment test is unnecessary. The second step is carried out when the carrying value of a reporting unit exceeds its fair value, in which case the implied fair value of the goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any.

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. In light of this development and the resulting impact on the income trust equity market in Canada, the Fund performed a goodwill impairment test as at December 31, 2006 and concluded that there was no impairment to goodwill.



Note 7: Long-term debt
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March 31 September 30
2007 2006
--------------------------------------------------------------------------
Term loan $49,576 $50,000
Senior secured debentures 64,296 65,000
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$113,872 $115,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Due to the adoption of new accounting policies as identified in Note 2 -- HB-3855, the Fund has reclassified the October 1, 2006 balance of deferred financing charges and prepaid interest swap against the actual debt for which they were incurred. The outstanding amount of the deferred financing charges will be amortized based on the effective interest method.



Note 8: Convertible unsecured subordinated debentures
--------------------------------------------------------------------------
March 31 September 30
2007 2006
--------------------------------------------------------------------------
Second series $48,242 $50,000
Third series 81,676 85,000
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$129,918 $135,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Due to the adoption of new accounting policies as identified in Note 2 -- HB-3855, the Fund has reclassified the October 1, 2006 balance of deferred financing charges against the actual convertible debentures for which they were incurred. The outstanding amount of the deferred financing charges will be amortized based on the effective interest method.

Note 9: Trust units

During the second quarter, the Fund repurchased under its Normal Course Issuer Bid 400,000 units, at an average price of $3.816. A total of 900,000 units have been purchased year to date, at an average price of $3.721 per trust unit. All of these units, except for 57,300, were cancelled prior to March 31, 2007. The other 57,300 units were cancelled during the month of April 2007. The capital amount of the trust unit was credited at the average value of the units at the start of the quarter, resulting in a reduction of $2.2 million to the capital value of the trust units, resulting in a contributed surplus of $0.9 million being the difference between the amount paid and the book value of the units.



--------------------------------------------------------------------------
2007 2006
--------------------------------------------------------------------------
Number of Number of
Trust Units Amount Trust Units Amount
Balance -
beginning of year 88,788,391 $571,034 88,779,760 $578,398
Cancelled trust
units from buy
back program (842,700) (5,415) - -
Return of capital (1,324) - (7,405)
Issued from
conversion of
debentures - 8,631 41
--------------------------------------------------------------------------
Balance - March
31, 2007 87,945,691 $ 564,295 88,788,391 $ 571,034
--------------------------------------------------------------------------


The Fund's amended and restated Declaration of Trust provides that the Fund shall distribute all or part of its net distributable cash in a particular distribution period, but does not specify a percentage that must be distributed in such period.

Note 10: 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 March 31 (unaudited)
2007
Eastern Western Intersegment
Canada Canada and other Total
---------------------------------------------------------------------------
Revenues $74,952 $41,515 $(1,019) $115,448
Earnings before interest,
provision for income taxes
and depreciation and
amortization 11,752 9,284 (240) 20,796
Depreciation and
amortization 1,845 969 313 3,127
Interest expense, net 7,813 5,415 (9,317) 3,911
Net earnings (loss) $1,446 $1,126 $8,765 $11,337
Additions to property,
plant and Equipment 534 1,339 - 1,873
---------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
2006
Eastern Western Intersegment
Canada Canada and other Total
----------------------------------------------------------------------------
Revenues $79,580 $54,536 $(5,274) $128,842
Earnings before interest,
provision for income taxes
and depreciation and
amortization 6,577 3,997 (264) 10,310
Depreciation and
amortization 1,773 970 313 3,056
Interest expense, net 7,057 5,640 (8,393) 4,304
Net earnings (loss) $(2,549) $(1,842) $7,815 $3,424
Additions to property,
plant and Equipment 1,227 765 - 1,992
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
For the six months ended March 31 (unaudited)
2007
Eastern Western Intersegment
Canada Canada and other Total
----------------------------------------------------------------------------
Revenues $160,400 $92,504 $(2,576) $ 250,328
Earnings before interest,
provision for income taxes
and depreciation and
amortization 30,550 23,419 (403) 53,566
Depreciation and
amortization 3,690 1,969 625 6,284
Interest expense, net 14,878 10,777 (17,777) 7,878
Net earnings (loss) $9,040 $5,224 $16,750 $31,014
Additions to property,
plant and Equipment 1,415 1,873 - 3,288
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
2006
Eastern Western Intersegment
Canada Canada and other Total
----------------------------------------------------------------------------
Revenues $152,897 $101,910 $(7,925) $246,882
Earnings before interest,
provision for income
taxes and
depreciation and
amortization 18,187 11,230 (417) 29,000
Depreciation and
amortization 3,545 1,953 625 6,123
Interest expense, net 14,159 10,954 (17,819) 7,294
Net earnings (loss) $(838) $(1,354) $16,776 $14,584
Additions to property,
plant and Equipment 2,255 1,369 3,624
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenues were derived from customers in the following geographic areas:
----------------------------------------------------------------------------
For the three months For the six months
ended March 31 ended March 31
----------------------------------------------------------------------------
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Canada
$110,271 $106,386 $235,744 $213,668
United States and
Other 5,177 22,456 14,584 33,214
----------------------------------------------------------------------------
$115,448 $128,842 $250,328 $246,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Note 11: 2006 Comparative figures

