Rogers Sugar Income Fund
TSX : RSI.UN

Rogers Sugar Income Fund

August 04, 2005 16:15 ET

RSIF: Interim Report for the Third Quarter 2005 Results

MONTREAL, QUEBEC--(CCNMatthews - Aug. 4, 2005) - Roger Sugar Income Fund (TSX:RSI.UN) - All amounts are expressed in Canadian dollars.

Gross margin rate $6.31 higher per metric tonne than the comparable quarter in 2004.

Start of an investment capital project, which will substantially reduce future operational costs in Montreal.

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 nine months period ended June 30, 2005.

Volume for the third quarter was 189,631 metric tonnes, as opposed to 191,685 in the comparable quarter last year. Industrial and liquid volumes were respectively 3,400 and 4,300 metric tonnes lower than last year. Thick juice sales were 4,300 metric tonnes higher, while export sales were also 2,200 metric tonnes higher due to timing of deliveries. Consumer volume was down by 1,000 metric tonnes, bringing the year to date consumer volume 7,200 metric tonnes below last year. This is caused by imports from Costa Rica and from Central and South America, combined with lower consumer demand.

Gross margins, on a per metric tonne basis, were $132.29 for the quarter compared to $125.98 for the comparable quarter last year. The increase in gross margins was mainly due to good operational performance of the Montreal plant and slight improvement in sales margin due to sales mix. On a year to date basis, gross margins are almost $3.00 per metric tonne lower than last year due mainly to the price of energy.

Selling and administrative costs were almost $1.4 million higher than last year for the quarter due mainly to one-time expenses incurred on settlement of a claim with a customer, costs incurred on a bid for a co-generation project, and higher legal fees in preparation for the upcoming anti-dumping review case, and timing in expenses.

Net distributable cash at $8.8 million was comparable to last year. Year to date net distributable cash was $26.7 million, $1.8 million less than 2004. The decrease is due mainly to lower operating profit in the first quarter of the fiscal year. An amount of $1.0 million was also spent in investment capital as part of a $5.5 million project at Lantic Sugar Limited, which will reduce operational costs by approximately $3.0 million annually, when the project is completed in April 2006. To date, the Fund distributed $26.7 million, of which $3.3 million was return of capital.

Rogers' long-term debt of $100.0 million matures in August 2005. A partial redemption of $47.5 million was done on May 2, 2005, while a term loan has been negotiated with a Canadian financial institution for the repayment of the balance of the loan upon maturity. The Fund and Rogers will save approximately $2. 5 million annually in interest costs from the refinancing of Rogers' long-term debt.

On February 17, 2005, a five-year review was initiated of the antidumping and countervailing duties imposed on imports of refined sugar from the United States and the European Union. A similar review, completed in 2000, resulted in the continuation of the duties. The duties are scheduled to expire on November 2, 2005, unless continued for a further five-year period. On June 17, 2005, the President of the Canada Border Services Agency (CBSA) determined that the expiry of the duties was likely to result in the continuation or resumption of dumping into Canada of the goods from the United States and the European Union countries under the order and in the continuation or resumption of subsidizing of the goods from the European Union. The review will now proceed to the next stage wherein the Canadian International Trade Tribunal (CITT) will determine whether there is a likelihood of injury to the Canadian sugar industry should the duties expire. The CITT determination is due on November 2, 2005. Although some changes have been made to the United States and European Union sugar programs, they have not materially changed the factors that led to the continuation of the duties in 2000. There is no assurance that the duties will be continued for a further five years.




