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Rogers Sugar Inc.: Interim Report for the 1st Quarter 2012 Results

- Higher Export Volume Due to the Opening of Special U.S. Quota; - Increase in Adjusted Gross Margin Rate of $52.52 From the Comparable Quarter

Thursday, February 09, 2012

Rogers Sugar Inc.: Interim Report for the 1st Quarter 2012 Results16:00 EST Thursday, February 09, 2012MONTREAL, QUEBEC--(Marketwire - Feb. 9, 2012) - Rogers Sugar Inc. (TSX:RSI)Message to Shareholders: On behalf of the Board of Directors, I am pleased to present the unaudited condensed consolidated interim financial results of Rogers Sugar Inc. (the "Company") for the three months ended December 31, 2011.Volume for the first quarter was 172,754 metric tonnes, as opposed to 159,697 metric tonnes in the comparable quarter of last year, an increase of approximately 13,100 metric tonnes. Export volume was higher by approximately 17,600 metric tonnes due mainly to sugar sold under a special quota to the U.S. A special quota of 136,078 metric tonnes was opened, effective October 3, 2011 by the U.S. Department of Agriculture, of which 25,000 metric tonnes was allocated specifically to Canada and the balance of 111,078 to global suppliers on a first-come, first-served basis. The Company, through its cane refineries was able to enter approximately 10,000 metric tonnes against the global quota by the time it closed on October 25, 2011. As the sole producer of Canadian origin sugar in Taber Alberta, the Company was able to enter approximately 17,600 metric tonnes by the time that quota closed on November 30, 2011. Of the total volume entered into the U.S., approximately 25,000 metric tonnes were sold in the first quarter, while the balance of 2,600 metric tonnes will be sold later in the year. In the comparable quarter of fiscal 2011, export volume had sales to the U.S. under the Tier II program which had been initiated in the spring of 2010 and against the Canada specific quota. Liquid volume increased by approximately 2,700 metric tonnes, the second quarter in a row where that segment shows an increase year over year. The increase is due mainly to timing in some deliveries and increase in deliveries to existing customers. Industrial volume was lower by approximately 4,700 metric tonnes due to the loss of Canadian manufacturing of sugar containing products to other countries. Consumer volume was lower by approximately 2,600 metric tonnes due mainly to timing in customers' retail promotions.On October 2, 2011, at the start of our new fiscal year, the Company adopted the International Financial Reporting Standards ("IFRS"). These standards required us to restate our October 1, 2010 opening balance sheet and to present comparative 2011 IFRS financial statements. All these changes are explained in detail in the unaudited interim financial statements of the first quarter.With the mark-to-market of all derivative financial instruments and embedded derivatives in non-financial instruments at the end of each reporting period, our accounting income does not represent a complete understanding of factors and trends affecting the business. Consistent with previous reporting, we therefore prepared adjusted gross margin and adjusted earnings results to reflect the performance of the Company during the period without the impact of the mark-to-market of derivative financial instruments and embedded derivatives in non-financial instruments. At the end of the first quarter the accounting results had a mark-to-market loss of $14.1 million before income taxes, which was added to the adjusted results. A major reason of this mark-to-market loss is the lower price of raw sugar that currently prevails in the marketplace.For the quarter, adjusted gross margin increased by approximately $11.2 million, when compared to the same quarter of last year, due in large part to the higher volume. On a per metric tonne basis, adjusted gross margin was $218.74 compared to $166.22 for the first quarter of last year. The increase in the adjusted gross margin rate is due mainly to the sales mix, as higher margin rate was realized on export sales, and to the negative impact of raw sugar premiums incurred in fiscal 2011 comparable quarter.Adjusted EBIT of $30.9 million was $10.7 million higher when compared to the same quarter last year due in large part to the increase in export volume against U.S. special quotas, to the improved adjusted gross margin rate as discussed above, partially offset by higher distribution expenses for external warehousing costs incurred for U.S. export volume entered against the special quota but not yet sold.For the quarter, free cash flow was $21.7 million, as compared to $18.3 million in fiscal 2011. The increase was due mainly to the better adjusted operating results and lower investment in capital expenditures somewhat offset by the payment of $2.7 million in deferred financing charges on the issue of the new convertible debentures Additionally prior to January 1, 2011, date when the Company structure changed from an income trust to a corporation, minimal income taxes were paid by the Company, while in the first quarter of fiscal 2012 current income taxes were approximately $4.1 million.The Taber beet sugar slicing campaign was completed by the end of January. We are now estimating total sugar beet production at approximately 120,000 metric tonnes, when the thick juice campaign will be completed in the spring of 2012, some 34,000 metric tonnes higher than last year. This total production volume is larger than our current sales estimate for Taber, including the sales against the special quota of approximately 17,600 metric tonnes and the planned sales of approximately 15,000 metric tonnes to Mexico. The additional beet refined sugar inventory will be warehoused or sold against additional U.S. or Mexican opportunities that may arise over the balance of the fiscal year.Volume for the year should be comparable to the previous year even though approximately 28,000 metric tonnes were shipped to the U.S. against the special quota opened in October 2011. This will help offset industrial volume loss of approximately 30,000 metric tonnes following the negotiation of key customer contracts in December 2011 and to the transfer of production of sugar containing products to non-Canadian plants by certain customers. The Company will attempt to recapture some of that volume loss in fiscal 2012, but as most large customer contracts are now finalized, it will be very difficult to make up for this lost volume before fiscal 2013. Going forward the Company strongly intends to recapture any lost volume and market share.On December 16, 2011, the Company issued 5.75% fifth series convertible unsecured subordinated debentures for an aggregate value of $60 million. On December 19, 2011, the net proceeds of approximately $57.3 million were used to redeem the 5.90% third series convertible debentures of approximately $51.7 million, as an amount of approximately $26.3 million had been converted into 5.1 million shares by holders of the third series debentures before the redemption date.On December 28, 2011, the Company announced it had received approval from the Toronto Stock Exchange to proceed with a Normal Course Issuer Bid to purchase up to 5.0 million common shares and up to $4.99 million of the fourth series convertible debentures. The plan started December 30, 2011 and will continue until December 29, 2012. The intent is to purchase common shares and fourth series convertible debentures when their price trading ranges do not reflect the fair value of these instruments.On November 1, 2010, the Canadian International Trade Tribunal (the "CITT") continued the anti-dumping duties against refined sugar import from the U.S., but removed such duties against imports from the E.U. We were greatly disappointed with the decision in regards to the E.U. After reviewing the statement of reasons of the CITT to remove such duties, on December 1, 2010, the Canadian Sugar Institute, on behalf of the Canadian refiners, appealed the decision of the CITT in regards to the E.U. We expect the decision on the appeal in the spring 2012.FOR THE BOARD OF DIRECTORS, SIGNEDStuart Belkin, ChairmanVancouver, British Columbia - February 9, 2012MANAGEMENTS' DISCUSSION AND ANALYSISThis Management's Discussion and Analysis ("MD&A") dated February 9, 2012 of Rogers Sugar Inc. ("Rogers") should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto for the period ended December 31, 2011, as well as the audited consolidated financial statements and MD&A for the year ended October 1, 2011. The quarterly condensed consolidated financial statements and any amounts shown in this MD&A were not reviewed or audited by our external auditors.Management is responsible for preparing the MD&A. This MD&A has been reviewed and approved by the Audit Committee of Rogers and its Board of Directors.IFRS TransitionRogers adopted the International Financial Reporting Standards ("IFRS") effective October 2, 2011. Accordingly, Rogers's unaudited interim financial statements and notes thereto, for the quarter ended December 31, 2011, including required comparative information, have been prepared in accordance with IAS 34 - Interim Financial Reporting and IFRS 1 - First-time Adoption of IFRS, which sets out the requirements for the first time adoption of IFRS. These standards required us to restate the October 1, 2010 opening balance sheet (the "transition date") and prepare comparative 2011 IFRS financial statements to be presented with our 2012 results. The information disclosed for the three months ended December 31, 2011 and as at October 1, 2011 has been restated for IFRS differences in the interim financial statements and in this MD&A, unless otherwise noted.Detailed reconciliations of the changes in the consolidated statement of earnings for the three months period ended December 31, 2010 and for the year ended October 1, 2011, for the transition date consolidated statements of financial position, for the three months ended December 31, 2010 and for the year ended October 1, 2011 are presented in Note 17 of the accompanying unaudited interim financial statements. The transition to IFRS has not had a material impact on Rogers' operations, strategic decisions, cash flow and capital expenditures program. IFRS is considered Canadian generally accepted accounting principles ("GAAP") for Canadian reporting issuers.Non-GAAP measuresIn analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with 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.Forward-looking statementsThis report contains certain forward-looking statements, which reflect the current expectations of Rogers and Lantic Inc. (together referred to as "the Company") with respect to future events and performance. Wherever used, the words "may" "will," "anticipate," "intend," "expect," "plan," "believe," and similar expressions identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although this is not an exhaustive list, the Company cautions investors that statements concerning the following subjects are, or are likely to be, forward-looking statements: future prices of raw sugar, natural gas costs, the opening of special refined sugar quotas in the United States, beet production forecasts, the status of labour contracts and negotiations, the level of future dividends and the status of government regulations and investigations. Forward-looking statements are based on estimates and assumptions made by the Company in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. This could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations.Additional information relating to the Company, including the Annual Information Form, Quarterly and Annual reports and supplementary information is available on SEDAR at www.sedar.com.Internal disclosure controlsIn 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.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 ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.The Chief Executive Officer and the Chief Financial Officer have evaluated whether or not there were any changes to its ICFR during the three month period ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR. No such changes were identified through their evaluation.Results of operationsFor the three months endedConsolidated ResultsDecember 31(In thousands of dollars, except for volume and per share information)2011(Unaudited)2010 (Unaudited)Volume (metric tonnes)172,754159,697Revenues$175,805$151,438Gross margin23,65440,019Administration and selling expenses4,5784,732Distribution expenses2,3071,655Earnings before interest and provision forincome taxes (EBIT)$16,769$33,632Net finance costs2,8925,885Provision for income taxes3,9975,169Net earnings$9,880$22,578Net earnings per share - basic$0.11$0.26In the normal course of business, the Company uses derivative financial instruments consisting of sugar futures, foreign exchange forward contracts, natural gas futures and interest rate swaps. The Company sells refined sugar to some clients in US dollars. These sales contracts are viewed as having an embedded derivative if the functional currency of the customer is not US dollars, the embedded derivative being the source currency of the transaction, U.S. dollars. Derivative financial instruments and embedded derivatives are marked-to-market at each reporting date, with the unrealized gains/losses charged to the consolidated statement of earnings with a corresponding offsetting amount charged to the statement of financial position.Management believes that the Company's financial results are more meaningful to management, investors, analysts and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments and from embedded derivatives for which adjusted financial results provide a more complete understanding of factors and trends affecting our business. This measurement is a non-GAAP measurement.Management uses the non-GAAP adjusted results of the operating company to measure and to evaluate the performance of the business through its adjusted gross margin, adjusted EBIT and adjusted net earnings. In addition, management believes that these measures are important to our investors and parties evaluating our performance and comparing such