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Press release from Marketwire

Rogers Sugar Inc.: Interim Report for the 3rd Quarter 2012 Results

- Increase in Adjusted Gross Margin Rate of $16.29 from the Comparable Quarter - Free Cash Flow Increase of $12.5 Million Year-To-Date Over Last Year's Comparable Period

Tuesday, July 31, 2012

Rogers Sugar Inc.: Interim Report for the 3rd Quarter 2012 Results16:00 EDT Tuesday, July 31, 2012MONTREAL, QUEBEC--(Marketwire - July 31, 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 and nine months ended June 30, 2012.Volume for the third quarter was 157,786 metric tonnes, as opposed to 163,001 metric tonnes in the comparable quarter of last year, a decrease of approximately 5,200 metric tonnes. Year-to-date volume of 477,034 metric tonnes is approximately 1,200 metric tonnes lower than last year. For the quarter industrial volume was lower by approximately 9,000 metric tonnes and lower by approximately 28,300 metric tonnes year-to-date. As discussed in the two previous quarters, some industrial volume was lost due to competitive activity and volume will be lower for fiscal 2012 versus 2011, as most large industrial volume is now under contract for the year. Liquid volume was also lower by approximately 200 metric tonnes for the quarter but year-to date volume is higher by approximately 600 metric tonnes. Consumer volume was higher by approximately 1,700 metric tonnes for the quarter but lower by 1,500 metric tonnes year-to-date. The consumer volume variance for the quarter and year-to-date is due mainly to timing in customers' retail promotions. Export volume was higher by approximately 2,300 metric tonnes for the quarter and by approximately 28,000 metric tonnes year-to-date. The increase in the quarter is due to the timing of shipments against Rogers' Canada specific yearly quota and sales to Mexico. The year-to-date increase is due to sugar sold under a special quota to the U.S. of 136,078 metric tonnes 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. 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 which are explained in detail in each of the first three quarters unaudited interim financial statements. 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 third quarter the accounting results had a mark-to-market loss before income taxes of $1.4 million for the quarter and a mark-to-market loss of $20.7 million year-to-date, which was added to the adjusted results. The major reasons for this mark-to-market loss are the timing in the settlement of derivative financial instruments and movement in raw sugar values.For the quarter, adjusted gross margin increased by approximately $2.0 million when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margin was $124.49 compared to $108.20 for the third quarter of last year. The increase in the adjusted gross margin rate is due mainly to the sales mix with lower industrial and liquid volume and higher consumer and export volumes on which higher margin rates were realized, and to the negative impact of raw sugar premiums incurred in fiscal 2011 comparable quarter. Year-to-date adjusted gross margin was $22.3 million higher than last year's comparable period while the adjusted gross margin rate per tonne was $168.74 as compared to $121.68 in fiscal 2011. The increase was due again to a favourable sales mix with higher margin rate export volume and to the negative impact of raw sugar premiums incurred in fiscal 2011.Adjusted EBIT of $12.6 million was $1.5 million higher when compared to the same quarter last year due in large part to the increase in average selling margin rate, as explained above, slightly offset by higher administration expenses of approximately $0.6 million due to an increase in the incentive provision and timing in expenses of professional fees. Year-to-date adjusted EBIT of $60.2 million was approximately $22.1 million higher than last year due mainly to the higher gross margins earned on export volume to the U.S. against the special U.S. quota shipments and to the negative impact of raw sugar premiums incurred in fiscal 2011.For the quarter, free cash flow was $8.8 million as compared to $8.9 million in fiscal 2011. Year-to-date free cash flow was $43.3 million, an increase of approximately $12.5 million over last year's comparable period. For the quarter, the higher adjusted net earnings of $1.8 million were offset by higher pension costs and income taxes. The year-to-date increase of $12.5 million is due mainly to improved adjusted net earnings of $12.9 million.A new six-year labour agreement was reached with the unionized warehouse employees of the Toronto distribution centre, replacing the contract that expired in June 2012. The new agreement was signed at competitive rates.A total of 30,500 acres were planted this spring in Taber. Under normal growing and harvesting conditions, this should derive approximately 100,000 metric tonnes of beet sugar for fiscal 2013.On May 30, 2012, the Federal Court of Appeal allowed an application for judicial review brought by the Canadian Sugar Institute and set aside the November 10, 2010 order of the Canadian International Trade Tribunal with respect to the European Union. That order had rescinded the countervailing and anti-dumping duties applicable to refined sugar imported