Pantera Silver Corp. press release
Rothmans reports results for first quarter of fiscal 2009
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
Trading: TSX: ROC
TORONTO, Aug. 12 /CNW/ - Rothmans Inc. today announced its results for the first quarter of fiscal 2009, which ended June 30, 2008.
Rothmans Inc. (the "Company") incurred a loss of $354.4 million for the first quarter or ($5.20) basic loss per share, compared to earnings of $33.8 million or $0.50 basic earnings per share in the same quarter of fiscal 2008. The loss in the period results from the expenses incurred in connection with the previously announced resolution of the RCMP investigation, the make-whole premium associated with Rothmans, Benson & Hedges Inc.'s $150 million 5.552% senior unsecured bonds, series A and certain expenses associated with the offer by a wholly-owned indirect subsidiary of Philip Morris International Inc. These expenses are described in more detail below and in the accompanying MD&A for the quarter ended June 30, 2008.
Adjusted operating earnings and adjusted operating earnings per share were $35.4 million(1) and $0.52(1) per basic share versus $33.8 million and $0.50 per basic share in the comparable period in the prior year primarily due to lower income tax rates in the recent quarter. Adjusted operating earnings exclude the impact of the expenses described above.
Sales at the Company's 60%-owned subsidiary, Rothmans, Benson & Hedges Inc. (RBH), net of excise duty and taxes, decreased to $176.2 million in the most recent quarter compared with $177.4 million in the first quarter of fiscal 2008. Continued consumer movement into the cigarette price category and higher trade program spending were only partially offset by price increases implemented during the first quarter of fiscal 2009.
RBH's adjusted EBITDA margin for the first quarter was 55.5%(1) in both the quarter ended June 30, 2008 and June 30, 2007. Continued consumer movement to the cigarette price category and higher trade program expenses were offset by higher prices in the recent quarter. The increase in adjusted EBITDA margin for the first quarter compared with the 43.4%(1) margin in the quarter ended March 31, 2008 reflects higher sales volumes and price increases that occurred in the first quarter.
RBH shipped a total of 2.8 billion equivalent sticks into the domestic market during the first quarter of fiscal 2009 consistent with the comparable period of the prior year with increased sales of price category cigarettes offsetting continued declines in premium and fine cut products. Based on market share information provided by the Nielsen Company, RBH's share of total domestic cigarettes sold by retailers increased to 33.6% for the period ended June 30, 2008, from 32.1% for the comparable period of the prior year on a rolling 12 month basis.
"The settlement of the RCMP investigation had an obvious significant impact on the results of the current quarter. We are pleased that on an operating basis RBH continued to maintain sales volumes and grow market share" said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH.
(1) Adjusted operating earnings, adjusted operating earnings per share and adjusted EBITDA margin are non-GAAP financial measures. Investors are cautioned that these measures do not have standardized meanings prescribed by GAAP. They should not be considered alternatives to earnings and comprehensive earnings or loss or loss per share as presented in the unaudited consolidated financial statements. See the accompanying MD&A for further details and a reconciliation of GAAP earnings to adjusted operating earnings.
Resolution of the RCMP Investigation
As previously announced on July 31, 2008, RBH and the Company reached an agreement with the Government of Canada and the governments of all ten provinces that resolved the RCMP's investigation relating to sales of products exported from Canada by RBH in the period 1989 - 1996. Under the terms of the settlement reached with the governments, payments expected to total $550 million are to be made commencing in 2008 and over the next ten years. The terms of the settlement are set out in the comprehensive agreement and in an order of the Ontario Court of Justice issued on July 31, 2008. Details are summarized in a press release issued by the Company on July 31, 2008.
The Company recorded an expense of $415 million in the unaudited consolidated financial statements for the period ended June 30, 2008 to recognize the settlement. The settlement expense and the obligation were determined using a valuation technique based on the present value of the estimated future cash payments discounted to June 30, 2008. As a result of this settlement expense, the Company's 60% owned subsidiary company, RBH, has a shareholder deficiency of $209 million. Under Canadian Generally Accepted Accounting Principles (GAAP), the minority interest portion of the loss recorded in the quarter ended June 30, 2008 cannot be shown as an asset in the unaudited consolidated financial statements of the Company. Included in the total loss recorded at RBH is $84 million attributable to the minority interest. Subsequent earnings of RBH will be allocated entirely to the Company's interest in RBH until previously absorbed losses are recovered.