FOR THE BOARD OF TRUSTEES,
SIGNED

Edward Y. Baker, Chairman
Vancouver, B.C. - August 4, 2005


Rogers Sugar Income Fund
Consolidated Balance Sheets

(In thousands of dollars)
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June 30 September 30
2005 2004
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ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $23,918 $52,666
Accounts receivable 34,385 37,597
Inventories 53,409 34,379
Prepaid expenses 3,200 2,975
Future income taxes 476 -
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115,388 127,617
Capital assets 209,414 213,454
Other assets 5,928 3,903
Goodwill 318,043 318,043
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$648,773 $663,017
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $29,539 $40,603
Distribution payable to
unitholders 2,965 2,965
Income taxes payable 418 450
Future income taxes - 505
Current portion of convertible
unsecured subordinated notes (Note 2) 6,866 6,407
Current portion of
long-term debt (Note 3) 52,500 100,000
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92,288 150,930

Employee future benefits 18,519 17,252
Long-term debt (Note 3) 65,000 65,000
Convertible unsecured subordinated
notes (Note 2) 57,534 12,710
Future income taxes 1,908 1,595
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235,249 247,487

UNITHOLDERS' EQUITY
Trust units 583,494 583,494
Equity component of convertible
unsecured subordinated debentures 67,517 62,800
Deficit (237,487) (230,764)
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413,524 415,530
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$648,773 $663,017
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Operations
For the period ended June 30, 2005 and 2004
(In thousand of dollars - except amounts per trust units)
---------------------------------------------------------------------
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For the three months For the nine months
ended June 30, ended June 30,
2005 2004 2005 2004
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Revenues $111,355 $104,158 $320,652 $304,466
Cost of sales 86,268 80,009 249,997 232,166
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Gross margin 25,087 24,149 70,655 72,300

Expenses:
Administration and selling 6,275 4,891 16,558 15,153
Distribution 3,369 3,390 8,571 8,677
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9,644 8,281 25,129 23,830
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Earnings before interest,
provision for
income taxes, depreciation
and amortization 15,443 15,868 45,526 48,470
Depreciation and
amortization 3,254 3,234 9,781 9,710
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Earnings before interest
and provision for income
taxes 12,189 12,634 35,745 38,760
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Interest on long-term debt
and convertible debentures 4,635 3,638 11,706 11,032
Interest income (261) (20) (593) (151)
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4,374 3,618 11,113 10,881
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Earnings before provision
for income taxes 7,815 9,016 24,632 27,879
Provision for (recovery of)
income taxes:
Current 158 281 619 647
Future (156) (129) (668) (798)
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2 152 (49) (151)
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Net earnings $7,813 $8,864 $24,681 $28,030
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Net earnings per trust unit:
Basic $0.07 $0.08 $0.23 $0.26
Diluted $0.07 $0.08 $0.23 $0.26
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Supplemental disclosure:
Employee future benefits
expense $1,248 $1,311 $3,537 $3,867
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Unitholders' Equity
For the period ended June 30, 2005 and 2004
(In thousand of dollars)

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For the three months ended June 30 2005
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Equity
component
of convertible
unsecured
Trust subordinated
units debentures Deficit Total
---------------------------------------------------------------------
Balance beginning of
period $583,494 $65,930 $(234,817) $414,607

Interest expense on equity
portion of the
convertible unsecured
subordinated debentures - 1,587 (1,587) -

Distributions - - (8,896) (8,896)

Net earnings - - 7,813 7,813
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Balance end of period $583,494 $67,517 $(237,487) $413,524
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For the three months ended June 30 2004
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Equity
component
of convertible
unsecured
Trust subordinated
units debentures Deficit Total
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Balance beginning of
period $583,494 $59,812 $(233,962) $409,344

Interest expense on equity
portion of the
convertible unsecured
subordinated debentures - 1,447 (1,448) (1)

Distributions - - (8,896) (8,896)

Net earnings - - 8,864 8,864
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Balance end of period $583,494 $61,259 $(235,442) $409,311
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For the nine months ended June 30 2005
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Equity
component
of convertible
unsecured
Trust subordinated
units debentures Deficit Total
---------------------------------------------------------------------
For the nine months ended
June 30, 2005

Balance beginning of
period $583,494 $62,800 $(230,764) $415,530

Interest expense on equity
portion of the
convertible unsecured
subordinated debentures - 4,717 (4,717) -

Distributions - - (26,687) (26,687)

Net earnings - - 24,681 24,681
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Balance end of period $583,494 $67,517 $(237,487) $413,524
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---------------------------------------------------------------------
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For the nine months ended June 30 2004
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Equity
component
of convertible
unsecured
Trust subordinated
units debentures Deficit Total
---------------------------------------------------------------------