Certain of the 2006 comparative figures have been reclassified in order to conform with the current year's presentation.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited financial statements and notes thereto in this quarterly report.

In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with generally accepted accounting principles (GAAP), with a number of non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes (includes) amounts, or is subject to adjustments that have the effect of excluding (including) amounts, that are included (excluded) in most directly comparable measures calculated and presented in accordance with GAAP. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

We use these non-GAAP financial measures in addition to, and in conjunction with, results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting our business.

In the MD&A, we discuss the non-GAAP financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in the MD&A.

This report contains certain forward-looking statements, which reflect the current expectations of 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 April 25, 2007.

Internal disclosure controls

In accordance with Regulation 52-109 respecting certification of disclosure in issuers' interim filings, the Chief Executive Officer and Chief Financial Officer have designed or caused it to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that (i) information required to be disclosed by the Company in its quarterly 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 quarter that have had a material effect on the Company's internal controls.



Results of operations
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the three months ended For the six months ended
Consolidated March 31 March 31
Results
--------------------------------------------------------------------------
(In thousands of 2007 2006 2007 2006
dollars, except(unaudited) (unaudited) (unaudited) (unaudited)
for volume and
per trust unit
information)

Volume (metric
tonnes) 160,733 190,384 339,413 378,106
---------------- ---------------------------------------------------------

Revenues $115,448 $128,842 $250,328 $246,882
Gross margin 27,296 19,810 67,510 47,105
Administration
and selling 4,075 4,639 8,594 10,206
Distribution 2,425 2,861 5,350 5,899
Product
withdrawal/recall
provision - 2,000 - 2,000
--------------------------------------------------------------------------
Earnings before
interest,
provision for
income taxes,
depreciation
and amortization
(EBITDA) $20,796 $10,310 $53,566 $29,000

Depreciation and
amortization 3,127 3,056 6,284 6,123
Interest, net of
interest income
and other charges 3,911 4,304 7,878 7,294
Provision for
(recovery of)
income taxes 2,421 (474) 8,390 999
--------------------------------------------------------------------------
Net earnings $11,337 $3,424 $31,014 $14,584
--------------------------------------------------------------------------
Net earnings per
trust unit -
basic $0.13 $0.02 $0.35 $0.13
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Due to the adoption of new accounting policies for the periods beginning on October 1, 2006 as identified in Note 2, certain derivative financial instruments and embedded derivatives, which the Fund's operating companies utilize in their normal course of business are no longer designated as accounting hedges due to new definition and requirements for hedge accounting.

The impact related to the adoption of these new accounting policies is twofold. Firstly, it has given rise to the initial recognition of unrealized gains/losses for derivative financial instruments and embedded derivatives, which used to qualify for hedge accounting, as of October 1, 2006. These amounts have been calculated and labeled as transitional balances and will be amortized, prospectively, as they come to maturity. Secondly, on a going forward basis, these derivative financial instruments and embedded derivatives are marked to market at each reporting date with the unrealized gain/loss charged to the consolidated statement of operations with a corresponding offsetting amount charged to the balance sheet.

