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.
Liquidity
The 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 $5.7 million in the first quarter of 2013, as opposed to negative $23.2 million in the comparable quarter of fiscal 2012. The main reason for the $17.5 million improvement in cash flow from operations from last year's comparable results is related in large part to lower inventories and accounts receivables in fiscal 2013, as well as the lower amount of cash income taxes paid in the first quarter of fiscal 2013 as opposed to fiscal 2012, and to higher deferred income taxes in the first quarter of fiscal 2013. 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 $32.3 million in the first quarter of fiscal 2013 as opposed to $36.3 million in the comparable quarter of last year. The lower increase is due mainly to the timing of cane sugar receipts.
Total capital expenditures were higher than the previous year, due mainly to timing of projects when compared to fiscal 2012.
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 29, December 31, 2012 2011(In thousands of dollars) (Unaudited) (Unaudited)--------------------------------------------------------------------------------------------------------------------------------------------------------Cash flow from operations $ (5,669) $ (23,191)Adjustments: Changes in non-cash working capital 18,905 27,493 Changes in non-cash income taxes payable 2,420 5,493 Changes in non-cash interest payable 1,578 1,706 Mark-to-market and derivative timing adjustments (1,550) 13,350 Financial instruments non-cash amount 3,399 147 Capital expenditures (967) (650) Investment capital expenditures - 41 Net repurchase of common shares/convertible debentures - (9) Deferred financing charges - (2,700)----------------------------------------------------------------------------Free cash flow $ 18,116 $ 21,680----------------------------------------------------------------------------Declared dividends $ 8,468 $ 7,989--------------------------------------------------------------------------------------------------------------------------------------------------------
