<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file number 1-10307
IMPERIAL HOLLY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Imperial Square, Suite 200, P.O. Box 9, Sugar Land, Texas 77487
(Address of principal executive offices, including Zip Code)
(713) 491-9181
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of February 2, 1994.
10,250,295 shares.
Exhibit Index Appears on Page 13
Page 1 of 14 Pages
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IMPERIAL HOLLY CORPORATION
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statement of Changes in
Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
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PART I - FINANCIAL INFORMATION
<TABLE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31, 1993 March 31, 1993
_________________ ______________
ASSETS (In Thousands of Dollars)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments $ 2,314 $ 9,405
Marketable securities 22,266 22,148
Accounts receivable 37,440 47,312
Inventories:
Finished products 133,224 99,365
Raw and in-process materials 57,542 19,629
Supplies 12,034 12,926
Manufacturing costs prior to production 6,519 17,105
Prepaid expenses 5,196 4,495
________ ________
Total current assets 276,535 232,385
OTHER INVESTMENTS 6,559 6,799
PROPERTY, PLANT AND EQUIPMENT 266,420 260,382
Less accumulated depreciation (123,250) (112,144)
________ ________
Property, plant and equipment, net 143,170 148,238
OTHER ASSETS 10,459 10,780
________ ________
TOTAL $436,723 $398,202
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade $ 68,794 $ 46,659
Short-term borrowings 99,533 50,127
Current maturities of long-term debt 83 10,763
Other current liabilities 28,187 32,512
________ ________
Total current liabilities 196,597 140,061
LONG-TERM DEBT 100,067 108,181
DEFERRED TAXES AND OTHER CREDITS 25,047 27,498
SHAREHOLDERS' EQUITY
Preferred stock
Common stock 31,729 31,367
Retained earnings 83,283 91,095
________ ________
Total shareholders' equity 115,012 122,462
________ ________
TOTAL $436,723 $398,202
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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<TABLE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
_______________________ ______________________
1993 1992 1993 1992
__________ __________ __________ __________
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
NET SALES $176,070 $177,060 $508,957 $499,972
__________ __________ __________ __________
COSTS AND EXPENSES:
Cost of sales 159,496 152,282 462,383 442,334
Selling, general and administrative 14,824 15,865 47,142 45,743
Cost of work force reduction - - 925 -
__________ __________ __________ __________
Total 174,320 168,147 510,450 488,077
__________ __________ __________ __________
OPERATING INCOME (LOSS) 1,750 8,913 (1,493) 11,895
INTEREST EXPENSE (2,539) (2,777) (8,139) (7,835)
OTHER INCOME (EXPENSE) -- Net 1,847 858 3,123 2,834
__________ __________ __________ __________
INCOME (LOSS) BEFORE INCOME TAXES 1,058 6,994 (6,509) 6,894
PROVISION (CREDIT) FOR INCOME TAXES 377 2,500 (1,555) 2,282
__________ __________ __________ __________
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 681 4,494 (4,954) 4,612
EXTRAORDINARY ITEM -- NET - (3,509) - (3,509)
__________ __________ __________ __________
NET INCOME (LOSS) $ 681 $ 985 $ (4,954) $ 1,103
========== ========== =========== ==========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item $0.07 $0.44 $(0.49) $0.45
Extraordinary item - (0.34) - (0.34)
__________ __________ __________ __________
Net income (loss) $0.07 $0.10 $(0.49) $0.11
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 10,222,866 10,187,382 10,210,167 10,181,770
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
December 31
_____________________________
1993 1992
___________ ___________
(In Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (4,954) $ 1,103
Adjustments for non-cash and non-operating items:
Extraordinary item - net - 3,509
Depreciation 12,154 11,574
Gain on sales of securities (1,463) (947)
Other 1,415 286
Working capital changes:
Receivables 9,872 1,056
Inventory (70,880) (78,813)
Deferred and prepaid costs 9,885 9,419
Accounts payable 22,135 20,934
Other liabilities (7,588) (2,615)
________ ________
Operating cash flow (29,424) (34,494)
________ ________
INVESTMENT ACTIVITIES:
Capital expenditures (7,131) (11,379)
Investment in marketable securities (4,911) (2,385)
Proceeds from sale of marketable securities 6,230 2,216
Proceeds from sale of fixed assets 45 87
Other investments 168 (301)
Other (109) (1,086)
________ ________
Investing cash flow (5,708) (12,848)
________ ________
FINANCING ACTIVITIES:
Short-term debt:
Bank borrowings - net 52,257 (6,274)