As a consequence of the settlement, RBH expects to repay its currently outstanding 5.552% senior unsecured bonds, series A in the principal amount of $150 million. Although the bonds have a scheduled maturity date of December 21, 2011, the terms of the settlement may result in an event of default under the terms of the trust indentures pursuant to which the bonds were issued. As a result, RBH has recorded an expense in the quarter ended June 30, 2008 of $9.7 million for the make-whole premium and accrued interest payments required under the terms of the trust indentures. RBH has entered into an agreement with JPMorgan Chase Bank N.A. to provide a $200 million unsecured one-year revolving loan facility. The proceeds from this facility will be used to fund the principal repayment, the make-whole premium and accrued interest on the bonds and for RBH's working capital purposes.
Offer by Philip Morris International
On July 31, 2008, the Company entered into a support agreement with Philip Morris International Inc. (PMI) under which an indirect wholly-owned subsidiary of PMI has made an offer to all Company shareholders to purchase all of the outstanding common shares of the Company for $30 per share in cash. The terms and conditions of the offer contained in the support agreement are described in the PMI take-over bid circular and the Rothmans Inc. directors' circular which can be found on www.sedar.com or on the Company's website at www.rothmansinc.ca.
The offer has the full support of the Board of Directors of Rothmans Inc. and the Board believes the offer is fair from a financial point of view to shareholders and is in the best interests of the Company and recommends that shareholders accept the offer and tender their shares to the offer.
Quarterly Dividend
Under the terms of the support agreement, the Board of Directors of Rothmans Inc. agreed to suspend the regular quarterly dividend for the second quarter of fiscal 2009 which has historically been paid in September.
Analyst Conference Call and Webcast
Rothmans Inc. management will hold a conference call with analysts to discuss the first quarter results at 8:30 a.m. Toronto time, Tuesday, August 12, 2008. In order to listen to the conference call, shareholders are invited to call 1-800-766-6630 or 416-695-6120.
The call will also be webcast via the Company's investor website, www.rothmansinc.ca. At the completion of the conference call, a recording will be available until August 20th by calling 1-800-408-3053 and entering reservation number 3268375. The recording can also be accessed through the investor website.
Media are invited to listen to the call and to contact Barry Joslin at (416) 442-3634 for further information.
About Rothmans Inc.
Rothmans Inc. is a widely held, publicly traded Canadian company that participates in the Canadian tobacco industry through 60%-owned Rothmans, Benson & Hedges Inc., Canada's second largest tobacco company. RBH currently employs approximately 750 people at its head office in Toronto, its sales offices across Canada and its manufacturing facilities in Brampton, Ontario and Quebec City, Quebec where it has been operating for over 100 years. Rothmans is Canada's only publicly traded company with interests exclusively in the tobacco industry and is listed on the Toronto Stock Exchange under the symbol ROC.
Management's Discussion and Analysis for the three months ended June 30, 2008
Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, provides shareholders with a review of significant developments in the Company's financial performance in the fiscal quarter ended June 30, 2008 compared with the prior year. It also discusses factors that could affect future performance. This MD&A should be read in conjunction with the attached unaudited consolidated financial statements for the period ended June 30, 2008, the annual MD&A for the year ended March 31, 2008 and the audited annual consolidated financial statements of the Company for the year ended March 31, 2008 which are available at www.sedar.com or on the Company's website at www.rothmansinc.ca. The results reported herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and are presented in Canadian dollars. This MD&A is current as of August 11, 2008.
Responsibility of Management and the Board of Directors
Management is responsible for the information disclosed in this MD&A and has in place the appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, the Company's Audit Committee and Board of Directors provide an oversight role with respect to all public financial disclosures by the Company, and have reviewed and approved this MD&A and the accompanying unaudited consolidated financial statements.
