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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999 Commission File Number 1-10307
IMPERIAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Imperial Square
P.O. Box 9
Sugar Land, Texas 77487
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (281) 491-9181
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock, without par value American Stock Exchange
Rights to Purchase Preferred Stock American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent fliers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $89 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on
December 3, 1999 and (solely for this purpose) treating all directors,
executive officers and 10% shareholders of the registrant as affiliates.
The number of shares outstanding of each of the registrant's Common Stock,
as of December 3, 1999, was 32,210,643.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement relating to
the registrant's 2000 Annual Meeting of Shareholders are incorporated by
reference in Part III hereof.
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TABLE OF CONTENTS
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Page
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Part I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 10
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders........... 10
Executive Officers of the Registrant.......................... 11
Part II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.......................................... 13
Item 6. Selected Financial Data....................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 21
Item 8. Financial Statements and Supplementary Data................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 23
Part III
Item 10. Directors and Executive Officers of the Registrant............ 23
Item 11. Executive Compensation........................................ 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 23
Item 13. Certain Relationships and Related Transactions................ 23
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 24
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The statements regarding future market prices, operating results and Year
2000 readiness and other statements that are not historical facts contained in
this report on Form 10-K are forward-looking statements. The words "expect",
"project", "estimate", "believe", "anticipate", "plan", "intend", "could",
"should", "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
ability of the Company to realize cost savings from acquisitions, the ability
of the Company and third party vendors and customers to successfully remediate
Year 2000 computer issues, 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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PART I
ITEM 1. Business
In the past two years, Imperial Sugar Company ("Imperial") has made a number
of strategic acquisitions. In December 1997, Imperial completed its two-step
acquisition of Savannah Foods & Industries, Inc. ("Savannah Foods"), a
Georgia-based processor and marketer of sugar and related products. In
September 1998, Imperial acquired Wholesome Foods L.L.C ("Wholesome Foods"), a
leading supplier of organic sweeteners. In November 1998, Imperial acquired
Diamond Crystal Specialty Foods, Inc. ("Diamond Crystal"), a leading
distributor of nutritional dry mixes, sauces, seasonings, drink mixes and
desserts for the foodservice industry. As used herein, the terms "Imperial"
and the "Company" refer to Imperial Sugar Company and its subsidiaries,
including Savannah Foods, Wholesome Foods and Diamond Crystal. The Company
operates in two domestic business segments--the sugar segment, which produces
and sells refined sugar and related products, and the foodservice segment,
which sells and distributes numerous products to foodservice customers. The
segment information in Note 11 to the Company's Consolidated Financial
Statements is incorporated herein by reference.
The Company
The Company is the largest, most geographically diverse and most balanced
processor and marketer of refined sugar in the United States. The Company
refines raw cane sugar at four refineries located in Texas, Georgia, Florida
and Louisiana and produces beet sugar at 11 beet sugar factories located in
California, Wyoming, Montana and Michigan. For the year ended September 30,
1999, the Company sold approximately 58 million hundredweight of refined
sugar. The foodservice segment currently operates seven facilities in
California, Georgia, Indiana, Iowa, Massachusetts and Ohio.
The Company offers a broad product line and sells to a wide range of
customers directly and through wholesalers and distributors. Sugar segment
customers include retail grocers and industrial customers, principally food
manufacturers. Foodservice segment customers include restaurants, healthcare
institutions, geriatric centers, schools and other institutions. The Company's
sugar products include granulated, powdered, liquid and brown sugars sold in a
variety of packaging options (one pound boxes to 100-pound bags, individual
packets and in bulk) under various brands (Imperial(R), Holly(R),
Spreckels(R), Dixie Crystals(R), Pioneer(R) and Wholesome Sweeteners(TM)) or
private labels. In addition, the Company produces selected specialty sugar
products, including Savannah Gold(TM) (a premium-priced, free-flowing brown
sugar), Imbrocon(TM) (a liquid flavoring), Sucanat(TM) (sugar milled from
organically grown sugarcane) and specialty sugars used in confections and
icings. The foodservice segment sells sugar in packages from 50-pound bags to
individual packets to foodservice customers, along with complementary non-
sugar products, including salt, pepper and other seasonings, non-nutritive
sweeteners, non-dairy creamers, nutritional dry mixes, sauces, drink mixes,
desserts, plastic cutlery and packets of plastic cutlery with seasonings and
other items.
Imperial was incorporated in 1924 as Imperial Sugar Company and is the
successor to a cane sugar plantation and milling operation begun in Sugar Land
in the early 1800s that began producing granulated sugar in 1843. In 1988, the
Company purchased Holly Sugar Corporation ("Holly") and changed its name to
Imperial Holly Corporation. In April 1996, the Company acquired Spreckels
Sugar Company ("Spreckels"). The Company completed its acquisition of Savannah
Foods in December 1997 and completed its acquisitions of Wholesome Foods and
Diamond Crystal in September and November 1998, respectively. In January 1999,
the Company changed its name from Imperial Holly Corporation to Imperial Sugar
Company.
The future results of the Company depend in part on the ability of
management to continue to consolidate operations and to integrate departments,
systems and procedures, and this integration may require substantial attention
of management. Any inability of the Company to integrate its operations with
those of the recently acquired companies in a timely and efficient manner
would adversely affect the Company's ability to realize the planned benefits
of the acquisitions, including potential synergies and cost savings.
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Industry Overview
Refined sugar can be produced by either processing sugar beets or processing
and refining sugarcane. The profitability of cane sugar and beet sugar
operations is affected by government programs designed to support the price of
domestic crops of sugar beets and sugarcane, which affect cane sugar and beet
sugar operations differently. See "-- Sugar Legislation and Other Market
Factors".
Cane Sugar Production Process. Sugarcane is grown in tropical and semi-
tropical climates in the United States and some foreign countries. Sugarcane
is processed by raw cane mills promptly after harvest into raw sugar, which is
approximately 98% sucrose and may be stored for long periods and transported
over long distances without affecting its quality. Raw cane sugar imports
currently are limited by United States government programs.
Cane sugar refineries like those operated by the Company purify raw sugar to
produce refined sugar. Operating results of cane sugar refineries are driven
primarily by the spread between raw sugar and refined sugar prices. See
"--Sugar Legislation and Other Market Factors".
Beet Sugar Production Process. Sugar beets can flourish wherever a five-
month growing season is possible. In the United States, sugar beets are grown
in California, Colorado, Idaho, Michigan, Minnesota, Montana, Nebraska, North
Dakota, Ohio, Oregon, South Dakota, Washington and Wyoming. Harvest periods
depend on the growing area, but are generally in the early fall, except in
California, where spring and summer harvests occur.
Sugar beets are highly perishable and must be processed into refined sugar
quickly after harvest to avoid deterioration. Beets may be stored in piles
awaiting processing where temperatures are sufficiently cool. Sugar beets are
converted to refined sugar through a single continuous process at beet sugar
factories. Beet sugar factories are located near the areas in which beets are
grown in order to reduce freight costs and the risk of deterioration. The
Company's staggered harvest seasons with respect to the sugar beet acreage
supplying the Company's 11 sugar beet production facilities allows it to
produce beet sugar year round even though the production campaign at any
single facility generally lasts no more than 180 days. Operating results are
driven primarily by the quantity and quality of sugar beets dedicated to the
factory and the net sales prices received for the refined beet sugar. The beet
processor shares a portion of the net sales price with growers through various
participation or recovery contracts or cooperative arrangements. See "--Raw
Materials and Processing Requirements--Sugar Beet Purchases".
Government Regulation. Federal government programs have existed to support
the price of domestic crops of sugar beets and sugarcane almost continually
since 1934. The regulatory framework that currently affects the domestic sugar
industry includes the Federal Agricultural Improvement and Reform Act of 1996
(the "Farm Bill"), which provides for loans on sugar inventories to first
processors (i.e., raw sugar mills and beet processors) and implements a tariff
rate quota which limits the amount of raw and refined sugar that can be
imported into the United States. The North American Free Trade Agreement
("NAFTA"), which was adopted in 1994 and limits the amount of sugar that can
be imported to and exported from Mexico, has to date had a lesser impact on
the United States sugar market. See "-- Sugar Legislation and Other Market
Factors."
For the crop years ended September 1997 through 1999, the USDA implemented a
program of increasing the tariff rate quota in known quantities at three known
dates based on the level of the projected ending stocks-to-use ratio (the
projected ratio of available sugar inventories to annual consumption). There
was previously no target for the ending stocks-to-use ratio, and the USDA
could increase or decrease the quota at will. The Company believes that this
administration of the tariff rate quota for foreign sugar has caused the
market to be less volatile by indicating in advance the likely changes in the
quota, thus giving guidance to the market. Effective October 1999, the USDA
has modified this approach. See "-- Sugar Legislation and Other Market
Factors."
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Domestic Demand. Domestic demand for refined sugar has increased each year
since 1986, and the average rate of growth over the five-year period ended
September 1999 was 1.6%. The trend in the food manufacturing industry toward
production of "low fat" products has increased industrial demand for sugar, as
food manufacturers have added sugar to enhance flavor and texture as fat is
removed.
Domestic Supply. Reduced demand in the early 1980s was absorbed principally
by capacity reductions in the cane sugar refining sector. Approximately one-
third of domestic cane sugar refining capacity was eliminated between 1981 and
1988. Cane sugar refining capacity remained relatively flat from 1988 until
1998, when the United States Sugar Corporation ("U.S. Sugar") completed
construction of a refinery in Florida with a rated annual capacity of
approximately 10 million cwt. Growth in refined sugar demand during the last
decade has been largely satisfied through increased beet sugar production. In
recent years, there have been a number of expansions to existing beet sugar
factories to allow for increased acreage dedications. The Company believes
that the rate of growth of beet sugar production has slowed as most of the
beet factory expansions that are economic under current conditions have been
completed. The Company believes that further expansion of existing beet
factories would require that beets be transported over greater distances,
which is often uneconomical. Accordingly, construction of new factory sites
would be required for further expansion. See "--Manufacturing Facilities".
Domestic Refined Sugar Prices. Given the existing domestic supply and demand
situation, the increasing role of beet production and the current status of
government regulation, the price of refined sugar in the United States in
recent years has been driven primarily by the amount of beet sugar supply.
Historically, good crop years have led to relatively soft refined sugar
prices, and weak crop years have led to relatively strong refined sugar
prices.
Products and Sales
Sugar Segment. The principal product line in the sugar segment is refined
sugar, which accounted for approximately 75% of the Company's consolidated net
sales for the year ended September 30, 1999. The Company has a relatively
well-balanced combination of cane and beet sugar sales, with cane sugar
constituting approximately 60% and beet sugar constituting 40% of the
Company's refined sugar sales for the year ended September 30, 1999. Through
Wholesome Foods, now doing business as Wholesome Sweeteners, the Company also
sells sugar produced from organically grown sugarcane. The Company markets its
sugar products to retail grocery and industrial customers by direct sales and
through brokers or wholesalers. For the year ended September 30, 1999, the
Company's sales of refined sugar products to retail grocery accounted for
approximately 30% of sugar segment sales and sales to industrial customers
accounted for 65%.
Grocery Sales. The Company produces and sells granulated white, brown and
powdered sugar to grocery customers in packages ranging from one-pound boxes
to 25-pound bags. Retail packages are marketed under the trade names
Imperial(R), Dixie Crystals(R), Holly(R), Spreckels(R), Pioneer(R) and
Wholesome Sweeteners(TM), and are also sold under retailers' private labels.
Private label packaged sugar, which represents a significant percentage of the
Company's grocery sales, is generally sold at prices lower than those received
for branded sugar. The Company seeks to capitalize on its well-known brands to
seek to increase sales of higher-margin branded products as a percentage of
total grocery sales.
Industrial Sales. The Company produces and sells refined sugar, molasses and
other ingredients to industrial customers, principally food manufacturers, in
bulk, packaged or liquid form. Food manufacturers principally purchase sugar
for use in the preparation of confections, baked products, frozen desserts,
canned goods and various other food products. Historically, the majority of
the Company's industrial sales are made to customers under fixed price,
forward sales contracts with terms of one year or less. Industrial sales
generally provide lower margins than grocery sales.
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Specialty Product Sales. The Company produces and sells specialty sugar
products to grocery and industrial customers. Specialty sugar products include
Savannah Gold(TM), a premium-priced free flowing brown sugar marketed
primarily to industrial customers; Imbrocon(TM), a liquid flavoring also
marketed to industrial customers; edible molasses; syrups; Sucanat(TM), sugar
produced from organically grown sugarcane; and specialty sugars used in
confections, fondants and icings. The Company also markets artificial
sweeteners including Sweet Thing(R), a saccharin-based sweetener, and Sweet
Thing II(R), an aspartame-based sweetener.
Foodservice Segment. The Company's foodservice segment sells numerous
products to foodservice customers, including healthcare institutions, ranging
from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-
dairy creamer and plastic cutlery, nutritional dry mixes, sauces, seasonings,
drink mixes, desserts and diet kits(R) (packets of plastic cutlery with
seasonings and other items). During the year ended September 30, 1999, sugar
products sold in the foodservice segment accounted for 13% of consolidated
sales. The Company believes that the foodservice sector is one of the most
rapidly growing segments of the domestic food industry. The Company believes
its Savannah Foods and Diamond Crystal acquisitions have positioned the
Company to participate in this growing sector.
Sales and Marketing. The Company's products in both the sugar and
foodservice segments are sold directly by the Company's sales force and
through independent brokers. The Company maintains sales offices at its
offices in Sugar Land, Texas and Savannah, Georgia and at regional locations
across the United States. The Company considers its marketing and promotional
activities important to its overall sales effort. The Company advertises its
brand names in both print and broadcast media and distributes various
promotional materials, including discount coupons and compilations of recipes.
No customer accounted for 10% or more of the Company's sales for the year
ended September 30, 1999.
Seasonality. Sales of refined sugar are moderately seasonal, normally
increasing during the summer months because of increased demand of various
food manufacturers, including fruit and vegetable packers; shipments of
specialty products (brown and powdered sugar) increase in the fourth calendar
quarter due to holiday baking needs. Although the refining of cane sugar is
not seasonal, the production of beet sugar is a seasonal activity. Each of the
Company's beet sugar factories operates during sugar-making campaigns, which
generally total 120 days to 180 days in length each year, depending upon the
supply of sugar beets available to the factory. Because of the geographical
diversity of its manufacturing facilities, the Company is generally able to
produce beet sugar year-round. While the seasonal production of sugar beets
requires the Company to store significant refined sugar inventory at each
factory, the geographic diversity and staggered periods of production enable
the Company's total investment in inventories to be reduced. Additionally,
these factors reduce the likelihood that adverse weather conditions will
affect all the Company's productive areas simultaneously and aid in
distribution. Sales of the Company's foodservice products are not
significantly seasonal.
By-Products. The Company's sugar segment sells by-products from its beet
sugar processing as livestock feeds to dairymen, livestock feeders and
livestock feed processors. Such by-products include beet pulp and molasses.
The major portion of the beet pulp and molasses produced from sugar beet
operations is sold during and shortly after the sugar-making campaigns. By-
products from beet sugar processing are marketed in the United States, Europe
and Japan. Both the domestic and export markets are highly competitive because
of the availability and pricing of by-products of other sugar beet processors
and corn wet millers, as well as other livestock feeds and grains. The market
price of the Company's by-products relative to the price of competitive feeds
and grains is the principal competitive determinant. Among other factors, the
weather and seasonal abundance of such feeds and grains may affect the market
price of by-products.
Beet Seed. The Company develops, produces and markets commercial seed to
beet growers under contract to the Company as well as growers under contract
to grow for other beet sugar processors. The Company does not authorize its
growers to utilize genetically modified seed in their production program. The
Company's beet seed sales program is conducted primarily in Sheridan, Wyoming
and Tracy, California. The Company is also active in sugar beet disease
control, as sugar beet growing areas have varying levels of diseases that
affect sugar
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beet quality and quantity as well as the cost of processing. The Company has a
sugar beet plant pathology disease control research laboratory in Tracy,
California that develops and implements disease control strategies for all of
the Company's sugar beet growing areas.
The Company has an agreement with ADVANTA SEEDS, a partnership of D. J. van
der Have B.V. and Societe Europeenne de Semences, N.V., S.A. ("ADVANTA"),
granting ADVANTA access to the Company's proprietary beet seed breeding
material for varietal seed development in exchange for the exclusive marketing
rights to ADVANTA's beet seed in certain markets in the United States, Canada
and Mexico.
Inulin. The Company and Cooperatie Cosun U.A., a Netherlands sugar processor
("Cosun"), own Imperial-Sensus LLC ("IS"), a 50-50 joint venture formed in
1995 to introduce and market inulin in North America. Inulin is a natural
carbohydrate extracted from the chicory plant, with multifunctional properties
with potential both as a nutritional additive and as a functional food
ingredient. Inulin is extracted from chicory roots by a process similar to
sugar extraction from sugar beets. IS has the exclusive right to market in
Canada, Mexico and the United States inulin and inulin-based products produced
by Cosun. The Company has also entered into various agreements to provide
certain marketing and administrative services to the joint venture.
