<PAGE> 1
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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 March 31, 1998
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)
(281) 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 May 6, 1998.
27,038,772 shares.
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<PAGE> 2
IMPERIAL HOLLY CORPORATION
Index
<TABLE>
<CAPTION>
Page
<S> <C>
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 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
----------------------
The statements regarding future market prices, acreage planted,
agricultural results and operating results and other statements that are not
historical facts contained in this Quarterly Report on Form 10-Q are
forward-looking statements. The words "expect", "project", "estimate",
"believe", "anticipate", "plan", "intend", "could", "may", "predict" and similar
expressions are also intended to identify forward-looking statements. Such
statements involve risks, uncertainties and assumptions, including, without
limitation, market factors, the effect of weather and economic conditions, farm
and trade policy, the available supply of sugar, available quantity and quality
of sugarbeets and other factors detailed elsewhere in this and other Company
filings with the Securities and Exchange Commission. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
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<PAGE> 3
PART I - FINANCIAL INFORMATION
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1997
-------------- ------------------
(In Thousands of Dollars)
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 14,079 $ 9,354
Marketable securities 60,685 55,883
Accounts receivable 122,487 62,158
Inventories:
Finished products 180,360 92,815
Raw and in-process materials 68,823 17,623
Supplies 34,523 16,937
Deferred & prepaid expenses 25,994 27,805
-------------- ------------------
Total current assets 506,951 282,575
NOTE RECEIVABLE -- 1,285
OTHER INVESTMENTS 11,643 14,646
PROPERTY, PLANT AND EQUIPMENT - net 398,998 154,751
GOODWILL & OTHER INTANGIBLES - net 283,908 1,310
OTHER ASSETS 59,154 3,052
-------------- ------------------
TOTAL $ 1,260,654 $ 457,619
============== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade $ 141,083 $ 53,923
Short-term borrowings 25,038 43,091
Current maturities of long-term debt 7,240 1,173
Other current liabilities 60,208 53,986
-------------- ------------------
Total current liabilities 233,569 152,173
LONG-TERM DEBT 537,391 81,304
DEFERRED TAXES AND OTHER CREDITS 144,097 31,183
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 268,449 83,707
Stock held by benefit trust (15,819) --
Retained earnings 70,248 90,870
Unrealized securities gains - net 22,719 18,382
-------------- ------------------
Total shareholders' equity 345,597 192,959
-------------- ------------------
TOTAL $ 1,260,654 $ 457,619
============== ==================
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- --------------------------
1998 1997 1998 1997
----------- ------------- ----------- -----------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 414,967 $ 168,705 $ 849,834 $ 359,333
----------- ------------ ----------- -----------
COSTS AND EXPENSES:
Cost of sales 383,835 148,968 779,571 323,235
Selling, general and administrative 16,718 8,175 34,208 16,070
Depreciation and amortization 12,333 4,038 22,421 8,053
Nonrecurring charges 18,287 -- 18,287 --
----------- ------------ ----------- -----------
Total 431,173 161,181 854,487 347,358
----------- ------------ ----------- -----------
OPERATING INCOME (16,206) 7,524 (4,653) 11,975
INTEREST EXPENSE (14,598) (3,228) (22,978) (6,093)
REALIZED SECURITIES GAINS (LOSSES) 2,069 (9) 2,179 32
OTHER INCOME -- Net 2,183 62 2,758 617
----------- ------------ ----------- -----------
INCOME BEFORE INCOME TAXES & MINORITY INTEREST (26,552) 4,349 (22,694) 6,531
PROVISION FOR INCOME TAXES (9,335) 1,404 (7,101) 2,090
MINORITY INTEREST IN INCOME OF SAVANNAH -- -- 1,766 --
----------- ------------ ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM (17,217) 2,945 (17,359) 4,441
EXTRAORDINARY ITEM -- NET OF TAX -- -- (1,999) --
----------- ------------ ----------- -----------
NET INCOME (LOSS) $ (17,217) $ 2,945 $ (19,358) $ 4,441
=========== ============ =========== ===========
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income before extraordinary item $ (0.64) $ 0.21 $ (0.82) $ 0.31
=========== ============ =========== ===========
Net income (loss) $ (0.64) $ 0.21 $ (0.91) $ 0.31
=========== ============ =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income before extraordinary item $ (0.63) $ 0.21 $ (0.81) $ 0.31
=========== ============ =========== ===========
Net income (loss) $ (0.63) $ 0.21 $ (0.90) $ 0.31
=========== ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 27,028,990 14,156,821 21,287,413 14,152,111
=========== ============ =========== ===========
</TABLE>
NOTE: Includes the results of Savannah Foods & Industries, Inc. since
October 17, 1997.