from the European Union. The matter has been returned to the Tribunal for reconsideration. There is no assurance that the Tribunal will reverse its prior decision.FOR THE BOARD OF DIRECTORS, SIGNED Stuart Belkin, Chairman Vancouver, British Columbia - July 31, 2012MANAGEMENT'S DISCUSSION AND ANALYSISThis Management's Discussion and Analysis ("MD&A") dated July 31, 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 June 30, 2012, 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' unaudited interim financial statements and notes thereto, for the quarter ended June 30, 2012, 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 and nine months ended July 2, 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 and nine months periods ended July 2, 2011, and for the consolidated statements of financial position as at July 2, 2011 are presented in Note 18 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 its 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 controls In accordance with Regulation 52-109 respecting certification of disclosure in issuers' interim filings, the Chief Executive Officer and Chief Financial Officer have designed or caused it to be designed under their supervision, disclosure controls and procedures.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 June 30, 2012 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 operationsConsolidated ResultsFor the three months endedFor the nine months ended(In thousands of dollars, except for volume and per share information)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)Volume (metric tonnes)157,786163,001477,034478,198Revenues$ 147,687$ 150,892$ 467,624$ 451,748Gross margin18,20711,63759,78463,342Administration and selling expenses5,0684,42614,29814,610Distribution expenses1,9592,1505,9545,528Earnings before net finance costs and provision for income taxes (EBIT)$ 11,180$ 5,061$ 39,532$ 43,204Net finance costs2,2603,4957,24411,975Provision for income taxes2,0113178,9715,906Net earnings$ 6,909$ 1,249$ 23,317$ 25,323Net earnings per share - basic$ 0.07$ 0.01$ 0.25$ 0.29In 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:Income (loss)For the three months endedFor the nine months ended(In thousands)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)Mark-to-market adjustment (excluding interest swap)$ (982)$ (11,884)$ (2,512)$ (4,591)Cumulative timing differences(453)5,884(18,200)9,744Total adjustment to cost of sales$ (1,435)$ (6,000)$ (20,712)$ 5,153The movement in the price values of raw sugar caused a mark-to-market loss during the quarter. As a result, a $4.4 million loss was recorded as compared to a mark-to-market loss of $12.6 million in the comparable quarter of last year. Year-to-date a mark-to-market loss of $1.3 million was recorded as compared to a mark-to-market loss of $7.7 million in the comparable period of fiscal 2011. With the recent price increase in natural gas prices, a mark-to-market gain of $1.8 million and of $1.3 million was recorded in the third quarter and year-to-date respectively, versus a loss of $0.2 million in the comparable quarter of last year and a gain of $4.6 million year-to-date. Foreign exchange forward contracts and embedded derivatives, on which foreign exchange movements have an impact, had a combined mark-to-market gain of $1.7 million for the quarter and a mark-to-market loss of $2.5 million year-to-date. For the comparable period the combined mark-to-market adjustment was a mark-to-market gain of $0.9 million for the quarter and a loss of $1.5 million year-to-date. The total net adjustment to cost of sales was a loss of $1.4 million for the quarter and of $20.7 million year-to-date, as opposed to a loss of $6.0 million for the comparable quarter of last year and to a mark-to-market gain of $5.2 million year-to-date.In addition, the Company recorded a mark-to-market gain of $0.4 million for the quarter and of $1.9 million year-to-date, as compared to a loss of $0.2 million and a gain of $1.3 million year-to-date for the comparable periods of 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, when we operated under the income trust structure for the period of October 1, 2010 to December 31, 2010, was an embedded derivative. The net change of $3.8 million in the fair value of this derivative between the opening and the closing values of that reporting period, was recorded as an expense in the first quarter of fiscal 2011 under finance costs. The following is a table showing the adjusted consolidated results (non-GAAP) without the above mark-to-market results:Consolidated ResultsFor the three months endedFor the nine months endedJune 30,2012 (Unaudited)July 2, 2011 (Unaudited)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)Gross margin as per financial statements$ 18,207$ 11,637$ 59,784$ 63,342Adjustment as per above1,4356,00020,712(5,153)Adjusted gross margin19,64217,63780,49658,189EBIT as per financial statements11,1805,06139,53243,204Adjustment as per above1,4356,00020,712(5,153)Adjusted EBIT12,61511,06160,24438,051Net earnings as per financial statements6,9091,24923,31725,323Adjustment to cost of sales as per above1,4356,00020,712(5,153)Adjustment for mark-to-market of finance costs(449)196(1,908)(1,322)Adjustment for IFRS transition on option of convertible debentures---3,782Deferred taxes on