Manufacturing Facilities
The Company owns and operates four cane sugar refineries and 11 sugar beet
factories. Each facility is served by adequate transportation and is
maintained in good operating condition. The facilities operate continuously
when in operation. The following table shows the location and capacity of each
of the Company's refineries and processing plants:
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Approximate Daily
Melting Capacity
Cane Sugar Refineries (Pounds of Raw Sugar)
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Port Wentworth, Georgia............................... 6,300,000
Gramercy, Louisiana................................... 4,200,000
Sugar Land, Texas..................................... 4,000,000
Clewiston, Florida.................................... 1,700,000
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Total............................................. 16,200,000
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Approximate Daily
Slicing Capacity
Beet Sugar Factories (Tons of Sugar Beets)
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Brawley, California.................................. 9,000
Mendota, California.................................. 4,200
Tracy, California.................................... 5,000
Woodland, California................................. 4,000
Caro, Michigan....................................... 4,000
Carrollton, Michigan................................. 3,400
Sebewaing, Michigan.................................. 6,000
Croswell, Michigan................................... 4,000
Sidney, Montana...................................... 7,000
Torrington, Wyoming.................................. 5,700
Worland, Wyoming..................................... 3,600
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Total............................................ 55,900
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In 1998, the Company ceased sugar beet processing at its factory in
Hereford, Texas. The Company continues to operate an ion exclusion facility at
the factory to separate refined sugar from molasses, and also uses the
facility as a distribution center.
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A partnership in which the Company owned a 43% limited partnership interest
built a new beet sugar factory in Moses Lake, Washington, that was
commissioned in September 1998. In April 1999, the Company transferred its
partnership interest to its partner which operates and now owns 100% of the
facility. See Note 13 to the Company's Consolidated Financial Statements.
The following table shows the location and approximate square footage of the
Company's foodservice manufacturing facilities, each of which is owned by the
Company:
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Square
Foodservice Manufacturing Facilities Feet
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Savannah, Georgia................................................... 314,500
Bondurant and Mitchellville, Iowa................................... 152,513
Bremen, Georgia..................................................... 132,400
Perrysburg, Ohio.................................................... 131,000
Moore, Oklahoma *................................................... 106,769
Visalia, California................................................. 101,500
Wilmington, Massachusetts........................................... 76,540
Indianapolis, Indiana............................................... 63,240
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* Facility ceased manufacturing operations in October 1999 and was sold in
December 1999.
Raw Materials and Processing Requirements
Raw Cane Sugar. The Company purchases raw cane sugar from both domestic and
foreign sources of supply located in Louisiana, Florida and various foreign
countries. The availability of foreign raw cane sugar is determined by the
import quota level designated by applicable regulation. See "-- Industry
Overview" and "--Sugar Legislation and Other Market Factors". The Company has
not experienced difficulties in the past in contracting sufficient quantities
of raw cane sugar to supply its refineries.
Raw cane sugar purchase contracts can provide for the delivery of a single
cargo or for multiple cargoes over a specified period or a specified
percentage of the seller's production over one or more crop years. Contract
terms may provide for fixed prices but generally provide for prices based on
the futures market during a specified period of time. The contracts provide
for a premium if the quality of the raw cane sugar is above a specified grade
or a discount if the quality is below a specified grade. Contracts generally
provide that the seller pays freight, insurance charges and other costs of
shipping.
The Company contracts to purchase raw cane sugar substantially in advance of
the time it delivers the refined sugar produced from that purchase.
Historically, the majority of the Company's industrial sales are under fixed
price, forward sales contracts. In order to mitigate price risk in raw and
refined sugar commitments, the Company manages the volume of refined sugar
sales contracted for future delivery with the volume of raw cane sugar
purchased for future delivery by entering into forward purchase contracts to
buy raw cane sugar at fixed prices and by using other techniques to fix the
price for a portion of sugar purchased. The Company uses the raw sugar futures
market as a hedging and purchasing mechanism, as management deems appropriate.
U.S. Sugar, which supplies approximately 14% of the Company's supply of raw
cane sugar, has notified the Company that it intends to terminate its supply
contract with the Company effective October 31, 2001. In addition, U.S. Sugar
has completed construction of a refinery in Florida. See "Industry Overview --
Domestic Supply". The Company expects that adequate supplies of raw cane sugar
from other sources will be available upon the expiration of this contract.
Because the contract provides for market-based pricing, the Company expects
that the expiration of the contract will not significantly affect its cost of
raw sugar. However, no assurance can be given that such supplies will be
available or that the Company's cost of raw sugar will not be affected.
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The Company has access to approximately 350,000 short tons of aggregate raw
sugar storage capacity, including 215,000 short tons of storage capacity at
its Port Wentworth, Georgia refinery. At Port Wentworth, the Company has the
ability to segregate its raw sugar inventory, which allows the Company to
store bonded sugar for re-export. This capability facilitates the Company's
participation in the re-export market. The Company has been active in such
market in the past and expects to be active in the future when pricing and
market conditions are favorable.
Sugar Beet Purchases. The Company purchases sugar beets from over 2,700
independent growers, which supply the Company's factories with approximately
330,000 acres of beets. The sugar beets are purchased under contracts
negotiated with associations representing growers. The Company contracts for
acreage prior to the planting season based on estimated demand, marketing
strategy, processing capacity and historical crop yields. The type of contract
used in the western United States provides for payments to the grower based on
the sugar content of the sugar beets delivered by each grower and the net
selling price of refined beet sugar during the specified contract year. The
type of contract used in Michigan provides for growers to share in the
revenues generated by sales of pulp and molasses, as well as sales of refined
sugar. Most grower contracts provide for a premium to the growers for
delivering beets of superior quality. The net selling price is the gross sales
price less certain marketing costs, including packaging costs, brokerage,
freight expense and amortization costs for certain facilities used in
connection with marketing. Use of this type of participating contract reduces
the Company's exposure to price risks on its refined sugar inventory by
causing the price the Company pays on its sugar beet purchases to vary with
the price received for raw sugar.
The Company's beet sugar operations are dependent upon the quantity, quality
and proximity of sugar beets available to its factories. Sugar beet acreage
varies depending on factors such as prices anticipated by growers for sugar
beets versus alternative crops, prior crop quality, productivity, availability
of irrigation and weather conditions. In addition, the quantity and cost of
refined sugar subsequently produced from the sugar beet crop may be materially
affected by the acreage harvested, disease, insects and unfavorable weather
conditions during the growing, harvesting, processing and storage season.
Once harvested, sugar beets are purchased by the Company and, in some
locations, stored in piles until processed. Under the contracts used in
Michigan and the Rocky Mountains, the beet growers continue to share the risk
of deterioration of the stored sugar beets with the Company. However, the
Company contractually accepts about one-half of the risk with respect to
stored sugar beets in these areas and all of the risk in other areas. The
Company believes that the geographic diversity of its growing areas reduces
the risk that adverse conditions will occur company-wide; however, there can
be no assurance that the Company's results of operations will not be adversely
affected by such risks.
Energy. The primary fuel used by the Company is natural gas, although
certain of the Company's factories use significant amounts of coal. The
Company generates a substantial portion of the electricity used at its
refineries and factories. The Company can use fuel oil at certain locations
both as an alternative energy source when the price is more attractive and as
a backup to natural gas in the event of curtailment of gas deliveries. Natural
gas and coal supplies are typically purchased under contracts for terms of one
year or more, which do not contain minimum quantity requirements.
Pricing of natural gas contracts is generally fixed for the term or indexed
to a spot market index. The Company has also utilized financial tools such as
swaps and caps to stabilize the price for gas purchases under indexed
contracts. Coal is available in abundant supply domestically, and the Company
is able to purchase coal competitively.
The Company owns a royalty interest in a coal seam methane gas project in
the Black Warrior Basin of Alabama as an additional indirect hedge against
future natural gas price increases. Gas royalties received during fiscal 1999
were approximately $200,000.
Other Raw Materials. Foundry coke and limestone are used in the beet sugar
extraction process. The Company generally purchases coke under contracts with
one to three-year terms and utilizes rail transportation
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to deliver the coke to factories. Domestic coke supplies may become tighter
due to environmental restrictions; the Company has the option of converting
existing coke-fired equipment to natural gas should the availability and
economics of coke so dictate. The Company owns a 50% share of a limestone
quarry in Warren, Montana that supplies the Sidney, Montana and Worland,
Wyoming factories with their annual limestone requirements. The Company
operates a limestone quarry in Cool, California that supplies the Company's
Northern California beet processing factories with limestone. These quarries
do not normally supply the Company's other factories because of high freight
costs. Limestone required in the other factory operations is generally
purchased from independent sources under contracts with one to five-year
terms.
Research
The Company operates research and development centers in Sugar Land, Texas
and Savannah, Georgia where it conducts research relating to manufacturing
process technology, factory operations, food science and new product
development. In Savannah, the Company operates a "pilot plant" in connection
with its research and development activities where it has developed sugar
products co-crystallized with other flavors such as honey. The Company has
begun to market the co-crystallized specialty products produced at the pilot
plant to certain customers.
Competition
The Company's sugar segment competes with other cane sugar refiners and beet
sugar processors and, in certain product applications, with producers of other
nutritive and non-nutritive sweeteners. The Company's foodservice segment
competes with other foodservice suppliers. Selling price and the ability to
supply the buyer's quality and quantity requirements in a timely fashion are
important competitive factors. Certain competing beet sugar processors have
expanded their production capacity significantly over the past five years. The
additional sugar marketed as a result of this expansion has acted to reduce
refined sugar prices at times during this period. To a lesser extent, refined
sugar also competes with non-nutritive or low-calorie sweeteners, principally
aspartame and, to lesser extents, saccharin and acesulfam-k.
The replacement of refined sugar by high fructose corn syrup ("HFCS") and
non-nutritive sweeteners in the beverage market was substantially completed
over a decade ago. The Company does not currently consider HFCS a significant
competitive threat, as refined sugar and HFCS generally support different
markets. HFCS is primarily a liquid sweetener and generally does not compete
in the dry sugar market.
Sugar Legislation and Other Market Factors
The Company's business and results of operations are substantially affected
by market factors, principally the domestic prices for refined sugar and raw
cane sugar, and the quality and quantity of sugar beets available to the
Company. These market factors are influenced by a variety of forces, including
the number of domestic acres contracted to grow sugar beets, prices of
competing crops, weather conditions and United States farm and trade policies.
See "-- Industry Overview" and "-- Raw Materials and Processing Requirements".
The principal legislation currently supporting the price of domestic crops
of sugar beets and sugarcane is the Farm Bill, which became effective July 1,
1996 and extended the sugar price support program for sugarcane and sugar
beets until June 30, 2003.
CCC Loans. Pursuant to the Farm Bill, the Commodity Credit Corporation
("CCC") is obligated annually to make loans available to domestic first
processors of sugar on existing sugar inventories from the current crop year
production. CCC loans under the Farm Bill are recourse loans unless the tariff
rate quota for imported sugar is set at a level in excess of 1.5 million short
tons raw value ("STRV"). If the tariff rate quota exceeds 1.5 million STRV,
CCC loans will become non-recourse and processors will be obligated to pay
participating growers a predetermined minimum support price. CCC loans mature
September 30 of each year and in no event more than nine months after the
month in which the loan was made. Under the Farm Bill, processors may forfeit
8
<PAGE>
sugar that secures CCC loans to the USDA in lieu of repaying the loans; if the
tariff rate quota is below 1.5 million STRV and the value of the sugar
forfeited as collateral for the loan is inadequate to cover the loan amount,
the USDA may proceed against the processor to recover the difference between
the loan amount and the proceeds from the sale of the forfeited sugar.
Additionally, under the rules governing the CCC loans, a processor will be
required to pay a penalty of approximately one cent per pound for each pound
of sugar forfeited.
Tariff Rate Quota. Under the Farm Bill, the USDA utilizes the import quota
and the forfeiture penalty to affect sugar price supports and prevent
forfeitures under the CCC loan program. The USDA annually implements a tariff
rate quota for foreign sugar, which has the effect of limiting the total
available supply of sugar in the United States. The tariff rate quota controls
the supply of raw sugar by setting a punitive tariff on all sugar imported for
domestic consumption that exceeds the determined permitted imported quantity
and is designed to make the importation of the over-quota sugar uneconomical.
To the extent a processor sells refined sugar for export from the United
States, it is entitled to import an equivalent quantity of non-quota eligible
foreign raw sugar. The tariff rate quota for sugar to be allowed entry into
the United States during the year ended September 30, 1999 was 1.28 million
STRV; for the year ending September 30, 2000 the tariff rate quota is 1.50
million STRV. The USDA currently determines the quota by targeting an ending
stocks-to-use ratio. A portion of the quota will be made available immediately
with other allocations available over time depending on domestic production of
raw cane sugar and refined beet sugar. In November 1999, the USDA announced
the raw sugar tariff rate quota at 1.50 million STRV, making 1.25 million STRV
(the statutory minimum) immediately available while holding 250,000 STRV in
reserve. This full quota should ensure that sugar producers receive
nonrecourse loans. This reserve amount will not be automatically allocated by
tranche as in prior years, and the impact of this approach is currently
difficult to estimate.
NAFTA. NAFTA contains provisions that allow for Mexico to increase its sugar
exports to the United States if Mexico is projected to produce a net surplus
of sugar. The terms of NAFTA restrict Mexico's exports, which may be in the
form of raw or refined sugar, to the United States to no more than 25,000 STRV
annually until the year 2000. Mexico's exports to the United States will be
further increased in the event Mexico produces a sugar surplus for two
consecutive years prior to the year 2000 or at any time thereafter. The
Company's management believes that increased importation of raw cane sugar
from Mexico could benefit the Company because the proximity of its Sugar Land,
Texas refinery to Mexico could allow the Company to import raw cane sugar more
economically than its competition. However, if imports are in the form of
refined cane sugar, the domestic refined sugar market may be adversely
affected.
Employees
At November 1, 1999, the Company employed approximately 3,800 year-round
employees. In addition, the Company employed approximately 4,000 seasonal
employees over the course of the year ended September 30, 1999. While the
Company's Port Wentworth, Georgia and Clewiston, Florida refineries employ
non-union labor, the Company has entered into collective bargaining agreements
with union representatives with respect to the employees at the Company's
other sugar segment plants. The Company's Indianapolis, Indiana and
Perrysburg, Ohio foodservice facilities operate under collective bargaining
agreements, while the remainder of its foodservice facilities employ non-union
labor. The Company believes its employee and union relationships are good.
Environmental Regulation
The Company's operations are governed by various federal, state and local
environmental regulations. These regulations impose effluent and emission
limitations, and requirements regarding management of water resources, air
resources, toxic substances, solid waste and emergency planning. The Company
has obtained or is making application for the permits required under these
regulations. The Company has filed Title V applications as required in
California, Wyoming, Montana, Michigan, Texas, Georgia and Florida.
Wastewater odor control is being addressed at the Company's facilities in
Tracy and Woodland, California. The soil and ground water at the Company's
Mendota, California facility have high concentrations of salts. The Company
has developed a prevention plan to install a clay cap on the areas of concern
and to treat the affected
9
<PAGE>
ground water. This plan will be accomplished over a 20 to 30-year period with
an expected annual cost ranging from $40,000 to $120,000. The Company has
recorded a liability for the estimated costs of this project. The Company's
Torrington, Wyoming facility has made significant operational modifications in
order to meet more restrictive state solid waste and groundwater regulations.
In November 1998, the Company, through its Diamond Crystal subsidiary,
received a Request for Information Pursuant to Section 104 of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and Section 3007 of Resource Conservation and Recovery Act ("RCRA")
relative to the Beede Waste Oil Site in Plainstow, New Hampshire. Responses to
the information request were last filed in March 1999. The Company's review
has not identified any connection between Diamond Crystal and the transporters
identified for this site. No further requests for information have been
received.
Ongoing compliance with environmental statutes and regulations has not had,
and the Company does not anticipate that it will in the future have, a
material adverse effect on the Company's competitive position since its
competitors are subject to similar regulation. Additional testing requirements
and more stringent permit limitations have resulted in increasing
environmental costs, and the Company expects that the cost of compliance will
continue to increase. Additional capital expenditures will be required to
comply with future environmental protection standards, although the amount of
any further expenditures cannot be accurately estimated. Management does not
believe that compliance will have a materially adverse impact on the Company's
capital resources, operating results or financial condition.
ITEM 2. Properties
The Company owns each of its cane sugar refineries, sugar beet processing
plants and foodservice manufacturing facilities. The Company owns its
corporate headquarters in Sugar Land, Texas and leases other office space and
contracts for throughput and storage at warehouses and distribution stations.
The Company owns additional acreage at its factories and refineries which is
used primarily for settling ponds and as buffers from nearby communities or is
leased as farm and pasture land. Substantially all of these assets are subject
to liens securing the Company's bank debt. See "Business--Manufacturing
Facilities" and "Business--Other Raw Materials".
ITEM 3. Legal Proceedings
The Company is a party to litigation and claims which are normal in the
course of its operations; while the results of such litigation and claims
cannot be predicted with certainty, the Company believes the final outcome of
such matters will not have a materially adverse effect on its results of
operations or consolidated financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter
ended September 30, 1999.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of Imperial are elected annually to serve for the ensuing
year or until their successors have been elected. The following table sets
forth certain information with respect to the executive officers of Imperial:
<TABLE>
<CAPTION>
Name Age* Positions
---- ---- ---------
<S> <C> <C>
James C. Kempner........ 60 President and Chief Executive Officer
Douglas W. Ehrenkranz... 42 Executive Vice President
William F. Schwer....... 52 Executive Vice President and General Counsel
Roger W. Hill........... 60 Managing Director; President and CEO of Holly Sugar
Benjamin A. Oxnard,
Jr. ................... 64 Managing Director; President and CEO of Savannah Foods
Peter C. Carrothers..... 60 Managing Director
Mark Q. Huggins......... 50 Managing Director and Chief Financial Officer
James M. Kelley......... 55 Managing Director
John A. Richmond........ 53 Managing Director
David Roche............. 52 Managing Director
W.J. "Duffy" Smith...... 44 Managing Director
Mark S. Flegenheimer.... 38 Vice President; President of Michigan Sugar Company
H. P. Mechler........... 46 Vice President--Accounting
Karen L. Mercer......... 37 Vice President and Treasurer
Alan K. Lebsock......... 47 Controller
Roy L. Cordes, Jr....... 52 Secretary
</TABLE>
- --------
* As of December 3, 1999.
