Rothmans delivers strong performance during the third quarter of fiscal 2008



    Trading: TSX: ROC

    TORONTO, Feb. 6 /CNW/ - Rothmans Inc. today announced strong results for
the third quarter and first nine months of fiscal 2008, which ended
December 31, 2007.
    Rothmans' earnings for the third quarter of fiscal 2008 were
$C29.4 million, or $0.43 basic earnings per share, compared with $24.1 million
or $0.35 basic earnings per share in the third quarter of fiscal 2007. For the
first nine months of this fiscal year, Rothmans' earnings were $96.6 million
or $1.42 basic earnings per share, compared with $81.7 million or $1.20 per
share for the first nine months of the prior fiscal year.
    Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of
excise duty and taxes, increased to $170.8 million in the most recent quarter
compared with $153.6 million in the third quarter of fiscal 2007. Sales in the
first nine months of this fiscal year were $527.9 million compared with
$481.7 million for the same period a year earlier.
    RBH's EBITDA margin for the third quarter was 49.8% compared with 53.3%
in the prior quarter and 46.4% in the quarter ended December 31, 2006. The
reduction in EBITDA margin from the prior quarter was mainly due to lower
shipment volumes and higher general and administrative expenses. The increase
in EBITDA margin over the prior year was predominantly due to the effect of
price increases across all product categories, partially offset by volume
shifts into the lowest priced tier of the cigarette price category and higher
general and administrative expenses.
    RBH shipped a total of 2.7 billion equivalent sticks into the domestic
market during the third quarter of fiscal 2008, unchanged from the same period
in fiscal 2007. For the nine months ended December 31, 2007, domestic
shipments were 8.4 billion equivalent sticks, compared with 8.3 billion
equivalent sticks in the comparable period of the prior year. Higher price
category cigarette volumes continued to offset declines in premium cigarette
and fine cut volumes.
    "RBH continued to deliver strong performance in the third quarter
compared to the prior year with increases in volumes shipped and strong
results in all significant financial measures," said John Barnett, President
and Chief Executive Officer of Rothmans Inc. and RBH. "This has been
accomplished despite variability in the growth rate of the cigarette price
category and an increase in contraband product which has significantly reduced
legitimate tax paid industry volumes."

    Outlook

    "RBH continues to have strong product offerings and we feel confident in
our ability to compete within the tax paid industry," said Mr. Barnett.
"Contraband however has not gone away and continues to weigh heavily on all
legitimate industry participants including RBH. Without concerted efforts by
governments to enforce existing laws, contraband tobacco products will likely
continue to be a significant problem in our country."

    Dividend declared

    The Board of Directors of Rothmans Inc. declared a quarterly dividend of
$0.35 per share payable on March 17, 2008 to shareholders of record at the
close of business on March 4, 2008.

    Analyst Conference Call and Webcast

    Rothmans Inc. management will hold a conference call with analysts to
discuss the third quarter results at 8:30 a.m. Toronto time on Wednesday,
February 6, 2008. In order to listen to the conference call, shareholders are
invited to call 1-866-226-1792 or 416-340-8010.
    The call will also be webcast through the Company's investor website,
www.rothmansinc.ca. At the completion of the conference call, a recording will
be available until February 14, 2008 by calling 1-800-408-3053 or 416-695-5800
and entering reservation number 3250341. The recording can also be accessed
through the investor website.
    Media are invited to listen to the call and to contact Karen Bodirsky at
(416) 442-3660 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 more than 750 people at its head office in Toronto, its sales offices
across Canada and its manufacturing facilities in Brampton, Ontario and Québec
City, Québec 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 fiscal quarter and nine months ended December 31, 2007
    --------------------------------------------------------------
    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 and
nine months ended December 31, 2007 compared with the same periods in 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 December 31, 2007, the
annual MD&A contained in the 2007 Annual Report and the audited annual
consolidated financial statements of the Company for the year ended March 31,
2007. 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 February 5, 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
Canadian 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 February 5, 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; the variability in the 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; and
dependence on the domestic tobacco market.
    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., and "EBITDA margin," a key measure of RBH's operating performance,
refers to RBH's "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. EBITDA margin is a non-GAAP financial
measure that does not have any standardized meaning prescribed by GAAP. It is
therefore unlikely to be comparable to similar measures presented by other
companies.
    The "recent quarter" refers to the three months ended December 31, 2007,
and "prior quarter" refers to the three months ended September 30, 2007.
"Fiscal 2008" or "recent fiscal year" refers to the fiscal year ending
March 31, 2008 and other similar references to a fiscal year (e.g., fiscal
2007) refer to the fiscal year then ended on March 31 (e.g., March 31, 2007).
    "The three major suppliers of tobacco products" or "three majors" refers
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" 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. "CTMC" refers to the Canadian Tobacco Manufacturers Council.

    New Accounting Pronouncements

    As required by The Canadian Institute of Chartered Accountants ("CICA"),
on April 1, 2007, the Company adopted CICA Handbook Section 3855 "Financial
Instruments - Recognition and Measurement", Section 3861 "Financial
Instruments - Disclosure and Presentation" and Section 1530 "Comprehensive
Income".
    Sections 3855 and 3861 prescribe when a financial asset, financial
liability, or non-financial derivative is to be recognized on the balance
sheet, and at what amount. These sections also specify how financial
instrument gains and losses are to be presented. The prospective adoption of
this new standard resulted in changes in the accounting and presentation for
financial instruments as well as the recognition of certain transitional
adjustments that have been recorded in opening retained earnings as described
in note 2. As required by the implementation of the new standard, the
comparative Interim Consolidated Financial Statements have not been restated.
    CICA Handbook Section 1530, "Comprehensive Income," introduces a new
requirement to temporarily present certain gains and losses outside net income
in other comprehensive income or loss. Refer to note 2 for more details.
    The implementation of these Handbook requirements did not have a material
impact on the financial results of the Company.
    The following are the new accounting standards the Company plans to adopt
effective fiscal year ending March 31, 2009. Management is evaluating the
standards and their impact on the Company's consolidated financial statements.
    The CICA Handbook Section 3031 "Inventories" prescribes the accounting
treatment for inventories. Specifically, the section provides guidance
relating to the accounting for inventories and revises and enhances the
requirements for assigning costs to inventories. Section 3031 applies to
interim and annual financial statements for fiscal years beginning on or after
January 1, 2008.
    CICA Handbook Section 1535 "Capital Disclosures" requires that an entity
disclose information that enables users of its financial statements to
evaluate an entity's objectives, policies and processes for managing capital,
including disclosures of any externally imposed capital requirements and the
consequences of non-compliance. This section applies to interim and annual
financial statements relating to fiscal years beginning on or after October 1,
2007.
    The new Sections 3862 and 3863 replace Handbook Section 3861 "Financial
Instruments - Disclosure and Presentation," revising and enhancing its
disclosure requirements, and carrying forward unchanged its presentation
requirements. These new sections place increased emphasis on disclosures about
the nature and extent of risks arising from financial instruments and how the
entity manages those risks. Sections 3862 and 3863 apply to interim and annual
financial statements for fiscal years beginning on or after October 1, 2007.