The Fund's derivative financial instruments consist of sugar futures, foreign exchange forward contracts and natural gas futures, all of which the Fund's operating companies enter into during the regular course of business. The Fund's operating companies sell refined sugar to some clients in US dollars. These purchase and sales contracts are viewed as having an embedded derivative if the functional currency of the customer is not US dollars, the embedded derivative being the source currency of the transaction, US dollars.

Details of gains/losses due to the reversal of the transitional balances and to the marking-to-market of all derivative financial instruments and embedded derivatives for the second quarter and year to date are noted below.



-----------------------------------------------------------------------
2Q- 2007
-----------------------------------------------------------------------
Gain/(Loss) Transitional Mark-to-
(In thousands of dollars) balance market Total
-----------------------------------------------------------------------
Sugar futures contracts $(561) $1,572 $1,011
Natural gas futures contracts (1,334) 4,902 3,568
Foreign exchange forward contracts (195) 497 302
Embedded derivatives on sales contracts - 238 238
-----------------------------------------------------------------------
Total $(2,090) $7,209 $5,119
-----------------------------------------------------------------------
-----------------------------------------------------------------------

-----------------------------------------------------------------------
Year-to-date
-----------------------------------------------------------------------
Gain/(Loss) Transitional Mark-to-
(In thousands of dollars) balance market Total
-----------------------------------------------------------------------
Sugar futures contracts $1,709 $11,652 $13,361
Natural gas futures contracts (3,282) 6,414 3,132
Foreign exchange forward contracts (67) (735) (802)
Embedded derivatives on sales contracts - (161) (161)
-----------------------------------------------------------------------
Total $(1,640) $17,170 $15,530
-----------------------------------------------------------------------
-----------------------------------------------------------------------


We believe that the Fund's financial results are more meaningful to management, investors, analysts and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments, from embedded derivatives and from the amortization of transitional balances, which would then represent the economic results of the Fund versus the accounting results. This measurement is a non-GAAP measurement. Management uses the non-GAAP economic results of the operating companies (before the adjustment for financial derivative instruments and embedded derivatives) to measure and evaluate the performance of the business through its adjusted gross margin and adjusted EBITDA. In addition, management believes that these measures are important to our investors and parties evaluating our performance and comparing such performances to our past results. Management also uses adjusted gross margin and adjusted EBITDA when discussing results with the operating Board of Directors, the Fund's Board of Trustees, analysts, investors, banks and other interested parties.



Adjusted financial information:

--------------------------------------------------------------------------
For the three months For the six months
ended March 31 ended March 31
Consolidated Results
--------------------------------------------------------------------------
(In thousands of 2007 2006 2007 2006
dollars, except (unaudited) (unaudited) (unaudited) (unaudited)
for per trust
unit information)

Gross margin as
per financial
statements $27,296 $19,810 $67,510 $47,105

Adjustment for
mark-to-market
derivative
financial
instruments and
transitional
balance
("MMDFI/TB") (5,119) - (15,530) -
--------------------------------------------------------------------------
Adjusted gross
margin 22,177 19,810 51,980 47,105
--------------------------------------------------------------------------
EBITDA as per
financial
statements 20,796 10,310 53,566 29,000
Adjustment for
MMDFI/TB (5,119) - (15,530) -
--------------------------------------------------------------------------
Adjusted EBITDA 15,677 10,310 38,036 29,000
--------------------------------------------------------------------------
Net earnings as
per financial
statements 11,337 3,424 31,014 14,584
Adjustment for
MMDFI/TB (5,119) - (15,530) -
Deferred taxes on
MMDFI/TB 2,297 - 5,361 -
--------------------------------------------------------------------------
Adjusted net
earnings