Except as set forth below, executive officers have held their present
offices for at least the past five years. Positions, unless specified
otherwise, are with the Company.
Mr. Kempner became President and Chief Executive Officer in 1993. Mr.
Kempner served as Executive Vice President from 1988 to 1993 and also served
as Chief Financial Officer from 1988 to April 1998.
Mr. Ehrenkranz became Executive Vice President in July 1999. Mr. Ehrenkranz
joined the Company in April 1995 as Director of Sales, Planning & Marketing--
Development and became Vice President--Sales and Marketing in September 1995
and Managing Director in April 1997. Prior to joining the Company, Mr.
Ehrenkranz was Marketing Manager with PepsiCo's Taco Bell subsidiary from 1993
to 1994.
Mr. Schwer became Executive Vice President in July 1999 and has served as
Managing Director since October 1995 and General Counsel since 1989. Mr.
Schwer became Assistant Secretary in 1998. He also served as Senior Vice
President from 1993 to 1995. Mr. Schwer joined Holly as Assistant General
Counsel in 1988.
Mr. Hill became a Managing Director in October 1995. He served as Executive
Vice President from 1988 to 1995. Mr. Hill also has been President of Holly
since 1988. Mr. Hill joined Holly in 1963 and served in various capacities,
including Vice President--Agriculture and Executive Vice President.
Mr. Oxnard became a Managing Director in February 1998 and President of
Savannah Foods in October 1999. Since 1996, he has served as Senior Vice
President--Raw Sugar of Savannah Foods. Mr. Oxnard joined Savannah Foods in
1983 as Vice President--Raw Sugar.
Mr. Carrothers became a Managing Director in October 1995. He served as
Senior Vice President--Operations from March to October 1995. Mr. Carrothers
joined the Company as Senior Vice President--Logistics in May 1994.
11
<PAGE>
Mr. Huggins joined the Company as Managing Director and Chief Financial
Officer in September 1999. Prior to joining the Company, Mr. Huggins was
Senior Vice President--Administration, Chief Financial Officer and Treasurer
with Cellstar Corporation from January 1997 to January 1999 and Chief
Financial Officer--Brazil Region until June 1999. Mr. Huggins was Chief
Financial Officer of Van Camp Seafood Company, Inc. ("Van Camp") from 1992 to
1997. In April 1997 Van Camp filed for protection under the federal bankruptcy
laws.
Mr. Kelley became a Managing Director in February 1998. Since 1995, he has
served as President of Dixie Crystals(R) Brands, Inc. Mr. Kelley joined
Savannah Foods in 1973 and has held various other positions with Savannah
Foods since then.
Mr. Richmond became a Managing Director in April 1997 and was named Vice
President--Operations in October 1995. Mr. Richmond has been Senior Vice
President and General Manager, Beet Sugar Operations, of Holly since 1993. Mr.
Richmond joined Holly in 1973 and has held various other positions with Holly
since then.
Mr. Roche became a Managing Director in February 1998. Since 1996, he has
served as Senior Vice President of Savannah Foods; in 1997 also became
President of Savannah Foods Industrial Inc. Mr. Roche has held various other
positions since he joined Savannah Foods in 1976.
Mr. Smith joined the Company as a Managing Director in September 1999. Prior
to joining the Company, Mr. Smith was Senior Vice President--Worldwide Product
Supply at Gerber Products Company from 1995 to 1999 and was Vice President-
Operations at Hostess Frito-Lay from 1993 to 1995.
Mr. Flegenheimer became a Vice President of the Company and President of
Michigan Sugar Company in October 1998. Mr. Flegenheimer joined Michigan Sugar
in 1994 as Vice President of Administration and became Vice President and
Chief Operating Officer in 1996.
Mr. Mechler became Vice President--Accounting in April 1997. Mr. Mechler had
been Controller since joining the Company in 1988.
Ms. Mercer became Vice President in April 1997 and has served as Treasurer
since 1994. She joined the Company in 1993.
Mr. Lebsock became Controller in April 1997 and has been Controller for
Holly since October 1990. From October 1984 to September 1990, he was
Assistant Controller for Holly. Mr. Lebsock joined Holly in 1974.
Mr. Cordes joined the Company as Deputy General Counsel in September 1997.
He became Secretary of the Company in July 1998. Prior to joining the Company,
Mr. Cordes was in private law practice from 1995 to 1997 and was a judge in
Fort Bend County, Texas from 1991 to 1994.
12
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
The Company's Common Stock is traded on the American Stock Exchange. At
December 3, 1999 there were 2,263 shareholders of record of the Common Stock.
The following table sets forth the high and low sales price per share of Common
Stock, as quoted by the American Stock Exchange, and cash dividends per share
declared in the periods set forth below:
<TABLE>
<CAPTION>
Sales Price
------------- Cash
Three Months Ended High Low Dividend(1)
------------------ ------ ------ -----------
<S> <C> <C> <C>
December 31, 1997............................... $14.38 $ 9.75 $0.03
March 31, 1998.................................. 12.13 8.31 0.03
June 30, 1998................................... 10.19 8.75 0.03
September 30, 1998.............................. 9.94 6.44 0.03
December 31, 1998............................... 8.75 6.13 0.03
March 31, 1999.................................. 9.75 6.06 0.03
June 30, 1999................................... 7.38 5.62 0.03
September 30, 1999.............................. 7.00 5.63 0.03
</TABLE>
- --------
(1) On October 29, 1999, the Board of Directors suspended payment of the
Company's quarterly cash dividend.
ITEM 6. Selected Financial Data.
Selected financial data for the last six fiscal periods is as follows (in
thousands of dollars, except per share data):
<TABLE>
<CAPTION>
Year Ended Six Months
September 30, Ended Year Ended March 31,
---------------------- September 30, ---------------------------
1999(1) 1998(2) 1997(3) 1997(4) 1996 1995
---------- ---------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
For The Period:
Net Sales............. $1,888,630 $1,783,091 $406,682 $752,595 $616,450 $586,925
Operating Income
(Loss)............... 47,904 38,939 20,359 28,423 (2,431) (2,091)
Income (Loss) Before
Extraordinary Item
(5).................. (18,124) (5,835) 9,951 11,518 (3,218) (5,365)
Net Income (Loss)..... (18,124) (7,834) 9,951 11,518 (2,614) (5,365)
Per Share Data:
Basic Income (Loss)
Per Share:
Before Extraordinary
Item(5)............. $ (0.57) $ (0.24) $ 0.70 $ 0.92 $ (0.31) $ (0.52)
Net Income (Loss).... (0.57) (0.32) 0.70 0.92 (0.25) (0.52)
Diluted Income (Loss)
Per Share:
Before Extraordinary
Item................ (0.57) (0.24) 0.69 0.90 (0.31) (0.52)
Net Income (Loss).... (0.57) (0.32) 0.69 0.90 (0.25) (0.52)
Cash Dividends
Declared............. 0.12 0.12 0.03 -- 0.04 0.16
At Period End:
Total Assets.......... $1,280,783 $1,179,800 $457,619 $449,933 $325,319 $374,124
Long-term Debt--Net... 553,577 525,893 81,304 90,619 89,800 100,010
Total Shareholders'
Equity............... 373,424 352,907 192,959 176,956 111,043 109,977
</TABLE>
- --------
(1) Includes the results of Diamond Crystal since November 2, 1998, as
discussed in Note 2 to the Consolidated Financial Statements.
(2) Includes the results of Savannah Foods since October 17, 1997, net of
minority interest through December 22, 1997, as discussed in Note 2 to the
Consolidated Financial Statements.
(3) In October 1997, the Company changed its fiscal year end from March 31 to
September 30.
(4) Includes the results of the Spreckels Sugar Company since April 19, 1996.
(5) See Note 7 to the Consolidated Financial Statements for a description of
the extraordinary item in fiscal 1998. In fiscal 1996, the Company
purchased and retired a portion of the 8-3/8% Senior Notes due 1999 for
amounts less than book value, and the Company reported such difference, net
of tax, as an extraordinary item.
13
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Company's primary capital requirements in fiscal 2000 are expected to
include working capital, debt service and capital expenditures. The primary
sources of capital are expected to be operating cash flow, borrowings under
the revolving credit facility, sales of receivables under the revolving
receivable purchase facility, borrowings from the Commodity Credit Corporation
("CCC"), and sales of marketable securities.
Long-term debt at September 30, 1999 was $553.6 million, consisting
principally of $250 million of senior subordinated notes and borrowings under
senior credit facilities. The Company's Amended and Restated Credit Agreement,
dated as of December 22, 1997, as most recently amended November 18, 1999,
(the "Senior Credit Agreement") includes a $157 million revolving credit
facility (available through December 2002) and term loans aggregating $192.1
million. At December 3, 1999, the Company had $36 million unused borrowing
capacity under the revolving credit facility. Interest on borrowings under the
Senior Credit Agreement is at floating rates (either a base rate plus a margin
ranging from 0.75% to 3% or a Eurodollar rate plus a margin ranging from 1.75%
to 4%). The Company has entered into interest rate swap agreements with major
financial institutions to effectively fix the interest rate on $230 million of
the amounts outstanding under the Senior Credit Agreement at a weighted
average annual rate of 8.54% as of September 30, 1999. The Company will be
required to make prepayments, with certain exceptions, equal to 100% of the
net proceeds from certain new indebtedness, the sale of equity securities and
the disposition of assets, including proceeds from the sale of stock of any
subsidiaries, plus 75% of excess cash flow (as defined). The Senior Credit
Agreement is secured by substantially all of the assets of the Company and its
subsidiaries. Borrowings from the CCC are secured by beet sugar inventories.
Under terms of the Senior Credit Agreement, seasonal CCC borrowings of up to
$25 million may be made without reduction of the amounts available under the
revolving credit facility.
On June 30, 1999, the Company entered into a five-year receivables purchase
agreement with an independent issuer of receivables-backed commercial paper.
The agreement establishes a five-year, $110 million revolving receivable
purchase facility, which allows the Company to sell receivables on a non-
recourse basis. Receivables are sold under the agreement at discount rates of
a commercial paper rate plus a margin of .44%. Initially the Company sold $95
million of accounts receivable and the proceeds were used to repay $52 million
of term loans and $43 million outstanding under the revolving credit facility.
The Senior Credit Agreement was amended to reduce the revolving credit
facility's commitment amount to $157 million. At September 30, 1999 the
Company had sold $105 million of accounts receivable under the facility.
The Company expects to liquidate most of its marketable securities portfolio
in fiscal 2000 and utilize the after tax proceeds to reduce long-term debt.
The portfolio had a market value of $65.5 million, including unrealized gains
of $32.6 million at September 30, 1999. Through December 3, 1999, the Company
had sold marketable securities with proceeds of $19.9 million since September
30, 1999.
In October 1999, the Board of Directors suspended payment of the Company's
quarterly cash dividend and intends to use the cash savings to reduce long-
term debt.
The Company's debt agreements impose various restrictions that could 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. In particular, the Company and
each of its subsidiaries is subject to negative covenants contained in the
Senior Credit Agreement that restrict, subject to specified exceptions:
. the incurrence of additional indebtedness and other obligations and the
granting of additional liens;
. mergers, acquisitions and dispositions;
. investments, loans and advances;
14
<PAGE>
. dividends, stock repurchases and redemptions;
. prepayment or repurchase of other indebtedness and amendments to certain
agreements governing indebtedness;
. transactions with affiliates;
. capital expenditures;
. sales and leasebacks;
. changes in fiscal periods;
. changes of lines of business; and
. entering into agreements that prohibit the creation of liens or limit
the subsidiaries' ability to pay dividends.
In addition, the Senior Credit Agreement requires the Company to maintain
compliance with certain specified financial covenants, including a maximum
ratio of total debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA") and senior debt to EBITDA, a minimum interest coverage
ratio and a minimum fixed charge coverage ratio as well as a minimum adjusted
current ratio and a minimum level of net worth.
The indenture governing the Company's $250 million senior subordinated notes
contains covenants that limit, with certain exceptions, the ability of the
Company and most of its subsidiaries to:
. incur additional indebtedness or issue preferred stock;
. pay dividends or make certain other restricted payments by the Company
or its subsidiaries;
. enter into transactions with affiliates;
. make certain asset dispositions;
. in the case of the Company, merge or consolidate with, or transfer
substantially all of its assets to another person;
. encumber assets;
. issue capital stock of wholly owned subsidiaries; or
. engage in certain business activities.
In addition, under certain circumstances, the Company will be required to
offer to repurchase the notes at par, plus accrued and unpaid interest, with
the proceeds of certain asset sales.
The Company's capital expenditures for fiscal 1999 were $26.8 million and
included packaging and production efficiency upgrades, as well as continuation
of the Company's computer system initiatives. Fiscal 2000 capital expenditures
are expected to approximate $35 million for environmental, safety and
obsolescence projects as well as for several profit enhancement and cost
reduction projects.
The Company believes that capital sources identified above will be adequate
to meet anticipated capital requirements in fiscal 2000. There can be no
assurance, however, that the Company will generate sufficient operating cash
flow that, together with the other sources of capital, will enable the Company
to meet anticipated capital requirements. If the Company is unable to generate
sufficient cash from the sources identified above, it may be required to sell
assets, reduce capital expenditures, refinance all or a portion of its
existing indebtedness or obtain additional financing.
15
<PAGE>
Year 2000 Issues
The Company has implemented actions to address the possible exposures
related to the impact on its computer systems of the year 2000 ("Y2K"). The
Company's efforts have been focused in four areas: (1) technology
infrastructure, including hardware and computer operating software; (2)
application software for key financial, informational and operational systems;
(3) process control technology at each of the Company's production facilities;
and (4) third party readiness. These efforts are being coordinated with the
Company's strategic initiative to replace its major management information
systems with newly acquired client-server based software from PeopleSoft USA,
Inc.
The Company has completed its infrastructure project, which included
remediation of the mainframe and mid-range computers in the Company's
Savannah, Georgia and Sugar Land, Texas offices, and installation of the
client-server computers for the PeopleSoft implementation.
The Company's plan for Y2K compliance of application software is complete.
Such plan included remediation of certain systems and replacement of others.
Remediation of application software processed in Savannah, Georgia was
completed in fiscal 1998; remediation of systems processed in Sugar Land,
Texas was completed during fiscal 1999. The initial phase of replacement of
non-Y2K compliant applications with PeopleSoft applications was implemented in
fiscal 1998 and the replacement of remaining non-compliant systems,
principally human resource applications, was completed in June 1999.
Management at each of the Company's production facilities assessed the year
2000 impacts on hardware and software, including embedded computer chips,
utilized for manufacturing process control and has completed remediation of
systems which may materially affect its manufacturing operations.
The Company surveyed major vendors and customers concerning their year 2000
readiness, and has evaluated their responses and developed contingency plans
should such third parties not complete required system modifications.
Contingency plans include designating alternate vendors for required services
and materials or implementing manual procedures for automated processes, where
possible.
Costs to modify existing application systems were approximately $1 million,
which was incurred over the two year period ended September 30, 1999. New
hardware and software purchases totaled $5.5 million over a two year period.
No material costs were incurred on these projects prior to fiscal 1998.
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the
uncertainty of the year 2000 readiness of third party suppliers and customers,
the Company is unable to determine at this time whether the consequences of
year 2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Company believes that the
year 2000 efforts described above, including the implementation of new
business systems and completion of the projects, significantly reduce the
Company's level of uncertainty about the Y2K problem and reduces the
possibility of significant interruptions of normal operations.
Readers are cautioned that forward-looking statements contained in this year
2000 discussion should be read in conjunction with the Company's disclosures
on the inside cover page of this Form 10-K.
New Accounting Standards
The Financial Accounting Standards Board has issued a number of new
accounting standards discussed in Note 1 to the Consolidated Financial
Statements. These standards, which become effective in future fiscal years,
establish additional accounting and disclosure requirements. Management is
evaluating what, if any, effects such requirements may have on the Company's
consolidated financial statements.
16
<PAGE>
Industry Environment
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar and raw cane sugar, and
the quantity and quality of sugarbeets available to the Company. These market
factors are influenced by a variety of external forces that the Company is
unable to predict, including the number of domestic acres contracted to grow
sugar cane and sugarbeets, prices of competing crops, weather conditions and
United States farm and trade policy. The domestic sugar industry is subject to
substantial influence by legislative and regulatory actions. The current farm
bill limits the importation of raw cane sugar, affecting the supply and cost
of raw material available to the Company's cane refineries. See "Business--
Sugar Legislation and Other Market Factors" and "--Competition" and
"--Industry Overview".
Weather conditions during the growing, harvesting and processing seasons,
the availability of acreage to contract for sugarbeets, as well as the effects
of diseases and insects, may materially affect the quality and quantity of
sugarbeets available for purchase as well as the costs of raw materials and
processing. See "Business--Raw Materials and Processing Requirements".