    Industry Overview

    In the absence of industry volumetric data previously shared through the
CTMC, RBH is unable to provide an accurate estimate of the recent quarter and
fiscal year-to-date tax paid industry volume. However, RBH management believes
that a number of factors continue to affect overall industry shipments,
including:

    
    -   Contraband - During the previous quarter, the CTMC released a study
        on the illicit usage of cigarettes in the Canadian marketplace. This
        study indicated that 22% of the national cigarette volume being
        purchased was contraband product; up from 16.5% found in a similar
        study conducted a year earlier. High taxes reflected in the selling
        price to the consumer contribute to probable increases in the
        presence of contraband product in the domestic market.

    -   Seasonal trends in consumer purchasing patterns - The period between
        April and September has demonstrated stronger shipments than the
        period between October and March. RBH management believes that
        smoking restrictions are causing consumer consumption variations
        between the summer and winter seasons.

    -   Fluctuations in wholesaler buying patterns - Swings in wholesaler
        purchasing patterns motivated by the timing of tax increases, price
        increases, manufacturer trade programs, manufacturer trade terms and
        other factors are anticipated to have a significant effect on
        quarter-to-quarter sales volumes.

    -   Continued declines in consumer consumption of tobacco products.
    

    During the first quarter of the current fiscal year, the Province of
Alberta raised its Provincial Tobacco Tax on cigarettes and fine cut products
by $5.00 per carton, or equivalent stick basis.
    Subsequent to the recent quarter end, on January 1, 2008, the federal
excise duty applicable to cigarettes, tobacco sticks and fine cut products was
raised by $0.59, $0.55 and $0.39 respectively, on a per carton or equivalent
stick basis, in order to offset the effect of the 1% GST reduction.

    Results at Rothmans, Benson & Hedges Inc.

    In the quarter ended December 31, 2007, RBH shipped a total of
2.7 billion equivalent sticks into the domestic market, unchanged from the
comparable period of the prior year, with increases in price category
cigarette volumes offsetting declines in premium cigarette and fine cut
volumes. In comparison to the prior quarter, third quarter volumes declined to
2.7 billion equivalent sticks from 2.8 billion equivalent sticks due to lower
volumes in the premium cigarette and price cigarette categories. Fiscal year
to date shipments were 8.4 billion equivalent sticks, compared to 8.3 billion
equivalent sticks in the nine months ended December 31, 2006. The higher
volume is attributable to increased price cigarette volumes mostly offset by
declines in premium cigarette and fine cut volumes. While in previous
reporting periods the rate of growth of the cigarette price category appeared
to moderate, more recently there has been variability in the rate of growth of
this category which management believes is attributable to competition within
the tax-paid industry at the lowest cigarette price tier.
    As previously disclosed, the industry no longer shares industry
volumetric data through the CTMC. Therefore, RBH no longer has access to
information on total tax paid industry volumes and is unable to accurately
estimate RBH's market share.
    RBH's recent quarter EBITDA margin was 49.8% compared with 46.4% in the
quarter ended December 31, 2006 and 53.3% in the quarter ended September 30,
2007. The lower recent quarter EBITDA margin compared with the prior quarter
was mainly due to lower shipment volumes and higher general and administrative
expenses. The increase in EBITDA margin over the prior year was predominantly
due to the effect of price increases across all product categories, partially
offset by volume shifts into the lowest priced tier of the cigarette price
category and higher general and administrative expenses.
    In the nine months ended December 31, 2007, RBH implemented various price
changes for its products. Most recently, in December 2007, RBH decreased the
price charged to wholesalers for its Accord brand price category cigarettes by
$1.98 per carton in Quebec and Ontario. This price reduction, in response to
competitive activity in the market, maintains RBH's commitment to remaining
competitive in the lowest cigarette price tier, where price sensitivity is
most prevalent.
    During the previous quarter, RBH increased the price on Mark Ten and
Canadian Classics price category brands by $1.00 per carton in Quebec and
Ontario, respectively. During the quarter ended June 30, 2007, RBH increased
the prices charged to wholesalers by $1.00 per carton for the Carreras,
Davidoff and ROOFTOP premium brands, $1.50 per carton for all other premium
brands and $1.00 per carton for all price category cigarettes other than the
Accord brand. Prices on fine cut products, cigars and pipe tobacco were
increased by varying amounts depending on format.
    During the recent quarter, RBH launched the internationally recognized
brand Parliament into the premium cigarette category in selected provinces.
    Effective July 30 2007, RBH implemented changes to its wholesale
distribution terms, moving from a 2% prompt payment discount to a
fee-for-service model nationally with the exception of Newfoundland and
Labrador where terms remain unchanged. This change in distribution terms has
had no material impact on distribution costs incurred since the change in
terms was implemented.