See notes to consolidated financial statements.
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<PAGE> 5
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------------
1998 1997
---------- ----------
(In Thousands of Dollars)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (19,358) $ 4,441
Adjustments for non-cash and non-operating items:
Extraordinary item - net 1,999 --
Minority interest in earnings of Savannah 1,766 --
Impairment loss 12,538 --
Depreciation & amortization 22,421 7,480
Other (2,798) 6,739
Working capital changes:
Receivables 8,306 9,553
Inventory (55,474) (20,191)
Deferred and prepaid costs 23,421 (559)
Accounts payable 31,404 (461)
Other liabilities (33,375) (6,972)
---------- ----------
Operating cash flow (9,150) 30
---------- ----------
INVESTMENT ACTIVITIES:
Acquisition of Savannah, net of cash acquired (364,290) --
Capital expenditures (20,896) (6,977)
Investment in marketable securities (880) (3,136)
Proceeds from sales of securities 4,918 527
Proceeds from sales of fixed assets 111 74
Other 6,927 2,080
---------- ----------
Investing cash flow (374,110) (7,432)
---------- ----------
FINANCING ACTIVITIES:
Revolving credit borrowings - net (33,090) (44,142)
CCC borrowings - advances 37,037 57,935
CCC borrowings - repayments (12,000) (4,165)
Long term debt:
Proceeds 520,874 --
Repayment (128,646) (789)
Dividends paid (1,264) --
Sale of common stock 5,074 --
Other -- 140
---------- ----------
Financing cash flow 387,985 8,979
---------- ----------
INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 4,725 1,577
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 9,354 6,142
---------- ----------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 14,079 $ 7,719
========== ==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Common Stock Common Stock
------------------------ ------------------------ Unrealized
Held by Held by Retained Securities
Issued Benefit Trust Amount Benefit Trust Earnings Gains Total
------ ------------- ------ ------------- --------- ---------- -----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1997 14,283,775 $ 83,707 $ 90,870 $ 18,382 $ 192,959
Net income (loss) (19,358) (19,358)
Cash dividends (1,264) (1,264)
Stock issued in merger 13,176,193 (814,810) 174,584 $ (10,796) 163,788
Stock issued to H. Kempner
Trust Association 377,358 5,000 5,000
Stock sold to Benefit Trust 505,440 (505,440) 5,023 (5,023)
Employee stock purchase
plan & other 8,999 135 135
Change in unrealized
securities gains 4,337 4,337
---------- ---------- --------- --------- -------- -------- ---------
BALANCE MARCH 31, 1998 28,351,765 (1,320,250) $ 268,449 $ (15,819) $ 70,248 $ 22,719 $ 345,597
========== ========== ========= ========= ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE> 7
IMPERIAL HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997
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 Transition Report on Form
10-K for the period ended September 30, 1997.
Reclassifications - Certain amounts reported in prior fiscal periods have
been reclassified to conform with the current period's presentation.
Cost of Sales - Payments to growers for sugarbeets 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 March 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 March 31.
The final cost of sugarbeets cannot be determined until the end of the contract
year of 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.
Accounting Pronouncements - Effective April 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123 "Accounting of Stock-based
Compensation" ("SFAS No. 123"), and elected to continue to follow Accounting
Principles Board Opinion No. 25 to measure employee stock compensation cost.
The impact of SFAS No. 123 on pro forma earnings per share for the three and
six months ended March 31, 1998 and 1997 was not significant.
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<PAGE> 8
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income", Statement of
Financial Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information" and Statement of Financial Accounting
Standards No. 132 "Employers' Disclosures About Pensions and Other Post
Retirement Benefits". These statements, which are effective for the Company's
fiscal year ending September 30, 1999, establish additional disclosure
requirements but do not affect the measurement of results of operation.
Management is evaluating what, if any, additional disclosures may be required
when these statements are implemented.
Nonrecurring Charges - During the quarter ended March 31, 1998, the
Company incurred a $975,000 charge for severance and related costs in
connection with the reorganization of administrative functions after the
recently completed acquisition of Savannah Foods & Industries, Inc.
("Savannah"). Additionally, a charge of $3,800,000 was recorded for the
expected loss the Company will incur in fulfilling its industrial sales
commitments in California at higher costs as a result of the abnormal weather
experienced there over the past several months.