$8,515 $3,424 $20,845 $14,584
--------------------------------------------------------------------------
Net earnings per
trust unit basis,
as per financial
statements 0.13 0.02 0.35 0.13
Adjustment for
MMDFI/TB
net of taxes (0.03) - (0.11) -
--------------------------------------------------------------------------
Adjusted net
earnings
per trust unit
basis $0.10 $0.02 $0.24 $0.13
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Second quarter volume decreased by 29,600 metric tonnes from the comparable quarter in fiscal 2006 and decreased by 38,700 metric tonnes on a year to date basis. The decrease in sales volume is due to a combination of factors. As a result of high sugar prices in early 2006, liquid volume to HFCS substitutable accounts was lost during 2006, and has not yet been recovered. For the quarter, liquid volume was down 7,700 metric tonnes as compared to the second quarter of 2006 and 18,700 metric tonnes lower on year to date basis. In fiscal 2006, the U.S. exceptionally opened some additional refined sugar quotas during the year, due to a refined sugar shortage caused by Hurricane Katrina. As such, Lantic and Rogers benefited from additional export sales in fiscal 2006. For the second quarter, export sales were lower by 11,500 metric tonnes in 2007 and by 8,300 metric tonnes on a year to date basis. This shortfall of export sales has been slightly mitigated by some export sales into Mexico. Lastly, no thick juice contract has been negotiated for fiscal 2007. As such, there are no thick juice sales in fiscal 2007 as compared to 9,100 metric tonnes in the second quarter of 2006 and 16,700 metric tonnes on a year to date basis. For the quarter, industrial volume was down by 1,700 metric tonnes from the comparable quarter of fiscal 2006, mostly due to timing in deliveries. On a year to date basis, industrial volume is up by 5,300 metric tonnes. Consumer volume was higher by 500 metric tonnes the second quarter from last year's comparable quarter, but remained 1,300 metric tonnes lower on a year to date basis.

Revenues for the quarter were $13.4 million lower than the previous year's comparable quarter due mostly to the lower sales volume. Year to date revenues are up $3.4 million from fiscal 2006 even though total volume is lower. This is due to the higher average price of raw sugar for 2007 sales.

As previously mentioned, gross margins of $27.3 million for the quarter does not reflect the economic income of the Fund, as it includes a gain of $5.1 million for the mark-to-market of derivative financial instruments and reversal of transitional balances. We will therefore comment on adjusted gross margin results.

For the quarter, adjusted gross margin increased by $2.4 million, when compared to the same quarter of 2006, even though volume was down. On a per metric tonne basis, adjusted gross margins were $137.98 in 2007 compared to $104.06 for the comparable quarter of last year. Favourable sales mix due to lower liquid volume and no thick juice sales, combined with a higher raw sugar value and improved selling margins were the major reasons for the improved gross margin. This was partially offset with higher operating costs, as a higher percentage of volume was sold from Taber where production costs are higher on a per unit basis. In addition, Taber's pre-hedging program contributed approximately $10.00 per metric tonne of additional gross margin.

In fiscal 2006, Rogers initiated a pre-hedging program for some of its beet sugar sold in Canada. As the beet sugar input price is fixed with the Growers for fiscal 2007 and 2008, this pre-hedging program allowed Rogers to benefit from the higher raw sugar values that were present in fiscal 2006. 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. During the second quarter, in line with spot deliveries of beet sugar sales, approximately 12,500 metric tonnes were liquidated for a profit of approximately $1.6 million.

Year to date adjusted gross margin is $4.9 million higher than fiscal 2006. On a per metric tonne basis, adjusted gross margins were $153.15 in 2007 compared to $124.58 in fiscal 2006. Again, favourable sales mix due to lower liquid volume and no thick juice sales, combined with improved selling margins offset higher production costs. Year to date, Taber's pre-hedging program contributed approximately $7.50 per metric tonne in additional gross margin.

Administration and selling expenses were lower by $0.6 million for the quarter due mainly to a one-time gain of approximately $1.0 million on the sale of a seat that Lantic owned on the NYBOT commodity exchange. This seat was sold when the NYBOT commodity exchange was purchased by the Intercontinental Exchange Inc. This was partially offset with higher legal expenses due mainly to an investigation currently undertaken by the Competition Bureau on the selling practices of the sugar industry. On a year to date basis, administration costs are $1.6 million lower than 2006.

Distribution costs for the second quarter and year to date were $0.4 million lower than fiscal 2006 due mainly to the change from selling on a delivered basis to FOB selling in Taber, Alberta, effective January 2007.

In fiscal 2006, a $2.0 million provision was taken with regards to costs to be incurred due to a product withdrawal/recall that occurred in that period.

Interest expense for the quarter is lower by $0.4 million from the comparable quarter in fiscal 2006. This is due mainly to the refinancing of the initial series convertible debentures in March 2006, and to lower short term interest expenses.