    Rothmans Inc. Financial Results

    Basic earnings per share were $0.43 in the recent quarter and $1.42 for
the nine months ended December 31, 2007 compared with $0.35 and $1.20 in the
comparable periods of the prior year.
    RBH's sales, net of excise duty and taxes in the recent quarter,
increased by $17.2 million to $170.8 million compared to the same period of
the prior year. Compared to the prior quarter, sales, net of excise duty and
taxes decreased by $8.9 million due to lower shipment volumes mainly as a
result of seasonality. For the nine months ended December 31, 2007, sales, net
of excise duty and taxes were $527.9 or $46.2 million higher than the
comparable period of the prior year. Increased volumes of RBH price category
cigarettes, together with price increases across all categories, more than
compensated for the impact of volume declines in premium cigarettes and fine
cut products and shifts into the cigarette price category.
    Investment income increased to $3.4 million in the recent quarter from
$2.6 million in the comparable period of the prior year due to the higher
average cash, cash equivalents and short-term investment balances held and a
higher rate of return experienced during the quarter ended December 31, 2007.
    Recent quarter operating costs increased to $87.1 million from
$83.3 million in the comparable period of the prior year mainly due to higher
general and administrative costs. For the fiscal year to date, operating costs
were $252.3 million compared with $244.0 million in the nine months ended
December 31, 2006 mainly attributable to higher general and administrative
costs including compensation related expenses.
    Income tax expense was $32.9 million in the recent quarter and
$107.3 million in the fiscal year to date, resulting in an effective tax rate
of 40.2% and 40.1% respectively. This compares with effective tax rates of
40.6% in both of the comparable periods of the prior fiscal year. The Company
expects its effective tax rate for fiscal 2008 will be 40.0%.

    Capability to Deliver Results

    Cash Flow

    RBH's operations generate significant cash resources. These are currently
sufficient to fund interest payments on RBH's long-term debt, capital
expenditures and dividends to its shareholders. Based on RBH's historical
earnings levels, the dividends received by Rothmans from RBH are expected to
be sufficient to fund its operations, pay dividends to its public shareholders
and continue to accumulate cash reserves.
    RBH's cash flow from operations before changes in working capital was
$58.9 million in the recent quarter and $179.2 million in the nine months
ended December 31, 2007 compared with $48.1 million and $150.9 million in the
same periods of the prior fiscal year. RBH's ability to generate cash from
operations is generally sufficient to fund the day-to-day financing needs of
RBH's business. It is anticipated that additional funds, should they be
required, would be obtained through short-term bank borrowings.
    During the recent quarter, the Company paid dividends of $23.8 million,
representing a dividend of $0.35 per share.

    Cash Resources

    Cash, cash equivalents and short-term investments of $230.7 million at
December 31, 2007 represented the consolidated cash resources of the Company
versus $172.2 million at March 31, 2007. The increase in cash, cash
equivalents and short-term investments is predominantly due to earnings from
RBH's operations and normal quarterly fluctuations in RBH's working capital
requirements. On a non-consolidated basis, Rothmans held cash, cash
equivalents and short-term investments of $157.0 million at December 31, 2007,
an increase from $120.8 million at March 31, 2007. This increase resulted from
dividends paid by RBH, and received by the Company, partially offset by the
payment of dividends by the Company.

    Critical Accounting Estimates

    The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the unaudited consolidated financial statements and accompanying notes.
Although these estimates are based on management's best knowledge of current
events and actions that the Company and RBH may undertake in the future,
actual results could differ from these estimates. Other than as discussed
below, there are no critical accounting estimates that require disclosure or
discussion in this report.

    Employee Future Benefits

    The actuarial assumptions used to determine the benefit obligation and
associated expense of RBH's various defined benefit pension plans and other
benefits were not adjusted in the recent quarter. Therefore, the discount
rate, the expected return on plan assets and other assumptions remain as
described in the annual MD&A for the year ended March 31, 2007.

    Compensation Plans

    RBH has several incentive based compensation plans that require the
Company to make estimates and assumptions of future financial and operating
performance to estimate the ultimate amounts payable under these plans.
Changes in estimates of future financial and operating performance could
result in material adjustments to amounts recognized in the financial
statements.

    Litigation Contingent Liabilities

    As discussed in the annual MD&A for the year ended March 31, 2007, the
Company and RBH have been the subjects of various legal actions, proceedings,
investigations and claims. Based on the stage of those proceedings, management
is unable to meaningfully estimate the liability, if any, that might result
from claims or investigations and neither the Company nor RBH has accrued for
potential liabilities. However, the outcome of any claims, proceedings or
investigations is uncertain. These claims, potential claims or investigations
if decided unfavourably against the Company or RBH or if settled, either
individually or in the aggregate, could involve significant damages or
payments, which would have a significant adverse effect on the financial
condition of the Company and which, in the case of an adverse judgment, the
Company and RBH may not have the resources to satisfy.