performances to our past results. Management also uses adjusted gross margin, adjusted EBIT and adjusted net earnings when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.The results of operations would therefore need to be adjusted by the following:For the three months endedIncome (loss)December 3120112010(In thousands)(Unaudited)(Unaudited)Mark-to-market adjustment (excluding interest swap)$(5,215)$18,182Cumulative timing differences(8,920)(4,708)Total adjustment to cost of sales$(14,135)$13,474A significant part of the above mark-to-market adjustment relates to the movement in the price of raw sugar, which decreased during the quarter. As a result, a $3.9 million loss was recorded as compared to a $15.6 million gain in the comparable quarter of last year. For natural gas, a minimal mark-to-market loss was recorded in the first quarter, versus a gain of $3.2 million in the comparable quarter of last year. Foreign exchange forward contracts and embedded derivatives, on which foreign exchange movements have an impact, had a combined mark-to-market loss of $1.3 million for the quarter as compared to a mark-to-market loss of $0.7 million in that comparable quarter last year. The total net adjustment to cost of sales was a loss of $14.1 million, as opposed to a gain of $13.5 million in the comparable quarter of last year.In addition, the Company recorded a mark-to-market gain of $0.8 million for the quarter, as compared to a gain of $1.0 million last year, on the mark-to-market of an interest swap under short-term interest expense, as losses recorded in previous quarters are being reversed from the passage of time of the swap. In addition, under IFRS, the conversion feature in the convertible debentures, while we were operating under the income trust structure for the period of October 1, 2010 to December 31, 2010, is an embedded derivative. This derivative was fair valued at the opening and the closing of that reporting period and the net change in the fair value between each reporting period of $3.8 million was recorded as an expense in the first quarter of fiscal 2011 under finance costs.The following is a table showing the adjusted consolidated results (non-GAAP) without the above mark-to-market results:For the three months endedConsolidated ResultsDecember 3120112010(Unaudited)(Unaudited)Gross margin as per financial statements$23,654$40,019Adjustment as per above14,135(13,474)Adjusted gross margin37,78926,545EBIT as per financial statements16,76933,632Adjustment as per above14,135(13,474)Adjusted EBIT30,90420,158Net earnings as per financial statements9,88022,578Adjustment to cost of sales as per above14,135(13,474)Adjustment for mark-to-market of finance costs(785)(961)Adjustment for IFRS transition on option ofconvertible debentures- 3,782Deferred taxes on above adjustments(3,469)3,712Adjusted net earnings$19,761$15,637Net earnings per share basic,as per financial statements$0.11 $ 0.26Adjustment for the above0.11(0.08)Adjusted net earnings per share basic$0.22$0.18For the quarter, total volume increased by approximately 13,100 metric tonnes from the comparable quarter of fiscal 2011. Export volume increased by approximately 17,600 metric tonnes as a result of sales against a special U.S. quota. A special refined sugar quota of 136,078 metric tonnes was opened, effective October 3, 2011 by the U.S. Department of Agriculture, of which 25,000 metric tonnes was allocated directly to Canada and the balance of 111,078 metric tonnes to global suppliers on a first-come, first- served basis. During the quarter approximately 25,000 metric tonnes were sold against these quotas which closed on October 25, 2011 for the global portion and on November 30, 2011 for the Canada specific portion. Liquid volume increased by approximately 2,700 metric tonnes, the second quarter in a row that volume shows an increase over the comparable quarter of the previous fiscal year, due mainly to timing in deliveries and additional volume with current liquid customers. Industrial volume decreased by approximately 4,700 metric tonnes due to the loss of sugar containing business now manufactured outside of Canada and timing in deliveries. Consumer volume decreased by approximately 2,600 metric tonnes due mainly to timing in customers' retail promotions.Revenues for the quarter were $24.4 million higher than the previous year's comparable quarter, due to the higher level of sales achieved during the quarter.As previously mentioned, gross margin of $23.7 million for the quarter does not reflect the economic margin of the Company, as it includes a loss of $14.1 million for the mark-to-market of derivative financial instruments explained earlier. We will therefore comment on adjusted gross margin results.For the quarter, adjusted gross margin increased by $11.2 million, when compared to the same quarter of last year due in large part to the higher volume. On a per metric tonne basis, adjusted gross margins were $218.74 compared to $166.22 for the comparable quarter of last year, an increase of $52.52 per metric tonne. The increase in the adjusted gross margin rate is due mainly to the sales mix, as higher margin rate was realized on export sales, and to large premiums paid for some raw sugar supply bought on the spot market during the comparable quarter of fiscal 2011.Administration and selling costs were slightly lower than the comparable quarter of fiscal 2011.Higher distribution costs of $0.7 million are due mainly to shipping and warehousing costs incurred for products entered in the U.S. against the special quotas before such products were sold.Finance costs for the quarter includes a mark-to-market gain of $0.8 million as compared to a gain of $1.0 million in fiscal 2011, for the interest swap entered into in July 2008. In addition, under IFRS, the conversion feature in the convertible debentures, while we were operating under the income trust structure for the period of October 1, 2010 to December 31, 2010, is an embedded derivative. This derivative was fair valued at the opening and the closing of that reporting period and the net change in the fair value between each reporting period of $3.8 million was recorded as an expense under finance costs in the first quarter of fiscal 2011. Without the above adjustments, interest expense for the quarter was higher by approximately $0.6 million due to the write-off of deferred financing charges as a result of the early redemption of the third series convertible debentures.Provision for income taxes was lower by $0.2 million from the comparable quarter of fiscal 2011, but when adjusted for the deferred taxes on derivative financial instruments, provision for income taxes were approximately $7.0 million higher than the comparable quarter of fiscal 2011. The main reason for that increase is due to the higher profitability at the operating level. In addition, in last year comparable quarter, the Company was operating under an income trust structure and therefore did not pay any income taxes on the interest income it would receive from Lantic as it was distributed to its Unitholders. Under the new corporate structure all interest income received by Rogers is fully taxable resulting in additional income tax expense of approximately $2.6 million in the first quarter of fiscal 2012.Statement of quarterly resultsThe following is a summary of selected financial information of the consolidated financial statements and non-GAAP measures of the Company for the last eight quarters.QUARTERS20122011*2010(Unaudited)(Unaudited)(Unaudited)(In thousands of dollars, except forvolume, margin rate and per trust unit information)1-Q4-Q3-Q2-Q1-Q4-Q3-Q2-QVolume (MT)172,754170,880163,001155,500159,697192,171180,462153,103Revenues175,805160,866150,892149,418151,438163,264156,302143,851Gross margin (loss)23,65433,50711,63611,68640,01953,23717,335(11,396)EBIT (loss)16,76926,0165,0604,51233,63244,77310,362(17,638)Net earnings (loss)9,88016,7961,2481,49622,57833,7107,088(12,136)Gross margin rate per MT136.92196.0871.3975.15250.59277.0396.06(74.43)Per shareNet earnings (loss)Basic0.110.190.010.020.260.390.08(0.14)Diluted0.100.160.010.020.220.320.08(0.14)Non-GAAP MeasuresAdjusted gross margin37,78925,48617,63614,00726,54523,09821,21515,573Adjusted EBIT30,90417,99511,0606,83320,15814,63414,2429,331Adjusted net earnings19,76111,1855,8462,79915,63712,13611,1516,548Adjusted gross margin rate per MT218.74149.15108.2090.08166.22120.20117.56101.72Adjusted net earnings per shareBasic0.220.130.070.030.180.140.130.08Diluted0.190.110.070.030.150.130.120.08* The quarterly information that is presented for fiscal 2010 does not reflect the impact of adoption of IFRS.Historically the first quarter (October to December) of the fiscal year is the best quarter for adjusted gross margins and adjusted net earnings due to the favourable sales mix of products sold. This is due to the increased sales of baked goods during that period of the year. At the same time, the second quarter (January to March) is historically the lowest volume quarter, resulting in lower revenues, adjusted gross margins and adjusted net earnings.LiquidityThe cash flow generated by the operating company, Lantic, is paid to Rogers by way of dividends and return of capital on the common shares of Lantic, and by the payment of interest on the subordinated notes of Lantic held by Rogers, after having taken reasonable reserve for capital expenditures and working capital. The cash received by Rogers is used to pay dividends to its shareholders.Cash flow from operations was negative $23.2 million in the first quarter of 2012, as opposed to negative $8.1 million in the comparable quarter of fiscal 2011. The main reason for the decrease in cash flow from operations is related to the fluctuation in the mark-to-market of derivative instruments which had a negative impact on consolidated net earnings. In the first quarter of fiscal 2012 consolidated net earnings were reduced by $9.9 million, for the mark-to-market of the derivative financial instruments, as compared to an increase of $6.9 million in the comparable quarter of fiscal 2011, an impact of $16.8 million. Also, in the first quarter of each year, all sugar beets are harvested and delivered for processing in Taber, which significantly increases inventory volume at the end of the first quarter. As a result, inventory value increased by $36.3 million in the first quarter of fiscal 2012 as opposed to $49.6 million in the comparable quarter of last year. In addition income tax payments of approximately $9.6 million and additional cash pension contributions of $1.8 million were made in the first quarter, reducing overall cash flow from operations.Total capital expenditures were lower than the previous year, due mainly to timing of projects when compared to fiscal 2011.In order to provide additional information the Company believes it is appropriate to measure free cash flow, a non-GAAP measure, which is generated by the operations of the Company and can be compared to the level of dividend paid by Rogers. Free cash flow is defined as cash flow from operations excluding changes in non-cash working capital, mark-to-market and derivative timing adjustments, financial instruments non-cash amount and including capital expenditures.Free cash flow is as follows:For the three months ended December 3120112010(In thousands of dollars)(Unaudited)(Unaudited)Cash flow from operations$(23,191)$(8,124)Adjustments:Changes in non-cash working capital27,49337,422Changes in non-cash income taxes payable5,493(954)Changes in non-cash interest payable1,7062,190Mark-to-market and derivative timing adjustments13,350(10,653)Financial instruments non-cash amount147(110)Capital expenditures(650)(1,545)Investment capital expenditures4145Net repurchase of common shares/convertible debentures(9)-Deferred financing charges(2,700)-Free cash flow$21,680$18,271Declared dividends/distributions$7,989$10,066Free cash flow was $3.4 million higher than the comparable quarter in fiscal 2011. The increase was due mainly to the higher adjusted net earnings of approximately $4.2 million and lower capital investment of approximately $0.9 million somewhat offset by deferred financing costs of $2.7 million.Changes in non-cash operating working capital, income taxes payable and interest payable represent 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 do not therefore constitute available cash for distribution. Such increases or decreases are financed from available cash or from the Company's available credit facilities of $200.0 million. Increases or decreases in short-term bank indebtedness are also due to timing issues from the above, and therefore do not constitute available cash for distribution.Mark-to-market and financial instruments non-cash amount combined impact of $13.5 million does not represent cash items as these contracts will be settled when the physical transactions occur, which is the reason for adjustment to free cash flow.Capital expenditures, net of investment capital, were lower by $0.9 million in the first quarter of 2012 due mainly to timing of capital projects. Investment capital expenditures are added back as these capital projects are not required for the operation of the refineries, but are undertaken due to their substantial operational savings to be realized when these projects are completed.In the first quarter of fiscal 2012, an amount of $9 thousand of third series convertible unsecured subordinated debentures ("Third series debentures") were repurchased under the normal course issuer bid.In the first quarter of fiscal 2012, the Company issued fifth series convertible unsecured subordinated debentures ("Fifth series debentures") for which an amount of approximately $2.7 million of deferred financing charges was incurred.The Company, under the new corporate structure since January 1, 2011, declares and pays a quarterly dividend of 8.5 cents per common share, for a total amount of $8.0 million in the first quarter of 2012, while an interest distribution of 11.5 cents per unit was declared in the first quarter of fiscal 2011 under the income trust structure.Contractual obligationsThere are no significant changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the October 1, 2011 Annual Report.At December 31, 