Results of Operations
As more fully discussed in Note 11 to the Consolidated Financial Statements,
the Company's operations are identified into two reportable segments, sugar
and foodservice.
Fiscal 1999
As a result of the Diamond Crystal acquisition on November 2, 1998, the
Company had substantial increases in sales, costs and expenses. Additionally,
the Company completed the acquisition of Savannah Foods in the first quarter
of fiscal 1998. Accordingly the operating results of the fiscal year ended
September 30, 1999 are not directly comparable to the results for fiscal 1998.
The following unaudited pro forma financial information presents the Company's
results of operations for the twelve months ended September 30, 1999 and 1998
as if the acquisition of both Diamond Crystal and Savannah Foods and the
related financing transactions had occurred on October 1, 1997 (in thousands
of dollars).
<TABLE>
<CAPTION>
(Pro Forma)
Twelve Months Ended
September 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales......................................... $1,899,714 $1,982,351
Costs and expenses:
Cost of sales................................... 1,722,788 1,774,862
Selling, general and administrative............. 76,786 90,000
Asset impairment and other charges.............. -- 18,287
Depreciation and amortization................... 51,705 51,169
---------- ----------
Operating income.................................. 48,435 48,033
Interest expense.................................. (59,774) (58,648)
Realized securities gains......................... 4,697 2,181
Loss on investment in partnership................. (16,706) --
Other income...................................... 1,598 7,680
---------- ----------
Income (loss) before income taxes................. (21,750) (754)
Provision (benefit) for income taxes.............. (3,276) 4,635
---------- ----------
Net income (loss)................................. $ (18,474) $ (5,389)
========== ==========
</TABLE>
Pro forma net sales decreased $82.6 million or 4.2% for the twelve months
ended September 30, 1999, primarily due to lower industrial sugar sales
volumes and lower consumer private label prices, partially offset by
17
<PAGE>
higher industrial sugar prices and increased foodservice segment sales. The
sugar segment's net sales decreased 6.6% for fiscal 1999 compared to fiscal
1998 due primarily to lower industrial volumes as the Company announced higher
sales prices for refined sugar for industrial contracts commencing October 1,
1998. The foodservice increase was primarily due to higher volumes
(principally of sugar sold to foodservice customers), as well as increased
sales of nutritional products including thickened beverages and frozen shakes.
Additionally, the Company realized higher selling prices on certain nonsugar
products.
Market expectations of a large supply of domestic beet sugar for the USDA
crop year which commenced October 1, 1999, have resulted in generally quoted
market prices in the industrial sugar contract market approximately 5% below
fiscal 1999 levels. The beet sugar supply projection, along with prospects of
a large supply of domestic raw cane sugar, have resulted in the USDA setting
the tariff rate quota at the minimum level, and domestic raw sugar prices on
the commodities exchange have declined in excess of 15% from year earlier
levels. A significant portion of the Company's industrial sales are made under
fixed price, forward sales contracts, most of which commence October 1 or
January 1, and extend for up to one year. Additionally, the Company prices a
portion of its raw sugar purchases in advance of the time of delivery either
through pricing provisions of its raw sugar contracts or through hedging
transactions in the raw sugar futures market. Consequently, the Company's
realized sales prices as well as its realized raw sugar costs tend to lag
market price changes. Management is unable to predict the impact of these
items on its results of operations in fiscal 2000.
Pro forma cost of sales for the twelve months ended September 30, 1999
decreased $52.1 million or 2.9%, resulting in pro forma gross margin as a
percent of sales of 9.3% compared to 10.5% for the prior twelve-month period.
By segment, sugar pro forma gross margin as a percent of sales decreased to
7.5% in fiscal 1999 from 8.9% in fiscal 1998 and pro forma foodservice gross
margin as a percent of sales decreased to 13.0% in fiscal 1999 from 14.1% in
fiscal 1998. The foodservice segment's gross margin declined principally due
to product mix and competitive pricing pressures. The Company decided to
delay, until fiscal 2000, the realization of certain synergies related to its
acquisition of Diamond Crystal, primarily in respect to closing certain
plants, and to incur temporarily higher expense levels in order to maintain
adequate levels of customer service and support current sales levels.
The sugar segment's gross margin declined principally due to lower sugarbeet
quality, higher cane processing costs, and a decline in byproduct sales prices
due to competitive feed grain prices, all of which more than offset higher
industrial sugar prices. Beet sugar costs increased during fiscal 1999 at the
Company's Montana and Michigan factories as a result of lower sugar content in
sugarbeets harvested and warmer temperatures during sugarbeet storage, which
adversely affected sugar recovery. Beet sugar costs were also negatively
affected in Southern California by a large beet crop which extended the
harvest period, adversely impacting beet quality in the late summer and fall
months. The reduced beet quality negatively affected raw material and variable
manufacturing costs which was partially offset by lower unit production costs
from increased production volumes. 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. Use of this type of contract reduces the Company's exposure to
inventory price risk. The increase in sales prices for beet sugar resulted in
an increase in cost of sugar beets under the participatory contracts.
The cane operations of the sugar segment had lower industrial volumes and
poor refinery performance in fiscal 1999, resulting in lower yields, and
higher processing costs. The refinery performance was affected in part by
difficulty in processing low quality raw materials received from an offshore
supplier. In addition, the sugar segment's gross margin was impacted by the
effects of Hurricane Floyd, which shut down the Company's largest cane
refinery in Savannah, Georgia for a week, and delayed product deliveries to
certain of the Company's customers. Partially offsetting these factors was a
slight decrease in raw sugar costs. The Company has made operational and
personnel changes to address the poor refinery performance.
Pro forma selling, general and administrative costs decreased $13.2 million
or 14.7% for the twelve months ended September 30, 1999 compared to the same
period of the prior year primarily due to reductions in volume related selling
costs, as well as cost savings in general and administrative expenses.
Following the Savannah
18
<PAGE>
Foods and Diamond Crystal acquisitions the Company undertook significant cost
savings initiatives and reorganized its administrative functions to remove
duplication and streamline such functions. Selling, general and administrative
costs include $1.8 million of discount and fees associated with the sales of
receivables during the last three months of fiscal 1999.
Pro forma interest expense for the twelve months ended September 30, 1999
increased $1.1 million or 1.9% over the comparable period of the prior year
primarily as a result of higher revolving credit borrowings.
The loss on investment in partnership resulted from the write-off of the
Company's investment in Pacific Northwest Sugar Company, a partnership in
which a subsidiary of the Company was a 43% limited partner. See Note 13 to
the Consolidated Financial Statements.
The asset impairment and other charges included in the prior year's results
were primarily charges in connection with the closing of the Company's
Hereford, Texas beet sugar factory and charges to record a loss the Company
incurred in meeting its contractual sales obligations as a result of poor
weather conditions at its Northern California factories. See Note 13 to the
Consolidated Financial Statements.
Realized gains on marketable securities increased $2.5 million during fiscal
1999; net unrealized gains, which have not been recognized in the Company's
results of operations, but are shown, net of tax, as a component of
comprehensive income within shareholders' equity, increased $2.2 million
during fiscal 1999. The components of income tax expense and its relationship
to statutory rates are detailed in Note 8 to the Consolidated Financial
Statements.
Pro forma other income decreased $6.1 million for the twelve months ended
September 30, 1999 compared to the same period of the prior year primarily due
to gains recognized on the sale of a former beet sugar factory site and a
distribution facility in fiscal 1998.
Fiscal 1998
As a result of the Savannah acquisition, the Company had substantial
increases in sales, costs and expenses. Additionally, in October 1997, the
Company changed its fiscal year from March 31 to September 30. Accordingly the
operating results of the fiscal year ended September 30, 1998 are not directly
comparable to the results for any prior fiscal year. The following unaudited
pro forma financial information presents the Company's results of operations
for the twelve months ended September 30, 1998 and 1997 as if the acquisition
of Savannah and related financing transactions had occurred on, and as if the
Company had changed its fiscal year as of, September 30, 1996 (in thousands of
dollars):
<TABLE>
<CAPTION>
(Pro Forma)
Twelve Months Ended
September 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales.......................................... $1,852,637 $1,957,537
Costs and expenses:
Cost of sales.................................... 1,678,519 1,717,971
Selling, general and administrative.............. 67,563 97,900
Asset impairment and other charges............... 18,287 --
Depreciation and amortization.................... 47,072 44,252
---------- ----------
Operating income................................... 41,196 97,414
Interest expense................................... (51,689) (54,987)
Realized securities gains.......................... 2,181 43
Other income....................................... 7,073 1,750
---------- ----------
Income (loss) before income taxes.................. (1,239) 44,220
Provision for income taxes......................... 3,024 19,562
---------- ----------
Net income (loss).................................. $ (4,263) $ 24,658
========== ==========
</TABLE>
19
<PAGE>
Pro forma net sales decreased $104.9 million or 5.4% for the twelve months
ended September 30, 1998, primarily due to lower market prices for refined
sugar as a result of a large domestic beet crop in the fall of 1997. Sugar
sales volumes were approximately 1% lower on a pro forma basis. The Company's
foodservice segment partially offset the decrease in sugar pro forma net sales
with an increase of $7.0 million from fiscal 1997 primarily due to an increase
in volume of sales.
Pro forma cost of sales for the twelve months ended September 30, 1998
decreased $39.5 million or 2.3%, resulting in gross margin before depreciation
of 9.4% compared to 12.2% for the prior twelve-month period. Margins on
foodservice sales were negatively affected by lower selling prices and an
increase in the cost of cane sugar. Margins on the sugar segment sales were
negatively affected by lower sugar prices and higher beet sugar costs. 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 during fiscal 1998 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. Record spring rains in
Northern California delayed factory start-ups, adversely impacting beet
quality in the late summer and fall months. The Company recorded a $3.8
million charge in the second fiscal quarter for the expected impact on
industrial sales commitments of higher costs resulting from such abnormal
weather. Partially offsetting these factors were efficient operations at the
Company's Michigan and Southern California beet sugar factories and Savannah
cane refineries. Raw cane sugar prices were not materially changed in fiscal
1998 compared to the pro forma prior period resulting in decreased margins as
refined prices declined.
In February 1998, the Company announced that it would not process sugarbeets
at the Hereford factory in fall 1998. 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 an impairment loss of
$12,538,000 on Hereford's assets for the difference in fair value and carrying
costs.
Pro forma selling, general and administrative costs were $30.3 million lower
for the twelve months ended September 30, 1998 compared to the same periods of
the prior year due to reductions in general and administrative costs,
primarily incentive compensation, relocation and corporate overhead costs.
Following the Savannah acquisition the Company 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 produced cost savings in excess of $20 million
in fiscal 1998, the majority of which was in selling, general and
administrative expenses.
Pro forma interest expense for the twelve months ended September 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.
Other income increased due to higher dividends, lower costs related to farm
land lease operations and gains recognized on sale of a former beet sugar
factory site and a distribution facility.
Six Months Ended September 30, 1997
Net sales increased $12.7 million or 3.2% in the six months ended September
30, 1997 compared to the six months ended September 30, 1996, primarily as a
result of higher refined sugar prices. Price increases resulted from smaller
sugarbeet crops in the fall of 1995 and 1996. Sugar sales volumes increased
modestly during the six months, principally due to higher beet sugar sales.
Cost of sales increased $7.7 million or 2.2% which, coupled with the
increase in sales, resulted in the gross margin before depreciation improving
to 14.2% of sales from 13.4%. Unit sugar gross margins improved as
20
<PAGE>
reductions in raw sugar costs and improved beet sugar operations more than
offset higher sugarbeet costs resulting from high selling prices and higher
cane refining costs. The increase in sales prices during the six-month period
resulted in an increase in the cost of sugarbeets under the participatory
purchase contracts, mitigating the improvement in gross margin. As discussed
in Note 1 to the Consolidated Financial Statements, the Company utilizes LIFO
inventory for sugar inventories. During the six months ended September 30,
1997, the Company liquidated beginning inventory layers at costs below current
year levels, reducing cost of sales approximately $.7 million.
Selling, general and administrative expenses increased $1.6 million or 5.5%
during the six-month period as increases in warehousing and advertising costs
more than offset reduction in general and administrative costs, principally
resulting from closure of Spreckels Sugar Company's Pleasanton, California
office.
Interest expense declined $1.0 million during the six-month period as
reduced long and short-term borrowings more than offset higher short-term
interest rates. In April 1997, the Company purchased and retired $8.3 million
of its senior notes due 1999. Operating cash flow allowed the reduction in
average short-term borrowings by approximately $19.0 million during the
period.
Realized gains on marketable securities decreased $383,000; net unrealized
gains which have not been recognized in the Company's results of operations
increased $8.3 million to $28.3 million during the six months ended
September 30, 1997. The Company's effective income tax rate was 37% for the
six months ended September 30, 1997, which is higher than the statutory
federal rate primarily due to state income taxes.
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.
The Company uses raw sugar futures and options in its inventory purchasing
programs. Gains and losses on such transactions are matched to specific
inventory purchases and charged or credited to cost of sales as such inventory
is sold. The Company does not enter into futures or option transactions for
trading purposes.
The information below presents the Company's domestic futures positions
outstanding as of September 30, 1999. The Company's world sugar futures and
option positions are not material to its consolidated financial position,
results of operations or cash flows.
<TABLE>
<CAPTION>
Expected Maturity Expected Maturity
Fiscal 2000 Fiscal 2001
----------------- -----------------
<S> <C> <C>
Futures Contracts (net long
positions):
Contract Volumes (cwt.).............. 1,999,200 127,680
Weighted Average Contract Price (per
cwt.)............................... $ 21.94 $ 22.08
Contract Amount...................... $43,869,000 $2,819,000
Weighted Average Fair Value (per
cwt.)............................... $ 21.19 $ 21.00
Fair Value........................... $42,359,000 $2,682,000
</TABLE>
The above information does not include either the Company's physical
inventory or its fixed price purchase commitments for raw sugar. At September
30, 1998, the Company's domestic futures position was a net short position of
1,130,000 cwt. at an average contract price of $22.11. The change in the
futures position during fiscal 1999 is a result of changes in the level of the
Company's fixed price purchase commitments, fixed price sales commitments and
the Company's expectations about future market prices.
The Company has material amounts of long-term debt with interest rates that
float with market rates, exposing the Company to interest rate risk. The
Company has attempted to reduce this risk by entering into interest rate swap
agreements for a portion of such floating rate debt.
21
<PAGE>
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by expected (contractual) maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract.
Weighted average variable rates are based on implied forward rates in the
treasury yield curve at the reporting date.
<TABLE>
<CAPTION>
Expected Maturity Date
Fiscal Year Ending September 30,
----------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
----- ----- ----- ------ ----- ------ ------ ------
(In millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt:
Fixed rate debt....... $ 6.4 $ 0.5 -- -- -- $270.0 $276.9 $246.9
Average interest
rate................. 8.3% 7.4% -- -- -- 9.5% 9.5%
Variable rate debt.... $ 5.7 $ 7.4 $ 7.8 $175.2 $38.9 $ 53.8 $288.8 $288.8
Average interest
rate................. 9.3% 9.4% 9.5% 10.0% 10.7% 10.9% 10.2%
Interest Rate
Derivatives
Interest rate swaps:
Variable to fixed..... $15.6 $16.8 $17.1 $ 83.0 $48.2 $ 49.3 $230.1 $ 2.9
Average pay rate...... 6.0% 6.0% 6.0% 6.0% 5.7% 6.0% 6.0%
Average receive rate.. 6.4% 6.8% 7.0% 7.0% 7.0% 7.2% 7.0%
</TABLE>
At September 30, 1998, the Company had outstanding fixed rate debt totaling
$257.7 million with an average interest rate of 9.7%, variable rate debt
totaling $275.7 million with an average interest rate of 7.2% and variable to
fixed rate interest rate swaps totaling of $175.8 million. The interest rate
swaps had an average pay rate of 6.1% and an average receive rate of 5.2%.
ITEM 8. Financial Statements and Supplementary Data.
See the index of financial statements and financial statement schedules
under "Exhibits, Financial Statement Schedules and Reports on Form 8-K."
Unaudited quarterly financial data for the last eight fiscal quarters is as
follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
Basic Earnings
Income (Loss) (Loss) Per Share
--------------------- --------------------
Before Net Before Net Cash
Net Gross Extraordinary Income Extraordinary Income Dividends
Sales Margin Item (Loss) Item (Loss) Per Share
-------- ------- ------------- ------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended
September 30, 1998(1):
December 31, 1997(2).. $434,867 $39,131 $ (142) $(2,141) $(0.01) $(0.14) $0.03
March 31, 1998(3)..... 414,967 31,132 (17,217) (17,217) (0.64) (0.64) 0.03
June 30, 1998......... 456,087 48,751 5,275 5,275 0.19 0.19 0.03
September 30, 1998.... 477,170 49,325 6,249 6,249 0.23 0.23 0.03
Fiscal Year Ended
September 30, 1999(4):
December 31, 1998..... $471,761 $47,779 $ 2,365 $ 2,365 $ 0.08 $ 0.08 $0.03
March 31, 1999(5)..... 428,997 33,362 (18,559) (18,559) (0.58) (0.58) 0.03
June 30, 1999......... 499,977 56,102 6,654 6,654 0.21 0.21 0.03
September 30, 1999.... 487,895 37,367 (8,584) (8,584) (0.27) (0.27) 0.03
</TABLE>
- --------
(1) Includes the results of Savannah Foods since October 17, 1997, net of
minority interest through December 22, 1997, as discussed in Note 2 to the
Consolidated Financial Statements.