CCC borrowings - advances 47,226 92,730
CCC borrowings - repayments (50,077) (73,630)
Proceeds of long-term debt - 100,000
Repayments of long-term debt (18,794) (61,598)
Dividends paid (2,858) (3,665)
Other 287 177
________ ________
Financing cash flow 28,041 47,740
________ ________
INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS (7,091) 398
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 9,405 2,014
________ ________
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 2,314 $ 2,412
======== ========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended December 31, 1993
(UNAUDITED)
<CAPTION>
Common Stock
________________________ Retained
Shares Amount Earnings Total
___________ _______ ________ ________
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 10,203,728 $31,367 $91,095 $122,462
Net loss (4,954) (4,954)
Cash dividend (2,858) (2,858)
Stock option exercise & other 44,202 362 362
___________ _______ _______ ________
BALANCE, DECEMBER 31, 1993 10,247,930 $31,729 $83,283 $115,012
=========== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
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HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1993 AND 1992
Basis of Presentation -- The unaudited condensed consolidated
financial statements included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange
Commission and reflect in the opinion of management, all
adjustments, consisting only of normal recurring accruals, that
are necessary for a fair presentation of financial position and
results of operations for the interim periods presented. These
financial statements include the accounts of Imperial Holly
Corporation and its majority owned subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation. Certain information and footnote
disclosures required by generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations. The financial statements included herein should be
read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended March 31, 1993.
Cost of Sales -- Payments to growers for sugar beets are based
in part upon the Company's average net return for sugar sold (as
defined in the participating contracts with growers) during the
grower contract years, some of which extend beyond December 31.
The contracts provide for the sharing of the net selling price
(gross sales price less certain marketing costs, including
packaging costs, brokerage, freight expense and amortization of
costs for certain facilities used in connection with marketing)
with growers. Cost of sales includes an accrual for estimated
additional amounts to be paid to growers based on the average net
return realized for sugar sold in each of the contract years
through December 31. The final cost of sugar beets cannot be
determined until the end of the contract year for each growing
area. Manufacturing costs prior to production are deferred and
allocated to production costs based on estimated total units of
production for each sugar manufacturing campaign. Additionally,
the Company's sugar inventories, which are accounted for on a
LIFO basis, are periodically reduced at interim dates to levels
below that of the beginning of the fiscal year. When such
interim LIFO liquidations are expected to be restored prior to
fiscal year-end, the estimated replacement cost of the liquidated
layers is utilized as the basis of the cost of sugar sold from
beginning of the year inventory. Accordingly, the cost of sugar
utilized in the determination of cost of sales for interim
periods includes estimates which may require adjustment in future
fiscal periods.
Long-Term Debt -- In October, 1993, the Company repaid the
remaining $18.8 million principal amount of its 10.93% senior
notes without premium from the proceeds of additional short-term
borrowings.
Income Taxes -- The provision for income taxes for the nine
months ended December 31, 1993 includes a charge of $872,000 to
adjust the Company's deferred tax liabilities for the increase in
corporate income tax rates enacted in August 1993.
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<PAGE>
Contingencies -- In 1992, the U.S. Customs Service ("Customs")
notified the Company that it had audited customs drawback claims
filed by the Company in 1985 and that Customs would require the
Company to repay to Customs certain duties and fees previously
refunded to the Company. In April 1992, the Company refunded
$2.5 million to Customs under protest, a condition precedent to
the commencement of an appeal of the audit decision and recorded
such amount in other assets. In May 1992, the Company commenced
its appeal in the Court of International Trade and, based in part
on an evaluation by outside counsel, management expects to be
successful in its claim.
