<PAGE> 1
- --------------------------------------------------------------------------------
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 June 30, 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 August 10, 1998.
27,050,208 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", "budget", "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 ability of the Company to
realize cost savings from acquisitions, 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>
JUNE 30, 1998 SEPTEMBER 30, 1997
--------------- --------------------
(Unaudited)
(In Thousands of Dollars)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments $ 9,408 $ 9,354
Marketable securities 65,643 55,883
Accounts receivable 129,040 62,158
Inventories:
Finished products 161,271 92,815
Raw and in-process materials 64,050 17,623
Supplies 36,483 16,937
Deferred & prepaid expenses 30,739 27,805
--------------- --------------------
Total current assets 496,634 282,575
NOTE RECEIVABLE -- 1,285
OTHER INVESTMENTS 13,821 14,646
PROPERTY, PLANT AND EQUIPMENT - net 399,393 154,751
GOODWILL & OTHER INTANGIBLES - net 283,489 1,310
OTHER ASSETS 34,546 3,052
--------------- --------------------
TOTAL $ 1,227,883 $ 457,619
=============== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade $ 148,398 $ 53,923
Short-term borrowings 5,719 43,091
Current maturities of long-term debt 7,098 1,173
Other current liabilities 64,744 53,986
--------------- --------------------
Total current liabilities 225,959 152,173
LONG-TERM DEBT 525,431 81,304
DEFERRED TAXES AND OTHER CREDITS 125,238 31,183
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 268,602 83,707
Stock held by benefit trust (15,819) --
Retained earnings 74,712 90,870
Unrealized securities gains - net 23,760 18,382
--------------- --------------------
Total shareholders' equity 351,255 192,959
--------------- --------------------
TOTAL $ 1,227,883 $ 457,619
=============== ====================
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE> 4
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 456,087 $ 197,758 $ 1,305,921 $ 557,203
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 407,336 170,806 1,186,907 492,323
Selling, general and administrative 15,627 8,317 49,835 24,498
Depreciation and amortization 11,489 4,464 33,910 14,236
Nonrecurring charges -- -- 18,287 --
------------ ------------ ------------ ------------
Total 434,452 183,587 1,288,939 531,057
------------ ------------ ------------ ------------
OPERATING INCOME 21,635 14,171 16,982 26,146
INTEREST EXPENSE (12,712) (2,782) (35,690) (8,875)
REALIZED SECURITIES GAINS 2 -- 2,181 32
OTHER INCOME -- Net 1,066 185 3,824 802
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
& MINORITY INTEREST 9,991 11,574 (12,703) 18,105
PROVISION FOR INCOME TAXES 4,716 4,280 (2,385) 6,370
MINORITY INTEREST IN INCOME OF SAVANNAH -- -- 1,766 --
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 5,275 7,294 (12,084) 11,735
EXTRAORDINARY ITEM - NET OF TAX -- -- (1,999) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 5,275 $ 7,294 $ (14,083) $ 11,735
============ ============ ============ ============
BASIC EARNINGS PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item $ 0.20 $ 0.51 ($ 0.52) $ 0.83
============ ============ ============ ============
Net income (loss) $ 0.20 $ 0.51 ($ 0.61) $ 0.83
============ ============ ============ ============
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item $ 0.19 $ 0.51 ($ 0.52) $ 0.82
============ ============ ============ ============
Net income (loss) $ 0.19 $ 0.51 ($ 0.60) $ 0.82
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 27,043,121 14,220,388 23,206,716 14,174,870
============ ============ ============ ============
</TABLE>
NOTE: Includes the results of Savannah Foods & Industries, Inc. since
October 17, 1997.
See notes to consolidated financial statements.