22
<PAGE>
(2) Net loss for the first quarter of fiscal 1998 included an extraordinary
loss of $1,999,000 from the purchase of senior notes as discussed in Note
7 to the Consolidated Financial Statements.
(3) Results of operations for the second quarter of fiscal 1998 include pre-
tax charges of $975,000 related to costs of a workforce reduction,
$3,800,000 related to expected losses on industrial sales commitments and
$13,512,000 for costs associated with the closure of the Company's
Hereford, Texas factory as discussed in Note 13 to the Consolidated
Financial Statements.
(4) Includes the results of Diamond Crystal since November 2, 1998 as
discussed in Note 2 to the Consolidated Financial Statements.
(5) Net loss for the second quarter of fiscal 1999 includes a $16.7 million
charge to write-off the Company's investment in a partnership as
discussed in Note 13 to the Consolidated Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 10. Director and Executive Officers of the Registrant
The information set forth under the captions "Election of Directors--
Nominees", "--Continuing Directors" and "--Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive Proxy Statement for its 2000
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Proxy Statement"), is incorporated herein by reference.
See also "Executive Officers of the Registrant" included in Part I hereof.
ITEM 11. Executive Compensation
The information set forth under the captions "Election of Directors--
Director Remuneration", "--Executive Compensation" and "--Compensation
Committee Interlocks and Insider Participation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Election of Directors--Security
Ownership" in the Proxy Statement is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information set forth under the caption "Election of Directors--
Compensation Committee Interlocks and Insider Participation" and "--Other
Information" in the Proxy Statement is incorporated herein by reference.
23
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Independent Auditors' Report........................................... F-1
Consolidated Balance Sheets at September 30, 1999 and 1998............. F-2
Consolidated Statements of Operations for the years ended September 30,
1999 and 1998, the six months ended September 30, 1997, and the year
ended March 31, 1997.................................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the
years ended September 30, 1999 and 1998, the six months ended
September 30, 1997 and the year ended March 31, 1997.................. F-4
Consolidated Statements of Cash Flow for the years ended September 30,
1999 and 1998, six months ended September 30, 1997, and the year ended
March 31, 1997........................................................ F-5
Notes to Consolidated Financial Statements............................. F-6
</TABLE>
(a)(2) Financial Statement Schedules.
All schedules and other statements for which provision is made in the
applicable regulations of the Commission have been omitted because they are
not required under the relevant instructions or are inapplicable.
(a)(3) Exhibits.
Asterisk indicates exhibit previously filed with the Commission and
incorporated herein by reference as indicated.
<TABLE>
<C> <S>
*3(a) --Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Registration Statement on
Form S-4 (Registration No. 33-20959)).
*3(b) --Articles of Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998 (File
No. 1-10307)).
*3(c) --Statement of Resolution establishing Series of Shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1990 (File No. 1-10307) (the
"1990 Form 10-K")).
*3(d) --Statement of Resolution increasing number of shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990 (File No. 1-10307)).
*3(e)(1) --Rights Agreement dated as of September 14, 1989 between the Company
and The Bank of New York, as Rights Agent (incorporated by reference
to Exhibit 1 to the Company's Current Report on Form 8-K dated
September 21, 1989 (File No. 1-10307)).
*3(e)(2) --Amendment to Rights Agreement dated as of January 27, 1995
(incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated January 27, 1995
(File No. 1-10307)).
*3(e)(3) --Amendment to Rights Agreement dated December 11, 1998 (incorporated
by reference to Exhibit 3(e)(3) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1998 (the "1998
Form 10-K")).
*3(f) --By-Laws of the Company (incorporated by reference to Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1989 (File No. 0-16674) (the "1989 Form 10-K")).
*3(g)(1) --Investor Agreement dated August 29, 1996 by and among the Company,
Greencore Group plc and Earlsfort Holdings B.V. (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K
dated September 5, 1996 (File No. 1-10307) (the "September 5, 1996
Form 8-K")).
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
*3(g)(2) --Registration Rights Agreement dated August 29, 1996 by and among
the Company, Greencore Group plc and Earlsfort Holdings B.V.
(incorporated by reference to Exhibit 4.2 to the September 5, 1996
Form 8-K).
*3(g)(3) --Amendment to Investor Agreement and Registration Rights Agreement
dated November 19, 1998 by and among the Company, Greencore Group
plc and Earlsfort Holdings B.V. (incorporated by reference to
Exhibit 3(g)(3) to the 1998 Form 10-K).
*3(h)(1) --Agreement and Plan of Merger, dated September 12, 1997, among
Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah
Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1
to the Company's Registration Statement on Form S-4 (Registration
No. 333-40445) (the "Savannah S-4")).
*3(h)(2) --Agreement and Plan of Merger, dated September 4, 1998, as amended
by amendment dated as of October 22, 1998, among Imperial Holly
Corporation, IHK Acquisition Corp. and DSLT Inc. (incorporated by
reference to Exhibit 99.2 to the Company's Current Report on
Form 8-K dated November 2, 1998).
*4(a)(1) --Amended and Restated Credit Agreement dated as of December 22, 1997
among Imperial Holly Corporation, as Borrower, the Several Lenders
from time to time Parties thereto, Lehman Brothers, Inc., as
Arranger, Lehman Brothers Commercial Paper, Inc., as Syndication
Agent and Harris Trust and Savings Bank, as Administrative and
Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to
the Company's Registration Statement on Form S-4 (Registration
No. 333-44955)(the "Exchange Offer S-4")).
*4(a)(2) --First Amendment to the Company's Amended and Restated Credit
Agreement dated March 31, 1998 (incorporated by reference to Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1999 (File No 1-10307) (the "June 1999 Form 10-Q")).
*4(a)(3) --Second Amendment to the Company's Amended and Restated Credit
Agreement dated September 28, 1998 (incorporated by reference to
Exhibit 4.2 to the June 1999 Form 10-Q).
*4(a)(4) --Third Amendment to the Company's Amended and Restated Credit
Agreement dated June 30, 1999 (incorporated by reference to the
Company's Current Report on Form 8-K dated June 30, 1999 (File
No 1-10307) (the "June 1999 Form 8-K")).
4(a)(5) --Fourth Amendment to the Company's Amended and Restated Credit
Agreement dated November 18, 1999.
*4(a)(6) --Amended and Restated Guarantee and Collateral Agreement dated, as
of December 22, 1997, made by Imperial Holly Corporation and certain
of its Subsidiaries in favor of Harris Trust and Savings Bank, as
Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to
the Exchange Offer S-4).
*4(b)(1) --Indenture dated as of December 22, 1997 between the Company,
certain subsidiaries of the Company and The Bank of New York, as
Trustee, relating to the Company's 9-3/4% Senior Subordinated Notes
due 2007 (including form of 9-3/4% Senior Subordinated Note due 2007
and form of Subsidiary Guarantee) (incorporated by reference to
Exhibit 4(b) to the Exchange Offer S-4)).
The Company is a party to several debt instruments under which the
total amount of securities authorized does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to the
Commission upon request.
Exhibits 10(a) through 10(l) relate to management contracts or
compensatory plans.
*10(a) --Imperial Holly Corporation Stock Incentive Plan (as amended and
restated effective May 1, 1997) (incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1997 (File No. 1-10307) (the "1997
Form 10-K")).
</TABLE>
25
<PAGE>
<TABLE>
<C> <S>
*10(b)(1) --Specimen of the Company's Employment Agreement for certain of its
officers (incorporated by reference to exhibit 10(b)(1) to the 1998
Form 10-K).
10(b)(2) --Schedule of Employment Agreements.
*10(b)(3) --Employment Agreement with W. W. Sprague III dated as of December
23, 1997 (incorporated by reference to exhibit 10(b)(3) to the 1998
Form 10-K).
*10(c)(1) --Specimen of the Company's Severance Pay Agreements for certain of
its officers (incorporated by reference to Exhibit 10.2 to the
September 1990 Form 10-Q).
10(c)(2) --First Amendment to Severance Pay Agreements.
10(c)(3) --Schedule of Severance Pay Agreements.
*10(d)(1) --Imperial Holly Corporation Salary Continuation Plan (as amended
and restated effective August 1, 1994) (incorporated by reference
to Exhibit 10(b)(1) to the September 1994 Form 10-Q).
10(d)(2) --First Amendment to the Imperial Holly Corporation Salary
Continuation Agreement.
*10(d)(3) --Specimen of the Company's Salary Continuation Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(b)(2) to the
September 1994 Form 10-Q).
*10(d)(4) --Specimen of the Company's Salary Continuation Agreement (Graduated
Vesting) (incorporated by reference to Exhibit 10(b)(3) to the
September 1994 Form 10-Q).
*10(d)(5) --Schedule of Salary Continuation Agreements (incorporated by
reference to Exhibit 10(d)(4) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1996 (File No. 1-10307) (the
"1996 Form 10-K")).
*10(e)(1) --Imperial Holly Corporation Benefit Restoration Plan (as amended
and restated effective August 1, 1994) (incorporated by reference
to Exhibit 10(c)(1) to the September 1994 Form 10-Q).
*10(e)(2) --Specimen of the Company's Benefit Restoration Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(c)(2) to the
September 1994 Form 10-Q).
*10(e)(3) --Specimen of the Company's Benefit Restoration Agreement (Graduated
Vesting) (incorporated by reference to Exhibit 10(c)(3) to the
September 1994 Form 10-Q).
*10(e)(4) --Schedule of Benefit Restoration Agreements (incorporated by
reference to Exhibit 10(e)(4) to the 1996 Form 10-K).
*10(f)(1) --Imperial Holly Corporation Executive Benefits Trust (incorporated
by reference to Exhibit 10.5 to the September 1990 Form 10-Q).
*10(f)(2) --First Amendment to the Company's Executive Benefits Trust dated
June 4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the
1994 Form 10-K).
*10(g) --Imperial Holly Corporation 1989 Nonemployee Director Stock Option
Plan (incorporated by reference to Exhibit A to the Company's Proxy
Statement dated June 16, 1989 for the 1989 Annual Meeting of
Shareholders, File No. 0-16674).
*10(h) --Imperial Holly Corporation Retirement Plan For Nonemployee
Directors (incorporated by reference to Exhibit 10(j) to the 1994
Form 10-K).
*10(i)(1) --Specimen of the Company's Change of Control Agreement
(incorporated by reference to Exhibit 10(d)(1) to the September
1994 Form 10-Q).
10(i)(2) --Schedule of Change of Control Agreements.
*10(j) --Independent Consultant Agreement between I. H. Kempner III and the
Company (incorporated by reference to Exhibit 10(k) to the 1996
Form 10-K).
*10(k) --Specimen of the Company's Restricted Stock Agreement with certain
of its officers (incorporated by reference to Exhibit 10(k) to the
1997 Form 10-K).
</TABLE>
26
<PAGE>
<TABLE>
<C> <S>
*10(l) --Schedule of Restricted Stock Agreements (incorporated by reference
to Exhibit 10(l) to the 1997 Form 10-K).
*10(m) --Agreement of Limited Partnership of ChartCo Terminal, L.P.
(incorporated by reference to Exhibit 10(j) to the 1990 Form 10-K).
*10(n)(1) --Receivables Purchase Agreement dated as of June 30, 1999 between
the Company, Imperial Securitization Corporation, Imperial
Distributing, Inc., Fairway Finance Corporation and Nesbitt Burns
Securities, Inc. (incorporated by reference to Exhibit 10.1 to the
June 1999 Form 8-K).
10(n)(2) --First Amendment to Receivables Purchase Agreement.
*10(o) --Purchase and Contribution Agreement dated as of June 30, 1999
between the Originators named therein, Imperial Securitization
Corporation and Imperial Distributing, Inc. (incorporated by
reference to Exhibit 10.2 to the June 1999 Form 8-K).
21 --Subsidiaries of the Company.
23 --Independent Auditors' Consent.
27 --Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
On July 16, 1999, the Company filed a Current Report on Form 8-K dated as
of June 30, 1999.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on December 13,
1999.
Imperial Sugar Company
/s/ James C. Kempner
By___________________________________
James C. Kempner
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on December 13, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ James C. Kempner President, Chief Executive Officer, and
- ------------------------------------ Director (Principal Executive Officer)
James C. Kempner
/s/ Mark Q. Huggins Managing Director and Chief Financial
- ------------------------------------ Officer (Principal Financial Officer)
Mark Q. Huggins
/s/ H. P. Mechler Vice President, Accounting
- ------------------------------------ (Principal Accounting Officer)
H. P. Mechler
/s/ I. H. Kempner, III Chairman of the Board of Directors
- ------------------------------------
I. H. Kempner, III
/s/ John D. Curtin, Jr. Director
- ------------------------------------
John D. Curtin, Jr.
/s/ David J. Dilger Director
- ------------------------------------
David J. Dilger
/s/ Edward O. Gaylord Director
- ------------------------------------
Edward O. Gaylord
/s/ Gerald Grinstein Director
- ------------------------------------
Gerald Grinstein
/s/ Ann O. Hamilton Director
- ------------------------------------
Ann O. Hamilton
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ Robert L. Harrison Director
- ------------------------------------
Robert L. Harrison
/s/ Harris L. Kempner, Jr. Director
- ------------------------------------
Harris L. Kempner, Jr.