The Company was initially notified by the Environmental
Protection Agency ("EPA") in October 1992 that it had been
identified as a "de minimis" potentially responsible party with
respect to the Operating Industries, Inc. Superfund site in
Monterey, California. The EPA notice states that fuel oil
removed from a former Holly Sugar Corporation factory was
disposed of at the site by a third party waste disposal
contractor when the factory was closed in 1977, prior to the
acquisition of Holly Sugar by the Company. According to the
notice from the EPA, approximately 300 potentially responsible
parties have previously agreed to perform portions of the cleanup
work at the site and to pay the costs for the oversight of this
work. In May 1993, the Company received a new notice from the
EPA informing the Company that its status had been revised to
that of a potentially responsible party on the basis of
volumetric calculations by the EPA. The Company successfully
contested the EPA's volumetric calculations and in November 1993,
received acknowledgment from the EPA that volumes of fuel oil
from the former Holly factory disposed of at the site had been
reduced to the level which, in the Company's opinion, should
result in the Company being reclassified as a "de minimis"
potentially responsible party in the near future. By law, as
long as a party remains a "de minimis" potentially responsible
party, liability for clean up costs is limited to no more than
$500,000. The Company has not been able to determine its
ultimate liability, if any, with respect to this matter.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company finances its working capital and capital
expenditure requirements from a combination of funds generated by
operations and short-term borrowing arrangements, including
short-term, secured, non-recourse borrowings from the Commodity
Credit Corporation.
The increase in finished product as well as raw and in-process
materials inventories during the nine months ended December 31,
1993 was primarily due to the seasonal production schedule of the
Company's beet sugar operations. The increases in inventory were
funded by increases in accounts payable, principally amounts due
growers, and by short-term borrowings.
The Company repaid the remaining $18.8 principal amount of its
10.93% senior notes without premium in October 1993 from the
proceeds of additional short-term borrowings. Long-term debt now
consists almost entirely of $100 million principal amount of 8-3/8%
senior notes due 1999, which requires semi-annual interest-only
payments prior to maturity. Management believes that
existing internal and external sources are adequate to meet its
financing requirements, including fiscal 1995 capital
expenditures, budgeted at $7.7 million, as well as fourth quarter
1994 capital expenditures of approximately $1 million. The
Company's marketable securities portfolio had a market value of
$30.4 million at December 31, 1993, as compared to its book value
of $22.3 million.
RESULTS OF OPERATIONS
Net sales were substantially unchanged for the three months
ended December 31, 1993, compared to the same period of the prior
year, as a 2% decrease in sugar volume sold was largely offset by
increased beet pulp and molasses revenues resulting from higher
prices and volumes. Sugar prices were virtually unchanged from
the year earlier period, although the average sales price for the
quarter did increase 3% from the immediately preceding fiscal
quarter largely on the strength of seasonal product mix and price
increases in some product lines. By quarter end, prices were
demonstrating some weakness caused by aggressive competitive
selling, as beet processors' inventory levels increased. For the
nine month period, sales increased $9.0 million or 1.8%, as a
5.1% increase in sugar sales volume more than offset a 3.1%
decline in sales price. Beet sugar sales volumes in the first
quarter of the prior year had been reduced because of lower
beginning inventory balances resulting from the substantial
reduction in production volumes in the Rocky Mountain and Texas
factories in the last half of fiscal 1992.
The raw sugar import quota for the USDA's fiscal year which
commenced October 1, 1993 is set at the statutory minimum and
marketing allotments are not currently in place. The Company is
unable to predict whether the import quota will be raised or
whether marketing allotments will be re-instated or the impact of
either such action on refined sugar prices, raw sugar prices or
the Company's selling margins.
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<PAGE>
Cost of sales increased $7.2 million or 4.7% during the three
months ended December 31, 1993 compared to the same period of the
prior year primarily due to increases in the cost of raw cane
sugar and in beet sugar manufacturing costs. For the nine month
period ended December 31, 1993, cost of sales increased $20.0
million or 4.5% due principally to the 5.1% sugar sales volume
increase. As a percent of sales, cost of sales increased from
86.0% to 90.6% for the quarterly periods and from 88.5% to 90.8%
for the nine month periods. The cost of raw cane sugar increased
approximately 3% for the three month period (while refined sales
prices remained unchanged) and declined less than 1% for the nine
month period (while refined sales prices fell 3.1%). As a
result, the Company experienced a decrease in its unit margins on
cane sugar sales. The Company purchases sugar beets under
participatory contracts which provide for a percentage sharing of
the net selling price realized on refined beet sugar sales
between the Company and the grower. Consequently, the decline in
the unit selling price of refined beet sugar was partially offset
by a decline in the unit cost of sugar beets purchased. Unit
manufacturing costs of beet sugar increased 6.5% for the first
nine months of the fiscal year, with virtually all of the
increase occurring in the third fiscal quarter. The Rocky
Mountain and Texas area crops were smaller than last year's
exceptional crops due to cooler, wetter weather during the
planting and growing seasons. Additionally, beet storage and
processing operations were hampered by muddy harvest conditions
in some areas and a severe early freeze.