- 4 -
<PAGE> 5
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------------------
1998 1997
------------- -------------
(In Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (14,083) $ 11,735
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 33,910 14,236
Other 143 6,934
Working capital changes:
Receivables 1,753 5,249
Inventory (35,322) (40,543)
Deferred and prepaid costs 18,551 (6,152)
Accounts payable 38,719 17,663
Other liabilities (24,584) (2,572)
------------- -------------
Operating cash flow 35,390 6,550
------------- -------------
INVESTMENT ACTIVITIES:
Acquisition of Savannah, net of cash acquired (363,665) --
Capital expenditures (30,774) (13,505)
Investment in marketable securities (10,604) (4,644)
Proceeds from sales of securities 11,276 4,692
Proceeds from sales of fixed assets 477 98
Other 2,086 451
------------- -------------
Investing cash flow (391,204) (12,908)
------------- -------------
FINANCING ACTIVITIES:
Revolving credit borrowings - net (42,879) 11,437
CCC borrowings - advances 37,037 57,935
CCC borrowings - repayments (31,530) (57,935)
Long term debt:
Proceeds 520,874 --
Repayment (130,748) (9,525)
Dividends paid (2,075) --
Sale of common stock 5,189 --
Other -- 840
------------- -------------
Financing cash flow 355,868 2,752
------------- -------------
INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 54 (3,606)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 9,354 6,142
------------- -------------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 9,408 $ 2,536
============= =============
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 6
IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended June 30, 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) (14,083) (14,083)
Cash Dividends (2,075) (2,075)
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 24,470 288 288
Change in Unrealized
Securities Gains 5,378 5,378
---------- ------------- --------- ------------- --------- ------------- ---------
BALANCE JUNE 30, 1998 28,367,236 (1,320,250) $ 268,602 ($ 15,819) $ 74,712 $ 23,760 $ 351,255
========== ============= ========= ============= ========= ============= =========
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE> 7
IMPERIAL HOLLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 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 June 30. 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 June 30. The final cost of sugarbeets 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.
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 nine months ended June 30, 1998 and 1997 was not significant.
- 7 -
<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 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 the
fourth quarter in fulfilling its industrial sales commitments in California at
higher costs as a result of the abnormal weather experienced there during the
winter and spring 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
transaction 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:
- 8 -
<PAGE> 9
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
Net Sales $ 456,087 $ 501,304 $ 1,375,467 $ 1,439,930
------------ ------------ ------------ ------------
Cost of Sales 407,336 433,466 1,250,674 1,256,997
Selling, General and
Administrative 15,627 23,386 52,040 73,887
Depreciation and Amortization 11,489 12,318 35,227 33,687
Nonrecurring Charges -- -- 18,287 --
------------ ------------ ------------ ------------
Operating Income 21,635 32,134 19,239 75,359
Interest Expense (12,712) (13,780) (38,661) (42,701)
Other Income 1,068 430 6,692 1,194
------------ ------------ ------------ ------------
Income Before Income Taxes 9,991 18,784 (12,730) 33,852
Provision for Income Taxes 4,716 8,014 (2,218) 15,234
------------ ------------ ------------ ------------
Net Income $ 5,275 $ 10,770 $ (10,512) $ 18,618
============ ============ ============ ============
Basic Earnings Per Share $ 0.20 $ 0.40 $ (0.39) $ 0.69
============ ============ ============ ============
Diluted Earnings Per Share $ 0.19 $ 0.40 $ (0.39) $ 0.69
============ ============ ============ ============
Weighted Average Shares
Outstanding 27,043,121 26,959,129 27,033,005 26,913,611
============ ============ ============ ============
</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
nine months ended June 30, 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.
- 9 -
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ----------------------------
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 $ 5,275 $ 7,294 $ (12,084) $ 11,735
Adjustments - None -- -- -- --
----------- ----------- ------------ -----------
Adjusted income (loss) before
extraordinary item $ 5,275 $ 7,294 $ (12,084) $ 11,735
=========== =========== ============ ===========
Net income $ 5,275 $ 7,294 $ (14,083) $ 11,735
Adjustments - None -- -- -- --
----------- ----------- ------------ -----------
Adjusted net income $ 5,275 $ 7,294 $ (14,083) $ 11,735
=========== =========== ============ ===========
Basic earnings per share:
Weighted average shares outstanding 27,043,121 14,220,388 23,206,716 14,174,870
=========== =========== ============ ===========
Income (loss) per share before
extraordinary item $ 0.20 $ 0.51 $ (0.52) $ 0.83
=========== =========== ============ ===========
Net income (loss) per share $ 0.20 $ 0.51 $ (0.61) $ 0.83
=========== =========== ============ ===========
Diluted earnings per share:
Weighted average shares outstanding 27,043,121 14,220,388 23,206,716 14,174,870
Incremental shares issuable from
assumed exercise of stock options
under the treasury stock method 94,263 115,311 150,878 158,190
----------- ----------- ------------ -----------
Weighted average shares outstanding
- as adjusted 27,137,384 14,335,699 23,357,594 14,333,060
=========== =========== ============ ===========
Income (loss) per share before
extraordinary item $ 0.19 $ 0.51 $ (0.52) $ 0.82
=========== =========== ============ ===========
Net income (loss) per share $ 0.19 $ 0.51 $ (0.60) $ 0.82
=========== =========== ============ ===========
</TABLE>
- 10 -
<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 Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
Income Statement Data
Net Sales $ 70,651 $74,787 $ 210,290 $232,782
Operating income (1,937) 2,260 (8,848) 8,926
Equity in undistributed earnings
of subsidiaries 13,629 5,945 9,438 5,631
Income (loss) before extraordinary item 5,275 7,294 (12,084) 11,735
</TABLE>
<TABLE>
<CAPTION>
June 30,
---------
1997
---------
<S> <C>
Balance Sheet Data
Current assets $ 97,490
Property, plant and equipment, net 50,337
Investment in subsidiaries, at equity 653,927
Total assets 883,998
Current liabilities 12,835
Long-term debt, net 502,917
Shareholder's equity 351,255
</TABLE>
- 11 -
<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 June 30, 1998, the Company had $138 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 system on a timely basis.