Year to date interest expense is higher by approximately $0.5 million due mainly to the refinancing of the initial series debentures in fiscal 2006 where, in the past, 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 charged to interest expense. On a year to date basis, an amount of $3.0 million of interest had been charged directly to equity for the initial series convertible debentures in fiscal 2006.

Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. 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. In light of this announcement, and the resulting impact on the income trust equity market, the Fund performed a goodwill impairment test as at December 31, 2006, and concluded that there was no impairment in goodwill.



Statement of quarterly results
(In thousands of dollars, except volume and per trust unit information)
-------------------------------------------------------------------------
2007
-------------------------------------------------------------------------
Q2 Q1

Volume (MT) 160,733 178,680
Revenues $115,448 $134,880
Gross margin 27,296 40,214
EBITDA 20,796 32,770
-------------------------------------------------------------------------
Net earnings (loss) $11,337 $19,677
-------------------------------------------------------------------------
Net earnings (loss)
per trust unit:
Basic $0.13 $0.22
Diluted $0.12 $0.19
-------------------------------------------------------------------------
Adjusted gross margin $22,177 $29,803
Adjusted EBITDA 15,677 22,359
-------------------------------------------------------------------------
Adjusted net earnings (loss) $8,515 $12,330
-------------------------------------------------------------------------
Adjusted net earnings (loss)
per trust unit:
Basic $0.10 $0.14
Diluted $0.07 $0.11
-------------------------------------------------------------------------

-------------------------------------------------------------------------
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:
Basic $0.19 $0.11 $0.02 $0.11
Diluted $0.16 $0.10 $0.02 $0.10
-------------------------------------------------------------------------
Adjusted gross margin $32,091 $25,274 $19,810 $27,295
Adjusted EBITDA 21,608 16,802 10,310 18,690
-------------------------------------------------------------------------
Adjusted net earnings (loss) $16,634 $9,704 $3,424 $11,160
-------------------------------------------------------------------------
Adjusted net earnings (loss)
per trust unit:
Basic $0.19 $0.11 $0.02 $0.11
Diluted $0.16 $0.10 $0.02 $0.10
-------------------------------------------------------------------------

-------------------------------------------------------------------------
2005
-------------------------------------------------------------------------
Q4 Q3

Volume (MT) 201,818 189,631
Revenues $120,631 $111,355
Gross margin 30,478 25,087
EBITDA 20,618 15,443
-------------------------------------------------------------------------
Net earnings (loss) $(81,930) $7,813
-------------------------------------------------------------------------
Net earnings (loss)
per trust unit:
Basic $(0.94) $0.07
Diluted $(0.94) $0.07
-------------------------------------------------------------------------
Adjusted gross margin $30,478 $25,087
Adjusted EBITDA 20,618 15,443
-------------------------------------------------------------------------
Adjusted net earnings (loss) $(81,930) $7,813
-------------------------------------------------------------------------
Adjusted net earnings (loss)
per trust unit:
Basic $(0.94) $0.07
Diluted $(0.94) $0.07
-------------------------------------------------------------------------


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.



For the three months For the six months
ended March 31 ended March 31
(In thousands of dollars)
--------------------------------------------------------------------------
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)

Operating
activities:

Cash flow from
operating
activities $9,796 $(1,840) $35,348 $(23,251)
Changes in
non-cash
operating
working capital 3,754 8,566 12,414 45,686
Recorded gain for
derivative
financial
instruments and
transitional
balances in cost
of goods sold (5,119) (15,530)
Derivative
financial
instruments
non-cash amount 4,799 (1,737)
Reversal of
accumulated other
comprehensive
income (1,334) -
--------------------------------------------------------------------------
11,896 6,726 30,495 22,435
--------------------------------------------------------------------------
Investing
activities:
Total capital
expenditures (1,873) (1,992) (3,288) (3,624)
Less: Investment
capital
expenditures 423 840 475 1,277
--------------------------------------------------------------------------
Maintenance
capital
expenditures (1,450) (1,152) (2,813) (2,347)
--------------------------------------------------------------------------
Financing
activities:
Buy-back of trust
units Normal
Course Issuer Bid (1,300) - (3,122) -
New issue long
term debt - 85,000 - 85,000
Repayment of long
term debt - (84,959) - (84,959)
Interest expense
on the equity
portion of
the convertible
unsecured and
subordinated
debentures - (1,320) - (2,983)
Deferred
financing charges - (3,900) - (3,900)
--------------------------------------------------------------------------
(1,300) (5,179) (3,122) (6,842)
--------------------------------------------------------------------------
Distributable cash 9,146 395 24,560 13,246
Declared
distributions to
Unitholders (9,239) (8,896) (18,544) (17,792)
--------------------------------------------------------------------------
Available cash $(93) $(8,501) $6,016 $(4,546)
--------------------------------------------------------------------------