    Risks and Uncertainties

    Various legal actions, proceedings, claims and investigations arising out
of the sale, distribution, manufacture, development, advertising and marketing
of tobacco products are pending, have been threatened or may be instituted
against the Company and RBH. These actions, claims, proceedings and
investigations, both pending and threatened, are described in note 14 to the
audited annual consolidated financial statements of the Company for the year
ended March 31, 2007 and in note 9 to the interim unaudited consolidated
financial statements for the nine months ended December 31, 2007. Other than
as described below, there have been no developments of a material nature
during the fiscal year-to-date concerning these matters.
    As previously disclosed, RBH is currently the subject of an ongoing
investigation by the RCMP relating to RBH's sales of products exported from
Canada in the period 1989-1996. This investigation, of which RBH was notified
in January 2002, is related to allegations that tobacco products manufactured
and exported by RBH were illegally smuggled back into Canada during this
period without payment of applicable excise and tobacco taxes and duties. In
February 2003, the RCMP filed criminal charges against another Canadian
tobacco products supplier and certain of its related parties alleging
violations of the Criminal Code (Canada) in connection with the sale and
export of tobacco products during the early 1990s. The preliminary hearing
concluded in 2006. In May 2007, the Ontario Court of Justice ordered that
company and its former chief executive officer to stand trial. Charges against
six other executives were dismissed. All parties, other than that company, are
seeking judicial review of the judge's decision. In September 2004, this other
manufacturer was granted protection under the Companies' Creditors Arrangement
Act (Canada) and since that time claims aggregating approximately $10 billion
have been made against that company relating to unpaid taxes and duties on
that company's export sales of tobacco products during the early 1990s.
Although no action has been commenced and no charges laid against the Company
or RBH or any of their present or former employees, officers or directors, the
Company and RBH believe that the RCMP and federal and provincial governments
are contemplating laying charges or commencing other legal proceedings
involving the Company or RBH and certain of their employees, officers and
directors relating to or arising from these allegations.
    As previously disclosed, in January 2001 the Province of British Columbia
initiated a lawsuit in the Supreme Court of British Columbia against RBH, the
Company and numerous other Canadian and international tobacco companies and
various tobacco trade associations seeking unspecified damages in an amount to
cover the costs that allegedly have been, or will be, incurred by the
Government of British Columbia in providing health care benefits to British
Columbia residents who have allegedly suffered smoking-related illnesses. The
action was brought pursuant to the Tobacco Damages and Health Care Costs
Recovery Act (British Columbia). A motion brought by the federal government is
scheduled to be heard in March 2008. The federal government is seeking to
strike out a third party notice which would make the federal government a
party to the lawsuit. The Company was advised in September 2007 that the trial
is currently scheduled for the fall of 2010.
    As previously disclosed, in June 2006 the Province of New Brunswick
passed the Tobacco Damages and Health Care Costs Recovery Act. In September
2007, this Province announced that it had retained a consortium of lawyers on
a contingency fee basis to act for it in a proposed action against tobacco
product manufacturers to recover health care costs that allegedly have been,
or will be, incurred by the Province in respect of alleged smoking-related
illnesses.
    As previously disclosed, the three majors challenged the
constitutionality of the Tobacco Act (Canada) which was enacted by the federal
government in 1997. In June 2007, the Supreme Court of Canada issued its
decision on the constitutionality of the Tobacco Act (Canada), allowing the
appeals of the federal government and dismissing the cross appeals of the
three major suppliers of tobacco products. Essentially, the Supreme Court of
Canada ruled that the legislative and regulatory provisions at issue, when
properly interpreted, were constitutionally valid.
    It is not possible to predict the outcome of legal claims or
investigations, pending and future, against the Company or RBH. Legal
proceedings and investigations are subject to many uncertainties, and it is
possible that there will be adverse developments in the claims and
investigations pending against the Company and RBH or that these claims and
investigations, and any potential future claims and investigations, could be
decided unfavourably against the Company and RBH. The Company and RBH may also
decide to settle current or future claims or investigations if it is believed
to be in the best interests of the Company and RBH. An unfavourable outcome or
settlement could involve significant damages or significant monetary payments
that would have a significant adverse effect on the financial condition of the
Company and which, in the case of an adverse judgment, the Company and RBH may
not have the resources to satisfy.
    In January 2008 Canada Revenue Agency announced that a federal tobacco
stamping regime which would be applicable to all Canadian tobacco product
manufacturers is proposed to be implemented in the summer of 2008. The new
regime would require prescribed stamps to be applied to tobacco products which
indicate that applicable excise duty has been paid. RBH is currently
discussing these and other anti-contraband measures with government
authorities. The impact of compliance with the new stamping requirements and
other anti-contraband measures and implementing the necessary plant equipment
upgrades within the announced implementation time frame, including anticipated
increased operating costs, cannot be determined by RBH until such time as
details of the new requirements have been finalized.
    In November 2007, the Province of Alberta passed the Tobacco Reduction
Act. This Act will, among other things, ban the display, promotion, and
advertising of tobacco products in any place where tobacco is sold. The
effective date for the ban is July 1, 2008.
    In November 2007, the Province of British Columbia introduced amendments
to the Tobacco Control Act. The amendments, which take effect March 31, 2008,
include a ban on the display and advertising of tobacco products in all places
where tobacco products are sold that are accessible to youth under nineteen
(19) years of age.
    Additional information concerning legal matters affecting the Company and
RBH are contained in the Company's filings with securities regulatory
authorities including the Company's 2007 Annual Report and 2007 Annual
Information Form (in particular under "Legal Proceedings") which can be
accessed at www.sedar.com or on the Company's website at www.rothmansinc.ca

    Outlook

    It is believed that the presence of contraband remains a key factor in
affecting both RBH and total tax-paid industry volumes. Continued availability
of contraband product in the domestic market as a result of high tobacco tax
rates across the country may cause further declines in tax-paid industry
volumes in the future resulting in a negative impact on RBH's sales volumes.
    Competition by each of the three major suppliers of tobacco products in
the cigarette price category has led to substantial growth of that category in
recent years, and there continues to be a significant degree of variability in
the underlying business trends, making it difficult to accurately estimate the
impact on consumer purchasing patterns.
    Looking ahead, Rothmans expects that a number of factors could affect its
financial performance including:

    
    -   the success of efforts by the Company and RBH to defend themselves
        against legal claims and investigations and the outcome or settlement
        of such claims and investigations that are ongoing or may arise in
        the future;

    -   increased levels of contraband product that may occur due to the high
        tax environment;

    -   the impact of continued high levels of taxation on consumer
        purchasing patterns;

    -   the variability in the rate of growth of the cigarette price category
        and RBH's ability to successfully compete in that segment;

    -   price competition within the lowest price tier of the cigarette price
        category;

    -   continued declines in the consumption of tobacco products;

    -   RBH's ability to continue to implement price increases for its
        products;

    -   RBH's ability to compete successfully in the premium cigarette
        category;

    -   the continued volatility in the cigarette market as a result of the
        evolution of the Canadian cigarette price category, varying
        wholesaler purchasing patterns and seasonal fluctuations in smoker
        consumption;

    -   the impact of continued restrictive legislation and regulations over
        the sale of tobacco products including legislation banning the
        display of tobacco products in retail stores;

    -   RBH's ability to maintain its leading position in the fine cut
        segment;

    -   government tax policy regarding the differentiation in tax rates
        applicable to fine cut products in comparison to tailor-made
        cigarettes; and

    -   RBH's continued success in maintaining or reducing costs, especially
        in view of the potential for regulated changes to product
        specifications including the proposed new tobacco stamping regime
        recently announced by Canada Revenue Agency.