Balance beginning of
period $583,494 $56,960 $(232,430) $408,024

Interest expense on equity
portion of the
convertible unsecured
subordinated debentures - 4,299 (4,355) (56)

Distributions - - (26,687) (26,687)

Net earnings - - 28,030 28,030
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Balance end of period $583,494 $61,259 $(235,442) $409,311
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Rogers Sugar Income Fund
Unaudited Consolidated Statements of Cash Flow
For the period ended June 30, 2005 and 2004
(In thousand of dollars)
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For the For the
three months nine months
ended June 30, ended June 30,
2005 2004 2005 2004
--------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings $7,813 $8,864 $24,681 $28,030
Adjustments for items not
involving cash:
Depreciation and
amortization 3,254 3,234 9,781 9,710
Loss on disposal of assets - - - 18
Future income taxes (156) (129) (668) (798)
Employee future benefits 424 548 1,267 2,458
Other (109) 230 430 403
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11,226 12,747 35,491 39,821
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Changes in non-cash
operating working capital:
Accounts receivable (3,101) 2,864 3,212 19,671
Inventories 3,058 10,578 (19,030) (8,973)
Prepaid expenses (1,253) (845) (225) (436)
Accounts payable and
accrued liabilities (4,667) (2,859) (12,358) 440
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(5,963) 9,738 (28,401) 10,702
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5,263 22,485 7,090 50,523
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Cash flows from financing
activities:
Interest expense on the
equity portion of the
convertible unsecured
subordinated debentures (1,587) (1,448) (4,717) (4,355)

Distributions to Unitholders (8,896) (8,896) (26,687) (34,376)

Reduction of long-term debt (47,500) - (47,500) -

New issue convertible
debentures - - 50,000 -
Deferred financing charges (765) - (3,165)
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(58,748) (10,344) (32,069) (38,731)
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Cash flows from investing
activities:
Additions to capital
assets (1,712) (1,925) (3,769) (4,555)
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Net change in cash and
cash equivalents (55,197) 10,216 (28,748) 7,237
Cash and cash equivalents,
beginning of period 79,115 22,892 52,666 25,871
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Cash and cash equivalents,
end of period 23,918 33,108 23,918 33,108
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Supplemental disclosure:

Interest paid on the debt
and equity components of
convertible debentures 7,985 7,040 17,735 16,991

Income taxes paid 146 289 637 603
Capital assets included in
accounts payable and accrued
liabilities 1,503 470 1,503 470
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Rogers Sugar Income Fund
Notes to Interim Unaudited Consolidated Financial Statements
For the periods ended June 30, 2005 and 2004
(Tabular amounts are expressed in thousands of dollars.)

Rogers Sugar Income Fund (the "Fund") is an open-ended, limited purpose
trust created under the laws of Ontario by a declaration of trust made
as of September 15, 1997 as amended and restated on September 30, 1997
(the "Declaration of Trust"). An unlimited number of trust units may
be issued pursuant to the Declaration of Trust.

Note 1: Basis of presentation

These interim financial statements have been prepared in accordance
with Canadian Generally Accepted Accounting Principles. The same
accounting policies as disclosed in the consolidated financial
statements of the Fund included in our latest annual report have been
used. Accordingly, these interim financial statements should be read
in conjunction with the consolidated financial statements and the notes
thereto included in our 2004 annual report. These quarterly financial
statements were not reviewed or audited by our external auditors.


Note 2: Convertible unsecured subordinated debentures

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Convertible unsecured subordinated debentures
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Balance - September 30, 2004 19,117

New issue - March 31, 2005 50,000
69,117

Debt reduction and transfer to equity component
for the nine-month period ended June 30, 2005 4,717
64,400

Less current portion 6,866

Balance - June 30, 2005 57,534
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On March 31, 2005, the Fund issued $50.0 million of second series 6.0% convertible unsecured subordinated debentures, maturing June 29, 2012, with interest payable semi-annually in arrears on June 29 and December 29 of each year, starting June 29, 2005. The debentures may be converted at the option of the holder at a conversion price of $5.30 per trust unit at any time prior to maturity, and cannot be redeemed prior to June 29, 2008. On or after June 29, 2008 and prior to June 29, 2010, the debentures may be redeemed by the Fund only if the weighted average trading price of the trust unit, for 20 consecutive trading days, is at least 125% of the conversion price of $5.30. Subsequent to June 29, 2010, the debentures are redeemable at a price equal to the principal amount thereof plus accrued and unpaid interest.