2011, the operating companies had commitments to purchase a total of 1,173,000 metric tonnes of raw sugar, of which 88,000 metric tonnes had been priced for a total dollar commitment of $51.7 million.Capital resourcesLantic has $200.0 million as authorized lines of credit available to finance its operation. At quarter's end, $76.0 million had been drawn from the working capital facility.At quarter's end, inventories are high compared to year end due mainly to the harverst of the Taber beet crop in the first quarter of the fiscal year.Cash requirements for working capital and other capital expenditures are expected to be paid from available credit resources and from funds generated from operations.Outstanding securitiesFor the quarter 5,148,427 common shares were issued following the conversion of $26.3 million of the Third series debentures. As at February 9, 2012 there were 93,990,760 common shares outstanding.On December 16, 2011, the Company issued $60 million of 5.75% of Fifth series debentures, maturing on December 31, 2018, with interest payable semi-annually in arrears on June 30 and December 31 of each year, starting on June 29, 2012. The Fifth series debentures may be converted, at the option of the holder, at a conversion price of $7.20 per common share, at any time prior to maturity and cannot be redeemed prior to December 31, 2014.On or after December 31, 2014, and prior to December 31, 2016, the debentures may be redeemed by the Company at a price equal to the principal amount plus accrued interest, only if the weighted average trading price of the common share for 20 consecutive trading days is at least 125% of the conversion price of $7.20. Subsequent to December 31, 2016, the debentures are redeemable at a price equal to the principal amount thereof plus accrued and unpaid interest.The net proceeds from the issuance of the Fifth series debentures were used on December 19, 2011, to redeem the 5.9% Third series debentures, for a total amount of $51.7 million plus accrued interest. A total of $26.3 million of the Third series debentures had been converted into 5,148,427 common shares, at a conversion price of $5.10 prior to the redemption of the Third series debentures on December 19, 2012.On December 28, 2011, the Company announced it had received approval from the Toronto Stock Exchange to proceed with the normal course issuer bid to purchase up to 5,000,000 common shares and $4.99 million of the fourth series convertible unsecured subordinated dentures. The plan started on December 30, 2011 and will continue until December 29, 2012.Critical accounting estimate and accounting policiesThe unaudited consolidated interim financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting. The preparation of these financial statements requires estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. A complete list of all relevant accounting policies is listed in Note 3 to the unaudited consolidated interim financial statements.The Company believes the following are the most critical accounting estimates that affect the Company's financial results as presented herein and that would have the most material effect on the financial statements should these estimates change materially.Fair value of derivative financial instruments Derivative financial instruments are carried in the statement of financial position at fair value, with changes in fair value reflected in the statement of earnings. Fair values are estimated by reference to published price quotations or by using other valuation techniques. Financial instruments for which observable quoted prices are not available are subject to high degree of uncertainty. Useful lives of property, plant and equipment The Company reviews estimates of the useful lives of property, plant and equipment on an annual basis and adjusts depreciation on a prospective basis, if necessary. Goodwill impairment The Company makes a number of estimates when calculating the recoverable amount of a cash-generating unit containing goodwill using discounted future cash flows or other valuation methods. These estimates take into account the control premium in determining the fair value less cost to sell. Asset impairment The Company must assess the possibility that the carrying amounts of tangible and intangible assets may not be recoverable. Management is required to make subjective assessments, linking the possible loss of value of assets to future economic performance, to determine the amount of asset impairment that should be recognized, if any. Income taxes The calculation of income taxes requires judgement in interpreting tax rules and regulations. Deferred income tax assets are recorded to the extent that it is probable that there will be adequate taxable income in the future against which they can be utilized. Pension Plans The cost of defined benefit pension plans is determined by means of actuarial valuations, which involve making assumptions about discount rates, the expected long-term rate of return on plan assets, future salary increases, mortality rates and the future increases in pensions. Because of the long-term nature of the plans, such estimates are subject to a high degree of uncertainty. Transition to IFRSThe impact of the conversion to IFRS on the Company was minimal and therefore resulted in a limited number of adjustments. Detailed reconciliations of the changes in the consolidated statement of earnings for the three months period ended December 31, 2010 and for the year ended October 1, 2011, for the consolidated statement of financial position for the opening at October 1, 2010, for the three months ended December 31, 2010 and for the year ended October 1, 2011 are presented in Note 17 of the accompanying unaudited interim financial statements.The transition to IFRS has not had a material impact on Rogers' operations, strategic decisions, cash flow and capital expenditures program. The transition had no impact on the Company's IT system and had no significant impact on internal control over financial reporting. The IFRS differences mostly required presentation changes and to report more detailed information in the notes to the consolidated financial statements. The Company's disclosure controls and procedures were adapted to take into consideration the changes in recognition, measurement and disclosures practices.Future accounting changesA number of new standards, and amendments to standards and interpretations, are not yet effective for the year ending September 29, 2012 and have not been applied in preparing these unaudited condensed consolidated interim financial statements.None of these are expected to have a significant effect on the consolidated financial statements of the Company, except possibly for IFRS 9 Financial Instruments, which becomes mandatory for the years commencing on or after January 1, 2015 with earlier application permitted. IFRS 9 is a new standard which will ultimately replace IAS 39 Financial Instruments: Recognition and Measurement. More specifically, the standard:Deals with classification and measurement of financial assets; Establishes two primary measurement categories for financial assets: amortized cost and fair value; Prescribes that classification depends on entity's business model and the contractual cash flow characteristics of the financial asset; and Eliminates the existing categories; held to maturity and available for sales, and loans and receivables. Certain changes were also made regarding the fair value option for financial liabilities and accounting for certain derivatives linked to unquoted equity instruments.In 2011, the IASB issued IFRS 10, Consolidated Financial Statements, which becomes mandatory for the years commencing on or after January 1, 2013. IFRS 10 is a new standard which identifies the concept of control as the determining factor in assessing whether an entity should be included in the consolidated financial statements of the parent company. IFRS 10 supersedes SIC 12 Consolidations - Special Purpose Entities and replaces parts of IAS 27 Consolidated and Separate Financial Statements.In 2011, amendments to IAS 19, Employee Benefits, were issued. The revised standard contains multiple modifications, including enhanced guidance on measurement of plan assets and defined benefit obligations and the introduction of enhanced disclosures for defined benefit plans. Retrospective application of this standard will be effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted.The Company is in the process of reviewing those standards and amendments to determine the impact on the consolidated financial statements.Risk factorsRisk factors in the Company's business and operations are discussed in the Management's Discussion and Analysis of our Annual Report for the year ended October 1, 2011. This document is available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugar.com.OutlookOn September 29, 2011, due to tightness in the U.S. market for refined sugar, the U.S. Department of Agriculture announced the opening of a special quota for refined sugar of 136,078 metric tonnes effective October 3, 2011 and closing at the latest on November 30, 2011. Of that total, an amount of 25,000 metric tonnes was allocated specifically to Canada and the balance of 111,078 metric tonnes was allocated to global suppliers on a first-come, first-served basis. The Company was able to enter through its cane refineries approximately 10,000 metric tonnes by October 25, 2011, the date on which the global quota was filled and closed. Taber being the sole producer of Canadian origin sugar was able to ship and enter approximately 17,600 metric tonnes by the closing date of November 30, 2011. Of the total volume shipped approximately 25,000 metric tonnes was sold in the first quarter while the remaining 2,600 metric tonnes will be sold in the next quarters.Industrial volume will be lower by approximately 30,000 metric tonnes in fiscal 2012 as some volume of sugar containing products was transferred outside of Canada and some large industrial volume was lost in contract negotiations in the month of December 2011. The Company will try to recapture some of that volume during the year, but as most large customers' contract negotiations are now concluded, it will be difficult to make up for this lost volume before fiscal 2013 when the Company strongly intends to recapture the lost volume and market share. Despite the lower industrial volume, total volume should be similar to the previous year due in large part to the export sales against the U.S. special quota.The Taber sugar beet slicing campaign was completed by the end of January 2012. We are now estimating total beet sugar production at approximately 120,000 metric tonnes, once the thick juice campaign is completed in the spring of 2012. This is approximately 34,000 metric tonnes more than last year's production. This total volume is larger than our current sales estimate from Taber, including the sales against the special quota of approximately 17,600 metric tonnes and the planned sales of approximately 15,000 metric tonnes to Mexico. The additional beet refined sugar inventory will be warehoused or sold against additional U.S. or Mexican opportunities that may arise in the next quarters.The current beet crop harvested is the last one under the present contract. Negotiations have started and are progressing well with the intent of reaching agreement on a multi-year contract over the next few weeks.A significant portion of fiscal 2012's natural gas requirements have been hedged at average prices comparable to those realized in fiscal 2011. Any un-hedged volume should benefit from the current low prices of natural gas and therefore increase adjusted gross margin rates. In addition, some futures positions for fiscal 2013 and 2014 have been taken. These positions are at prices higher than the current market values, but are at the same or better levels than what was achieved in fiscal 2011. We will continue to monitor natural gas market dynamics with the objective of minimizing natural gas costs.On November 1, 2010, the Canadian International Trade Tribunal (the "CITT") extended for a further 5 years the anti-dumping duties against the U.S., but rescinded the anti-dumping and countervailing duties against refined sugar shipments from the E.U. After reviewing the reasons of the CITT to remove such duties, the Canadian Sugar Institute, representing the Canadian refining industry, appealed that decision on December 1, 2010. The appeal process decision is expected in the spring of 2012. There is no certainty that the CITT's decision will be reversed.Unaudited condensed consolidated interim financial statements ofROGERS SUGAR INC.Three months ended December 31, 2011 and 2010ROGERS SUGAR INC.(Unaudited)Condensed consolidated statements of earnings and comprehensive income (In thousands of dollars except per share amounts)For the three months endedDecember 31December 31Condensed consolidated statements of earnings20112010Revenues$175,805$151,438Cost of sales (note 4)152,151111,419Gross margin23,65440,019Administration and selling expenses (note 4)4,5784,732Distribution expenses2,3071,6556,8856,387Results from operating activities16,76933,632Net finance costs (note 5)2,8925,885Earnings before income taxes13,87727,747Income tax expense:Current4,1231,159Deferred(126)4,0103,9975,169Net earnings$9,880$22,578Net earnings per share (note 12):Basic$0.11$0.26Diluted$0.10$0.22For the three months endedDecember 31December 31Condensed consolidated statements of comprehensive income20112010Net earnings$9,880$22,578Other comprehensive income--Net earnings and comprehensive income for the period$9,880$22,578The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.ROGERS SUGAR INC.