Distributable cash for the quarter was $8.8 million higher than the comparable quarter in fiscal 2006. The increase in the quarter is due mainly to improve operational performances of Lantic and Rogers, and to a $3.9 million financing charge incurred in the comparable quarter of 2006.

Changes in non-cash operating working capital represents quarter-over-quarter movement in current assets such as 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 same reason, increases or decreases in short term bank indebtedness are due to timing issues, and therefore do not constitute available cash for distribution.

Recorded gains on derivative financial instruments and on transitional balances, as well as movement in derivative financial instruments assets and liabilities, do not represent cash from operating activities. Also, the net amount of $1.3 million for accumulated other comprehensive income does not constitute cash and is therefore being adjusted from cash from operating activities.

For the quarter, consolidated cash flow from operating activities, adjusted for changes in non-cash working capital and derivative financial instruments, was $11.9 million compared to $6.7 in fiscal 2006. This was due mainly to higher operational income of the operating companies during the quarter. In fiscal 2006, a provision of $2.0 million had been recorded in regards to costs to be incurred for product withdrawal/recall.

For the quarter, maintenance capital expenditures were higher in fiscal 2007 than 2006 due mostly to timing of expenditures. In addition to the above, Lantic and Rogers spent $0.4 million in fiscal 2006 on investment capital projects. The minimal investment costs incurred to date in fiscal 2007 relate to the Taber beet pulp press which was put in operation in September 2006 and to the new robot palletizer in Montreal. Distributable cash is not reduced by investment capital 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.

During the quarter, the Fund bought back and cancelled from circulation 342,700 units under its Normal Course Issuer Bid, for a total value of $1.3 million. Year to date the Fund bought back and cancelled a total of 842,700 units for a total value of $3.1 million. In fiscal 2006, 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. The deferred financing charge of $3.9 million was incurred for that refinancing in fiscal 2006. 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 increased the value of the equity. The amount for the second quarter of 2006 was $1.3 million and $3.0 million year to date.

Contractual obligations

There are no material changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 30, 2006 Annual Report.

At March 31, 2007, the operating companies had commitments to purchase a total of 710,500 metric tonnes of raw sugar, of which only 247,960 metric tonnes had been priced, for a total dollar commitment of $94.4 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 quarter's end, no amount was drawn from either of the working capital facilities and Lantic and Rogers had respectively $14.7 and $10.1 million of cash available.

At quarter's end, inventories are higher compared to the period ended March 31, 2006 due mainly to higher levels of inventories in Taber from the crop harvested and to timing in receipt of raw sugar vessels. Accounts Receivable are lower than at the same period last year due to lower value of margin call requirements due to lower value of raw sugar.

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 87,945,691 units were outstanding as at March 31, 2007, being 342,700 units less than at December 31, 2006. During the quarter, the Fund purchased 400,000 units at an average price of $3.816 under its Normal Course Issuer Bid, of which 342,700 units were cancelled by quarter's end. Year to date the Fund purchased a total of 900,000 units under its Normal Course Issuer Bid.

Critical accounting estimates

In March 2006, Lantic recorded a $2.0 million provision in regards to costs to be incurred due to a product withdrawal/recall. Some of these claims have now been settled, but there are still large value claims yet to be settled. At the present time, the estimate is still viewed as adequate by management.

Changes in accounting policies and critical accounting estimates

Our accounting policies and critical accounting estimates remain substantially unchanged from those that were disclosed in our Management's Discussion and Analysis of the Annual Report for the year ended September 30, 2006, except for the following:

On October 1, 2006, the Fund adopted the new requirements of Sections 3855 and 3865 of the CICA Handbook for financial instruments and hedge accounting. New section 3855 of the CICA Handbook expands on section 3860 by prescribing when a financial instrument is to be recognized on the balance sheet and at what amount and how gains and losses are recognized.