The proceeds from the sale of the debentures, net of the issue costs, were approximately $47.5 million. That amount of $47.5 million was used by the Fund to buy additional common shares in Rogers Sugar Ltd., ("Rogers") a wholly owned subsidiary of the Fund.

The Fund has not allocated any of the second series 6% convertible debentures into an equity component, as the calculation of the equity component is not significant using an approximate interest rate that would have been applicable to the issuance of similar debt without the conversion features at the time the debentures were issued.

Note 3: Long-term debt

Rogers had $100.0 million of 8.173% debentures maturing on August 26, 2005. On May 2, 2005, Rogers paid the Debentureholders, prior to maturity, an amount of $47.5 million, being the net proceeds from additional common shares issued to the Fund. A pre-payment interest penalty of $817,000 was also paid on the same date.

Rogers has negotiated with a Canadian financial institution, a new term loan of $50.0 million, to be drawn in August 2005, when the remaining $52.5 million debentures mature.

Note 4: Segment disclosures

The Fund, through its operating companies, operates in the sugar industry. Management organizes the results into two principal operating segments for making operating decisions and assessing performance: Eastern Canada and Western Canada. These segments are managed separately, since they require specific market strategies. The Fund assesses the performance of each segment based on operating income. Accounting policies relating to each segment are identical to those used for the purposes of the consolidated financial statements.



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For the three months ended June 30 (unaudited)

2005
---------------------------------------------------------------------
Eastern Western Intersegment
Canada Canada and other Total
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Revenues 66,298 45,690 (633) 111,355
Earnings before interest,
provision for income
taxes and depreciation and
amortization 9,320 6,259 (136) 15,443
Depreciation and
amortization 1,843 1,022 389 3,254
Interest expense 6,426 6,828 (8,880) 4,374
Net income (loss) 529 (1,071) 8,355 7,813
Additions to property,
plant and equipment 986 726 - 1,712
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2004
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues 63,180 41,980 (1,002) 104,158
Earnings before interest,
provision for income taxes
and depreciation and
amortization 9,909 6,122 (163) 15,868
Depreciation and
amortization 1,865 981 388 3,234
Interest expense 6,813 6,702 (9,897) 3,618
Net income (loss) 636 (1,159) 9,387 8,864
Additions to property,
plant and equipment 1,383 542 - 1,925
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For the nine months ended June 30 (unaudited)

2005
---------------------------------------------------------------------
Eastern Western Intersegment
Canada Canada and other Total
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Revenues 194,196 128,350 (1,894) 320,652
Earnings before interest,
provision for income
taxes and depreciation
and amortization 31,038 14,951 (463) 45,526
Depreciation and
amortization 5,525 3,090 1,166 9,781
Interest expense 19,169 20,167 (28,223) 11,113
Net income (loss) 3,845 (5,759) 26,595 24,681
Additions to property,
plant and equipment 1,778 1,991 - 3,769
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2004
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Eastern Western Intersegment
Canada Canada and other Total
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Revenues 187,018 121,853 (4,405) 304,466
Earnings before interest,
provision for income
taxes and depreciation
and amortization 29,596 18,987 (113) 48,470
Depreciation and
amortization 5,597 2,948 1,165 9,710
Interest expense 22,434 20,412 (31,965) 10,881
Net income (loss) 702 (3,311) 30,639 28,030
Additions to property,
plant and equipment 2,808 1,747 - 4,555
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Revenues were derived from customers in the following geographic
areas:

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For the three months For the nine months
ended June 30, ended June 30,
---------------------------------------------------------------------
2005 2004 2005 2004

Canada 100,634 97,283 293,664 284,454
United States and Other 10,721 6,875 26,988 20,012
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111,355 104,158 320,652 304,466
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MANAGEMENT'S DISCUSSION AND ANALYSIS:

This Management's Discussion and Analysis should be read in conjunction with the unaudited financial statements and notes thereto in this quarterly report.