(Unaudited)Condensed consolidated statements of financial position (In thousands of dollars)December 31October 1October 1201120112010AssetsCurrent assets:Cash and cash equivalents$5,545$25,326$38,781Trade and other receivables49,42757,84856,718Income taxes recoverable--1,513Inventories (note 6)127,31191,03351,358Prepaid expenses1,7352,2041,885Derivative financial instruments (note 7)2,2632,54124Total current assets186,281178,952150,279Non-current assets:Property, plant and equipment182,635183,765188,082Derivative financial instruments (note 7)-1891Deferred tax assets20,50520,43522,288Intangible assets1,7531,795838Other assets406472510Goodwill229,952229,952229,952Total non-current assets435,251436,608441,671Total assets$621,532$615,560$591,950Liabilities and Shareholders' EquityCurrent liabilities:Revolving credit facility (note 8)$6,000$--Trade and other payables51,74452,01842,716Income taxes payable1,6847,177-Provisions (note 9)200--Derivative financial instruments (note 7)8,1028,1448,989Finance lease obligations898982Total current liabilities67,81967,42851,787Non-current liabilities:Revolving credit facility (note 8)70,00070,00070,000Employee benefits54,76156,66348,337Provisions (note 9)4,1444,3444,344Derivative financial instruments (note 7)5,9036,47512,477Finance lease obligations98119181Convertible unsecured subordinated debentures (note10)104,347125,150130,599Deferred tax liabilities29,10629,16129,555Total non-current liabilities268,359291,912295,493Total liabilities336,178359,340347,280Shareholders' equity:Share capital133,361105,542575,406Contributed surplus200,118203,910-Accumulated other comprehensive income(8,366)(8,366)-Equity portion of convertible unsecured subordinateddebentures (note 10)1,188--Deficit(40,947)(44,866)(330,736)Total shareholders' equity (note 11)285,354256,220244,670Total liabilities and shareholders' equity$621,532$615,560$591,950The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.ROGERS SUGAR INC.(Unaudited)Condensed consolidated statements of changes in shareholders' equity(In thousands of dollars except number of shares)For the three months ended December 31, 2011AccumulatedEquityOtherportion ofNumber ofCommonContributedcomprehensiveconvertiblesharessharessurplusincome1debenturesDeficitTotal$$$$$$Balance,October 1, 201188,842,333105,542203,910(8,366)-(44,866)256,220Dividends (note 11)-----(7,989)(7,989)Conversion ofconvertibledebenturesinto shares(note 10)5,148,42727,819(1,562)---26,257Redemption ofconvertibledebentures (note 10)--(2,230)--2,028(202)Issuance of convertibledebentures (note 10)----1,188-1,188Net earnings-----9,8809,880Balance,December 31,201193,990,760133,361200,118(8,366)1,188(40,947)285,354For the three months ended December 31, 2010AccumulatedEquityOtherportion ofNumber ofCommonContributedcomprehensiveconvertiblesharessharessurplusincomedebenturesDeficitTotal$$$$$$Balance,September 30,201087,534,113575,406---(330,736)244,670Dividends/Distributions(note 11)-----(10,066)(10,066)Share-basedpayment-----33Net earnings-----22,57822,578Balance,December 31,201087,534,113575,406---(318,221)257,1851 Represents defined benefit plan actuarial gains (losses).The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.ROGERS SUGAR INC.(Unaudited)Condensed consolidated statements of cash flows (In thousands of dollars)For the three-months endedDecember 31December 3120112010Cash flows from operating activities:Net earnings$9,880$22,578Adjustments for:Depreciation of property, plant and equipment (note 4)2,8413,531Amortization of intangible assets (note 4)4234Changes in fair value of derivative financialinstruments included in cost of sales (note 7)638 (2,711)Income tax expense3,9975,169Pension contributions(2,812)(1,029)Pension expense9101,047Net finance costs (note 5)2,8925,885Loss on disposal of property, plant and equipment21-Other20-Share-based payment expense-318,42934,507Changes in:Trade and other receivables8,4219,555Inventories(36,278)(49,588)Prepaid expenses4691,070Trade and other payables(105)1,541Cash used in operating activities(27,493)(37,422)Interest paid(4,512)(5,004)Income taxes paid(9,615)(205)Net cash used in operating activities(23,191)(8,124)Cash flows (used in) from financing activities:Dividends/distributions paid(7,552)(10,066)Revolving credit facility borrowings6,000-Issuance of convertible unsecured subordinateddebentures (note 10)60,000-Redemption of convertible unsecured subordinateddebentures (note 10)(51,679)-Payment of financing fees (note 10)(2,700)-Repurchase of convertible debentures (note 10)(9)-Cash flow from (used in) financing activities4,060(10,066)Cash flows used in investing activities:Additions to property, plant and equipment,net of proceeds on disposal(650) (1,545)Cash flow used in investing activities(650)(1,545)Net decrease in cash and cash equivalents(19,781)(19,735)Cash and cash equivalents, beginning of period25,32638,781Cash and cash equivalents, end of period$5,545$19,046Supplemental cash flow information (note 13)The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.ROGERS SUGAR INC.Notes to unaudited condensed consolidated interim financial statements (In thousands of dollars except as noted and amounts per share)1. Reporting entity: Rogers Sugar Inc. ("Rogers" or the "Company") is a company domiciled in Canada, incorporated under the Canada Business Corporations Act. The head office of Rogers is located at 123 Rogers Street, Vancouver, British Columbia, V6B 3V2. The unaudited condensed consolidated interim financial statements of Rogers as at October 1, 2010, October 1, 2011 and December 31, 2011 and for the three-month periods ended December 31, 2011 and 2010 comprise Rogers and its subsidiary, Lantic Inc., (together referred to as the "Company"). The principal business activity of the Company is the refining, packaging and marketing of sugar products.On January 1, 2011, Rogers completed the conversion from an income trust to a corporation pursuant to a Plan of Arrangement (the "Arrangement") under section 192 of the Canada Business Corporations Act. Pursuant to the Arrangement, unitholders exchanged each trust unit of Rogers Sugar Income Fund (the "Fund") for a common share of Rogers on a one-for-one basis. The unaudited condensed consolidated interim financial statements follow the continuity of interest basis of accounting whereby Rogers is considered a continuation of the Fund as there was no change in ownership of the Fund upon conversion. As a result the unaudited condensed consolidated statements of earnings and comprehensive income, changes in shareholders' equity and cash flows include the Fund's results of operations for the period up to and including December 31, 2010 and the Company's results thereafter. All references to shares, dividends and shareholders in the unaudited condensed consolidated interim financial statements and notes pertain to common shares and common shareholders subsequent to the conversion and units, distributions and unitholders prior to conversion. Since the conversion to a corporation on January 1, 2011, the Company's fiscal quarters end on the Saturday closest to the end of December, March, June and September. All references to 2011 and 2010 represent the quarters ended December 31, 2011 and December 31, 2010. The fiscal year end of 2011 was October 1, 2011. 2. Basis of presentation and statement of compliance:a) Statement of compliance: These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and with the accounting policies the Company expects to adopt in its first annual International Financial Reporting Standards ("IFRS") September 29, 2012 financial statements. Those accounting policies are based on the IFRS that the Company expects to be applicable at that time except for certain mandatory exemptions and optional exemptions taken pursuant to IFRS 1 as described in note 17. These are the Company's first IFRS unaudited condensed consolidated interim financial statements, therefore IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. The first date at which IFRS was applied was October 1, 2010. In accordance with IFRS 1, the Company has applied the same accounting policies throughout all periods presented. Previously, the Company prepared its consolidated annual and consolidated interim financial statements in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). An explanation of how the transition from Canadian GAAP to IFRS has affected the reported earnings, financial position and cash flows of the Company is provided in note 17. As these are the Company's first set of IFRS unaudited condensed consolidated interim financial statements, the Company's disclosures exceed the minimum requirements under IAS 34. These unaudited condensed consolidated interim financial statements do not include all of the information required for full annual financial statements. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with IFRS were omitted or condensed where such information is not considered material to the understanding of the Company's interim financial statements.These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on February 9, 2012 and they should be read in conjunction with the Company's annual financial statements for the year ended October 1, 2011. These condensed consolidated interim financial statements have neither been audited nor reviewed by the Company's external auditors. b) Basis of measurement:These unaudited condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the unaudited condensed consolidated statements of financial position: financial instruments at fair value through profit or loss are measured at fair value; and the defined benefit liability recognized as the present value of the defined benefit obligation less the total of the fair value of the plan assets and the unrecognized past service costs.c) Functional and presentation currency: These unaudited condensed consolidated interim financial statements are presented in Canadian dollars, which is the Company's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousands, except per share amounts. d) Use of estimates and judgements:The preparation of these unaudited condensed consolidated interim financial statements in conformity with IAS 34 requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Significant areas requiring the use of management judgements and estimates relate to the valuation of goodwill, the rates for depreciation and amortization of property, plant and equipment and intangible assets, the recoverability of deferred income taxes assets and the assumptions used for the determination of employee future benefit obligations.The following is a summary of areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements: i) Fair value of derivative financial instruments:Derivative financial instruments are carried in the statement of financial position at fair value, with changes in fair value reflected in the statement of earnings. Fair values are estimated by reference to published price quotations or by using other valuation techniques. Financial instruments for which observable quoted prices are not available are subject to high degree of uncertainty. ii) Useful lives of property, plant and equipment:The Company reviews estimates of the useful lives of property, plant and equipment on an annual basis and adjusts depreciation on a prospective basis, if necessary. iii) Goodwill impairment:The Company makes a number of estimates when calculating the recoverable amount of a cash-generating unit containing goodwill using discounted future cash flows or other valuation methods. These estimates take into account the control premium in determining the fair value less cost to sell. iv) Asset impairment:The Company must assess the possibility that the carrying amounts of tangible and intangible assets may not be recoverable. Management is required to make subjective assessments, linking the possible loss of value of assets to future economic performance, to determine the amount of asset impairment that should be recognized, if any. v) Income taxes:The calculation of income taxes requires judgement in interpreting tax rules and regulations. Deferred income tax assets are recorded to the extent that it is probable that there will be adequate taxable income in the future against which they can be utilized. vi) Pension Plans:The cost of defined benefit pension plans is determined by means of actuarial valuations, which involve making assumptions about discount rates, the expected long-term rate of return on plan assets, future salary increases, mortality rates and the future increases in pensions. Because of the long-term nature of the plans, such estimates are subject to a high degree of uncertainty. Reported amounts and note disclosures reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual results could differ from those estimates. The above estimates and assumptions are viewed regularly. Revisions to accounting estimates are recognized in the period in which estimates are revised and in any future periods affected. 3. Significant accounting policies:a) Basis of consolidation:The unaudited condensed consolidated interim financial statements include the accounts of the Company and Lantic Inc. ("Lantic"), the subsidiary it controls. Control exists where the Company has the power to govern the financial and operating policies of a subsidiary and obtain the receipt of benefits from having the power to govern. The Company owns 100% of the common shares of Lantic. Lantic Capital Inc, a wholly-owned subsidiary of Belkorp Industries Inc, owns the two outstanding Class C shares of Lantic. These Class C shares are non-voting, have no rights to return or risk of loss and are redeemable for $1 each. The Class C shares entitle the holder to elect five of the seven directors of Lantic but have no other voting rights at any meetings of Lantic shareholders except as may be required by law.Notwithstanding Lantic Capital Inc's ability to elect five of the seven directors of Lantic, Lantic Capital Inc. receives no benefits or exposure to losses from its ownership of the Class C shares. As the Class C shares are non-dividend paying and redeemable for $1, there is no participation in future dividends or changes in value of Lantic resulting from the ownership of the Class C shares. There is also no management fee or other form of consideration attributable to the Class C shares. The determination of who has the power to govern and receive the benefits from having the power to govern necessarily involves a high degree of judgment. Based on all the facts and available information, management has concluded that the Company has the power to govern Lantic and receive the benefits derived from having the power to govern.As part of the transition to IFRS, the Company elected not to restate business combinations that occurred prior to October 1, 2010 and therefore, goodwill represents the amount recognized under previous Canadian GAAP. Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the unaudited condensed consolidated interim financial statements. b) Foreign currency translation:Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate in effect at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated at the rate prevailing at the date that the fair value was determined. Foreign denominated non-monetary assets and liabilities that are measured at the historical costs are translated at the rate prevailing at the transaction date. Revenues and expenses denominated in foreign currencies are translated into the functional currency at the rate in effect on the dates they occur. Gains or losses resulting from these translations are recorded in net earnings of the period. c) Cash and cash equivalents: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 Company's cash management. d) Inventories:Inventories are valued at the lower of cost and net realizable value. The cost of inventories is determined substantially on a first-in, first-out basis and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. e) Property, plant and equipment:Property, plant and equipment, with the exception of land, are recorded at cost less accumulated depreciation and any accumulated impairment losses. Land is carried at cost and not depreciated. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets for which the commencement date for capitalization is on or after October 1, 2010. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Construction-in-progress assets are capitalized during construction and depreciation commences when the asset is available for use.The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.Gains and losses on disposal of items of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and are recognized in profit or loss.Depreciation related to assets used in production is recorded in cost of sales while the depreciation of all other assets is recorded in administration and selling expenses. Depreciation is calculated on a straight-line basis, after taking into account residual values, over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Significant component of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, then that component is depreciated separately. The estimated useful lives for the current and comparative periods are as follows: Buildings and improvements 20 to 60 years Plant and equipment 10 to 40 years Furniture and fixtures 5 to 10 years Major components 10 to 55 years Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.f) Intangible assets and goodwill:Intangible assets that are acquired by the Company and have finite useful lives are initially measured at cost. Following initial recognition, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized in profit or loss as incurred.Amortization is calculated over the cost of the asset, less its residual value. Amortization is recognized in administrative expenses on a straight-line basis over the estimated useful lives of the intangible asset from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Amortization of intangible assets not in service begins when they are ready for their intended use. The estimated useful lives for the current and comparative periods are as follows: Software5 to 15 yearsGoodwill is measured at the acquisition date as the fair value of the consideration transferred less the net identifiable assets of the acquired company or business activities. Goodwill is not amortized and is carried at cost less accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.In respect of acquisitions prior to October 1, 2010, goodwill is included on the basis of its deemed cost, which represents the amount recognized under previous Canadian GAAP.g) Leased assets: Leases for which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognized in the Company's statement of financial position.h) Impairment: i) Non-financial assets:The carrying amounts of the Company's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated yearly at the same time and whenever there is an indication that the asset might be impaired. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash- generating unit", or "CGU"). The Company's corporate assets do not generate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amount of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. ii) Financial assets: A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. The Company considers evidence of impairment for trade and other receivables at both a specific asset and at the collective level. All individually significant trade and other receivables are assessed for specific impairment. All individually significant trade and other receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Trade and other receivables that are not individually significant are collectively assessed for impairment by grouping together trade and other receivables. In assessing collective impairment the Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against trade and other receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. i) Employee benefits: i) Pension benefit plans:The Company provides post-employment benefits through defined benefit and defined contribution plans. The Company also sponsors Supplemental Executive Retirement Plans ("SERP"), which are neither registered nor pre-funded. Finally, the Company sponsors defined benefit life insurance, disability plans and medical benefits, for some retirees and employees.Defined contribution plans:The Company's obligations for contributions to employee defined contribution pension plans are recognized as employee benefit expense in profit or loss in the periods during which services are rendered by employees. Defined benefit plans: The Company maintains some contributory defined benefit plans that provide for pensions to employees based on years of service and the employee's compensation. The Company's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The Company accrues its obligations under employee benefit plans as the employees render the services necessary to earn pension and other employee future benefits. The Company has adopted the following policies: The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected unit credit method. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value at the year-end date. The discount rate used to value the defined benefit obligation is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Company's obligations and that are denominated in the same currency in which the benefits are expected to be paid. Past service costs from plan amendments are recognized in profit or loss on a straight- line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss. Actuarial gains (losses) arise from the difference between the actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period or from changes in actuarial assumptions used to determine the accrued benefit obligation. The Company recognizes all actuarial gains or losses in other comprehensive income in the periods in which they occur. Because the Company does not update its actuarial valuation at the end of the interim reporting period, there are no actuarial gains or losses to recognize during an interim period. The difference between the cumulative amounts expensed and the funding contributions is recognized on the statement of financial position as a pension asset or a pension liability, as the case may be. ii) Short-term employee benefits: Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. The Company has a Share Option Plan. Share options are measured at fair value at the grant date which is recognized as an employee expense, with a corresponding increase in contributed surplus over the vesting period, which is normally 5 years. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met. Any consideration paid by employees on exercise of share options is credited to share capital.j) Provisions:A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of funds will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance costs. i) Asset retirement obligation: The Company recognizes the estimated liability for future costs to be incurred in the remediation of site restoration in regards to asbestos removal and disposal of such asbestos to a landfill for waste environment, and for oil, chemical and other hazardous materials tanks, only when a present legal or constructive obligation has been determined and that such obligation can be estimated reliably. Upon initial recognition of the obligation, the corresponding costs are added to the carrying amount of the related items of property, plant and equipment and amortized as an expense over the economic life of the asset or earlier, if a specific plan of removal exists. This obligation is reduced every year by payments incurred during the year in relation to these items. The obligation might be increased by any required remediation to the owned assets that would be required through enacted legislation. ii) Contingent liability: A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Company, or a present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets, provision of services, or any other transfer of economic benefits will be required to settle the obligation, or the amount of the obligation cannot be estimated reliably. k) Financial instruments:All financial instruments are classified into one of the following categories: held to maturity financial assets, available-for-sale financial assets, loans and receivables, other financial liabilities, and financial assets at fair value through profit or loss. Initial measurement of financial instruments is at fair value and subsequent measurement and recognition in changes in value of financial instruments depend on their classification. Held to maturity financial assets are initially measured at fair value and subsequently re-measured at amortized cost, using the effective interest method, less impairment. Available-for-sale financial assets are measured at fair value at each reporting period and unrealized gains or losses arising from changes in fair value, other than impairment losses, are recorded in other comprehensive income until such time as the asset is removed from the statement of financial position at which time the cumulative gain or loss in other comprehensive income is transferred to profit or loss. The Company's trade and other receivables are initially measured at fair value and subsequently re-measured at amortized cost, unless the effect of discounting would be immaterial, in which case they are stated at cost, less impairment. The Company's trade and other payables have been classified as other financial liabilities and are, therefore, initially measured at fair value and subsequently at amortized cost, unless the effect of discounting would be immaterial, in which case they are stated at cost. Other financial liabilities also include short term borrowings. Financial assets and liabilities classified at fair value through profit or loss are measured at fair value at each reporting period with changes in fair value in subsequent periods included in profit or loss. Financial assets and liabilities measured at fair value use a fair value hierarchy to prioritize the inputs used in measuring fair value as follows: Level 1 - valuation based on observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - valuation techniques based on inputs that are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices); and Level 3 - valuation techniques with observable market inputs (involves assumptions and estimates by management of how market participants would price the asset or liability). Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. i) Cash and cash equivalents: The Company classifies its cash and cash equivalents as loans and receivables. Cash and cash equivalents include cash on hand and bank balances and bank overdraft when the latter forms an integral part of the Company's cash management. ii) Derivative financial instruments and embedded derivatives:The Company classifies derivative financial instruments which have not been designated as hedges for accounting purposes and embedded derivatives as financial assets and liabilities at fair value through profit or loss (marked to market), and values them at fair value each period with changes recorded in cost of sales. The derivative financial instruments consist of sugar futures and at times options ("sugar contracts"), foreign exchange forward contracts, natural gas futures and embedded derivatives which relate to the foreign exchange component of certain sales contracts denominated in U.S. currency, all of which the Company enters into during the regular course of business. In addition, the Company entered into an interest rate swap agreement to protect itself against interest rate fluctuations, which is recorded at fair value each reporting period with changes recorded in finance costs. iii) Compound financial instruments:Since the conversion from an income trust to a corporation on January 1, 2011, the Company's convertible unsecured subordinated debentures are accounted for as compound financial instruments. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss. Distributions to the equity holders are recognized in equity, net of any tax benefit. iv) Financing charges: Financing charges, which reflect the cost to obtain new financing, are offset against the debt for which they were incurred and recognized in finance costs using the effective interest method. Financing charges for the revolving credit facility are recorded with other assets. v) Trade date: The Company recognizes and derecognizes purchases and sales of derivative contracts on the trade date. l) Share capital:Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.When share capital recognized as equity is repurchased for cancellation, the amount of the consideration paid which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. The excess of the purchase price over the carrying amount of the shares is charged to deficit. m) Revenue recognition:Revenue is measured at the fair value of the consideration received or receivable and recognized at the time sugar products are shipped to customers, at which time significant risks and rewards of ownership are transferred to the customers. Revenue is recorded net of all returns and allowances, and excludes sales taxes. Sales incentives, including volume rebates provided to customers are estimated based on contractual agreements and historical trends and are recognized at the time of sale as a reduction in revenue. Such rebates are primarily based on a combination of volume purchased and achievement of specified volume levels. n) Lease payments:Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liabilities. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liabilities. o) Finance income and finance costs:Finance income comprises interest income on funds invested and finance costs comprise interest expense on borrowings. Changes in the fair value of interest rate swaps are recorded either to finance income or finance costs based on its outcome. Interest expense is recorded using the effective interest method. p) Income taxes:Income tax expense comprises current and deferred taxes. Current tax and deferred taxes are recognized in profit or loss except for items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or recoverable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years. Deferred tax assets and liabilities are recognized in respect of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. In addition, the effect on deferred tax assets or liabilities of a change in tax rates is recognized in profit or loss in the period in which the enactment or substantive enactment takes place, except to the extent that it relates to an item recognized either in other comprehensive income or directly in equity in the current or in a previous period. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probably that the related tax benefit will be realized. q) Earnings per share:The Company presents basic and diluted earnings per share ("EPS") data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares from the conversion of the convertible debentures. r) New standards and interpretations not yet adopted:A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ending September 29, 2012 and have not been applied in preparing these unaudited condensed consolidated interim financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Company, except possibly for IFRS 9 Financial Instruments, which becomes mandatory for the years commencing on or after January 1, 2015 with earlier application permitted. IFRS 9 is a new standard which will ultimately replace IAS 39 Financial Instruments: Recognition and Measurement. More specifically, the standard: Deals with classification and measurement of financial assets; Establishes two primary measurement categories for financial assets: amortized cost and fair value; Prescribes that classification depends on entity's business model and the contractual cash flow characteristics of the financial asset; and Eliminates the existing categories; held to maturity and available for sale, and loans and receivables. Certain changes were also made regarding the fair value option for financial liabilities and accounting for certain derivatives linked to unquoted equity instruments. In 2011, the IASB issued IFRS 10, Consolidated Financial Statements, which becomes mandatory for the years commencing on or after January 1, 2013. IFRS 10 is a new standard which identifies the concept of control as the determining factor in assessing whether an entity should be included in the consolidated financial statements of the parent company. IFRS 10 supersedes SIC-12 Consolidations - Special Purpose Entities and replaces parts of IAS 27 Consolidated and Separate Financial Statements. In 2011, amendments to IAS 19, Employee Benefits, were issued. The revised standard contains multiple modifications, including enhanced guidance on measurement of plan assets and defined benefit obligations and the introduction of enhanced disclosures for defined benefit plans. Retrospective application of this standard will be effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company is in the process of reviewing those standards and amendments to determine the impact on the consolidated financial statements. 4) Depreciation and amortization expense:Depreciation and amortization expense were charged to the unaudited condensed consolidated statements of earnings as follows: For the three months endedDecember 31,December 31,20112010$$Cost of sales2,7283,377Administration and selling expenses155188Total depreciation and amortization expense2,8833,5655. Finance income and finance costs:Recognized in net earnings:For the three months endedDecember 31,December 31,20112010$$Net change in fair value of interest rate swap785961Finance income785961Interest expense on convertible unsecuredsubordinated debentures1,842 1,955Interest on revolving credit facility960859Amortization of deferred financing fees279250Loss on early redemption of convertible unsecuredsubordinated debentures (note 10)596 -Net change in fair value of convertible option (note 17 d)-3,782Finance costs3,6776,846Net finance costs recognized in net earnings2,8925,8856. Inventories:During the three months ended December 31, 2011, the Company recorded, as a write-down to inventory through cost of sales of nil (December 31, 2010 - $14.5 million) related to onerous contracts as defined in IAS 37 paragraph 66. In the normal course of business, the Company enters into an economic hedge for all of its raw sugar purchases and refined sugar sales. As the Company does not apply the hedge accounting requirements for these contracts, the related derivative instruments being the futures contracts are marked-to-market. As a result, the Company must record an onerous loss to cost of sales when the net realizable value is lower than the marked-to-market of the raw sugar futures contract and the related refining costs. 7. Financial instruments:Disclosures relating to risks exposure, in particular credit risk, liquidity risk, foreign currency risk, interest rate risk and equity risk were provided in the October 1, 2011 financial statements presented under Canadian GAAP and there have been no significant changes in the Company's risk exposures during the three months ended December 31, 2011. Details of recorded gains/losses for the quarter, in marking-to-market all outstanding derivative financial instruments and embedded derivatives are noted below. For sugar futures contracts (derivative financial instruments), the amounts noted below are netted with the variation margins paid or received to/from brokers at the end of the reporting period. Natural gas forwards and sugar futures have been marked-to-market using published quoted values for these commodities, while foreign exchange forward contracts have been marked-to-market using rates published by the financial institution which is counter-party to these contracts. The fair value of natural gas contracts, foreign exchange forward contracts and interest swap calculations include a credit risk adjustment for the Company's or counterparty's credit, as appropriate. The fair value of the convertible option has been marked-to-market using a valuation model. Financial assetsFinancial liabilitiesGain / (Loss)Finance income /Non-Non-CurrentcurrentCurrentcurrentCost of sales(Costs)December 31, 2011December 31,December 31,2011201020112010$$$$$$$$Sugar futures contracts747--132(3,851)15,645--Natural gas futures contracts--6,3654,279(42)3,249--Foreign exchange forwardcontracts1,316--2639788--Embedded derivatives200---(1,719)(800)--Interest swap--1,7371,466--785961Conversion option onconvertible debentures (note10)------- (3,782)2,263-8,1025,903(5,215)18,182785(2,821)Financial assetsFinancial liabilitiesFinancial assetsFinancial liabilitiesNon-Non-Non-Non-CurrentcurrentCurrentcurrentCurrentcurrentCurrentcurrentOctober 1, 2011October 1, 2010$$$$$$$$Sugar futures contracts and104--29241--optionsNatural gas futures contracts--6,3184,284--5,4629,239Foreign exchange forward82270----1,1437contractsEmbedded derivatives1,615119----59740Interest swap--1,8262,162--1,7873,057Conversion option onconvertible debentures (note10)-------1342,5411898,1446,4752418,98912,4778) Bank overdraft and revolving credit facility:The Company has a revolving credit facility of $200.0 million from which it can borrow at prime rate, Libor rate or under Bankers' Acceptances, plus 0 to 162.5 basis points based on achieving certain financial ratios. Certain assets of the Company, including trade receivables, inventories and property, plant and equipment have been pledged as security for the credit facility. The credit facility expires on June 30, 2013. The following amounts were outstanding as of: December 31,October 1,October 1,201120112010$$$Outstanding amount on revolving credit facility:Current6,000--Non-current70,00070,00070,00076,00070,00070,000The fair value of the outstanding amount on the revolving credit facility was equal to the carrying amount for all above-mentioned periods.9.Provisions:December 31,October 1,October 1,201120112010$$$Balance4,3444,3444,344Presented as:Non-current4,1444,3444,344Current200--4,3444,3444,344Other than the reclassification to current of $0.2 million, there was no movement in the provision for all periods presented above.Provisions are comprised of asset retirement obligations which represents the future cost the Company estimates to incur for the removal of asbestos in the operating facilities and for oil, chemical and other hazardous materials tanks for which the Company has been able to identify the costs.10. Convertible unsecured subordinated debentures:The outstanding convertible debentures, all recorded as non-current liabilities, are as follows: December 31,October 1,October 1,201120112010$$$Fourth series i)50,00050,00050,000Fifth series ii)60,000--Third series i), iii)-77,94584,260Total face value110,000127,945134,260Less deferred financing fees(4,465)(2,795)(3,661)Less equity component ii)(1,188)--Total carrying value104,347125,150130,599i) Fair value of conversion option:For the period from October 1 to December 31, 2010, due to the unique nature of the trust units when operating under the income trust structure, the conversion option of the Third and Fourth series debentures were recorded as a derivative liability at fair value. As a result, an amount of $3.8 million was recorded as finance costs during that period (see note 17 d), representing the increase in value of the conversion option. On January 1, 2011, when the Fund converted to a Corporation, the derivative liability was reclassified to contributed surplus, in relation with the equity portion for the Third and Fourth series debentures. ii) Fifth series:On December 16, 2011, the Company issued $60.0 million fifth series, 5.75% convertible unsecured subordinated debentures ("Fifth series debentures"), maturing on December 31, 2018, with interest payable semi-annually in arrears on June 30 and December 31 of each year, starting June 29, 2012. The debentures may be converted at the option of the holder at a conversion price of $7.20 per share at any time prior to maturity, and cannot be redeemed prior to December 31, 2014.On or after December 31, 2014 and prior to December 31, 2016, the debentures may be redeemed by the Company, at a price equal to the principal amount plus accrued and unpaid interest, only if the weighted average trading price of the common shares, for 20 consecutive trading days, is at least 125% of the conversion price of $7.20. Subsequent to December 31, 2016, the debentures are redeemable at a price equal to the principal amount thereof plus accrued unpaid interest.On redemption or at maturity, the Company will repay the indebtedness of the convertible debentures by paying an amount equal to the principal amount of the outstanding convertible debentures, together with accrued and unpaid interest thereon. The Company may, at its option, elect to satisfy its obligation to repay the principal amount of the convertible debentures, which are to be redeemed or which have matured, by issuing shares to the holders of the convertible debentures. The number of shares to be issued will be determined by dividing $1,000 (one thousand) of principal amount of the convertible debentures by 95% of the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending on the fifth trading day preceding the date for redemption or the maturity date, as the case may be.The Company has allocated $1.2 million of the Fifth series debentures into an equity component.The Company incurred issuance costs of $2.7 million, which are netted against the convertible debenture liability. The fair value of the Fifth series debentures as at December 31, 2011 was approximately $62.3 million, based on market quotes. iii) Third series:On December 19, 2011, some of the net proceeds from the issuance of the Fifth series debentures were used to redeem the third series 5.9% convertible unsecured subordinated debentures ("Third series debentures"). The total amount redeemed was $51,679, as an amount of $26,257 was converted to common shares by holders of the convertible debentures during the period from October 2, 2011 to December 19, 2011. In addition, $9 was repurchased during the quarter by the Company under the Normal Course Issuer Bid ("NCIB") prior to the redemption date.The respective debt and equity component of the Third series debentures are as follows: ContributedDebtsurplus$$Balance, October 1, 201084,260-Reclassification of the conversion option from derivative liability on date of incorporation of January 1, 2011 (note17 d))- 3,792Balance, January 1, 201184,2603,792Conversion of convertible debentures(6,315)-Balance, October 1, 201177,9453,792Deferred financing costs(798)-Carrying value, October 1, 201177,1473,792Repurchased under the normal course issuer bid(9)-Conversion of convertible debentures(26,257)(1,562)Redemption of Third series convertible debentures(51,477)(202)Early redemption loss596-Reclassification of remaining balance to accumulated deficit-(2,028)--An amount of $1.6 million was transferred from contributed surplus to common shares for the conversions that occurred prior to the redemption on