    Interim Consolidated Statements of Earnings and Retained Earnings


                                    Three months ended     Nine months ended
    (In thousands of dollars,           December 31           December 31
     except per share amounts)        2007       2006       2007       2006
    -------------------------------------------------------------------------

    EARNINGS
    Revenues:
    Sales, net of excise duty
     and taxes                      170,822    153,606    527,925    481,729
    Investment income                 3,406      2,570      9,181      6,844
                                   ------------------------------------------
    Total revenues                  174,228    156,176    537,106    488,573

    Costs:
    Operating costs excluding
     amortization                    87,055     83,283    252,291    244,047
                                   ------------------------------------------
    Earnings before interest,
     income taxes, amortization
     and minority interest           87,173     72,893    284,815    244,526

    Amortization                      2,856      3,292      9,619      9,124
    Interest expense (income)
      - Long-term debt                2,094      2,094      6,268      6,269
      - Other                           424         22        969         (4)
                                   ------------------------------------------

    Earnings before income taxes
     and minority interest           81,799     67,485    267,959    229,137

    Income taxes
      - Current                      32,038     27,083    105,800     91,697
      - Future                          838        321      1,532      1,439
                                   ------------------------------------------
    Total income taxes               32,876     27,404    107,332     93,136
                                   ------------------------------------------
    Earnings before minority
     interest                        48,923     40,081    160,627    136,001

    Minority interest                19,513     15,954     64,043     54,286
                                   ------------------------------------------
    Earnings for the period          29,410     24,127     96,584     81,715
                                   ------------------------------------------
                                   ------------------------------------------
    Earnings per common share
     (note 3)
      - Basic                          0.43       0.35       1.42       1.20
                                   ------------------------------------------
                                   ------------------------------------------
      - Diluted                        0.43       0.35       1.41       1.19
                                   ------------------------------------------
                                   ------------------------------------------

    RETAINED EARNINGS
    Balance at beginning of
     period                         113,325     85,292     86,645     68,513
    Transitional adjustment on
     adoption of new accounting
     policies (note 2)                    -          -        344          -
                                   ------------------------------------------
    Balance at beginning of
     period as restated             113,325     85,292     86,989     68,513
    Earnings for the period          29,410     24,127     96,584     81,715
                                   ------------------------------------------
                                    142,735    109,419    183,573    150,228
    Dividends paid:
      Common Shares -               (23,822)   (20,410)   (64,660)   (61,219)
      (Q3 2008 - $0.35 per share)
      (Q3 2007 - $0.30 per share)
                                   ------------------------------------------
    Balance at end of period        118,913     89,009    118,913     89,009
                                   ------------------------------------------
                                   ------------------------------------------

    Rothmans Inc. and subsidiary companies (unaudited)



    Interim Consolidated Balance Sheets

                                                            As at      As at
                                                      December 31   March 31
    (In thousands of dollars)                                2007       2007
    -------------------------------------------------------------------------

    ASSETS
    Current Assets
    Cash and cash equivalents                             108,167     75,228
    Short-term investments                                122,562     96,987
    Accounts receivable                                     4,827      8,851
    Inventories                                           180,897    201,637
    Prepaid expenses                                        1,828      1,969
    Future income taxes                                     9,883      3,418
                                                         --------------------
    Total current assets                                  428,164    388,090

    Property, plant and equipment                          69,591     71,023
    Future income taxes                                     2,990     11,339
    Prepaid pension benefit cost                           18,318     12,958
    Long-term debt deferred financing charges                   -      1,102
    Other assets                                            1,380      1,415
                                                         --------------------
                                                          520,443    485,927
                                                         --------------------
                                                         --------------------
    LIABILITIES
    Current Liabilities
    Accounts payable and accrued liabilities               58,565     38,067
    Excise and other taxes payable                         59,729     69,471
    Income taxes payable                                   31,956     31,939
                                                         --------------------
    Total current liabilities                             150,250    139,477

    Other long-term liabilities                             9,530     17,735
    Other employee future benefits                         37,024     35,915
    Long-term debt                                        148,897    149,794
    Minority interest in subsidiary company                 8,101      8,828
                                                         --------------------
                                                          353,802    351,749
                                                         --------------------

    SHAREHOLDERS' EQUITY
    Capital stock (note 5)                                 47,728     47,533
    Retained earnings (note 2)                            118,913     86,645
                                                         --------------------
    Total shareholders' equity                            166,641    134,178
                                                         --------------------
                                                          520,443    485,927
                                                         --------------------
                                                         --------------------

    Rothmans Inc. and subsidiary companies (unaudited)



    Interim Consolidated Statements of Cash Flows


                                    Three months ended     Nine months ended
                                        December 31           December 31
    (In thousands of dollars)         2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash provided by (used in):

    OPERATING ACTIVITIES
    Earnings for the period          29,410     24,127     96,584     81,715
    Adjusted for non-cash items:
    Amortization of property,
     plant and equipment              2,856      3,223      9,619      8,919
    Amortization of financing
     charges and bond discount            -         69          -        205
    Non-cash interest expense           407          -        942          -
    Minority interest                19,513     15,954     64,043     54,286
    Future income taxes                 838        321      1,532      1,439
    Gain on disposal of property,
     plant & equipment                 (431)      (244)      (412)      (242)
    Defined & other employee
     future benefits expense          3,087      1,517      6,687      4,359
    Defined & other employee
     future benefits funding           (494)      (493)   (10,938)    (5,372)
    Long-term incentive plan          4,571      4,168     12,569      6,610
                                   ------------------------------------------
                                     59,757     48,642    180,626    151,919

    Changes in non-cash operating
     working capital (note 4)         2,405    (40,173)    13,108      2,151
                                   ------------------------------------------
                                     62,162      8,469    193,734    154,070
                                   ------------------------------------------

    INVESTING ACTIVITIES
    Additions to property,
     plant & equipment, net          (3,429)      (823)    (7,775)    (6,277)
    Proceeds on disposal of
     short-term investments        (122,562)   (96,987)   (23,780)   (15,120)
                                   ------------------------------------------
                                   (125,991)   (97,810)   (31,555)   (21,397)
                                   ------------------------------------------

    FINANCING ACTIVITIES
    Dividends paid -
      By the Company                (23,822)   (20,410)   (64,660)   (61,219)
      By a subsidiary company
       to minority shareholder      (19,200)   (16,960)   (65,000)   (65,961)
    Proceeds on issuance of
     common shares                        -         83        195      2,096
                                   ------------------------------------------
                                    (43,022)   (37,287)  (129,465)  (125,084)
                                   ------------------------------------------

    Increase (decrease) in cash
     and cash equivalents during
     the period                    (106,851)  (126,628)    32,714      7,589
    Cash and cash equivalents at
     beginning of period, after
     adjustment (note 2)            215,018    182,581     75,453     48,364
                                   ------------------------------------------
    Cash and cash equivalents
     at end of period               108,167     55,953    108,167     55,953
                                   ------------------------------------------
                                   ------------------------------------------