Selling, general and administrative expenses increased by $1.4
million or 3.1% for the nine months and declined $1.0 million or
6.6% for the three months ended December 31, 1993 compared to the
same periods of the prior year, as volume related increases in
selling and distribution costs in the first quarter were offset
by decreases in general and administrative as well as advertising
costs in the third quarter. A $925,000 charge was recorded in
the second quarter of the current year to provide for work force
reductions which were substantially completed in the third fiscal
quarter. The Company has undertaken a cost reduction program, of
which the work force reduction is a part, and expects to reduce
fiscal 1995 annual operating costs by at least $5 million, the
majority of which will be reflected in selling, general and
administrative expenses.
Interest expense for the nine months ended December 31, 1993
was higher than the comparable period of the prior year as a
result of increased long-term debt due to the issuance in October
1992 of $100 million principal amount of 8-3/8% senior notes due
1999, and the use of a portion of the proceeds to reduce short-term
borrowings which had lower interest rates. The repayment
out of short-term borrowings of the remaining $18.8 million
principal amount of 10.93% senior notes in October 1993 reduced
interest expense in the third quarter. Other income (expense) -- net
for the three months ended December 31, 1993 includes a $1.0
million gain on the sale of marketable securities. Securities
gains for the nine months ended December 31, 1993 totaled $1.5
million compared to $0.9 million for the same period in the prior
year. The prior year's first quarter also includes a recovery on
the settlement of certain litigation of approximately $400,000.
The provision for income taxes for the nine months ended December
31, 1993, includes a charge of $872,000 to adjust the Company's
deferred tax liabilities for the increase in corporate income tax
rates enacted in August 1993.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits required to be filed with this report are
listed in the Exhibit Index which immediately follows the
signatures page of this report.
Registrant is a party to several long-term debt instruments
under which in each case the total amount of securities
authorized does not exceed 10% of the total assets of Registrant
and its subsidiaries on a consolidated basis. Pursuant to
paragraph 4(iii) (A) of Item 601(b) of Regulation S-K,
Registrant agrees to furnish a copy of such instruments to the
Securities and Exchange Commission upon request.
(b) No reports on Form 8-K were filed during the quarter
ended December 31, 1993.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
IMPERIAL HOLLY CORPORATION
(Registrant)
Dated: February 3, 1994 By: /s/ JAMES C. KEMPNER
James C. Kempner
President,
Chief Executive Officer
and Chief Financial Officer
(Principal Financial Officer)
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IMPERIAL HOLLY CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1993
Exhibit Index
Exhibit Sequential Page Number
11 Computation of Income Per Page 14
Common Share.
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<PAGE>
EXHIBIT 11
<TABLE>
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
(UNAUDITED)
<CAPTION>
Three Months Nine Months
Ended Ended
December 31 December 31
1993 1993
______________ ______________
(In Thousands of Dollars)
<S> <C> <C>
NET INCOME (LOSS) FOR PRIMARY AND
FULLY DILUTED COMPUTATION:
As reported $ 681 $(4,954)
Adjustments - none - -
______________ ______________
As adjusted $ 681 $(4,954)
============== ==============
PRIMARY EARNINGS (LOSS) PER SHARE:
Weighted average shares of common
stock outstanding 10,222,866 10,210,167
Incremental shares issuable from
assumed exercise of stock options
under the treasury stock method 50,613 77,289
______________ ______________
Weighted average shares of common
stock outstanding, as adjusted 10,273,479 10,287,456
============== ==============
Primary earnings (loss) per share $0.07 $(0.48)
============== ==============
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average shares of common
stock outstanding 10,222,866 10,210,167
Incremental shares issuable from
assumed exercise of stock options
under the treasury stock method 52,838 78,033
______________ ______________
Weighted average shares of common
stock outstanding, as adjusted 10,275,704 10,288,200
============== ==============
Fully diluted earnings (loss)
per share $0.07 $(0.48)
============== ==============
_______________________________________
</TABLE>
This calculation is submitted in accordance with Item 601(b)(11)
of Regulation S-K; the amount of dilution illustrated in this
calculation is not required to be disclosed pursuant to paragraph
14 of Accounting Principles Board Opinion No. 15.
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