This report contains certain forward-looking statements, which reflect the current expectations of the Fund, Lantic and Rogers (collectively the "Company") with respect to future events and performance. Wherever used, the words "may," "will," "anticipate," "intend," "expect," "plan," "believe," and similar expressions identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. Forward-looking statements are based on information available at the time they are made, assumptions made by management, and management's good faith belief with respect to future events, and are subject to the risks and uncertainties outlined in this report that could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations."

Additional information relating to the Fund, Lantic and Rogers, including the Annual Information Form, Quarterly and Annual reports and supplementary information is available on SEDAR at www.sedar.com.

This Management's Discussion and Analysis is dated July 26, 2005.



Results of operations:

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Consolidated Results
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(In thousands of dollars, For the three months For the nine months
except for volume ended June 30, ended June 30,
and per trust unit information) 2005 2004 2005 2004

Volume (metric tonnes) 189,631 191,685 548,377 548,522
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Revenues 111,355 104,158 320,652 304,466
Gross margins 25,087 24,149 70,655 72,300
Distribution 3,369 3,390 8,571 8,677
Administration and selling 6,275 4,891 16,558 15,153
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Earnings before interest,
provision for income taxes,
depreciation and
amortization (EBITDA) 15,443 15,868 45,526 48,470

Interest, net 4,374 3,618 11,113 10,881
Depreciation and amortization 3,254 3,234 9,781 9,710
Provision for (recovery of)
income taxes 2 152 (49) (151)
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Net earnings 7,813 8,864 24,681 28,030
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Net earnings per trust unit $0.07 $0.08 $0.23 $0.26
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For the quarter, volume was approximately 2,000 metric tonnes lower
than last year's comparable quarter. Industrial and liquid volumes
were respectively 3,400 and 4,300 metric tonnes lower than last year.
The decrease in industrial sales is due mainly to the timing in
deliveries, while the decrease in liquid sales is due mainly to lost
volume to HFCS suppliers in western Canada. Year to date industrial
sales are lower by almost 7,400 metric tonnes from the previous year.

Thick juice sales were 4,300 metric tonnes higher for the quarter and
15,800 metric tonnes higher for the year. This is due mainly to the
higher beet crop in Taber and to a decision to sell more thick juice
in an environment where HFCS suppliers are very aggressive in the
liquid market.

During the quarter, export volume was up 2,200 metric tonnes due to
timing in deliveries against the U.S. quota.

Consumer volume continues to decrease. For the third quarter, volume
was almost 1,000 metric tonnes lower, bringing the year to date
shortfall to 7,200 metric tonnes. Continued access by Costa Rica and
other imports from Central and South America in the retail market
combined with continued lower consumer demand, are the major reasons
for the decreasing trend.

Revenues were higher by $9.2 million in the quarter due to higher
prices of raw sugar compared to the previous year.

Gross margins of $25.1 million were $900,000 higher than the
comparable quarter of last year. On a per metric tonne basis, gross
margins were $132.29 in 2005 compared to $125.98 for last year's
comparable quarter. The increase is due mainly to good operational
performance at the Montreal plant, with lower maintenance expenses
and a slight improvement in sales margin due to sales mix. Year to
date gross margin is $128.84 compared to $131.81 in 2004. The
decrease is due mainly to higher energy costs in 2005.

Selling and administrative costs were almost $1.4 million higher than
last year's comparable quarter due mainly to higher legal fees
associated with the preparation of the anti-dumping review case, one-
time expenses incurred in relation to a claim from a customer
($300,000) and in the preparation of the bid to Hydro-Quebec for a
co-generation project, and timing in other administrative costs.

Interest expense was higher due to the make-whole provision of
$817,000 paid on the early repayment of $47.5 million portion of the
$100.0 million senior debenture in Rogers Sugar.