    Supplementary Disclosures (note 4)

    Rothmans Inc. and subsidiary companies (unaudited)



    Notes to the Interim Consolidated Financial Statements (Unaudited)
    (Tabular amounts are in thousands of dollars, except for share and per
    share data or as otherwise indicated)

    1.  Summary of Significant Accounting Policies

        The interim unaudited consolidated financial statements of Rothmans
        Inc. (the "Company") have been prepared in accordance with Canadian
        generally accepted accounting principles. The note disclosure in
        these interim unaudited consolidated financial statements includes
        only material changes from the disclosure found in the Company's
        annual audited consolidated financial statements for the year ended
        March 31, 2007. Therefore, these interim unaudited consolidated
        financial statements and notes should be read in conjunction with
        those statements. These interim unaudited consolidated financial
        statements follow the same accounting policies as the Company's
        audited annual consolidated financial statements, except as described
        in note 2.

    2.  Change in Accounting Policies

        Effective April 1, 2007, the Company adopted The Canadian Institute
        of Chartered Accountants ("CICA") Handbook Section 1530,
        "Comprehensive Income" Section 3855, "Financial Instruments -
        Recognition and Measurement" and Section 3861, "Financial Instruments
        - Disclosure and Presentation." The prospective adoption of these new
        standards resulted in changes in the accounting and presentation for
        financial instruments and the recognition of certain transitional
        adjustments that have been recorded in opening retained earnings as
        described below. There was no change resulting from the adoption of
        these standards that required the Company to record other
        comprehensive income. The principal changes in the accounting for
        financial instruments due to the adoption of these accounting
        standards are described below. As required by the standards, the
        comparative Interim Consolidated Financial Statements (unaudited)
        have not been restated.

        (a)  Section 3855 "Financial Instruments - Recognition and
             Measurement"
             Section 3861 "Financial Instruments - Disclosure and
             Presentation"

        Under the new standards, financial assets and financial liabilities
        are initially recognized at fair value and their subsequent
        measurements are dependent on their classification as described
        below. Their classification depends on the purpose, for which the
        financial instruments were acquired or issued, their characteristics
        and the Company's designation of such instruments. The standards
        require that all financial assets be classified either as held-for-
        trading ("HFT"), available-for-sale ("AFS"), held-to-maturity ("HTM")
        or as loans and receivables. The standards require that all financial
        assets, including all derivatives be measured at fair value with the
        exception of loans and receivables, assets classified as HTM and AFS
        financial assets that do not have quoted market prices in an active
        market.

        Classification of financial instruments

        The following is a summary of the assets and liabilities the Company
        evaluated and the accounting policy elected to apply to its
        significant categories of financial instruments outstanding as of
        April 1, 2007:

           Cash                                Designated as held-for-trading
           Cash equivalents and short-term     Designated as held-to-maturity
            investments                         or held-for-trading
           Accounts receivable                 Loans and receivables
           Accounts payable and accrued        Other liabilities
            liabilities
           Excise tax and other taxes payable  Other liabilities
           Other long-term liabilities         Designated as held-to-maturity
           Long-term debt                      Designated as held-to-maturity

        Held-for-trading

        HFT financial assets are financial assets typically acquired for
        resale prior to maturity. They are measured at fair value at the
        balance sheet date. Interest earned and accrued is included in
        investment income. The Company designated cash as HFT and it is
        measured at fair value as at the consolidated balance sheet date.
        Short-term investments are classified as held-to-maturity or
        held-for-trading depending on their nature and the Company's intent.
        Portfolio equity instruments that are quoted in an active market are
        designated as held-for-trading and are accounted for at fair value.
        There was no adjustment resulting from this designation.

        Held-to-maturity

        HTM financial assets are non-derivative financial assets with fixed
        or determinable payments and a fixed maturity when the Company has
        the intention and the ability to hold these financial assets to
        maturity. These financial assets are measured at amortized cost.
        Short-term investments are classified as held-to-maturity or
        held-for-trading depending on their nature and the Company's intent.
        Short-term investments in debt securities are designated as held-to-
        maturity and are accounted for at amortized cost. As at the
        consolidated balance sheet date, interest income receivable of
        $0.9 million was included in cash equivalents.

        Other long-term liabilities are designated as held-to-maturity and
        accounted for at amortized cost. These liabilities are initially
        recognized at fair value and subsequently accounted for at amortized
        cost. The transitional adjustment reducing other long-term
        liabilities amounted to $0.9 million at the date of adoption. The
        adjustment reducing other long-term liabilities for the period ended
        December 31, 2007 amounted to $0.3 million.

        Available-for-sale

        AFS financial assets are those non-derivative financial assets that
        are designated as AFS financial assets, or that are not classified as
        loans and receivables, HTM investments or HFT financial assets. AFS
        financial assets are carried at fair value with unrealized gains and
        losses to be included in other comprehensive income until realized
        when the cumulative gain or loss is recognized in earnings. The
        Company has not designated any financial assets as AFS.

        Loans and receivables

        Loans and receivables are accounted for at amortized cost.

        Other liabilities

        Other liabilities are recorded at amortized cost.

        Transaction costs

        Transaction costs related to HTM financial assets and liabilities are
        netted against the carrying value of the liability and then amortized
        over the expected life of the instrument using the effective interest
        method. The deferred financing charges relating to the Company's
        long-term debt issue were reclassified to the carrying value of the
        long-term debt at the date of adoption.

        Embedded derivatives

        Derivatives embedded in other financial instruments or contracts are
        separated from their host contracts and accounted for as derivatives
        when their economic characteristics and risks are not closely related
        to those of the host contract. Embedded derivatives are measured at
        fair value with changes in fair value recognized in earnings. The
        Company does not currently have any outstanding contracts with
        embedded derivatives.

        Determination of fair value

        The fair value of a financial instrument is the amount of
        consideration that would be agreed between parties. The fair value of
        a financial instrument on initial recognition is the transaction
        amount given or received. Subsequent to initial recognition, the fair
        values of financial instruments that are quoted in active markets are
        based on bid prices for financial assets held and offer prices for
        financial liabilities. When independent prices are not available, the
        fair values are determined using valuation techniques using
        observable market data of similar instruments, discounted cash flow
        analysis and other valuation techniques commonly used by market
        participants. A number of factors such as bid-offer spread and credit
        profile are taken into account, as appropriate, when values are
        calculated using valuation techniques.