In February 1998, the Company announced its decision to cease sugarbeet
processing at its Hereford, Texas factory, and provided $974,000 for the
estimated cash closure costs, principally severance. The Company also recorded
a $12,538,000 asset impairment loss to reduce the carrying value of the
Hereford assets to estimated fair value.
Savannah Acquisition - The Company acquired Savannah in a two step
transition concluded December 22, 1997, when Savannah merged with a wholly
owned subsidiary of the Company. Previously, the Company had purchased 50.1% of
Savannah's outstanding common stock in a tender offer which was completed
October 17, 1997. Consideration in the acquisition consisted of $368.6 million
cash and 12,361,000 shares of the Company's common stock valued at $163.8
million.
The acquisition has been accounted for as a purchase, and these
consolidated financial statements include the results of Savannah's operations
and its cash flows since October 17, 1997, net of the minority shareholders'
interest in the earnings of Savannah through December 22, 1997. Pro forma
operating results as if the acquisition and related financing transactions
described below had occurred on September 30, 1996, are as follows:
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<PAGE> 9
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
Net Sales $ 414,967 $ 445,194 $ 919,380 $ 938,626
------------ ------------ ------------ ------------
Cost of Sales 383,835 390,034 843,338 829,617
Selling, General and
Administrative 16,718 21,827 36,413 44,415
Depreciation and Amortization 12,333 10,402 23,738 21,369
Nonrecurring Charges 18,287 -- 18,287 --
------------ ------------ ------------ ------------
Operating Income (16,206) 22,931 (2,396) 43,225
Interest Expense (14,598) (14,643) (25,949) (28,921)
Other Income 4,252 96 5,624 764
------------ ------------ ------------ ------------
Income Before Income Taxes (26,552) 8,384 (22,721) 15,068
Provision for Income Taxes (9,335) 4,032 (6,934) 7,220
------------ ------------ ------------ ------------
Net Income $ (17,217) $ 4,352 $ (15,787) $ 7,848
============ ============ ============ ============
Basic Earnings Per Share $ (0.64) $ 0.16 $ (0.58) $ 0.29
============ ============ ============ ============
Diluted Earnings Per Share $ (0.63) $ 0.16 $ (0.58) $ 0.29
============ ============ ============ ============
Weighted Average Shares
Outstanding 27,028,990 26,895,562 27,026,846 26,890,852
============ ============ ============ ============
</TABLE>
In connection with the acquisition, the Company entered into a senior
credit facility consisting of senior secured term loans aggregating $255 million
and a $200 million senior secured revolving credit facility. Additionally, the
Company issued $250 million of 9-3/4% Senior Subordinated Notes due 2007 and
repurchased $75.1 million of its 8-3/8% Senior Notes due 1999 at a premium which
is recorded, net of related taxes, as an extraordinary item. The senior credit
facility is secured by substantially all of the Company's assets, and contains
restrictive covenants which may limit, among other things, the Company's ability
to incur additional indebtedness, make capital expenditures and investments or
pay dividends. Additionally, the Company sold 377,358 shares of common stock to
the H. Kempner Trust Association concurrent with the closing of the merger.
Earnings per Share - The following table presents information necessary to
calculate basic and diluted earnings per share. Amounts for the three and six
months ended March 31, 1997 have been restated to conform with the requirements
of Statement of Financial Accounting Standards No. 128 "Earnings per Share",
which was adopted effective December 31, 1997.