December 19, 2011. The Company recorded to finance costs the early redemption loss of $0.6 million. Finally, the remaining amount of $2.0 million was reclassified to deficit.11. Capital and other components of equity:In 2012, $26.3 million of the Third series debentures were converted by holders of the securities for a total of 5,148,427 shares (December 31, 2010 - nil). This conversion is a non-cash transaction and therefore not reflected in the unaudited condensed consolidated statement of cash flows.The following dividends (December 31, 2010 - distributions on trust units) were declared by the Company: December 31,December 31,20112010$0.085 per common shares7,989-$0.115 per unit-10,0667,98910,066On January 1, 2011 the Company converted from an income trust to a conventional Company. The authorized capital of the Company consists of: (i) an unlimited number of voting common shares entitling its holders to receive, subject to the rights of the holders of preferred shares and any other class of shares ranking prior to the common shares, (a) non-cumulative dividends of the Company and (b) the remaining property of the Company upon its dissolution or winding-up; and (ii) a number of preferred shares issuable in series, at all times limited to fifty percent (50%) of the common shares outstanding at the relevant time, provided that no such preferred shares shall be used to block any takeover.On January 1, 2011 the Board of Directors approved the reduction of the share capital without payment or reduction of its stated capital, by its deficit at January 1, 2011. As a result, the deficit of $276,465 was reduced to nil and the same amount was first applied against contributed surplus and subsequently against stated capital reducing the stated capital to $284,078. In addition, further to a Special Resolution approved at the shareholders' meeting of February 1, 2011, the Company reduced the stated capital by $200,000 to $84,078 and the contributed surplus was increased by the same amount of $200,000.The Accumulated Other Comprehensive Income ("AOCI") is as follows:December 31,October 1,October 1,201120112010$$$Defined benefit plan actuarial losses, net of taxes of $2,4778,366 8,366-12. Earnings per share:Reconciliation between basic and diluted earnings per share is as follows: December 31,December 31,20112010Basic earnings per share:Net earnings$9,880$22,578Weighted average number of shares outstanding89,758,53587,534,113Basic earnings per share$0.11$0.26Diluted earnings per share:Net earnings$9,880$22,578Plus impact of convertible unsecured subordinateddebentures1,494 1,566$11,374$24,144Weighted average number of shares outstanding:Basic weighted average number of sharesoutstanding89,758,535 87,534,113Plus impact of convertible unsecured subordinateddebentures20,975,70224,213,876110,734,237111,747,989Diluted earnings per share$0.10$0.2213. Supplementary cash flow information:December 31,October 1,October 1,201120112010$$$Cash and cash equivalents5,54525,32638,781Non-cash transactions:Additions of property, plant and equipment andintangibles included in trade and other payables1,615 590 79514. Key management personnel:The Board of Directors as well as the President and all the Vice-Presidents are deemed to be key management personnel of the Company. The following is the compensation expense for key management personnel: For the three months endedDecember 31,December 31,20112010$$Salaries and short-term benefits547517Attendance fees for members of the Board of Directors9669Post-retirement benefits1679Share-based payment-3659668Further information about the remuneration of individual directors is provided in the annual Management Proxy Circular.15.Personnel expenses:For the three months endedDecember 31,December 31,20112010$$Wages, salaries and employee benefits17,34617,691Expenses related to defined benefit plans9101,047Expenses related to defined contributions plans408360Share-based payment-318,66419,101The personnel expenses were charged and capitalized to the unaudited condensed consolidated statements of earnings and statements of financial position, respectively, as follows: For the three months endedDecember 31,December 31,20112010$$Cost of sales15,26315,598Administration and selling expenses2,7782,842Distribution expenses62366118,66419,101Property, plant and equipment8910016. Segmented information:The Company has one operating segment and therefore one reportable segment.Revenues were derived from customers in the following geographic areas: For the three months endedDecember 31,December 31,20112010$$Canada146,878141,702United States28,9279,736175,805151,43817. First time adoption of the International Financial Reporting Standards ("IFRS"):a) IFRS 1 Application: As stated in note 2 a) these are the Company's first IFRS unaudited condensed consolidated interim financial statements. The accounting policies set out in note 3 have been applied in preparing the condensed consolidated interim financial statements for the three months ended December 31, 2011, the comparative information for the three months ended December 31, 2010 and year ended October 1, 2011, and in the preparation of an opening IFRS statement of financial position at October 1, 2010 ("transition date"). In accordance with IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with all adjustments to assets and liabilities applied against deficit unless certain exemptions applied. Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the Company's transition from Canadian GAAP to IFRS. b) IFRS 1 optional exemptions: i) Business combinations: IFRS 1 provides an exemption that allows an entity to elect not to retrospectively restate business combinations prior to the transition date in accordance with IFRS 3, Business Combinations. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to the transition date and such business combinations have not been restated. Under the business combinations exemption, the carrying amounts of the assets acquired and liabilities assumed under Canadian GAAP at the date of the acquisition became their deemed carrying amounts under IFRS at that date. Notwithstanding the exemption, the Company was required at the transition date, to evaluate whether the assets acquired and liabilities assumed meet the recognition criteria in the relevant IFRS, and whether there are any assets acquired or liabilities assumed that were not recognized under Canadian GAAP for which recognition would be required under IFRS. The requirements of IFRS were then applied to the assets acquired and liabilities assumed from the date of acquisition to the transition date. The application of this exemption did not result in an IFRS transition adjustment to the opening statement of financial position at October 1, 2010. In addition, under the business combinations exemption, the Company tested goodwill for impairment at the transition date and determined that there was no impairment of the carrying value of goodwill as at that date. ii) Employee benefits: IFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee Benefits, for the recognition of cumulative actuarial gains and losses, or to recognize all cumulative unrecognized actuarial gains and losses at the transition date. The Company elected to recognize all cumulative unrecognized actuarial gains and losses that existed on the transition date in opening deficit for all of its employee benefit plans. IFRS 1 also provides the option to apply IAS 19 paragraph 120A(p), retrospectively or prospectively from the transition date. The retrospective basis would require the disclosure of selected information of the defined benefit plans for the current annual period and previous four annual periods. The Company elected to disclose the amounts required by paragraph 120A(p) of IAS 19 as the amounts are determined for each accounting period prospectively from the transition date to IFRS. iii) Borrowing costs: IAS 23, Borrowing Costs, requires an entity to capitalize borrowing costs relating to qualifying assets. Under IFRS 1, an entity may elect to apply the transitional provisions of IAS 23, which allow an entity to choose the date to apply the capitalization of borrowing costs relating to all qualifying assets as either the transition date or an earlier date. The Company elected to apply the transitional provisions of IAS 23 and chose the transition date as the date to commence the capitalization of borrowing costs to all qualifying assets for which the commencement date of the qualifying asset is on or after the transition date. c) IFRS 1 mandatory exceptions: The Company applied the following mandatory exception to the retrospective application of other IFRS: i) Estimates: Hindsight is not used to create or revise estimates. The estimates previously made by the Company under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies. d) Reconciliation between IFRS and Canadian GAAP: In preparing its opening IFRS financial statements, the Company has adjusted amounts reported previously in the consolidated financial statements prepared in accordance with Canadian GAAP. The following reconciliations detail the transitional effect to IFRS: i) Condensed statement of earnings and comprehensive income for the three months ended December 31, 2010; ii) Condensed statement of earnings and comprehensive income for the year ended October 1, 2011; iii) Condensed statement of financial position as at October 1, 2010; iv) Condensed statement of financial position as at December 31, 2010; v) Condensed statement of financial position as at October 1, 2011. e) IFRS Reclassifications: i) Statement of cash flows: IFRS require cash flows from interest and dividends received and paid, and income taxes paid to be disclosed directly in the statement of cash flows. Under Canadian GAAP, the Company disclosed interest and income taxes paid in the notes to the financial statements. This has resulted in a change to the presentation of the statements of cash flows for all periods presented in these unaudited condensed consolidated interim financial statements. There are no other material differences between the Company's statements of cash flows presented under IFRS and the statements of cash flows presented under Canadian GAAP. i) Reconciliation of earnings and comprehensive income for the three months ended December 31, 2010: Consolidated statement of earningsCanadian GAAPAdjustmentsIFRS$Notes$$Revenues151,438-151,438Cost of sales111,546a) b)(127)111,419Gross margin39,89212740,019Administration and selling expenses4,769b) c)(37)4,732Distribution expenses1,655-1,655Depreciation and amortization188c)(188)-6,612(225)6,387Results from operating activities33,28035233,632Finance income-d)(961)(961)Finance costs2,103d)4,7436,846Net finance costs2,1033,7825,885Earnings before income taxes31,177(3,430)27,747Income tax expense5,158e)115,169Net earnings26,019(3,441)22,578Net earnings per share:Basic0.30(0.04)0.26Diluted0.25(0.03)0.22Consolidated statement of comprehensive incomeCanadian GAAPAdjustmentsIFRS$Notes$$Net earnings (loss)26,019(3,441)22,578Other comprehensive income---Comprehensive income for the period26,019(3,441)22,578ii) Reconciliation of earnings and comprehensive income for the year ended October 1, 2011: Consolidated statement of earningsCanadianAdjustmentsIFRSGAAP$Notes$$Revenues612,614-612,614Cost of sales516,255a) b)(490)515,765Gross margin96,35949096,849Administration and selling expenses20,019b) c)(350)19,669Distribution expenses7,960-7,960Depreciation and amortization549c)(549)-28,528(899)27,629Results from operating activities67,8311,38969,220Finance income-d)(855)(855)Finance costs11,579d)4,63716,216Net finance costs11,5793,78215,361Earnings before income taxes56,252(2,393)53,859Income tax expense12,032e)(292)11,740Net earnings44,220(2,101)42,119Net earnings per shareBasic0.50(0.02)0.48Diluted0.45(0.02)0.43Consolidated statement of comprehensiveCanadianAdjustmentsIFRSincomeGAAP$Notes$$Net earnings (loss)44,220(2,101)42,119Other items of comprehensive income :Defined benefit plan actuarial gains (losses)-b)(10,843)(10,843)Income tax on other comprehensive loss-e)2,4772,477-(8,366)(8,366)Comprehensive income for the period44,220(10,467)33,753iii) Reconciliation of financial position as at October 1, 2010: Consolidated statement of financialCanadian GAAPAdjustmentsIFRSposition$Notes$$AssetsCurrent assets:Cash and cash equivalents38,781-38,781Trade and other receivables58,231f)(1,513)56,718Income taxes recoverable-f)1,5131,513Inventories51,358-51,358Prepaid expenses1,885-1,885Deferred tax assets1,030e)(1,030)-Derivative financial instruments24-24Total current assets151,309(1,030)150,279Non-current assets:Property, plant and equipment182,523a)5,559188,082Defined benefit pension plan assets19,672b)(19,672)-Derivative financial instruments1-1Deferred tax assets-e)22,28822,288Intangible assets838-838Other assets510-510Goodwill229,952-229,952Total non-current assets433,4968,175441,671Total assets584,8057,145591,950LiabilitiesCurrent liabilities:Revolving credit facility70,000c)(70,000)-Trade and other payables42,716-42,716Derivative financial instruments8,989-8,989Current finance lease obligations82-82Total current liabilities121,787(70,000)51,787Consolidated statement of financial position (continued)Canadian GAAPAdjustmentsIFRS$Notes$$Non-current liabilities:Revolving credit facility-c)70,00070,000Employee benefits29,545b)18,79248,337Provisions-a)4,3444,344Derivative financial instruments12,343d)13412,477Finance lease obligations181-181Convertible unsecured subordinated debentures130,599-130,599Deferred tax liabilities17,542e)12,01329,555Total non-current liabilities190,210105,283295,493Total liabilities311,99735,283347,280Shareholders' equityShare capital560,543g)14,863575,406Contributed surplus4,683h)(4,683)-Deficit(292,418)j)(38,318)(330,736)Total shareholders' equity272,808(28,138)244,670Total liabilities and shareholders' equity584,8057,145591,950iv) Reconciliation of financial position as at December 31, 2010: Consolidated statement of financial positionCanadian GAAPAdjustmentsIFRS$Notes$$AssetsCurrent assets:Cash and cash equivalents19,046-19,046Trade and other receivables47,722f)(559)47,163Income taxes recoverable-f)559559Inventories100,946-100,946Prepaid expenses815-815Deferred tax assets624e)(624)-Derivative