        (b) Section 1530 "Comprehensive Income"

        The Company determined that as at the date of adoption and for the
        year-to-date ended December 31, 2007 there were no material gains or
        losses that would be recorded in other comprehensive income or loss.

        Transitional adjustments

        The impact of adopting these standards as at April 1, 2007 is as
        follows:

                                             As at                     As at
                                          March 31,                  April 1,
                                              2007   Adjustment         2007
                                              ----   ----------         ----
        Assets
        Cash and cash equivalents           75,228          225       75,453
        Short-term investments              96,987        1,795       98,782
        Accounts receivable                  8,851       (2,020)       6,831
        Long-term debt deferred
         financing charges                   1,102       (1,102)           -
        Future income taxes - long-term     11,339         (352)      10,987

        Liabilities
        Other long-term liabilities         17,735         (926)      16,809
        Long-term debt                     149,794       (1,102)     148,692
        Minority interest                    8,828          230        9,058

        Shareholders' Equity
        Retained earnings                   86,645          344       86,989


        The following are the new accounting standards the Company plans to
        adopt effective fiscal year ending March 31, 2009. Management is
        evaluating the standards and their impact on the Company's
        consolidated financial statements.

        The CICA Handbook Section 3031 "Inventories" prescribes the
        accounting treatment for inventories. Specifically, the section
        provides guidance relating to the accounting for inventories and
        revises and enhances the requirements for assigning costs to
        inventories. Section 3031 applies to interim and annual financial
        statements for fiscal years beginning on or after January 1, 2008.

        CICA Handbook Section 1535 "Capital Disclosures" requires that an
        entity disclose information that enables users of its financial
        statements to evaluate an entity's objectives, policies and processes
        for managing capital, including disclosures of any externally imposed
        capital requirements and the consequences of non-compliance. This
        section applies to interim and annual financial statements relating
        to fiscal years beginning on or after October 1, 2007.

        The new Sections 3862 and 3863 replace Handbook Section 3861
        "Financial Instruments - Disclosure and Presentation," revising and
        enhancing its disclosure requirements, and carrying forward unchanged
        its presentation requirements. These new sections place increased
        emphasis on disclosures about the nature and extent of risks arising
        from financial instruments and how the entity manages those risks.
        Sections 3862 and 3863 apply to interim and annual financial
        statements for fiscal years beginning on or after October 1, 2007.

    3.  Earnings per Common Share

        Earnings per common share are calculated based on the weighted
        average number of common shares outstanding, the dilution being due
        to issued common share options.

                                                         Basic       Diluted
        ---------------------------------------------------------------------
        Nine months ended:
          December 31, 2007                         68,058,657    68,517,850
          December 31, 2006                         67,990,311    68,389,491

        Three months ended:
          December 31, 2007                         68,063,808    68,582,439
          December 31, 2006                         68,026,183    68,440,143


    4.  Supplementary Cash Flow Disclosures

        (a) Changes in non-cash operating working capital:

                                    Three months ended     Nine months ended
                                        December 31           December 31
                                      2007       2006       2007       2006
        ---------------------------------------------------------------------
        Accounts receivable             648       (243)     2,004        927
        Prepaid expenses                773        849        141        (73)
        Inventories                   7,087    (19,749)    20,740      5,109
        Other assets                     49        (11)        35         99
        Accounts payable and
         accrued liabilities            349        687        (87)    (2,255)
        Excise and other taxes
         payable                    (11,681)   (25,733)    (9,742)    (6,889)
        Income taxes payable          5,180      4,027         17      5,233
        ---------------------------------------------------------------------
                                      2,405    (40,173)    13,108      2,151
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (b) Other

                                    Three months ended     Nine months ended
                                        December 31           December 31
                                      2007       2006       2007       2006
        ---------------------------------------------------------------------
        Income taxes paid            26,859     23,055    105,783     86,631
        Interest paid:
        - Long-term debt              4,164      4,164      8,328      8,328
        - Other                          26         41         71         82


    5.  Capital Stock

        Authorized:  An unlimited number of common shares
        Issued:      68,063,808 (March 31, 2007 - 68,038,008) common shares

                                                      December 31   March 31
        (in thousands of dollars)                            2007       2007
        ---------------------------------------------------------------------
        Balance at beginning of period, April 1            47,533     45,347
        Issuance of shares                                    195      2,186
        ---------------------------------------------------------------------
        Balance at end of period                           47,728     47,533
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        In the third quarter of fiscal 2008, no shares (2007 - 11,000) were
        issued due to the exercise of stock options.

    6.  Share Option Plan

        A summary of the status of the Company's employee stock option plan
        as at the periods ended December 31, 2007 and December 31, 2006 and
        changes during the periods ended on those dates are presented below:

        ---------------------------------------------------------------------
                                         Three months ended December 31

                                          2007                   2006
        ---------------------------------------------------------------------
                                             Weighted               Weighted
                                              average                average
                                             exercise               exercise
        Options                      Shares     price       Shares     price
        ---------------------------------------------------------------------
        Outstanding at beginning
         of period                1,282,600    14.359    1,325,400    14.278
        Exercised                         -         -      (11,000)   11.500
        ---------------------------------------------------------------------
        Outstanding at end
         of period                1,282,600    14.359    1,314,400    14.301
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Options exercisable at
         period end               1,282,600    14.359    1,314,400    14.301
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                         Nine months ended December 31

                                          2007                   2006
        ---------------------------------------------------------------------
                                             Weighted               Weighted
                                              average                average
                                             exercise               exercise
        Options                      Shares     price       Shares     price
        ---------------------------------------------------------------------
        Outstanding at beginning
         of period                1,308,400    14.291    1,490,800    14.301
        Exercised                   (25,800)   10.878     (176,400)   14.301
        ---------------------------------------------------------------------
        Outstanding at end
         of period                1,282,600    14.359    1,314,400    14.301
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Options exercisable at
         period end               1,282,600    14.359    1,314,400    14.301
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Under the current share option plan as at December 31, 2007, a total
        of 181,800 (2007 - 181,800) common shares were issuable. Given the
        limited number of common shares available for issuance under the
        Option Plan, the annual grant of options was discontinued effective
        fiscal 2006. No options were forfeited during the period.