above adjustments(254)(1,598)(4,878)1,652Adjusted net earnings$ 7,641$ 5,847$ 37,243$ 24,282Net earnings per share basic, as per financial statements$ 0.07$ 0.01$ 0.25$ 0.29Adjustment for the above0.010.050.15(0.05)Adjusted net earnings per share basic$ 0.08$ 0.06$ 0.40$ 0.24For the quarter, total volume decreased by approximately 5,200 metric tonnes from the comparable quarter of fiscal 2011. Industrial volume decreased by approximately 9,000 metric tonnes due mainly to the loss of some business to competition and some timing in deliveries. Liquid volume was also lower by approximately 200 metric tonnes due mainly to timing in deliveries. Consumer volume increased by approximately 1,700 metric tonnes due mainly to timing in customers' retail promotions. Export volume increased by approximately 2,300 metric tonnes due mainly to timing in the delivery of volume against the annual U.S. quota and exports to Mexico. Year-to-date volume decreased by approximately 1,200 metric tonnes. Industrial volume is lower by approximately 28,300 metric tonnes, due in large part to competitive activity and some timing in deliveries. Consumer volume is also down year-to date by approximately 1,500 metric tonnes due mainly to timing in customers' retail promotions. This is partially offset with a year-to date increase in export volume of 28,000 metric tonnes. 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. 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, and an additional volume of 17,600 metric tonnes from its beet sugar plant by the time the Canada specific quota closed on November 30, 2011. Liquid volume also increased by approximately 600 metric tonnes year-to-date due to strong volume in the first quarter. Revenues for the quarter were $3.2 million lower than the previous year's comparable quarter, as a result of the lower level of volume achieved during the quarter. Year-to-date revenues are $15.9 million higher due mainly to the higher selling values for U.S. export volume sold against the U.S. special quotas opened earlier this fiscal year.As previously mentioned, gross margin of $18.2 million for the quarter and of $59.8 million year-to-date do not reflect the economic margin of the Company, as it includes a loss of $1.4 million for the quarter and of $20.7 million year-to-date 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 $2.0 million, when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margins were $124.49 compared to $108.20 for the comparable quarter of last year, an increase of $16.29 per metric tonne. The increase in the adjusted gross margin rate is due mainly to the sales mix with lower industrial and liquid volume, and higher consumer and export volume both having a higher margin rate, and to large premiums paid for some raw sugar supply bought on the spot market during the comparable quarter of fiscal 2011. Year-to-date adjusted gross margin was $22.3 million higher than last year's comparable period. Year-to-date adjusted gross margin rate per tonne was $168.74 as compared to $121.68 in fiscal 2011 for the comparable period. The increase was due again to a favourable sales mix with higher margin rate export volume and to the negative impact of raw sugar premiums incurred in fiscal 2011. Administration and selling costs were higher by approximately $0.6 million for the quarter but lower by approximately $0.3 million year-to-date than the comparable periods of fiscal 2011. The increase in the quarter is due mainly to an increase in the incentive provision and to timing in professional fees expenses while the decrease year-to-date is due partially to lower legal fees of approximately $0.3 million incurred in fiscal 2011 for the conversion from an income trust to the current corporate structure. Distribution costs for the quarter were $0.2 million lower than last year's comparable quarter due to the reduced shipments from Vancouver to Taber, but higher by $0.4 million year-to-date due mainly to shipping and warehousing costs incurred for products entered in the U.S. against the special quotas in the first quarter of this year. Finance costs for the quarter includes a mark-to-market gain of $0.4 million and of $1.9 million year-to-date, as compared to a mark-to-market loss of $0.2 million and a mark-to-market gain of $1.3 million year-to-date 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. The fair value of this derivative 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 lower by approximately $0.6 million due to the lower level of outstanding convertible debentures and borrowings under the line of credit. Year-to-date interest expense is lower by approximately $0.4 million as savings from lower borrowings are partially offset with the write-off of deferred financing charges of approximately $0.6 million as a result of the early redemption of the third series convertible debentures in the first quarter of the year.The provision for income taxes includes a deferred tax recovery of $0.3 million for the quarter and of $4.9 million year-to-date for the mark-to-market adjustment as compared to a recovery of $1.6 million for the quarter and an expense of $1.7 million year-to-date for the comparable period of last year. On an adjusted basis the provision for income taxes was $2.3 million for the quarter and of $13.9 million year-to date as compared to an expense of $1.9 million for the quarter and of $4.3 million year-to-date for the comparable period of last year. The increase of $0.4 million for the quarter is due mainly to the increase in adjusted earnings before income taxes as a result of the improved gross margins. The year-to-date increase of $9.6 million is also due in part to the higher profitability year-to date and that in the first quarter of fiscal 2011, the Company operated under an income trust structure and therefore did not incur any income taxes on the interest income it received from Lantic since it was distributed to its Unitholders. Under the new corporate structure all interest income received by Rogers is fully taxable.