New section 3865 of the CICA Handbook on hedge accounting adds complexity for hedging items to be accounted as hedges. Under these new requirements, each of our sale or purchase contract (hedge item) would have to be identified to a specific hedging item (futures contract) and such hedging item needs to be liquidated close to the date the hedge item is transacted and accounted for. The effectiveness of these hedges would need to be measured on a retroactive and prospective basis on each reporting date, and any ineffectiveness recorded immediately. Due to the large volume of transactions, financial costs, and inefficiencies that this new requirement would create, Lantic and Rogers will not account for its financial instruments as hedging items.

Therefore the Company will mark-to-market, at each reporting period, all financial derivatives outstanding at the end of such periods, which have not been designated as hedges, as the Company concluded that all of its financial derivatives for sugar, foreign exchange and natural gas would no longer qualify for hedge accounting under the new rules.

As a result, the Fund will recognize, on a quarterly basis, in its profit and loss statement and balance sheet, all movements in the price (mark-to-market) of these financial derivatives. Even though Lantic and Rogers are rigorously economically hedging all their sugar transactions and continue not to take any speculative positions on sugar, by this new requirement the Fund will have large fluctuations in its GAAP financial results each reporting period. None of these adjustments impact distributable cash, as they are non-cash transactions.

Also, in order to comply with this new section, the Company had to review all contracts in place at October 1, 2006, initiated after October 1, 2002, to identify non-financial derivatives or any embedded derivatives within these contracts to determine if any such embedded derivatives needed to be accounted for separately at fair value from the base contract.

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, 2006. 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

In Taber, the beet slicing campaign was completed in February 2007, and total beet sugar production is now estimated at 126,000 metric tonnes after the thick juice campaign is completed in June 2007. This is approximately 25,000 metric tonnes more than was expected. As the size of the Western market is limited, some sugar will be warehoused for fiscal 2008 sales. This will add additional warehousing and distribution costs against this year's results.

Forward natural gas prices have remained strong for the Spring and Summer months. Approximately 50% of our expected Spring and Summer usage (April to September) was previously hedged at levels lower than the previous year. In addition, we have taken some futures positions for fiscal 2008 to 2011 at attractive levels when compared to prices achieved in 2006. We will continue to monitor the natural gas market dynamics in order to minimize our natural gas costs.

World raw sugar prices ranged between 9.15 and 11.50 cents per pound during the second quarter. As at the date of this writing, we have not yet recovered some of the large HFCS liquid substitutable business lost earlier in 2006. It is now unlikely that this business will be reacquired for this calendar year. We expect world raw sugar prices to stabilize between 9.0 and 11.50 cents per pound for the next few months, and for HFCS supply to continue to be tight in the marketplace. This should give rise to the possibility of reacquiring part of this business in calendar 2008. This could represent 30,000 to 40,000 metric tonnes of liquid volume for fiscal 2008.

Although some shortfall in margin is expected from lower liquid and export sales volumes, the shortfall will be offset by improving selling margins. For the most part, selling margin increases for 2007 contractual business are in line with our expectations.

The labour contract for Rogers' Vancouver facility expired in February 2007. Negotiations for this contract are underway, and we expect that this collective agreement will be renewed at competitive market rates.

A new investment project in Montreal, consisting of robotics, was approved during the first quarter. This project, which will cost in excess of $1.0 million, should generate annual savings of over $600,000 per year when completed in July 2007.

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 government must still pass legislation to make the tax levy on income trust law. To the extent that the proposed changes are enacted, tax would be imposed on existing trusts, starting in 2011. As a consequence, income trusts must review future income tax assets and liabilities in respect of temporary differences that are expected to reverse after the date these tax changes take effect. For Rogers Sugar Income Fund this should not be significant, as most temporary differences are already recognized by the operating companies and are already recorded as future income tax assets and liabilities.

Contact Information

  • Rogers Sugar Ltd.
    Mr. Daniel L. Lafrance
    Senior Vice-President and CFO
    (514) 940-4350
    www.rogerssugar.com