        The following table summarizes information about stock options
        outstanding as at December 31, 2007:

                                               Weighted average
                                       Number         remaining       Number
        Range of exercise price   outstanding  contractual life  exercisable
        ---------------------------------------------------------------------
        $8.825(1)                       3,000               2.6        3,000
        $11.500(1)                    143,000               3.4      143,000
        $12.320(2)                    315,600               5.4      315,600
        $14.080(1)                    261,400               3.8      261,400
        $16.125(1)                    248,000               4.4      248,000
        $16.620(2)                    311,600               6.4      311,600
        ---------------------------------------------------------------------
                                    1,282,600                      1,282,600
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Entitled upon exercise to a payment of $4.00 per share (amount
            equal to special dividends paid since date of option grant).
        (2) Entitled upon exercise to a payment of $1.50 per share (amount
            equal to special dividends paid since date of option grant).


    7.  Employee Future Benefits Expenses

        The Company's defined benefit pension plan and other benefits
        expenses are as follows:

                                      Three months ended   Nine months ended
                                          December 31         December 31
        (in thousands of dollars)        2007      2006      2007      2006
        ---------------------------------------------------------------------
        Defined benefit plan expenses
          Pension benefit plans          2,019       679     3,858     1,842
          Other benefits                 1,068       838     2,829     2,517
        ---------------------------------------------------------------------
                                         3,087     1,517     6,687     4,359
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company's defined contribution pension plan expenses in the
        quarter and year-to-date for fiscal year 2008 were $0.8 million and
        $2.6 million, consistent with the same periods of the prior fiscal
        year.

    8.  Seasonality

        The period between April and September has demonstrated stronger
        industry shipments than the period between October and March. This
        seasonality is likely due to smoking restrictions that are causing
        consumption variations between summer and winter seasons.

    9.  Litigation, Claims and Contingencies

        The Company and RBH are subject to a number of claims and potential
        claims, investigations and legislation, the nature and extent of
        which has been described in note 14 to the audited annual
        consolidated financial statements of the Company for the year ended
        March 31, 2007. Other than as described below, there have been no
        developments of a material nature during the fiscal year-to-date
        concerning these matters.

        As previously disclosed, RBH is currently the subject of an ongoing
        investigation by the RCMP relating to RBH's sales of products
        exported from Canada in the period 1989-1996. This investigation, of
        which RBH was notified in January 2002, is related to allegations
        that tobacco products manufactured and exported by RBH were illegally
        smuggled back into Canada during this period without payment of
        applicable excise and tobacco taxes and duties. In February 2003, the
        RCMP filed criminal charges against another Canadian tobacco products
        supplier and certain of its related parties alleging violations of
        the Criminal Code (Canada) in connection with the sale and export of
        tobacco products during the early 1990s. The preliminary hearing
        concluded in 2006. In May 2007, the Ontario Court of Justice ordered
        that company and its former chief executive officer to stand trial.
        Charges against six other executives were dismissed. All parties,
        other than that company, are seeking judicial review of the judge's
        decision. In September 2004, this other manufacturer was granted
        protection under the Companies' Creditors Arrangement Act (Canada)
        and since that time claims aggregating approximately $10 billion have
        been made against that company relating to unpaid taxes and duties on
        that company's export sales of tobacco products during the early
        1990s. Although no action has been commenced and no charges laid
        against the Company or RBH or any of their present or former
        employees, officers or directors, the Company and RBH believe that
        the RCMP and federal and provincial governments are contemplating
        laying charges or commencing other legal proceedings involving the
        Company or RBH and certain of their employees, officers and directors
        relating to or arising from these allegations.

        As previously disclosed, in January 2001, the Province of British
        Columbia initiated a lawsuit in the Supreme Court of British Columbia
        against RBH, the Company and numerous other Canadian and
        international tobacco companies and various tobacco trade
        associations seeking unspecified damages in an amount to cover the
        costs that allegedly have been, or will be, incurred by the
        Government of British Columbia in providing health care benefits to
        British Columbia residents who have allegedly suffered smoking-
        related illnesses. The action was brought pursuant to the Tobacco
        Damages and Health Care Costs Recovery Act (British Columbia). A
        motion brought by the federal government is scheduled to be heard in
        March 2008. The federal government is seeking to strike out a third
        party notice which would make the federal government a party to the
        lawsuit. The Company was advised in September 2007 that the trial is
        currently scheduled for the fall of 2010.

        As previously disclosed, in June 2006 the Province of New Brunswick
        passed the Tobacco Damages and Health Care Costs Recovery Act. In
        September 2007, this Province announced that it had retained a
        consortium of lawyers on a contingency fee basis to act for it in a
        proposed action against tobacco product manufacturers to recover
        health care costs that allegedly have been, or will be, incurred by
        the Province in respect of alleged smoking-related illnesses.

        It is not possible to predict the outcome of legal claims or
        investigations, pending and future, against the Company or RBH. Legal
        proceedings and investigations are subject to many uncertainties, and
        it is possible that there will be adverse developments in the claims
        and investigations pending against the Company and RBH or that these
        claims and investigations, and any potential future claims and
        investigations, could be decided unfavourably against the Company and
        RBH. The Company and RBH may also decide to settle current or future
        claims or investigations if it is believed to be in the best
        interests of the Company and RBH. An unfavourable outcome or
        settlement could involve significant damages or significant monetary
        payments that would have a significant adverse effect on the
        financial condition of the Company, and which, in the case of an
        adverse judgment, the Company and RBH may not have the resources to
        satisfy.

        Additional information concerning legal matters affecting the Company
        and RBH are contained in the Company's filings with securities
        regulatory authorities including the Company's 2007 Annual Report and
        2007 Annual Information Form (in particular under "Legal
        Proceedings") which can be accessed at www.sedar.com or on the
        Company's website at www.rothmansinc.ca.

    10. Comparative Figures

        Certain comparative figures have been reclassified to conform to the
        presentation adopted in the current period.
    





For further information:

For further information: Investor contact: Mike Frater, Vice President
Finance & CFO, (416) 442-3659; Media contact: Karen Bodirsky, Director,
Corporate and Public Affairs, (416) 442-3660

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ROTHMANS INC.

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