Disclosure Controls and Procedures and Internal Controls over Financial Reporting
The Chief Executive Officer and Chief Financial Officer have designed disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.
With respect to internal controls over financial reporting, the Chief Executive Officer and Chief Financial Officer have designed them, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with Generally Accepted Accounting Principles.
During the Company's most recent interim period, there were no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
Forward Looking Statements
Certain statements contained in this MD&A and other sections of this document (in particular the sections entitled "Industry Overview" and "Outlook") constitute "forward-looking statements" and express views as to future events, circumstances and trends relating to RBH's business and the Company. Words such as "plans", "intends", "outlook", "expects", "anticipates", "estimates", "believes", "should" and similar expressions may identify forward-looking statements. Forward-looking statements are based on management's current expectations and assumptions and entail various risks and uncertainties. There is no assurance that any forward-looking statement will materialize. Actual results may differ materially from these expectations and forward-looking statements, if known and unknown risks or uncertainties affect RBH's business or the Company, or if management's expectations or assumptions prove to be inaccurate. Unless otherwise indicated, forward-looking statements describe expectations as of August 11, 2008.
Factors that could cause the Company's actual results to differ materially from the forward-looking statements contained herein include, but are not limited to: government claims and potential claims, including the results of ongoing investigations; product liability claims; increases in the levels of contraband product in the market; increased competition and competitor initiatives; a lower rate of growth in the cigarette price category; continued declines in consumption of tobacco products; RBH's ability to continue to implement price increases; fluctuating wholesaler and consumer purchasing patterns; changes in government taxation policy; changes in government legislation and regulation including legislation banning the display of tobacco products in retail stores; new product standards; dependence on the domestic tobacco market; failure to meet conditions of the Offer (as defined below) and/or the failure to obtain the required approvals or clearances from regulatory and other agencies and bodies on a timely basis or at all; the Company's and PMI's abilities to complete a second-step transaction; the Company's and PMI's abilities to fund the payment of any required termination fees; RBH and the Company's abilities to fund the payments required under the terms of the Settlement (defined below); and RBH's ability to fund the repayment of the Bonds (defined below).
The Company disclaims any obligation or intention to update or revise any forward-looking statement, whether the result of new information, future events or otherwise. Additional information concerning risks and uncertainties affecting RBH's business and the Company and other factors that could cause financial results to fluctuate is set forth below under "Risks and Uncertainties" and "Outlook" and is contained in the Company's filings with Canadian securities regulatory authorities, including the Company's Annual Information Form (in particular under "Legal Proceedings" and "Risk Factors") available on SEDAR at www.sedar.com or on the Company's website at www.rothmansinc.ca.
Terminology used in this MD&A
Throughout this MD&A, "GAAP" refers to Canadian Generally Accepted Accounting Principles, "Rothmans" and "the Company" refer to Rothmans Inc., "RBH" refers to Rothmans, Benson & Hedges Inc., which is 60%-owned by Rothmans Inc., "PMI" refers to Philip Morris International Inc., a subsidiary of which owns the remaining 40% of RBH.
The "recent quarter" refers to the three months ended June 30, 2008, and "prior quarter" refers to the three months ended March 31, 2008. "Fiscal 2009" or "recent fiscal year" refers to the fiscal year ending March 31, 2009 and other similar references to a fiscal year (e.g., fiscal 2008) refer to the fiscal year then ended on March 31 (e.g., March 31, 2008). "EPS" refers to earnings per share.
"The three major suppliers of tobacco products" or "three majors" refer to RBH, Imperial Tobacco Canada Limited (ITL) and JTI-MacDonald Corp. (JTI). "Premium cigarettes" refers to tailor-made cigarettes sold at premium retail prices, "cigarette price category" and "price category cigarettes" refers to cigarettes sold at less-than-premium prices and "price category" refers to the combination of the cigarette price category and the fine cut category (loose tobacco and pre-portioned tobacco sticks). "Domestic composite market" refers to all fully tax-paid cigarettes and fine cut tobacco products sold into the Canadian market. "Dark markets" refer to provincial jurisdictions where the display of tobacco products by retailers is banned by government regulation. "Nielsen" refers to the Nielsen Company, a recognized market research company. "CTMC" refers to the Canadian Tobacco Manufacturers Council.