/s/ Henry E. Lentz Director
- ------------------------------------
Henry E. Lentz
/s/ Kevin C. O'Sullivan Director
- ------------------------------------
Kevin C. O'Sullivan
/s/ Fayez Sarofim Director
- ------------------------------------
Fayez Sarofim
/s/ Daniel K. Thorne Director
- ------------------------------------
Daniel K. Thorne
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Imperial Sugar Company:
We have audited the accompanying consolidated financial statements of
Imperial Sugar Company and subsidiaries (the "Company"), listed in Item
14(a)(1). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
September 30, 1999 and 1998 and the results of its operations and its cash
flows for the years ended September 30, 1999 and 1998, the six-month
transition period ended September 30, 1997 and for the year ended March 31,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
November 30, 1999
F-1
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999
----------------------
1999 1998
---------- ----------
(In Thousands of
Dollars)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments............................ $ 7,925 $ 2,877
Marketable securities..................................... 65,496 59,478
Accounts receivable--trade................................ 64,458 139,870
Inventories:
Finished products....................................... 157,869 142,886
Raw and in-process materials............................ 61,299 25,869
Supplies................................................ 39,896 36,174
Deferred costs & prepaid expenses......................... 43,461 39,135
---------- ----------
Total current assets.................................. 440,404 446,289
OTHER INVESTMENTS........................................... 5,009 20,872
PROPERTY, PLANT AND EQUIPMENT--Net.......................... 402,364 398,193
GOODWILL AND OTHER INTANGIBLES--Net of accumulated
amortization of $18,319,000 in 1999 and $7,327,000 in
1998....................................................... 402,459 279,410
OTHER ASSETS................................................ 30,547 35,036
---------- ----------
TOTAL................................................. $1,280,783 $1,179,800
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable--trade................................... $ 141,428 $ 106,041
Short-term borrowings..................................... 1,611 1,161
Current maturities of long-term debt...................... 12,114 7,555
Deferred income taxes--net................................ 21,347 27,586
Other current liabilities................................. 61,815 43,717
---------- ----------
Total current liabilities............................. 238,315 186,060
---------- ----------
LONG-TERM DEBT--Net of current maturities................... 553,577 525,893
DEFERRED INCOME TAXES--Net.................................. 32,481 33,781
DEFERRED EMPLOYEE BENEFITS AND OTHER CREDITS................ 82,986 81,159
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, issuable in series;
5,000,000 shares authorized, none issued................. -- --
Common stock, without par value; 50,000,000 shares
authorized............................................... 309,847 268,804
Stock held by benefit trust............................... (8,208) (14,367)
Treasury stock............................................ (7,611) (1,452)
Retained earnings......................................... 58,191 80,150
Unrealized securities gains--net of income taxes.......... 21,205 19,772
---------- ----------
Total shareholders' equity............................ 373,424 352,907
---------- ----------
TOTAL................................................. $1,280,783 $1,179,800
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
---------------------- September 30, March 31,
1999 1998 1997 1997
---------- ---------- ---------------- ----------
(In Thousands of Dollars, Except Share and Per
Share Amounts)
<S> <C> <C> <C> <C>
NET SALES................ $1,888,630 $1,783,091 $ 406,682 $ 752,595
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales.......... 1,714,020 1,614,752 348,869 651,677
Selling, general and
administrative........ 75,434 65,358 30,668 57,722
Asset impairment and
other charges
(Note 13)............. -- 18,287 -- --
Depreciation and
amortization.......... 51,272 45,755 6,786 14,773
---------- ---------- ---------- ----------
Total................ 1,840,726 1,744,152 386,323 724,172
---------- ---------- ---------- ----------
OPERATING INCOME......... 47,904 38,939 20,359 28,423
INTEREST EXPENSE--Net.... (59,071) (48,718) (5,301) (12,430)
REALIZED SECURITIES
GAINS--Net.............. 4,697 2,181 11 426
LOSS ON EQUITY INVESTMENT
IN PARTNERSHIP (Note
13)..................... (16,706) -- -- --
OTHER INCOME--Net........ 1,598 6,386 724 1,269
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST....... (21,578) (1,212) 15,793 17,688
PROVISION (CREDIT) FOR
INCOME TAXES............ (3,454) 2,857 5,842 6,170
MINORITY INTEREST IN
EARNINGS OF SAVANNAH.... -- 1,766 -- --
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM...... (18,124) (5,835) 9,951 11,518
EXTRAORDINARY ITEM--Net
of tax.................. -- (1,999) -- --
---------- ---------- ---------- ----------
NET INCOME (LOSS)........ $ (18,124) $ (7,834) $ 9,951 $ 11,518
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Income (loss) before
extraordinary item.... $ (0.57) $ (0.24) $ 0.70 $ 0.92
Net income (loss)...... $ (0.57) $ (0.32) $ 0.70 $ 0.92
DILUTED EARNINGS (LOSS)
PER SHARE OF COMMON
STOCK:
Income (loss) before
extraordinary item.... $ (0.57) $ (0.24) $ 0.69 $ 0.90
Net income (loss)...... $ (0.57) $ (0.32) $ 0.69 $ 0.90
WEIGHTED AVERAGE SHARES
OUTSTANDING............. 31,712,602 24,177,762 14,247,193 12,576,489
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of Common Stock Common Stock
------------------------------- --------------------------- Accumulated
Held by Held by Other
Benefit Treasury Benefit Treasury Retained Comprehensive
Issued Trust Stock Amount Trust Stock Earnings Income Total
---------- ---------- -------- -------- -------- -------- -------- ------------- --------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE MARCH 31, 1996.. 10,312,507 -- -- $ 32,276 -- -- $69,829 $ 8,938 $111,043
Comprehensive income:
Net income............. -- -- -- -- -- -- 11,518 -- 11,518
Change in unrealized
securities gains--net
of $2,181,000 tax..... -- -- -- -- -- -- -- 4,051 4,051
--------
Total comprehensive
income................ 15,569
Employee stock plans... 23,928 -- -- 262 -- -- -- -- 262
Nonemployee director
compensation plan..... 21,760 -- -- 301 -- -- -- -- 301
Sale of common stock... 3,800,000 -- -- 49,781 -- -- -- -- 49,781
---------- ---------- -------- -------- -------- ------- ------- ------- --------
BALANCE MARCH 31, 1997.. 14,158,195 -- -- 82,620 -- -- 81,347 12,989 176,956
Comprehensive income:
Net income............. -- -- -- -- -- -- 9,951 -- 9,951
Change in unrealized
securities gains--net
of $2,904,000 tax..... -- -- -- -- -- -- -- 5,393 5,393
--------
Total comprehensive
income................ 15,344
Cash dividends ($0.03
per share)............ -- -- -- -- -- -- (428) -- (428)
Employee stock plans... 100,920 -- -- 786 -- -- -- -- 786
Nonemployee director
compensation plan..... 24,660 -- -- 301 -- -- -- -- 301
---------- ---------- -------- -------- -------- ------- ------- ------- --------
BALANCE SEPTEMBER 30,
1997................... 14,283,775 -- -- 83,707 -- -- 90,870 18,382 192,959
Comprehensive income:
Net loss............... -- -- -- -- -- -- (7,834) -- (7,834)
Change in unrealized
securities gains--net
of $748,000 tax....... -- -- -- -- -- -- -- 1,390 1,390
--------
Total comprehensive
income................ (6,444)
Cash dividends ($0.12
per share)............ -- -- -- -- -- -- (2,886) -- (2,886)
Stock issued in
acquisition........... 13,176,193 (814,810) -- 174,584 $(10,796) -- -- -- 163,788
Sale of common stock... 377,358 -- -- 5,000 -- -- -- -- 5,000
Stock sold to benefit
trust................. 505,440 (505,440) -- 5,023 (5,023) -- -- -- --
Stock transferred from
benefit trust......... -- 121,197 (121,197) -- 1,452 $(1,452) -- -- --
Employee stock plans... 25,938 -- -- 325 -- -- -- -- 325
Nonemployee director
compensation plan..... 17,287 -- -- 165 -- -- -- -- 165
---------- ---------- -------- -------- -------- ------- ------- ------- --------
BALANCE September 30,
1998................... 28,385,991 (1,199,053) (121,197) 268,804 (14,367) (1,452) 80,150 19,772 352,907
Comprehensive income:
Net loss............... -- -- -- -- -- -- (18,124) -- (18,124)
Change in unrealized
securities gains--net
of $769,000 tax....... -- -- -- -- -- -- -- 1,433 1,433
--------
Total comprehensive
income................ (16,691)
Cash dividends ($0.12
per share)............ -- -- -- -- -- -- (3,835) -- (3,835)
Stock issued in
acquisition........... 5,006,770 -- -- 40,054 -- -- -- -- 40,054
Stock transferred from
benefit trust......... -- 514,082 (514,082) -- 6,159 (6,159) -- -- --
Employee stock plans... 91,629 -- -- 658 -- -- -- -- 658
Nonemployee director
compensation plan..... 39,776 -- -- 331 -- -- -- 331
---------- ---------- -------- -------- -------- ------- ------- ------- --------
BALANCE September 30,
1999................... 33,524,166 (684,971) (635,279) $309,847 $ (8,208) $(7,611) $58,191 $21,205 $373,424
========== ========== ======== ======== ======== ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
------------------ September 30, March 31,
1999 1998 1997 1997
-------- -------- ---------------- ----------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............ $(18,124) $ (7,834) $ 9,951 $11,518
Adjustments for noncash and
nonoperating items:
Loss on equity investment in
partnership................ 16,706 --
Extraordinary item--net..... -- 1,999 -- --
Minority interest in
earnings of Savannah....... -- 1,766 -- --
Impairment loss............. -- 12,538 -- --
Depreciation &
amortization............... 51,272 45,755 6,786 14,773
Deferred income taxes....... (727) (2,579) 5,155 5,760
Other....................... (2,706) 470 369 1,164
Changes in operating assets
and liabilities (excluding
operating assets and
liabilities acquired in the
purchase acquisitions):
Accounts receivables--
trade...................... 84,619 (9,077) (6,601) (10,172)
Inventories................. (40,245) 21,278 20,651 (22,564)
Deferred costs and prepaid
expenses................... (3,255) 8,814 (2,923) (1,105)
Accounts payable--trade..... 28,387 (3,638) 11,431 (6,997)
Other current liabilities... (9,736) (23,501) 1,011 (1,285)
-------- -------- ------- -------
Operating cash flow.......... 106,191 45,991 45,830 (8,908)
-------- -------- ------- -------
INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired.................... (112,455) (361,218) -- (36,287)
Capital expenditures......... (26,805) (42,419) (15,214) (12,322)
Investment in marketable
securities.................. (14,141) (10,837) (5,395) (7,044)
Proceeds from sale of
marketable securities....... 15,300 4,337 492 1,172
Proceeds from maturity of
marketable securities....... 5,881 7,189 6,306 967
Proceeds from sale of fixed
assets...................... 2,589 4,989 205 109
Other........................ 1,617 (6,108) (2,657) 1,335
-------- -------- ------- -------
Investing cash flow.......... (128,014) (404,067) (16,263) (52,070)
-------- -------- ------- -------
FINANCING ACTIVITIES:
Sale of common stock......... -- 5,000 -- 49,781
Short-term borrowings:
Bank borrowings--net........ 450 (44,330) 34,391 4,180
CCC borrowings--advances.... 60,112 37,037 -- 93,014
CCC borrowings--repayments.. (60,112) (37,037) (53,770) (79,125)
Revolving credit borrowings--
net......................... 89,100 2,400 -- --
Long-term debt:
Proceeds.................... -- 523,274 -- --
Repayment................... (59,681) (132,229) (9,159) (1,595)
Dividends paid............... (3,835) (2,886) (428) --
Stock option proceeds and
other....................... 837 370 1,034 512
-------- -------- ------- -------
Financing cash flow.......... 26,871 351,599 (27,932) 66,767
-------- -------- ------- -------
INCREASE (DECREASE) IN CASH AND
TEMPORARY INVESTMENTS......... 5,048 (6,477) 1,635 5,789
CASH AND TEMPORARY INVESTMENTS,
BEGINNING OF YEAR............. 2,877 9,354 7,719 1,930
-------- -------- ------- -------
CASH AND TEMPORARY INVESTMENTS,
END OF YEAR................... $ 7,925 $ 2,877 $ 9,354 $ 7,719
======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997, and March 31, 1997
1. ACCOUNTING POLICIES
The Company
The consolidated financial statements include the accounts of Imperial Sugar
Company (formerly Imperial Holly Corporation) and its majority owned
subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated. The Company operates in two domestic
business segments--the production and sale of refined sugar and the sale and
distribution of products for the foodservice industry. The Company is
significantly affected by market factors, including domestic prices for
refined sugar and raw cane sugar. These market factors are influenced by a
variety of external forces, including the number of domestic acres contracted
to grow sugar cane and sugarbeets, prices of competing crops, weather
conditions and United States farm and trade policy. Federal legislation and
regulations provide for mechanisms designed to support the price of domestic
sugar crops, principally through the limitations on importation of raw cane
sugar for domestic consumption. In addition, agricultural conditions in the
Company's growing areas may materially affect the quality and quantity of
sugar beets available for purchase as well as the unit costs of raw materials
and processing.
A significant portion of the Company's industrial sales are made under fixed
price, forward sales contracts, which extend for up to one year. The Company
also contracts to purchase raw cane sugar substantially in advance of the time
it delivers the refined sugar produced from the purchase. To mitigate its
exposure to future price changes, the Company attempts to manage the volume of
refined sugar sales contracted for future delivery and the volume of raw cane
sugar contracted for future delivery, when feasible. Additionally, the Company
utilizes a participatory sugarbeet purchase contract, described below, which
relates the cost of sugarbeets to the net selling price realized on refined
beet sugar sales.
Change in Fiscal Year
In October 1997, the Company changed its fiscal year end from March 31 to
September 30. As used herein, the terms fiscal 1999 and fiscal 1998 refer to
the twelve months ended September 30, 1999 and 1998, respectively; fiscal 1997
refers to the twelve months ended March 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that affect
the reported amounts as well as certain disclosures. The Company's financial
statements include amounts that are based on management's best estimates and
judgments. Actual results could differ from those estimates.
Cash and Temporary Investments
Temporary investments consist of short-term, highly liquid investments with
maturities of 90 days or less at the time of purchase.
Marketable Securities
All of the Company's marketable securities are classified as "available for
sale", and accordingly are reflected in the Consolidated Balance Sheet at fair
market value, with the aggregate unrealized gain, net of related deferred tax
liability, included as a separate component of comprehensive income within
shareholders' equity. Cost for determining gains and losses on sales of
marketable securities is determined on the FIFO method.
F-6
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Inventories
Inventories are stated at the lower of cost or market. Cost of sugar is
determined under the last-in, first-out ("LIFO") method. All other costs are
determined under the first-in, first-out ("FIFO") method.
If only the FIFO cost method had been used, inventories would have been
higher by $15.7 million at September 30, 1999, $16.7 million at September 30,
1998, and $18.9 million at September 30, 1997. Reductions in inventory
quantities in the six month period ended September 30, 1997 resulted in
liquidations of LIFO inventory layers carried at costs prevailing in prior
years. The effect of this liquidation was to increase net income by about
$468,000 ($0.03 per share) in the six month period ended September 30, 1997.
Sugarbeets Purchased
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 the growers) during the grower contract years, some of which extend
beyond the fiscal year end. 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 to date for sugar sold in
each of the contract years through the end of the fiscal year. The final cost
of sugarbeets cannot be determined until the end of the contract year for each
growing area.
Manufacturing Costs Prior to Production
Certain manufacturing costs incurred between processing periods which are
necessary to prepare each factory for the next processing campaign are
deferred and allocated to the cost of sugar produced in the subsequent
campaign. Such amounts are included in deferred costs and prepaid expenses.
Property and Depreciation
Property is stated at cost and includes expenditures for renewals and
improvements and capitalized interest. Maintenance and repairs are charged to
current operations. When property is retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the respective
accounts, and any gain or loss on disposition is included in income.
Depreciation is provided principally on the straight-line or sum-of-the-
years' digits methods over the estimated service lives of the assets.
Capitalization of Computer Software
The American Institute of Certified Public Accountants' Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", requires capitalization of certain
internal-use computer software costs. SOP 98-1 was adopted by the Company in
fiscal 1998.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized over the life of the
agreements as an increase or decrease in interest expense. The Company does
not use these instruments for trading purposes, rather it uses them to hedge
the impact of interest rate fluctuations on floating rate debt.
F-7
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Fair Value of Financial Instruments
The fair value of financial instruments is estimated based upon market
trading information, where available. Absent published market values for an
instrument, management estimates fair values based upon quotations from
broker/dealers or interest rate information for similar instruments. The
carrying amount of cash and temporary investments, accounts receivable,
accounts payable, short-term borrowings and other current liabilities
approximates fair value because of the short maturity and/or frequent
repricing of those instruments.
Federal Income Taxes
Federal income tax expense includes the current tax obligation and the
change in deferred income tax liability for the period. Deferred income taxes
result from temporary differences between financial and tax bases of certain
assets and liabilities.
Accounting Pronouncements
In Fiscal 1999, the Company adopted the following new accounting
pronouncements:
. SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income. Comprehensive Income is
reported in the Consolidated Statements of Changes in Shareholders'
Equity.
. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information. See Note 11.
. SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," modifies the required disclosures related to
pensions and other postretirement benefits. See Note 9.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which is effective for the Company's fiscal year ending September 30, 2001,
requires recognition of the fair value of all derivatives as either assets or
liabilities in the consolidated balance sheet. The Company will adopt this
standard on October 1, 2000, and has not yet determined the impact of adoption
on its consolidated financial statements.
Reclassifications
Certain amounts in prior years have been reclassified to be consistent with
the 1999 presentation.
2. ACQUISITIONS
Diamond Crystal
On November 2, 1998 the Company acquired all the outstanding common stock of
DSLT Inc. ("Diamond Crystal") in a merger of a wholly-owned subsidiary of the
Company, with and into Diamond Crystal. Consideration for the acquisition paid
at closing consisted of $79.6 million cash, 5.0 million shares of common stock
and the repayment of $28.3 million of Diamond Crystal debt. The merger
consideration was subject to adjustments based on an acquisition date balance
sheet of Diamond Crystal and other factors. In April 1999, additional
consideration of $0.6 million cash and 34,710 shares of the Company's common
stock was paid based on the resolution of certain factors. The cash portion of
the merger consideration was funded by borrowing under the Company's existing
revolving credit agreement.
F-8
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Diamond Crystal produces nutritional dry mixes, sauces, seasonings, drink
mixes and desserts for distribution to the healthcare and foodservice
industries. The purchase method was used to account for the acquisition and
Diamond Crystal's results of operations are included in the Company's
consolidated financial statements commencing November 2, 1998. The excess of
purchase price over the book value of net assets acquired ("goodwill") is
being amortized over 40 years.
An allocation of the aggregate purchase price of $184.6 million, including
$31.9 million of liabilities assumed, has been made to current assets ($33.3
million), plant, property and equipment ($18.8 million) and goodwill ($132.0
million). Liabilities assumed include $2.7 million for the estimated costs to
close two Diamond Crystal production facilities, as well as cost related to
the involuntary termination of certain administrative employees.
Savannah Foods
During fiscal 1998, the Company acquired Savannah Foods and Industries, Inc.
a Georgia based producer and marketer of sugar and related products ("Savannah
Foods"), in a two step transaction. The Company completed the first step on
October 17, 1997, when it accepted for payment pursuant to a tender offer
shares representing 50.1% of Savannah Foods outstanding common stock for
aggregate consideration of $261 million cash (the "Equity Tender"). The second
step was completed December 22, 1997, when Savannah Foods was merged with a
subsidiary of the Company (the "Merger"). As a result of the two step
acquisition, the consolidated financial statements include a minority interest
in the earnings of Savannah Foods through December 22, 1997. In consideration
for the Merger, Savannah Foods' stockholders received $106 million cash and
12.4 million shares of the Company's common stock.
The purchase method was used to account for the acquisition and Savannah
Foods' results of operations are included in the Company's consolidated
financial statements commencing October 17, 1997, net of minority interest
through December 22, 1997. Purchased intangibles, which include brand related
intangibles and the excess of purchase price over the book value of net assets
acquired ("goodwill") are being amortized over 40 years.
An allocation of the aggregate purchase price of $749.9 million, including
$215.8 million of liabilities assumed, has been made to current assets ($201.8
million), plant, property and equipment ($253.0 million), other assets ($11.1
million) and intangible assets ($284.1 million). Liabilities assumed include
$4.5 million for the estimated cost related to the involuntary termination of
certain administrative employees.
F-9
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
The following table presents unaudited, summarized pro forma operating
results as if the acquisition of both Diamond Crystal and Savannah Foods and
the related financing transactions had occurred on April 1, 1996, assuming
effective income tax rates of 35% to 38%.