Statement of quarterly results:

(In thousands of dollars, except volume and per trust unit
information)


(In thousand of dollars, except volume and per trust unit information)
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2005 2004
---------------------------------------------------------------------
(Unaudited) Q3 Q2 Q1 Q4 Q3 Q2 Q1

Volume
(MT) 189,631 178,098 180,648 218,777 191,685 168,857 187,980

Revenues 111,355 102,876 106,421 123,687 104,158 91,574 108,734
Gross
margins 25,087 18,189 27,379 32,929 24,149 18,796 29,355
EBITDA 15,443 10,909 19,174 22,161 15,868 11,054 21,548
Net
earnings 7,813 5,712 11,156 15,115 8,864 5,778 13,388
Net
earnings
per trust
unit $0.07 $0.05 $0.11 $0.16 $0.08 $0.05 $0.13
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2003
---------------------------------------------------------------------
(Unaudited) Q4

Volume (MT) 189,537

Revenues 109,713
Gross margins 27,176
EBITDA 18,486
Net earnings 1,614

Net earnings per trust unit $0.00
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Liquidity:

Cash flow from operations was positive $5.3 million for the quarter
compared to $22.5 million for the comparable quarter in fiscal 2004.
The major reason for the decrease is due to higher level of
inventories and Rogers Sugar Income Fund receivables due to timing in
receipts of raw sugar vessels, and payments from customers since
September 30, 2004. On a year to date basis, cash flow from
operations is $7.1 million positive in 2005 compared to $50.5 million
for 2004. This decrease is due mainly to the movement of non-cash
working capital assets and liabilities, and the level of such assets
at September 30, 2004 versus September 30, 2003.

The distributable cash generated by the operating companies, Lantic
and Rogers, is paid to the Fund by payment of interest on the
subordinated notes of Lantic and Rogers held by the Fund, after
having taken reasonable reserve for capital expenditures and working
capital. The cash received by the Fund is used to pay distributions
to its Unitholders.

The Fund measures distributable cash. Distributable cash is not
intended to be representative of cash flow or results of operations
determined in accordance with Canadian Generally Accepted Accounting
Principles ("GAAP") and does not have a standardized meaning
prescribed by GAAP. It may also not be comparable to similar
measures used by other companies or income trusts. Distributable
cash is meant to show to the Unitholders the ability of the Fund to
pay distributions from the operating performance of the Fund, and its
operating subsidiaries during the specified period. It is not meant
to explain the cash flow from operations shown in the financial
statements.

The reconciliation of the EBITDA to distributable cash is as follows:

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For the three months For the nine months
ended June 30, ended June 30,
---------------------------------------------------------------------
(Unaudited) 2005 2004 2005 2004

Operating activities:
Earnings before interest,
provision for income taxes,
depreciation and
amortization (EBITDA) 15,443 15,868 45,526 48,470
Add/(deduct):
Bank, debentures and
convertible debentures
interest (4,374) (3,618) (11,113) (10,881)
Interest amortization
of financing activities 124 124 373 372
Interest expense on
the equity portion
of the convertible
unsecured
subordinated
debentures (1,587) (1,448) (4,717) (4,355)
Income taxes paid (146) (289) (637) (603)
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Distributable cash
from operations 9,460 10,637 29,432 33,003
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Investing activities:
Maintenance capital expenditures (681) (1,942) (2,738) (4,555)
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(681) (1,942) (2,738) (4,555)
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Financing activities:
Proceeds from convertible
debentures,
net of issue costs 47,500 - 47,500 -
Repayment of senior debentures (47,500) - (47,500) -
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Distributable cash from
financing activities - - - -
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Net distributable cash 8,779 8,695 26,694 28,448
Declared distributions
to Unitholders (8,896) (8,896) 26,687 26,687
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(Usage of) available cash (117) (201) 7 1,761
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Net distributable cash was $8.8 million compared to $8.7 million for the comparable quarter of last year. This was due mainly to the timing in maintenance capital expenditures, which did offset the lower distributable cash from operations. Year to date net distributable cash of $26.7 million is $1.8 million lower than last year due to the lower EBITDA from the operating companies.