"Settlement" refers to the settlement entered into by Rothmans and RBH effective July 31, 2008 with the Government of Canada and the governments of all ten provinces that resolved the RCMP's investigation relating to sales of products exported from Canada by RBH in the period 1989 - 1996. "Comprehensive Agreement" refers to the comprehensive agreement dated as of July 31, 2008 entered into by RBH and the Company with Her Majesty the Queen in Right of Canada and Her Majesty the Queen in Right of each of the Provinces of Canada in connection with the Settlement. "Court" refers to the Ontario Court of Justice.
"Bonds" refers to RBH's $150 million - 5.552% senior unsecured bonds, series A. "Support Agreement" refers to the support agreement dated as of July 31, 2008 pursuant to which an indirect wholly-owned subsidiary of PMI has made an offer to all Company shareholders to purchase all of the outstanding common shares of the Company for $30 per share in cash (referred to herein as the "Offer").
Non-GAAP Measures
This MD&A includes reference to certain supplementary non-GAAP financial measures - adjusted operating earnings, adjusted operating earnings per share and adjusted EBITDA margin - which are being included to provide information to investors regarding RBH's operating performance excluding the impact of the Settlement and certain expenses related to the Support Agreement. These measures are key metrics used by management in evaluating the performance of RBH's business on an ongoing basis.
Adjusted operating earnings and adjusted operating EPS refer to the loss and comprehensive loss and loss per share adjusted for the Settlement expense, the tax effected make-whole premium expense associated with the repayment of the Bonds, certain advisory expenses related to the Support Agreement and the minority interest for the 40% of RBH not owned by the Company.
Adjusted EBITDA margin refers to RBH's adjusted operating earnings before interest, taxes, depreciation and amortization as a percentage of sales, net of excise duty and taxes. EBITDA margin provides a metric allowing period-to-period comparisons of the core RBH operating performance before the impact of changes in capital structure, interest, taxes and capital spending and does not include income from investments earned by the Company or the expenses related to operating Rothmans Inc. as a public company.
Investors are cautioned that adjusted operating earnings, adjusted operating EPS and adjusted EBITDA margin do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. References to adjusted operating earnings, adjusted operating EPS and adjusted EBITDA margin should not be considered alternatives to earnings and comprehensive earnings or loss and earnings or loss per share as presented in the unaudited consolidated financial statements.
The following table provides a reconciliation of adjusted operating earnings and adjusted operating EPS to the relevant GAAP financial measure as presented in the unaudited consolidated financial statements.
Adjusted operating earnings and adjusted operating EPS
Three months ended June 30, 2008 (Loss)/earnings Per Share
(Loss)/earnings and comprehensive (loss)/ earnings for the period (354,360) (5.20) Adjustments to (loss)/earnings and comprehensive (loss)/earnings (net of taxes): Settlement expense (note 4) 415,000 6.09 Make-whole premium expenses (note 9) 6,123 0.09 Expenses related to the Support Agreement(x) 1,479 0.02 Minority interest(xx) (32,830) (0.48) Adjusted operating earnings and adjusted operating EPS 35,412 0.52
(x) Expenses related to the Support Agreement are additional advisory fees incurred relating to the Support Agreement with PMI (see note 18). (xx) Minority interest reflects operating earnings attributable to the 40% interest of RBH not owned by the Company.
Resolution of the RCMP Investigation
On July 31, 2008 the Company announced that an agreement had been reached with the Government of Canada and the governments of all ten provinces that resolved the RCMP's investigation relating to sales of products exported from Canada by RBH in the period 1989 - 1996. Under the terms of the Settlement, payments expected to total $550 million are to be made commencing in 2008 and over the next ten years. As part of the Settlement, RBH entered a plea of guilty to a single count of violating a provision of the Excise Act (Canada).