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
---------------------- September 30, March 31,
1999 1998 1997 1997
---------- ---------- ---------------- ----------
(In Thousands of Dollars, Except Per Share
Amounts)
<S> <C> <C> <C> <C>
Net sales................ $1,899,714 $1,982,351 $1,080,705 $2,026,099
---------- ---------- ---------- ----------
Cost of sales............ 1,722,788 1,774,862 925,355 1,758,597
Selling, General and
Administrative.......... 76,786 90,000 71,981 134,009
Depreciation and
amortization............ 51,705 51,169 25,372 50,470
Nonrecurring charges..... -- 18,287 -- 11,003
---------- ---------- ---------- ----------
Operating income......... 48,435 48,033 57,997 72,020
Interest expense......... (59,774) (58,648) (30,299) (63,704)
Loss on investment in
partnership............. (16,706) -- -- --
Other income............. 6,295 9,861 671 92
---------- ---------- ---------- ----------
Income (Loss) before
income taxes............ (21,750) (754) 28,369 8,408
Provision (Benefit) for
income taxes............ (3,276) 4,635 12,577 6,909
---------- ---------- ---------- ----------
Income (Loss) before
extraordinary item...... $ (18,474) $ (5,389) $ 15,792 $ 1,499
========== ========== ========== ==========
Basic earnings (loss) per
share................... $ (0.57) $ (0.17) $ 0.50 $ 0.05
========== ========== ========== ==========
</TABLE>
Wholesome Foods
In September 1998, the Company acquired Wholesome Foods, LLC for cash of
$5.1 million. Wholesome is a leading supplier of organic sweeteners to the
U.S. consumer and industrial markets. The purchase method was used to account
for the acquisition. Pro forma effects of the acquisition are not material to
the Company's consolidated results of operations.
3. INVESTMENTS
Marketable securities consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, 1999
------------------------------------
Gross Unrealized
Fair Holding
Amortized Market ------------------
Cost Value Gains Losses
--------- ------- --------- --------
<S> <C> <C> <C> <C>
US Government securities maturing in
2000.................................... $ 4,273 $ 4,253 -- $ (20)
Common stocks............................ 28,601 61,243 $ 33,164 (522)
------- ------- --------- -------
Total.................................. $32,874 $65,496 $ 33,164 $ (542)
======= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------
Gross Unrealized
Fair Holding
Amortized Market ------------------
Cost Value Gains Losses
--------- ------- --------- --------
<S> <C> <C> <C> <C>
US Government securities maturing in
1999.................................... $ 5,906 $ 5,942 $ 36 --
Common stocks............................ 23,155 53,536 30,832 $ (451)
------- ------- --------- -------
Total.................................. $29,061 $59,478 $ 30,868 $ (451)
======= ======= ========= =======
</TABLE>
F-10
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Realized securities gains are reported net of realized losses of $28,000, in
fiscal 1997. There were no realized securities losses during fiscal 1999, 1998
or the six months ended September 30, 1997.
Other investments include the Company's royalty interest in a coal seam
methane gas project, which is accounted for at amortized cost and, in 1998,
its investment in Pacific Northwest Sugar Company. See Note 13.
4. SALE OF ACCOUNTS RECEIVABLE
On June 30, 1999, the Company entered into a five-year receivables purchase
agreement with an independent issuer of receivables-backed commercial paper.
Through a wholly-owned special purpose subsidiary, Imperial Securitization
Corporation ("Imperial Securitization"), the Company agreed to sell on an
ongoing basis and without recourse, an undivided percentage ownership interest
in designated pools of accounts receivable. To maintain the balance in the
designated pools of accounts receivable sold, the Company is obligated to sell
undivided percentage interests in new receivables as existing receivables are
collected. The agreement permits the sale of up to $110.0 million of undivided
interests in accounts receivable through June 2004. The Company records such
transfers as sales of the related accounts receivable as it has surrendered
control of such receivables under the provisions of SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities".
At September 30, 1999, the Company had sold an undivided interest in its
accounts receivable to the purchaser for $105.0 million. The Company used
these proceeds to pay down debt under its senior secured credit facilities.
The Company's retained interest was $43.0 million; the fair value of the
retained interest approximated its book value.
The discount and fees under this agreement are variable based on the general
level of interest rates on commercial paper and ranged from 5.03% to 5.95%
during 1999 plus administrative fees typical in such transactions. These costs
were approximately $1.8 million for fiscal 1999 and were included in selling,
general and administrative in the accompanying Consolidated Statement of
Operations. The Company receives compensation for servicing the accounts
receivables that approximates its cost to provide such services. Accordingly,
no servicing assets or liability is recorded.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
September 30,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Land......................................................... $ 19,702 $ 52,355
Buildings, machinery and equipment........................... 570,527 509,412
Construction in progress..................................... 29,577 20,345
-------- --------
Total...................................................... 619,806 582,112
Less accumulated depreciation................................ 217,442 183,919
-------- --------
Property, Plant and Equipment--Net........................... $402,364 $398,193
======== ========
</TABLE>
F-11
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
6. SHORT-TERM BORROWINGS
The Company borrows short-term from banks under various unsecured lines of
credit and from the Commodity Credit Corporation ("CCC") under the USDA's
price support loan program. CCC borrowings, which mature September 30 each
year, are secured by refined beet sugar inventory and are recourse or
nonrecourse to the Company depending upon certain regulatory conditions. CCC
borrowings of up to $25 million seasonally may be made without reducing the
availability of borrowings under the senior secured revolving credit facility
(Note 7). Outstanding short-term borrowings at September 30, 1999 and 1998
were $1.6 million and $1.2 million, respectively. The weighted-average
interest rate for the outstanding short-term borrowings was 6.35% and 6.98%
for fiscal 1999 and 1998, respectively.
7. LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Senior Credit Agreement:
Revolving credit facility.................................. $ 91,500 $ 2,400
Term loans................................................. 192,068 250,800
9 3/4% Senior Subordinated Notes due 2007.................... 250,000 250,000
Industrial revenue bonds..................................... 25,204 22,500
8 3/8% Senior Notes due 1999................................. 5,801 5,801
Other........................................................ 1,118 1,947
-------- --------
Total long-term debt....................................... 565,691 533,448
Less current maturities...................................... 12,114 7,555
-------- --------
Long-term debt, net.......................................... $553,577 $525,893
======== ========
</TABLE>
To finance the Savannah Foods acquisition, finance a tender offer for the
Company's 8 3/8 Senior Notes due 1999 (the "Debt Tender") and replace the
Company's existing credit facilities, the Company entered into new financing
agreements consisting of an Amended and Restated Credit Agreement, dated as of
December 22, 1997, most recently amended November 18, 1999, (the "Senior
Credit Agreement") and issued $250 million of 9 3/4% Senior Subordinated Notes
due 2007. The $95 million proceeds from the initial sale of accounts
receivable during fiscal 1999 were used to repay $52 million of term loans and
$43 million outstanding under the revolving credit facility, and the Senior
Credit Agreement was amended to reduce the revolving credit facility's
commitment amount to $157 million.
The industrial revenue bonds consist of various issues at fixed and variable
interest rates, ranging from 3.95% to 6.55% and have maturity dates ranging
from 2005 to 2025.
Except for the 9 3/4% Senior Subordinated Notes due 2007, the carrying
amount of the Company's long term debt approximates fair value. The fair value
of the 9 3/4% Senior Subordinated Notes at September 30, 1999 was
approximately $220 million.
The Senior Credit Agreement is secured by substantially all of the Company's
assets. The Senior Credit Agreement and the indenture for the 9 3/4% Senior
Subordinated Notes due 2007 contain restrictive covenants which may limit,
among other things, the Company's ability to incur additional indebtedness,
make capital expenditures and investments or pay dividends. The Company had
the ability under the most restrictive of such covenants to pay $3 million of
dividends as of September 30, 1999.
F-12
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Interest on borrowings under the Senior Credit Agreement is at floating
rates (either a base rate plus a margin from 0.75% to 3% or a Eurodollar rate
plus a margin from 1.75% to 4%). The Company has entered into interest rate
swap agreements with major financial institutions to effectively fix the
interest rate on $230 million under the Senior Credit Agreement at a weighted
average annual rate of 8.54% as of September 30, 1999. If the Company had been
required to settle the interest rate swap agreements as of September 30, 1999,
the Company would receive $2.9 million. The Company is exposed to credit risk
in the event of nonperformance by counterparties to its interest rate swap
agreements. The Company anticipates that its counterparties will fully perform
their obligations under the agreements.
Aggregate maturities of long-term debt at September 30, 1999 are as follows
(in thousands of dollars):
<TABLE>
<S> <C>
Year Ending September 30:
2000.......................................................... $ 12,114
2001.......................................................... 7,865
2002.......................................................... 7,820
2003.......................................................... 175,161
2004.......................................................... 38,866
Thereafter.................................................... 323,865
</TABLE>
In connection with the Debt Tender, 8 3/8% Senior Notes due 1999 with a
principal amount of $75.4 million were purchased in October 1997, and the
indenture relating to the Senior Notes was amended to, among other things,
remove restrictions on the Company's ability to create liens on certain
properties. The Company reported as an extraordinary item a loss of $2.0
million on such purchase, net of tax of $1.1 million.
Cash paid for interest on short and long-term debt was $57.2 million for
fiscal 1999, $45.2 million for fiscal 1998, $7.0 million for the six months
ended September 30, 1997, and $12.0 million for fiscal year ended March 31,
1997. Interest capitalized as part of the cost of constructing assets was $.4
million for fiscal 1999, $1.2 million for fiscal 1998, and $.3 million for the
six months ended September 30, 1997. Such amount was not significant in fiscal
1997.
8. INCOME TAXES
The components of the consolidated income tax provision (credit), including
amounts reported as an extraordinary item, were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
---------------- September 30, March 31,
1999 1998 1997 1997
------- ------- ---------------- ----------
<S> <C> <C> <C> <C>
Federal:
Current........................ $(3,116) $ 2,419 -- $ 20
Tax benefit of operating loss
carryforward utilized
(generated)................... (8,699) 3,332 $1,551 (1,762)
Deferred....................... 7,972 (4,663) 3,604 7,522
State............................ 389 694 687 390
------- ------- ------ -------
Total.......................... $(3,454) $ 1,782 $5,842 $ 6,170
======= ======= ====== =======
</TABLE>
F-13
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------
1999 1998
---------------------------- ----------------------------
Assets Liabilities Total Assets Liabilities Total
------- ----------- -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Current:
Marketable securities
valuation
differences.......... -- $ (11,418) $(11,418) -- $ (10,676) $(10,676)
Inventory valuation
differences,
principally purchase
accounting........... -- (13,973) (13,973) -- (15,367) (15,367)
Manufacturing costs
prior to production
deducted currently... -- (12,004) (12,004) -- (11,361) (11,361)
Accruals not currently
deductible........... $ 5,437 -- 5,437 $ 6,802 -- 6,802
Alternate minimum tax
differences.......... 902 -- 902 902 -- 902
Operating loss
carryforward......... 8,699 -- 8,699 -- -- --
Other................. 1,010 -- 1,010 2,114 -- 2,114
------- --------- -------- ------- --------- --------
Total current....... 16,048 (37,395) (21,347) 9,818 (37,404) (27,586)
------- --------- -------- ------- --------- --------
Noncurrent:
Depreciation
differences,
including purchase
accounting........... -- (63,268) (63,268) -- (65,678) (65,678)
Accruals not currently
deductible........... 24,022 -- 24,022 29,332 -- 29,332
Other................. 6,765 -- 6,765 2,565 -- 2,565
------- --------- -------- ------- --------- --------
Total noncurrent.... 30,787 (63,268) (32,481) 31,897 (65,678) (33,781)
------- --------- -------- ------- --------- --------
Total............. $46,835 $(100,663) $(53,828) $41,715 $(103,082) $(61,367)
======= ========= ======== ======= ========= ========
</TABLE>
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate of 35% to
the Company's income before taxes (including extraordinary item). The reasons
for the differences from the statutory rate are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
---------------- September 30, March 31,
1999 1998 1997 1997
------- ------- ---------------- ----------
<S> <C> <C> <C> <C>
Income taxes computed at the
statutory federal rate......... $(7,552) $(1,501) $5,527 $6,191
Non deductible goodwill
amortization................. 3,847 2,424 -- --
Non taxable interest and
dividends.................... (291) (316) (121) (217)
State income taxes............ 253 451 447 253
Other......................... 289 724 (11) (57)
------- ------- ------ ------
Total....................... $(3,454) $ 1,782 $5,842 $6,170
======= ======= ====== ======
</TABLE>
Income taxes paid were $1.0 million in fiscal 1999, $4.0 million in fiscal
1998, $1.9 million in the six months ended September 30, 1997 and $2.3 million
in fiscal 1997.
F-14
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
9. EMPLOYEE BENEFITS
Defined Benefit Pension Plans and Postretirement Benefits Other Than Pensions
Substantially all of the Company's nonseasonal employees are covered by
retirement plans. Certain unionized employees are covered by an industry-wide
plan, and other employees are covered by Company-sponsored defined benefit
plans. Under the Company-sponsored defined benefit plans, retirement benefits
are primarily a function of years of service and the employee's compensation
for a defined period of employment. The Company funds pension costs at an
actuarially determined amount based on normal cost and the amortization of
prior service costs, gains, and losses over the remaining service periods.
Additionally, the Company provides a supplemental non-qualified, unfunded
pension plan for certain officers whose benefits under the qualified plan are
limited by federal tax law. The Company provides a non-qualified retirement
plan for non-employee directors, which provides benefits based upon years of
service as a director and the retainer in effect at the date of a director's
retirement. Certain of the Company's subsidiaries sponsor benefit plans that
provide postretirement health care and life insurance benefits to certain
employees who meet the applicable eligibility requirements.
The following table presents the benefit obligation, changes in plan assets,
the funded status of the pension plans and the assumptions used (in thousands
of dollars):
<TABLE>
<CAPTION>
Postretirement Benefits
Pension Benefits Other Than Pensions
------------------ ------------------------
Year Ended Year Ended
September 30, September 30,
------------------ ------------------------
1999 1998 1999 1998
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year....................... $220,998 $ 82,880 $ 37,029
Acquisition.................... 8,342 113,062 3,712 $ 29,474
Service cost................... 5,956 4,899 370 149
Interest cost.................. 15,034 14,304 2,642 2,127
Amendments..................... 3,382 1,152
Actuarial (gain)/loss.......... (16,463) 15,352 (3,679) 7,365
Curtailment loss............... (89)
Expenses paid.................. (1,527) (1,333)
Benefits paid.................. (14,182) (9,229) (1,948) (2,086)
-------- -------- ----------- -----------
Benefits obligation at end of
year.......................... 221,540 220,998 38,126 37,029
======== ======== =========== ===========
Change in plan assets:
Fair value of plan assets at
beginning of year............. 230,000 104,153
Acquisition.................... 7,443 100,537
Actual return on plan assets... 24,297 33,566
Employer contribution.......... 2,405 2,306 1,948 2,086
Expenses paid.................. (1,580) (1,333)
Benefits paid.................. (14,182) (9,229) (1,948) (2,086)
-------- -------- ----------- -----------
Fair value of plan assets at
end of year................... 248,383 230,000
======== ======== =========== ===========
Funded status.................... 26,843 9,002 (38,128) (37,029)
Unrecognized actuarial
(gain)/loss..................... (47,739) (30,946) 4,689 7,365
Unrecognized prior service cost.. 7,280 4,574
Unrecognized net transition
obligation (asset).............. (1,113) 105
Amount contributed............... 518 1,500 571
-------- -------- ----------- -----------
Net amount recognized............ $(14,211) $(15,765) $ (32,868) $ (29,664)
======== ======== =========== ===========
</TABLE>
F-15
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
<TABLE>
<CAPTION>
Postretirement Benefits
Pension Benefits Other Than Pensions
------------------ ------------------------
September 30, September 30,
------------------ ------------------------
1999 1998 1999 1998
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Amounts recognized in the
statement of financial position
consist of:
Accrued benefit liability..... $(16,074) $(17,941) $ (32,868) $ (29,664)
Intangible asset.............. 1,863 2,176 -- --
-------- -------- ----------- -----------
Net amount recognized........... $(14,211) $(15,765) $ (32,868) $ (29,664)
======== ======== =========== ===========
</TABLE>
The assumptions used and the annual cost related to these plans consist of
the following:
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
------------------ September 30, March 31,
Pension Benefits 1999 1998 1997 1997
- ---------------- -------- -------- ---------------- ----------
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate................ 7.5% 6.75% 7.5% 8.0%
Expected return on plan
assets...................... 9.0% 9.0% 8.0% 8.0%
Rate of compensation
increase.................... 4.5-5.0% 4.5-5.0% 5.0% 5.0%
Components of net periodic
benefit cost:
Service Cost................. $ 5,956 $ 4,899 $ 1,359 $ 2,756
Interest cost................ 15,034 14,304 2,927 5,883
Expected return on plan
assets...................... (20,827) (18,070) (3,408) (5,842)
Amortization of prior service
cost........................ 580 499 118 313
Amortization of transition
(asset)/obligation.......... 103 236 (266) 236
Recognized actuarial
(gain)/loss................. (1,972) (1,691) 250 (27)
-------- -------- ------- -------
Net periodic benefit cost...... (1,126) 177 980 3,319
Curtailment effect recognized.. 96 20 -- --
-------- -------- ------- -------
Total net periodic benefit
cost--
Company-sponsored plans....... (1,030) 197 980 3,319
Industry-wide plan for certain
unionized employees........... 467 479 212 432
-------- -------- ------- -------
Total pension cost........... $ (563) $ 676 $ 1,192 $ 3,751
======== ======== ======= =======
<CAPTION>
Year Ended
September 30,
------------------
Postretirement Benefits Other
Than Pensions 1999 1998
- ----------------------------- -------- --------
<S> <C> <C>
Weighted-average assumptions:
Discount rate................ 7.5% 6.75%
Components of net periodic
benefit cost:
Service Cost................. $ 370 $ 149
Interest cost................ 2,642 2,127
Recognized actuarial
(gain)/loss................. 229
Amortization of net
transition obligation
(asset)..................... 65
-------- --------
Net periodic benefit cost...... $ 3,306 $ 2,276
======== ========
</TABLE>
F-16
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $21.4 million, $19.1 million, and
$.6 million as of September 30, 1999 and $33.5 million, $30.1 million, and
$14.3 million as of September 30, 1998.