Modification of Savannah's computer systems was completed in the third fiscal
quarter and the target date for completion of the remaining year 2000
modifications is December 31, 1998. Costs to modify existing systems is expected
to be less than $1 million. Additionally, as part of the Company's merger
integration strategy, all major management information systems are expected to
be replaced by newly acquired software by the end of fiscal year 2000. Certain
of these new systems will replace existing software which is not year 2000
compliant; the first of such new company-wide applications was implemented June
30, 1998, with the replacement of remaining non-compliant applications scheduled
for the first and second quarters of fiscal 1999.
- 12 -
<PAGE> 13
The Company has initiated discussions with major vendors and customers
concerning their year 2000 readiness. 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 $45 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 of 9% for the three and 4% for the
nine month periods ended June 30, 1998 compared to the same periods ended June
30, 1997 resulted from lower sales prices offsetting higher volumes, principally
of beet sugar volumes. Refined sugar sales prices were lower in the current year
due to a larger domestic sugar beet crop and higher than normal inventory
levels. 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.
Margins on refined sugar sales were negatively affected by lower sugar
prices. 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, byproducts, 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.
The current quarter's operating results benefited from strong
contributions by the Company's California beet sugar operations and Savannah
cane sugar refineries, as well as continued improvements in the operations of
the Sugar Land cane refinery. Efficient factory operations both in California
and the Savannah refineries, along with full sugarbeet acreage in California
reduced sugar production costs. Any adverse impact of record spring rains and
delayed factory start-ups on beet quality and California factory operations is
not expected to be felt until the Company's fourth fiscal quarter and will be
dependent on weather conditions in California during that quarter. The Company
recorded a $3.8 million charge in the quarter ended March 31, 1998, for the
expected impact on industrial sales commitments of anticipated higher costs
resulting from such abnormal weather.
Beet sugar costs during the first half of the fiscal year 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.
- 13 -
<PAGE> 14
In February 1998, the Company announced that it would not process sugar beets at
the Hereford factory this fall. 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.
Pro forma selling, general and administrative costs were $7.8 million
lower for the three months and $21.8 million lower for the nine months ended
June 30, 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 eliminate 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 nine months ended June 30, 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.
Other income increased due to higher dividends, lower costs related to
farm land lease operations and an installment gain recognized in the second
fiscal quarter on sale of a distribution facility in a prior year.
- 14 -
<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) The Company did not file a current report on Form 8-K during the
three months ended June 30, 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: August 13, 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 NINE
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 9,408
<SECURITIES> 65,643
<RECEIVABLES> 129,040
<ALLOWANCES> 0
<INVENTORY> 261,804
<CURRENT-ASSETS> 496,634
<PP&E> 576,455
<DEPRECIATION> 177,062
<TOTAL-ASSETS> 1,227,883
<CURRENT-LIABILITIES> 225,959
<BONDS> 525,431
0
0
<COMMON> 268,602
<OTHER-SE> 82,653
<TOTAL-LIABILITY-AND-EQUITY> 1,227,883
<SALES> 1,305,921
<TOTAL-REVENUES> 1,305,921
<CGS> 1,186,907
<TOTAL-COSTS> 1,186,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,690
<INCOME-PRETAX> (12,703)
<INCOME-TAX> (2,385)
<INCOME-CONTINUING> (12,804)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,999)
<CHANGES> 0
<NET-INCOME> (14,083)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.60)
</TABLE>