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.2012 (Unaudited)2011 (Unaudited)*2010 (Unaudited)(In thousands of dollars, except for volume, margin rate and per trust unit information)3-Q2-Q1-Q4-Q3-Q2-Q1-Q4-QVolume (MT)157,786146,494172,754170,880163,001155,500159,697192,171Revenues147,687144,132175,805160,866150,892149,418151,438163,264Gross margin18,20717,92323,65433,50711,63711,68640,01953,237EBIT11,18011,58316,76926,0165,0614,51233,63244,773Net earnings6,9096,5289,88016,7961,2491,49622,57833,710Gross margin rate per MT115.39122.35136.92196.0871.3975.15250.59277.03Per shareNet earningsBasic0.070.070.110.190.010.020.260.39Diluted0.070.070.100.160.010.020.220.32Non-GAAP MeasuresAdjusted gross margin19,64223,06537,78925,48617,63714,00726,54523,098Adjusted EBIT12,61516,72530,90417,99511,0616,83320,15814,634Adjusted net earnings7,6419,84119,76111,1855,8472,79915,63712,136Adjusted gross margin rate per MT124.49157.45218.74149.15108.2090.08166.22120.20Adjusted net earnings per shareBasic0.080.100.220.130.070.030.180.14Diluted0.080.100.190.110.070.030.150.13* 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 reserves for capital expenditures and working capital. The cash received by Rogers is used to pay dividends to its shareholders. Cash flow from operations was positive $10.1 million for the quarter, as opposed to positive $17.3 million in the comparable quarter of fiscal 2011. Year-to-date cash flow from operations is positive $25.0 million as opposed to negative $19.5 million for the comparable period of last year. The main reason for the decrease in cash flow from operations is related to the movement in inventories of $5.2 million less than the third quarter in the comparable period due to timing in the receipt of raw sugar vessels and to the overall value of the raw sugar. The increase in accounts receivable is related to the timing of sales in the third quarter and is not a reflection in the recoverability of such receivables. The year-to-date improvement in cash flow from operations of $44.5 million from last year is due mainly to the change in raw sugar values and movement in inventories in fiscal 2012 versus fiscal 2011 as it accounts for a net variance of $57.2 million year-over-year. The decrease of $8.2 million in fiscal 2012 versus the increase of $49.0 million in fiscal 2011 is due to the timing in the receipt of cane raw sugar vessels and to the movement in the value of the raw sugar market at the closing of each related period. This variance in inventory of $57.2 million was offset with higher income tax payments of approximately $14.3 million in fiscal 2012 with the change from an income trust to a corporation occurring on January 1, 2011. Total capital expenditures were comparable for the quarter and $0.7 million higher year-to-date than the previous year, due mainly to timing of projects when compared to fiscal 2011.In order to provide additional information the Company believes it is appropriate to measure free cash flow, a non-GAAP measure, which is generated by the operations of the Company and can be compared to the level of dividends paid by Rogers. Free cash flow is defined as cash flow from operations excluding changes in non-cash working capital, mark-to-market and derivative timing adjustments, financial instruments non-cash amount and including capital expenditures. Free cash flow is as follows:For the three months endedFor the nine months ended(In thousands of dollars)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)June 30, 2012 (Unaudited)July 2, 2011 (Unaudited)Cash flow from operations$ 10,111$ 17,314$ 25,046$ (19,474)Adjustments:Changes in non-cash working capital(6,778)(13,381)(2,821)59,247Changes in non-cash income taxes payable(629)(2,586)5,502(6,031)Changes in non-cash interest payable1,6842,1911,8812,554Mark-to-market and derivative timing adjustments9866,19618,804(2,693)Financial instruments non-cash amount4,4382281,529561Capital expenditures(1,223)(1,176)(4,484)(3,811)Investment capital expenditures64115322160Net issue (repurchase) of shares/convertible debentures181-262275Deferred financing charges--(2,716)-Free cash flow$ 8,834$ 8,901$ 43,325$ 30,788Declared dividends/distributions$ 8,465$ 7,552$ 24,446$ 25,163Free cash flow was slightly lower than the comparable quarter in fiscal 2011 and higher by $12.5 million year-to-date. The higher adjusted earnings from operations for the quarter were offset with higher cash pension expense of approximately $0.6 million, higher income taxes and slightly higher net capital expenditures. The year-to-date increase of $12.5 