The increase for the quarter and year to date in interest payments is due to the make-whole interest payment of $817,000 on the early repayment of $47.5 million of Rogers' senior debentures. Interest expense in future quarters will be lower with this early repayment in long-term debt.

Maintenance capital expenditures were lower in the third quarter than last year due to investment timing. Lantic also spent $1.0 million in investment capital expenditures during the quarter on a $5.5 million project, which will bring annual operating savings of approximately $3.0 million when completed in April 2006.

At the end of the last quarter, the Fund issued $50.0 million of convertible unsecured subordinated notes for net proceeds of approximately $47.5 million. The Fund invested $47.5 million in Rogers' common shares. Rogers used these funds to repay $47.5 million of the long-term debt that matures in August 2005.

During the quarter, the Fund paid $8.9 million in distributions, bringing the year to date distributions to $26.7 million, of which $3.3 million was return of capital and $23.4 interest income for the Unitholders.

Contractual obligations:

There are two items that have changed materially in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 30, 2004 Annual Report.

With the issue of $50.0 million of convertible unsecured subordinated debentures, the Fund now has an additional contractual obligation for that amount to be repaid after 5 years.

At June 30, 2005, the operating companies had commitments to purchase a total of 1,679,500 metric tonnes of raw sugar, of which only 288,569 metric tonnes had been priced, for a total dollar commitment of $82.5 million, compared to 230,800 metric tonnes for a total dollar commitment of $59.5 million at September 30, 2004. The increase is due to additional pricings done by the sellers of raw sugar as raw sugarprices are increasing.

Capital resources:

Lantic and Rogers each have an authorized line of credit of $50 million available to finance their operations. At quarter's end, no amount was drawn from either of the working capital facilities, and Lantic had $22.4 million of cash available, while Rogers had $1.3 million of cash available.

At quarter's end, inventory level was high compared to year-end due to higher level of beet sugar and to timing in receipts of raw sugar vessels in Montreal and Vancouver.

Cash requirements for working capital and other capital expenditures are expected to be paid from available cash resources and from funds generated from operations.

Outstanding securities:

A total of 88,779,760 units were outstanding at June 30, 2005, the same level as at September 30, 2004.

Changes in accounting policies and critical accounting estimates:

Our critical accounting estimates and assumptions, as well as changes in accounting policies that we made in fiscal 2004 remain substantially unchanged from those that were disclosed in our Management's Discussion and Analysis of the Annual Report for the year ended September 30, 2004.

Financial derivative instruments:

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

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

Raw sugar

The Company's risk management policy is to manage the forward pricing of purchases of raw sugar in relation to its forward refined sugar sales to reduce price risk. The Company attempts to meet this objective by entering into futures contracts to reduce its exposure. The Company has designated its futures contracts as fair value hedging instruments.

The pricing mechanism of the futures contracts and the respective forecasted raw sugar purchase transactions are the same. As a result, there is no hedge ineffectiveness and, therefore, the following gain or loss is not and will not be reflected in earnings.

At June 30, 2005, the Company had $6.5 million in contract amounts with a fair value of $6.9 million.

Natural gas

The Company uses futures contracts to help manage its natural gas costs. The Company has designated as fair value hedge instruments natural gas futures matched against variable price forecasted gas purchases.

The change in the fair value of the designated futures are matched to forecasted natural gas purchases and will be recognized in earnings in the period the related manufactured product is sold. At June 30, 2005, the Company had $5.2 million in natural gas contracts, with a fair value of $5.3 million.

Foreign exchange contracts

The Company's activities, which result in exposure to fluctuations in foreign exchange rates, consist of the purchasing of raw sugar, the selling of refined sugar and the purchase of natural gas. The Company manages this exposure by creating offsetting positions through the use of financial instruments. These instruments include forward contracts, which are commitments to buy or sell at a future date, and may be settled in cash.