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<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
Earnings for basic and diluted computation:
Income (loss) before extraordinary item $ (17,217) $ 2,945 $ (17,359) $ 4,441
Adjustments - None -- -- -- --
------------ ------------ ------------ ------------
Adjusted income (loss) before
extraordinary item $ (17,217) $ 2,945 $ (17,359) $ 4,441
============ ============ ============ ============
Net income $ (17,217) $ 2,945 $ (19,358) $ 4,441
Adjustments - None -- -- -- --
------------ ------------ ------------ ------------
Adjusted net income $ (17,217) $ 2,945 $ (19,358) $ 4,441
============ ============ ============ ============
Basic earnings per share:
Weighted average shares outstanding 27,028,990 14,156,821 21,287,413 14,152,111
============ ============ ============ ============
Income (loss) per share before
extraordinary item $ (0.64) $ 0.21 $ (0.82) $ 0.31
============ ============ ============ ============
Net income (loss) per share $ (0.64) $ 0.21 $ (0.91) $ 0.31
============ ============ ============ ============
Diluted earnings per share:
Weighted average shares outstanding 27,028,990 14,156,821 21,287,413 14,152,111
Incremental shares issuable from
assumed exercise of stock options
under the treasury stock method 91,879 149,717 146,373 179,623
------------ ------------ ------------ ------------
Weighted average shares outstanding
- as adjusted 27,120,869 14,306,538 21,433,786 14,331,734
============ ============ ============ ============
Income (loss) per share before
extraordinary item $ (0.63) $ 0.21 $ (0.81) $ 0.31
============ ============ ============ ============
Net income (loss) per share $ (0.63) $ 0.21 $ (0.90) $ 0.31
============ ============ ============ ============
</TABLE>
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<PAGE> 11
Parent Company (Only) Information - Condensed financial information for Imperial
Holly Corporation (parent company only) was as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ------------------------
1998 1997 1998 1997
-------- -------- ------- --------
(In Thousands of Dollars, Except per Share Amounts)
Income Statement Data
- ---------------------
<S> <C> <C> <C> <C>
Net Sales $ 64,445 $ 75,656 $139,639 $157,995
Operating income (4,433) 2,394 (6,911) 6,666
Equity in undistributed earnings
of subsidiaries (9,024) 1,148 (4,191) (314)
Income (loss) before extraordinary item (17,217) 2,945 (17,359) 4,441
</TABLE>
<TABLE>
<CAPTION>
March 31,
---------
1997
---------
Balance Sheet Data
- ------------------
<S> <C>
Current assets $106,698
Property, plant and equipment, net 44,458
Investment in subsidiaries, at equity 640,279
Total assets 899,561
Current liabilities 23,016
Long-term debt, net 514,837
Shareholder's equity 345,597
</TABLE>
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As a result of the completion of the Savannah acquisition, the Company had
substantial increases in sales, costs and expenses, assets, liabilities and its
level of indebtedness. The pro forma financial information included in the
Notes to Consolidated Financial Statements present the combined results of the
companies as if the acquisition and related financing transactions had occurred
as of September 30, 1996.
The Company's primary capital requirements are expected to include debt
service, capital expenditures and working capital. The primary sources of
capital are expected to be cash flow from operations and borrowings under the
revolving credit facility. At March 31, 1998, the Company had $130 million
available under its $200 million revolving credit facility. Based upon current
and anticipated future operations and anticipated future cost savings the
Company believes that capital resources will be adequate to meet anticipated
future capital requirements. There can be no assurance, however, that the
Company will realize sufficient cost savings or generate sufficient cash flow
that, together with the other sources of capital, will enable the Company to
service its indebtedness, or make anticipated capital expenditures. If the
Company is unable to generate sufficient cash flow from operations or to borrow
sufficient funds in the future to service its debt, it may be required to sell
assets, reduce capital expenditures, refinance all or a portion of its existing
indebtedness, or obtain additional financing.
The Company's financing arrangements entered into in connection with the
acquisition of Savannah Foods impose various restrictions and covenants on the
Company which could potentially limit the Company's ability to respond to
market conditions, to provide for unanticipated capital investments, to raise
additional debt or equity capital, or to take advantage of business
opportunities.
The Company's senior credit facility incurs interest at variable rates.
The Company has entered into interest rate swap arrangements with notional
amounts aggregating $180 million, to limit its exposure to future increases in
interest rates.
The Company has developed plans to address the possible exposures related
to the impact on its computer systems of the Year 2000. Key financial,
information and operational systems have been assessed and plans are being
implemented to modify or replace each affected systems on a timely basis. The
financial impact of making the required systems changes is not expected to be
material to the Company's consolidated financial position, results of
operations or cash flows.
The Company's capital expenditures for fiscal 1998 are expected to be
approximately $50 million, including the completion of major projects to expand
the Sidney, Montana factory, as well as to add bulk sugar storage and high
speed packaging equipment at the Sugar Land refinery.
The decrease in pro forma net sales for the three and six month periods
ended March 31, 1998 compared to the same periods ended March 31, 1997 result
- 12 -
<PAGE> 13
from lower sales prices offsetting higher volumes, principally of beet sugar.
Refined sugar sales prices were lower in the current quarter due to a larger
domestic sugar beet crop. This sales price reduction, higher cost of beet
sugar, and poor operating performance at the Company's Sugar Land cane sugar
refinery, were the primary factors contributing to the reductions in pro forma
gross margin. The Company has made changes in the management of the Sugar Land
refinery and has begun to achieve improved operations. Partially offsetting
these effects were improved operating results at Savannah's production
facilities, particularly its Michigan beet sugar factories.