financial instruments176-176Total current assets169,329(624)168,705Non-current assets:Property, plant and equipment180,344a)5,601185,945Defined benefit pension plan assets19,224b)(19,224)-Derivative financial instruments23-23Deferred tax assets-e)22,49622,496Intangible assets804-804Other assets464-464Goodwill229,952-229,952Total non-current assets430,8118,873439,684Total assets600,1408,249608,389LiabilitiesCurrent liabilities:Revolving credit facility70,000c)(70,000)-Trade and other payables41,918-41,918Derivative financial instruments9,019-9,019Current finance lease obligations82-82Total current liabilities121,019(70,000)51,019Consolidated statement of financial position (continued)CanadianGAAPAdjustmentsIFRS$Notes$$Non-current liabilities:Revolving credit facility-c)70,00070,000Employee benefits29,425b)18,93048,355Provisions-a)4,3444,344Derivative financial instruments8,815d)3,91612,731Finance lease obligations179-179Convertible unsecured subordinated debentures130,803-130,803Deferred tax liabilities21,135e)12,63833,773Total non-current liabilities190,357109,828300,185Total liabilities311,37639,828351,204Shareholders' equityShare capital560,543g)14,863575,406Contributed surplus4,686h)(4,686)-Deficit(276,465)j)(41,756)(318,221)Total shareholders' equity288,764(31,579)257,185Total liabilities and shareholders' equity600,1408,249608,389v) Reconciliation of financial position as at October 1, 2011: Consolidated statement of financial positionCanadian GAAPAdjustmentsIFRS$Notes$$AssetsCurrent assets:Cash and cash equivalents25,326-25,326Trade and other receivables57,848-57,848Inventories91,033-91,033Prepaid expenses2,204-2,204Deferred tax assets2,109e)(2,109)-Derivative financial instruments2,541-2,541Total current assets181,061(2,109)178,952Non-current assets:Property, plant and equipment178,057a)5,708183,765Defined benefit pension plan assets21,710b)(21,710)-Derivative financial instruments189-189Deferred tax assets-e)20,43520,435Intangible assets1,795-1,795Other assets472-472Intangible assets229,952-229,952Total non-current assets432,1754,433436,608Total assets613,2362,324615,560LiabilitiesCurrent liabilities:Revolving credit facility70,000c)(70,000)-Trade and other payables59,195f)(7,177)52,018Income taxes payable-f)7,1777,177Derivative financial instruments8,144-8,144Current finance lease obligations89-89Total current liabilities137,428(70,000)67,428Consolidated statement of financial position (continued)Canadian GAAPAdjustmentsIFRS$Notes$$Non-current liabilities:Revolving credit facility-c) 70,00070,000Employee benefits30,306b)26,35756,663Provisions-a)4,3444,344Derivative financial instruments6,475d)-6,475Finance lease obligations119-119Convertible unsecured subordinated debentures125,150-125,150Deferred tax liabilities22,849e)6,31229,161Total non-current liabilities184,899107,013291,912Total liabilities322,32737,013359,340Shareholders' equityShare capital90,679g)14,863105,542Contributed surplus204,677h)(767)203,910Accumulated other comprehensive income-i)(8,366)(8,366)Deficit(4,447)j)(40,419)(44,866)Total shareholders' equity290,909(34,689)256,220Total liabilities and shareholders' equity613,2362,324615,560a) Property, plant and equipment and provisions: IFRS provides more specific guidance than Canadian GAAP on the capitalization and componentization of property, plant and equipment. Specifically, IAS 16, Property, plant and equipment, requires that each part of an identifiable item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be capitalized and depreciated separately. Certain element of costs capitalized in property, plant and equipment under Canadian GAAP did not meet the definition of an element of costs capitalized under IFRS. Certain element of costs expensed in cost of sales under Canadian GAAP met the definition of an element of costs to be capitalized in property, plant and equipment under IFRS. Under IFRS, a provision was recorded for costs that could be reliably measured for asbestos removal and disposal of such asbestos to a landfill for waste environment, and for oil, chemical and other hazardous materials tanks. Under Canadian GAAP these costs were not recognized as asset retirement obligations. The impact arising from the above is summarized as follows: For the 3 monthsFor the yearended December 31,ended October 1,20102011(Decrease) / increase in cost of sales:Components(103)(411)Non-capitalizable element of costs under IFRS(20)(81)Capitalizable element of costs under IFRS(100)(381)Asset retirement obligations181724Decrease in cost of sales related to property, plantand equipment adjustments (42) (149)October 1,December 31,October 1,201020102011Property, plant and equipment:Balance under Canadian GAAP182,523180,344178,057IFRS adjustments:Components2,1102,2132,521Non-capitalizable element of costs under IFRS(895)(875)(814)Capitalizable element of costs under IFRS-100381Asset retirement obligations4,3444,1633,620Total IFRS adjustments5,5595,6015,708Balance under IFRS188,082185,945183,765October 1,December 31,October 1,201020102011Provisions:Balance under Canadian GAAP---Asset retirement obligations(4,344)(4,344)(4,344)Balance under IFRS(4,344)(4,344)(4,344)b) Employee benefits: Under IFRS the Company's accounting policy is to recognize all actuarial gains and losses immediately in other comprehensive income. At the date of transition, all previously cumulative unrecognized actuarial gains and losses were recognized in deficit. The impact arising from the above is summarized as follows: For the 3 monthsFor the yearended December 31,ended October 1,20102011Decrease in cost of sales(85)(341)Decrease in administration and selling expenses(225)(899)Decrease in expenses related to employee benefits(310)(1,240)For the 3 monthsFor the yearended December 31,ended October 1,20102011Decrease in comprehensive income-10,843Decrease in comprehensive income related to employee benefits-10,843October 1,December 31,October 1,201020102011Defined benefit pension plan assets:Balance under Canadian GAAP19,67219,22421,710Recognition of actuarial losses(19,672)(19,224)(21,710)Balance under IFRS---Employee benefits liabilities:Balance under Canadian GAAP(29,545)(29,425)(30,306)Recognition of actuarial losses(18,792)(18,930)(26,357)Balance under IFRS(48,337)(48,355)(56,663)c) Reclassifications i) Depreciation and amortization Under IFRS, depreciation and amortization expense must be presented by function. The impact is as follows: For the 3 monthsFor the yearended December 31,ended October20101, 2011Increase in administration and selling expenses188549Decrease in depreciation and amortization(188)(549)ii) Revolving credit facilityUnder IFRS, $70 million of the revolving credit facility must be presented as non-current liabilities due to the long-term nature of the borrowing. The impact is as follows:October 1,December 31,October 1,201020102011Decrease in current liabilities(70,000)(70,000)(70,000)Increase in non-current liabilities70,00070,00070,000d) Derivative financial instruments: Under IFRS, finance costs are presented separately from the finance income on the statement of earnings. In addition, due to the unique nature of the trust units when operating under the income trust structure for the period from October 1 to December 31, 2010, under IFRS, the conversion option of the convertible unsecured subordinated debentures was recorded as a derivative liability at fair value. The Company converted to a corporation on January 1, 2011 and as a result, the full amount of the derivative liability was reclassified as contributed surplus as of that date. The impact arising from the above is summarized as follows: For the 3 monthsFor the yearnded December 31,ended October 1,20102011Finance income:Reclassification from finance costs(961)(855)Finance costs:IFRS adjustments:Reclassification to finance income961855Fair value loss of conversion option3,7823,782Increase in finance costs related to derivative financial instruments4,7434,637October 1,December 31,October 1,201020102011Non-current derivative financial liabilities :Balance under Canadian GAAP12,3438,8156,475Fair value of conversion option1343,916-Balance under IFRS12,47712,7316,475e) Deferred income taxes: Under IFRS, when income taxes are payable at a higher or lower rate if part or all of the net profit or retained earnings is paid out as a dividend to shareholders, deferred tax assets and liabilities are measured at the rate applicable to undistributed profits. As a result, for the period from October 1 to December 31, 2010 while the Company was under the income trust structure, the tax rate at which deferred tax assets and liabilities are measured was increased to 43.7% (the undistributed tax rate) instead of 25% (the distributed tax rate) under Canadian GAAP. As of October 1, 2010, an adjustment was made to deficit. As of January 1, 2011, the date the Company converted to a corporation, all deferred tax assets and liabilities were re-measured using the rate applicable to a Corporation as an adjustment to profit or loss. Under IAS 1, deferred tax assets or liabilities should not be classified as current. Under Canadian GAAP, when assets and liabilities related to temporary differences were segregated between current and non-current, the future income tax assets and liabilities were segregated. The impact arising from the above is summarized as follows: For the 3 monthsFor the yearended December 31,ended October 1,20102011Increase / (decrease) in deferred tax expense:Components22106Non-capitalizable costs under IFRS521Element of costs under IFRS2598Asset retirement obligations(47)(186)Undistributed tax rate of an income trust6(331)Increase / (decrease) in deferred tax expense11(292)For the 3 monthsFor the yearended December 31,ended October20101, 2011Increase in comprehensive income-(2,477)Increase in comprehensive income related to employee benefits- (2,477 )October 1,December 31,October 1,201020102011Current deferred tax assets:Balance under Canadian GAAP1,0306242,109Reclassification to non-current(1,030)(624)(2,109)Balance under IFRS---Non-current deferred tax assets:Balance under Canadian GAAP---IFRS adjustments:Reclassification to non-current1,0306242,109Reclassification of assets and liabilities10,25310,8614,844Recognition of actuarial losses9,8889,89412,365Provisions1,1171,1171,117Total IFRS adjustments22,28822,49620,435Balance under IFRS22,28822,49620,435Non-current deferred tax liabilities:Balance under Canadian GAAP(17,542)(21,135)(22,849)IFRS adjustments:Reclassification of assets and liabilities(10,253)(10,861)(4,844)Components(542)(569)(648)Non-capitalizable element of costs under IFRS 230 225 209Capitalizable element of costs under IFRS-(26)(98)Asset retirement obligations(1,117)(1,070)(931)Undistributed tax rate of an income trust(331)(337)-Total IFRS adjustments(12,013)(12,638)(6,312)Balance under IFRS(29,555)(33,773)(29,161)f) Income taxes recoverable / payable: Under IAS 1, the Company must present the income taxes recoverable/payable. The impact arising is summarized as follows: October 1,December 31,October 1,201020102011Trade and other receivables:Balance under Canadian GAAP58,23147,72257,848Reclassification from trade and other receivables (1,513 ) (559 )-Balance under IFRS56,71847,16357,848Income taxes recoverable:Balance under Canadian GAAP---Reclassification to income taxes recoverable1,513559-Balance under IFRS1,513559-Trade and other payables:Balance under Canadian GAAP(42,716)(41,918)(59,195)Reclassification to income taxes payable--7,177Balance under IFRS(42,716)(41,918)(52,018)Income taxes payable:Balance under Canadian GAAP---Reclassification from trade and other payables-- (7,177 )Balance under IFRS--(7,177)g) Share capital: Prior to the transition date and under the income trust structure, the Company distributed return of capital to its Unitholders. Under Canadian GAAP, the return of capital was recognized as a reduction of share capital. Due to the unique nature of the trust units under IFRS, the return of capital should be recognized in deficit. The impact arising from the above is summarized as follows: October 1,December 31,October 1,201020102011Share capital:Balance under Canadian GAAP(560,543)(560,543)(90,679)Reclassification due to nature of trust units(14,863)(14,863)(14,863)Balance under IFRS(575,406)(575,406)(105,542)h) Contributed surplus: Under the Company's NCIB 1,805,600 trust units were repurchased by the Company prior to the transition date. Under Canadian GAAP, an amount paid below the issue price was recognized as contributed surplus. Due to the unique nature of trust units under IFRS and under the income trust structure, the amount paid below the issue price should be recognized in deficit. In addition, as discussed in note 17 d), the fair value of the conversion option on January 1, 2011 was reclassified as contributed surplus as of that date. The impact arising from the above is summarized as follows: October 1,December 31,October 1,201020102011Contributed surplus:Balance under Canadian GAAP(4,683)(4,686)(204,677)IFRS adjustments:Reclassification due to nature of trust units4,6834,6864,683Fair value of conversion option--(3,916)Total IFRS adjustments4,6834,686767Balance under IFRS--(203,910)i) Accumulated other comprehensive income: October 1,December 31,October 1,201020102011Balance under Canadian GAAP---IFRS adjustments:Recognition of actuarial losses--10,843Income taxes on recognition of actuarial losses-- (2,477 )Total IFRS adjustments--8,366Balance under IFRS--8,366j) Deficit: The impact arising from the above adjustments (shown net of income taxes) is summarized as follows: October 1,December 31,October 1,201020102011Balance under Canadian GAAP292,418276,4654,447IFRS adjustments:Components(1,568)(1,644)(1,873)Non-capitalizable element of costs underIFRS 665 650 605Capitalizable element of costs under IFRS-(74)(283)Asset retirement obligations-134538Employee benefits28,57628,26027,336Derivative financial instruments1343,9163,916Undistributed tax rate of an income trust331337-Reclassification due to nature of trust units10,18010,17710,180Total IFRS adjustments38,31841,75640,419Balance under IFRS330,736318,22144,866FOR FURTHER INFORMATION PLEASE CONTACT: SVP Finance, CFO and SecretaryMr. Dan Lafrance(514) 940-4350(514) 527-1610 (FAX)www.rogerssugar.com or www.Lantic.ca