Forward foreign exchange contracts have maturities of less than two years and relate exclusively to U.S. currency. The counterparty to these contracts is a major Canadian financial institution. The Company does not anticipate any material adverse effect on its financial position resulting from its involvement in these types of contracts, nor does it anticipate non-performance by the counterparties.

At June 30, 2005, the Company had $3.5 million in foreign currency contracts with a fair value of $3.9 million.

Risk factors:

Risk factors in Lantic's and Rogers' businesses and operations are discussed in the Management's Discussion and Analysis of our Annual Report for the year ended September 30, 2004 and remain substantially unchanged. This document is available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugar.com.

Outlook:

The domestic sugar demand is in decline compared to last year. The shift in sales mix from consumer to industrial sales is likely to continue, which could negatively impact overall gross margins. In addition, the market remains highly competitive, and Lantic / Rogers will continue defending its market share against local and import competition.

In May 2005, the Court of New Brunswick put CanSugar, a potential competitor in New Brunswick, into receivership, after having been under protection of the "Companies Creditor Agreement Act" since December 2003. The appointed receiver is seeking to sell the building and equipment in order to repay the creditors. It is unlikely that this site will be operating as a sugar refinery in the future.

Natural gas prices have been very unstable in the last few months. As per our hedging policy, we have hedged most of our requirements for the balance of the year and started to take positions for the first six months of next fiscal year. To date, the positions taken are at prices higher than last year, which could raise operational costs in fiscal 2006 by $2.0 to $3.0 million. Our strategy will be to hedge further positions on the downward trends in order to mitigate the increase in costs to the operations.

On February 17, 2005, a five-year review was initiated of the antidumping and countervailing duties imposed on imports of refined sugar from the United States and the European Union. A similar review, completed in 2000, resulted in the continuation of the duties. The duties are scheduled to expire on November 2, 2005, unless continued for a further five-year period. On June 17, 2005, the President of the Canada Border Services Agency (CBSA) determined that the expiry of the duties was likely to result in the continuation or resumption of dumping into Canada of the goods from the United States and the European Union countries under the order and in the continuation or resumption of subsidizing of the goods from the European Union. The review will now proceed to the next stage wherein the Canadian International Trade Tribunal (CITT) will determine whether there is a likelihood of injury to the Canadian sugar industry should the duties expire. The CITT determination is due on November 2, 2005. Although some changes have been made to the United States and European Union sugar programs, they have not materially changed the factors that led to the continuation of the duties in 2000. There is no assurance that the duties will be continued for a further five years.

On May 10, 2005, Lantic bid on a co-generation project of approximately 40 megawatts, further to a call for tender made by Hydro-Quebec Distribution, for a total of 350 megawatts co-generation projects. On June 21, 2005, Hydro-Quebec announced that only one project, of approximately 8 megawatts, was retained from all bids as the price submitted by all other bidders, including Lantic, was judged to be too high and uncompetitive. We are disappointed with Hydro-Quebec's decision not to retain any other projects in order to fill their call for tender for co-generation projects of up to 350 megawatts.

The world raw sugar prices (#11 sugar market) have been steadily increasing over the last few months, now averaging about 9.9 cents for the future months. If these prices remain, it could benefit Taber for approximately 30,000 metric tonnes of sales, where selling prices may be affected by the price of raw sugar. On the other hand, it may make Rogers uncompetitive on certain liquid sales made to HFCS substitutable customers, and some of this business may not be renewed for calendar 2006.

During the quarter, Lantic started an investment project of $5.5 million, which consists of replacing the bone char processing for decolorization, with an ion exchange process. This process is already used for part of the decolorization since the refinery was expanded in 2000. In replacing the bone char process, energy consumption will be reduced significantly, as well as operational costs. The annual operating savings of the project is estimated at $3.0 million. The project is due to be completed in April 2006.

Rogers' long-term debt of $100.0 million matures in August 2005. A partial redemption of $47.5 million was done on May 2, 2005, while a term loan has been negotiated with a Canadian financial institution for the repayment of the balance of the loan upon maturity. The Fund and Rogers will save approximately $2. 5 million annually in interest costs from the refinancing of Rogers' long-term debt.

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