A significant portion of the Company's industrial sales are made under
forward sales contracts, most of which commence October 1 and extend for up to a
year, resulting in a lagging effect of market price changes on the Company's
sugar sales. To mitigate its exposure to future price changes, the Company
purchases raw cane sugar under forward purchase contracts and attempts to match
refined sugar sales contracted for future delivery with the purchase or pricing
of raw sugar when feasible.
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 and, in some cases, by products, between the Company and the
grower. Use of this type of contract reduces the Company's exposure to price
risk on sugarbeet purchases so long as the contract net selling price does not
fall below the regional minimum support prices established by the USDA.
Consequently, the decrease in the unit selling price of refined beet sugar
resulted in decreases in the unit cost of sugarbeets purchased, mitigating the
impact on beet sugar sales margins.
Beet sugar costs were adversely impacted by the unusually mild winter in
the Northern Rocky Mountain Region, affecting sugarbeets in storage, reducing
production yields, and increasing processing costs. Beet sugar cost continued
to be adversely affected by low acreage at the Company's Torrington, Wyoming
and Hereford, Texas factories. In February 1998, the Company announced that it
would cease sugar beet processing at the Hereford factory. Severance and other
cash closure costs related to this decision totaling $974,000 were provided for
in the quarter ended March 31, 1998. Additionally, the Company recorded as a
nonrecurring charge an impairment loss of $12,538,000 on Hereford's assets for
the difference in their fair value and their carrying costs.
Record rainfalls have delayed the start of the spring processing campaigns
at the Company's three Northern California sugarbeet factories for three to four
weeks, requiring the Company to fill customer commitments from other sources,
generally at higher freight costs. While spring acreage harvested is not
expected to be significantly impacted, the wet conditions are anticipated to
reduce beet quality and thus increase processing costs. Additionally, the rains
have delayed planting of the fall crop, which the Company expects will reduce
the supply of beets available for processing in the fall campaign beginning next
September. A nonrecurring charge of $3,800,000 has been recorded for the loss
the Company expects to incur in fulfilling its industrial sales commitments in
California at higher costs as a result of these events.
- 13 -
<PAGE> 14
Pro forma selling, general and administrative costs were $5.1 million lower
for the three months and $8.0 million lower for the six months ended March 31,
1998 compared to the same periods of the prior year, as increases in volume
related selling costs were more than offset by reductions in general and
administrative costs, primarily incentive compensation, relocation and corporate
overhead costs. The Company has reorganized to remove duplication and streamline
administrative functions and recorded a charge in its second fiscal quarter of
$975,000 in connection with a 14% reduction in staff. This and other measures
management is taking are expected to ultimately produce cost savings in excess
of $40 million annually, approximately $20 million of which are in selling,
general and administrative expenses. Management believes that over one-half of
the total reduction will be in place on a "run rate" basis by the end of fiscal
1998.
Pro forma interest expense for the six months ended March 31, 1998 was
lower than the comparable period of the prior year as a result of both lower
short-term interest rates and reduced revolving credit borrowings.
The minority interest in the earnings of Savannah is for the period from
October 17, 1997 through December 22, 1997, when Savannah became a wholly-owned
subsidiary.
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<PAGE> 15
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 below:
Exhibit 27 Financial Data Schedules
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) During the three months ended March 31, 1998, the Company filed a
current report on Form 8-K dated as of December 22, 1997 (amended by Form 8-K/A
on January 13, 1998).
- 15 -
<PAGE> 16
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: April 30, 1998 By: /s/ Mary L. Burke
--------------------------------
Chief Financial Officer
(Principal Financial Officer)
- 16 -
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 14,079
<SECURITIES> 60,685
<RECEIVABLES> 112,487
<ALLOWANCES> 0
<INVENTORY> 283,706
<CURRENT-ASSETS> 506,951
<PP&E> 568,045
<DEPRECIATION> 169,047
<TOTAL-ASSETS> 1,260,654
<CURRENT-LIABILITIES> 233,569
<BONDS> 537,391
0
0
<COMMON> 268,449
<OTHER-SE> 77,148
<TOTAL-LIABILITY-AND-EQUITY> 1,260,654
<SALES> 849,834
<TOTAL-REVENUES> 849,834
<CGS> 779,571
<TOTAL-COSTS> 779,571
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,978
<INCOME-PRETAX> (22,694)
<INCOME-TAX> (7,101)
<INCOME-CONTINUING> (17,359)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,999)
<CHANGES> 0
<NET-INCOME> (19,358)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.91)
</TABLE>