million is due mainly to the higher adjusted net earnings of $12.9 million.Changes in non-cash 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. The combined impact of the mark-to-market and financial instruments non-cash amount of $5.4 million for the quarter and of $20.3 million year-to-date does not represent cash items as these contracts will be settled when the physical transactions occur, which is the reason for the adjustment to free cash flow. Capital expenditures, net of investment capital, were comparable to last year for the quarter and higher by approximately $0.6 million year-to-date 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 third quarter an amount of $0.2 million was received following the exercise of share options by an executive of the Company, for a total of $0.3 million year-to-date. Year-to-date this cash receipt was netted by an amount of $9 thousand for the repurchase of third series convertible unsecured subordinated debentures ("Third series debentures") 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 which was 8.5 cents per common shares for the first two quarters and was increased to 9.0 cents per common share for the third quarter. An interest distribution of 11.5 cents per unit was declared in the first quarter of fiscal 2011 under the income trust structure and a dividend of 8.5 cents per common share in the second and third quarters of fiscal 2011. Contractual obligations There 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 June 30, 2012, the Company had commitments to purchase a total of 1,002,000 metric tonnes of raw sugar, of which 33,300 metric tonnes had been priced for a total dollar commitment of $18.8 million. Capital resources Lantic has $200.0 million as authorized lines of credit available to finance its operation of which $60.0 million had been drawn at quarter's end. In addition, an amount of $18.2 million in cash and cash equivalents was also available. The line of credit comes due June 30, 2013. Management is confident that the line of credit can be renewed at competitive market rates. 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 securities During the quarter 50,000 common shares were issued following the exercise of share options by an executive for a total of 75,000 common shares issued under the exercise of share options year-to-date. In addition, during the first quarter 5,148,427 common shares were issued following the conversion of $26.3 million of the Third series debentures. As at July 31, 2012, there were 94,065,760 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 policies The 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 and to the consolidated statement of financial position for the three and nine months period ended July 2, 2011, are presented in Note 18 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.OutlookDue to the loss of industrial and liquid volume, total sales volume should be slightly lower than the previous year as this lost volume will be partially offset with export sales against the U.S. special quota of about 28,000 metric tonnes. Approximately 30,000 metric tonnes of industrial and liquid volume was lost 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. As most large customers' contract negotiations are now concluded for fiscal 2012, such volume cannot be replaced this fiscal year. However, the Company has already contracted additional volume with existing and new accounts for fiscal 2013, as winning back domestic volume remains a high priority.The Taber beet thick juice campaign was completed in June 2012 and the total beet sugar production for the 2011 crop was approximately 121,000 metric tonnes. This is approximately 35,000 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.A total of 30,500 acres was planted this season, which should derive approximately 100,000 metric tonnes of beet sugar under normal growing, harvesting and processing conditions.A new six-year labour agreement was reached with the unionized warehouse employees of the Toronto distribution centre, replacing the contract that expired in June, 2012. The new agreement was signed at competitive rates for the region.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 to 2015 have been taken. These positions are at prices higher than the current market values, but at or better than levels achieved in fiscal 2011. We will continue to monitor natural gas market dynamics with the objective of minimizing natural gas costs.On May 30, 2012, the Federal Court of Appeal allowed an application for judicial review brought by the Canadian Sugar Institute and set aside the November 10, 2010 order of the Canadian International Trade Tribunal with respect to the European Union. That order had rescinded the countervailing and anti-dumping duties applicable to refined sugar imported from the European Union. The matter has been returned to the Tribunal for reconsideration. There is no certainty that the Tribunal will reverse its prior decision.The Financial Statements are available at the following link: http://media3.marketwire.com/docs/RSI_Financial_Statements_Q3_2012_ENG.pdf.FOR FURTHER INFORMATION PLEASE CONTACT: SVP Finance, CFO and SecretaryMr. Dan Lafrance(514) 940-4350(514) 527-1610 (FAX)Visit our Websites at www.rogerssugar.com or www.Lantic.ca