The assumed health care cost trend rate used in measuring the accumulated
benefit obligation for postretirement benefits other than pensions as of
September 30, 1999 was 6.0% to 10.9% for 2000. The rate was assumed to
decrease gradually to 5.0% to 6.0% for 2008 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
(in thousands of dollars)
<S> <C> <C>
Effect on total service and interest Cost
components..................................... $ 165 $ (155)
Effect on postretirement benefit Obligation..... 4,536 (3,791)
</TABLE>
401(k) Plans
Substantially all of the employees may elect to defer up to 15% of their
annual compensation in the Company sponsored 401(k) tax deferred savings
plans. The Company makes matching contributions in some of these plans. The
amounts charged to expense for each of the periods presented for these plans
were not significant.
Employee Stock Purchase Plan
In July 1993, the shareholders approved an amended and restated employee
stock purchase plan and reserved 1.0 million shares of common stock. The plan
provides substantially all year-round employees the option to purchase shares
of common stock either through open market purchases at market value or
directly from the Company at 85% of market value. The amounts charged to
compensation expense for each of the periods presented for the discount on
shares purchased under the latter alternative were not significant.
F-17
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
10. SHAREHOLDERS' EQUITY
Earnings per Share
The following table presents information necessary to calculate basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
---------------------- September 30, March 31,
1999 1998 1997 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...... $ (18,124) $ (5,835) $ 9,951 $ 11,518
Adjustments--None...... -- -- -- --
---------- ---------- ---------- ----------
Adjusted income (loss)
before extraordinary
item.................... $ (18,124) $ (5,835) $ 9,951 $ 11,518
========== ========== ========== ==========
Net income (loss)........ $ (18,124) $ (7,834) $ 9,951 $ 11,518
Adjustments--None...... -- -- -- --
---------- ---------- ---------- ----------
Adjusted net income
(loss).................. $ (18,124) $ (7,834) $ 9,951 $ 11,518
========== ========== ========== ==========
Basic earnings per share:
Weighted average shares
outstanding............. 31,712,602 24,177,762 14,247,193 12,576,489
========== ========== ========== ==========
Income (loss) per share
before extraordinary
item.................... $ (0.57) $ (0.24) $ 0.70 $ 0.92
========== ========== ========== ==========
Net income (loss) per
share................... $ (0.57) $ (0.32) $ 0.70 $ 0.92
========== ========== ========== ==========
Diluted earnings per share:
Weighted average shares
outstanding............. 31,712,602 24,177,762 14,247,193 12,576,489
Incremental shares
issuable from assumed
exercise of stock
options under the
treasury stock method
(1)..................... -- -- 137,896 151,013
---------- ---------- ---------- ----------
Weighed average shares
outstanding --as
adjusted................ 31,712,602 24,177,762 14,385,089 12,727,502
========== ========== ========== ==========
Income (loss) per share
before extraordinary
item.................... $ (0.57) $ (0.24) $ 0.69 $ 0.90
========== ========== ========== ==========
Net income (loss) per
share................... $ (0.57) $ (0.32) $ 0.69 $ 0.90
========== ========== ========== ==========
</TABLE>
- --------
(1) Since the Company incurred a loss for fiscal 1999 and 1998, certain
dilutive securities were excluded as they would be anti-dilutive to basic
EPS. Securities excluded from the computation of diluted EPS for the year
ended September 30, 1999 that could potentially dilute basic EPS in the
future were options to purchase 1,854,000 shares to be issued under the
Company's employee stock incentive plan and 3,000 shares to be issued
under the nonemployee director stock option plan.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
in fiscal 1997. As permitted by SFAS No. 123, the Company measures
compensation cost using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
F-18
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
The Company's reported net income and earnings per share would have been
reduced had compensation cost for the Company's stock-based compensation plans
been determined using the fair value method of accounting as set forth in SFAS
No. 123. For purposes of estimating the fair value disclosures below, the fair
value of each stock option has been estimated on the grant date with a Black-
Scholes option-pricing model using the following weighted-average assumptions:
expected volatility of 38% to 42%; risk-free interest rate of 5.49% to 7.06%;
and expected lives of 7 to 10 years. The effects of using the fair value
method of accounting on net income and earnings per share are indicated in the
unaudited pro forma amounts below (in thousands of dollars, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Six Months
September 30, Ended Year Ended
----------------- September 30, March 31,
1999 1998 1997 1997
-------- ------- ------------- ----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary
item
As reported..................... $(18,124) $(5,835) $9,951 $11,518
Pro forma....................... (19,265) (6,725) 9,839 11,351
Net income (loss)
As reported..................... (18,124) (7,834) $9,951 $11,518
Pro forma....................... (19,265) (8,724) 9,839 11,351
Basic earnings per share:
Income (loss) before extraordinary
item
As reported..................... $ (0.57) $ (0.24) $ 0.70 $ 0.92
Pro forma....................... (0.61) (0.28) 0.69 0.90
Net Income (loss)
As reported..................... $ (0.57) $ (0.32) $ 0.70 $ 0.92
Pro forma....................... (0.61) (0.36) 0.69 0.90
</TABLE>
Shareholder Rights Plan
In 1989, the Board of Directors declared a dividend of one Right for each
outstanding share of the Company's common stock. Certain terms of the rights
were amended in January 1995. Each of the Rights, which are currently attached
to the common stock, entitle the holder to purchase two three-hundredths of a
share of a new series of Junior Participating Preferred Stock (219,259 in
total as of September 30, 1999) at a price of $60 (subject to adjustment). The
Rights are not exercisable until the earlier of ten days after the public
announcement that a person or group has acquired 15% or more (25% or more for
persons who were 10% shareholders on January 27, 1995) of the Company's
outstanding common stock (an "Acquiring Person") or ten business days after
the commencement of a tender offer to acquire such an interest. Under certain
circumstances, the Rights, other than the Rights held by the Acquiring Person,
will become exercisable for common stock of the Company (or an acquirer) with
a market value equal to two times the exercise price of the Right. The Rights
are redeemable, at 2/3 cents per Right, at any time prior to a person becoming
an Acquiring Person. The Rights will expire on October 31, 2007.
In connection with the sale of common stock to Greencore Group plc
("Greencore") in 1996, the Board of Directors took action under the
Shareholder Rights Plan to increase the ownership percentage that would
trigger the plan with respect to Greencore to 30% during the term of the
Investor Agreement between Greencore and the Company (not more than 5 years).
Thereafter, the trigger level would be increased to 35%, until such time as
Greencore's investment falls below 15%, at which time the trigger level
becomes 15%. Greencore had the right to designate two nominees for election as
directors of the Company. During the term of the Investor Agreement,
F-19
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Greencore will be required to vote for the director nominees recommended by
the Board of Directors. During the term of the Investor Agreement, Greencore
is also subject to restrictions relative to certain actions regarding the
Company.
Stock Incentive Plan
The shareholders have approved the Imperial Holly Corporation Stock
Incentive Plan, and have reserved for issuance 3.6 million shares of common
stock. The plan provides for the granting of incentive awards in the form of
stock options, stock appreciation rights (SARs), restricted stock, performance
units and performance shares at the discretion of the Executive Compensation
Committee of the Board of Directors. Stock options have an exercise price
equal to the fair market value of the shares of common stock at date of grant,
become exercisable in annual increments for up to five years commencing one
year after date of grant, and expire not more than ten years from date of
grant.
Stock option activity in the plan was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1999 September 30, 1999
------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Price Exercise Price
Options per Share Options per Share
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Beginning Balance......... 1,980,504 $ 9.63 582,895 $10.33
Granted................... 256,500 6.49 1,492,827 9.40
Expired................... (293,644) 11.47 (80,049) 11.25
Exercised................. (89,225) 6.44 (15,169) 7.60
--------- ---------
Balance, September 30..... 1,854,135 9.04 1,980,504 9.63
========= =========
Exercisable as of
September 30............. 613,034 9.44 435,726 10.09
========= =========
<CAPTION>
Six Months Ended Year Ended March 31,
September 30, 1997 1997
------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Price Exercise Price
Options per Share Options per Share
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Beginning Balance......... 614,327 $10.39 528,589 $10.03
Granted................... 9,000 11.33 141,700 12.90
Expired................... (30,800) 12.84 (41,551) 15.22
Exercised................. (9,632) 6.99 (14,411) 7.97
--------- ---------
Balance, March 31......... 582,895 10.33 614,327 10.39
========= =========
Exercisable as of March
31....................... 367,020 10.31 364,964 10.23
========= =========
</TABLE>
F-20
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
Options outstanding at September 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
Exercisable Options
------------------------
Weighted- Weighted-
Range of Average Weighted-Average Average
Exercise Prices Number of Exercise Price Remaining Number of Exercise Price
per Share Options per Share Contractual Life Options per Share
--------------- --------- -------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$6.00-
$8.87 507,125 $7.43 7.4 years 226,375 $8.45
$9.12-
$12.25 1,266,985 9.42 8.3 years 326,890 9.44
$13.19-
$15.50 80,025 13.22 6.9 years 59,769 13.21
</TABLE>
Nonemployee Director Stock Option Plan
The shareholders have approved the Nonemployee Director Stock Option Plan
and have reserved 30,000 shares of common stock for issuance. The plan
provides for the automatic granting to each nonemployee director of options to
purchase 1,500 shares of common stock at a price equal to 50% of the fair
market value at date of grant. The options become exercisable upon the
completion of three years of service as a director, and expire over a two-year
period from the date first exercisable. Stock option activity in the plan was
as follows:
<TABLE>
<CAPTION>
Year Ended September 30, Six Months Ended
----------------------------------- September 30, Year Ended
1999 1998 1997 March 31, 1997
----------------- ----------------- ------------------ -----------------
Price Price Price Price
Options per Share Options per Share Options per Share Options per Share
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance....... 3,000 $6.61 2,250 $7.56 4,500 $6.53 3,000 $5.88
Granted................. -- 1,500 5.38 -- -- 1,500 7.84
Expired................. -- (750) 7.00 -- -- --
Exercised............... -- -- (2,250) 5.50 --
----- ----- ------ -----
Ending Balance.......... 3,000 6.61 3,000 6.61 2,250 7.56 4,500 6.53
===== ===== ====== =====
Exercisable at Period
End.................... -- -- 750 7.00 3,000 5.88
===== ===== ====== =====
</TABLE>
Options outstanding at September 30, 1999 have a range of exercise prices of
$5.38 to $7.84, and a weighted-average remaining contractual life of 2.2
years.
Nonemployee Director Compensation Plan
In fiscal 1997, the shareholders approved the Nonemployee Director
Compensation Plan which provides for the annual award of common stock to
directors in lieu of their cash retainer. Shares of common stock awarded
pursuant to this plan totaled 39,776 in fiscal 1999, 17,287 in fiscal 1998 and
21,760 in both the six months ended September 30, 1997 and in fiscal 1997.
11. REPORTABLE SEGMENTS
The Company has identified two reportable segments: sugar and foodservice.
The segments are strategic business units that offer different products to
different customers. The segments are managed separately because each business
requires different production technology and marketing strategies.
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. The Company
accounts for intersegment sales as if the sales were to third parties, that
is, at current market prices. The Company evaluates performance based on
operating income of the respective business units.
F-21
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
The sugar segment produces and sells refined sugar and related products. The
segment's products include granulated, powdered, liquid, liquid blends and
brown sugars, which are primarily sold to grocery and industrial customers and
by-products from the production of refined sugar. The foodservice segment
sells numerous products to foodservice customers, including healthcare
institutions, ranging from 50-pound bags of sugar to individual packets of
sugar, salt, pepper, non-dairy creamer and plastic cutlery, nutritional dry
mixes, frozen nutritional products, sauces, seasonings, drink mixes, desserts
and diet kits.
Summarized financial information concerning the Company's reportable
segments for the years ended 1999 and 1998 is shown in the following table.
The "Corporate and Other" column includes corporate-related items and Imperial
Securitization. The Company had limited activity in the foodservice segment
prior to the acquisitions of Savannah Foods and Diamond Crystal in October
1997 and November 1998, respectively; the Company did not identify foodservice
as a segment before fiscal 1998. It is impracticable to disclose the
foodservice segment data for the six months ended September 30, 1997 and year
ended March 31, 1997 on a restated segment basis.
<TABLE>
<CAPTION>
Corporate Reconciling
Sugar Foodservice and other Eliminations Consolidated
---------- ----------- --------- ------------ ------------
(Thousands of Dollars)
As of and for the Year
Ended
September 30, 1999
- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers............ $1,490,981 $397,649 -- -- $1,888,630
Intersegment
revenues............. 92,493 7,234 -- $(99,727) --
Gross margin.......... 122,327 52,283 -- -- 174,610
Depreciation and
amortization......... 38,849 9,782 $ 2,641 -- 51,272
Operating income...... 35,661 14,037 (1,794) -- 47,904
Total assets.......... 870,894 247,834 162,055 -- 1,280,783
Capital expenditures.. 17,569 3,723 5,513 -- 26,805
<CAPTION>
As of and for the Year
Ended
September 30, 1998
- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers............ $1,529,189 $253,902 -- -- $1,783,091
Intersegment
revenues............. 37,532 7,252 -- $(44,784) --
Gross margin.......... 146,931 21,408 -- -- 168,339
Depreciation and
amortization......... 37,532 6,268 $ 1,955 -- 45,755
Operating income...... 33,533 5,406 -- -- 38,939
Total assets.......... 968,312 116,642 94,846 -- 1,179,800
Capital expenditures.. 35,489 872 6,058 -- 42,419
</TABLE>
Reconciliation of operating income to net loss before income taxes, minority
interest and extraordinary item (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating income................................. $ 47,904 $ 38,939
Interest expense--net............................ (59,071) (48,718)
Realized securities gains--net................... 4,697 2,181
Loss on partnership investment................... (16,706) --
Other income--net................................ 1,598 6,386
------------ ------------
Loss before income taxes, minority interest and
extraordinary item.............................. $ (21,578) $ (1,212)
============ ============
</TABLE>
F-22
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
12. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations; while the results of such litigation and claims cannot be
predicted with certainty, the Company believes the final outcome of such
matters will not have a materially adverse effect on its results of operations
or consolidated financial position.
The Company was obligated under $26.4 million in outstanding letters of
credit at September 30, 1999.
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $6.5 million in fiscal 1999, $7.8 million in fiscal 1998, $3.6
million for the six month period ended September 30, 1997 and $5.8 million in
fiscal 1997.
The aggregate future minimum lease commitments under noncancelable operating
leases at September 30, 1999 are summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Operating
Fiscal Year Ending September 30, Leases
-------------------------------- ---------
<S> <C>
2000.......................................................... $2,734
2001.......................................................... 2,365
2002.......................................................... 2,010
2003.......................................................... 1,638
2004.......................................................... 1,123
Thereafter.................................................... 3,447
</TABLE>
The aggregate future minimum amount to be received under sub-leases was $2.0
million at September 30, 1999.
13. SUPPLEMENTARY INCOME STATEMENT INFORMATION
In fiscal 1999, the Company recorded charges totaling $16.7 million to
write-off its investment in Pacific Northwest Sugar Company, a partnership in
which a subsidiary of the Company was a 43% limited partner. In connection
with the restructuring of the partnership's debt, the Company transferred its
limited partnership interest to an affiliate of the general partner. An
agreement dated April 26, 1999 terminated the Company's involvement with the
project and includes mutual releases among the parties. As a result of the
agreement, the general partner became the sole owner of the partnership, which
constructed, owns and operates a beet sugar processing facility in Moses Lake,
Washington. The facility experienced substantial operating losses in its first
year of operation due principally to critical equipment failures, exacerbated
by warmer than normal weather during the processing campaign. The Company's
share of such losses on the equity accounting method totaled approximately
$10.5 million and is included in the above mentioned charge.
In fiscal 1998, the Company incurred a $1.0 million charge for severance and
related costs in connection with the reorganization of administrative
functions after the acquisition of Savannah Foods. Substantially all such
amounts were paid by September 30, 1999. Additionally, a charge of $3.8
million was recorded for the loss the Company expected to incur in fulfilling
its industrial sales commitments in California at higher costs as a result of
the abnormal weather experienced there during the spring months.
In fiscal 1998, the Company ceased sugarbeet processing at its Hereford,
Texas factory, and provided $1.0 million for the estimated cash closure costs,
principally severance costs in connection with the layoff of approximately 60
employees. Substantially all such amounts were paid by September 30, 1999. The
Company
F-23
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999, 1998 and 1997, and March 31, 1997
continues to operate a molasses desugarization plant at the Hereford facility
by processing molasses from other beet sugar factories. The Company recorded a
$12.5 million asset impairment loss to reduce the carrying value of the
sugarbeet processing plant to its estimated fair value and to reduce the
carrying value of the molasses desugarization plant to its fair value, which
was based on the present value of the projected future cash flows.
Other income--net includes interest and dividends totaling $1.7 million for
fiscal 1999, $2.7 million for fiscal 1998, $1.2 million for the six months
ended September 30, 1997, and $1.8 million for fiscal 1997.
Substantially all of the Company's consolidated subsidiaries fully and
unconditionally guarantee the Company's 9 3/4% senior subordinated notes due
2007. The Company does not publish separate financial statements for such
guarantor subsidiaries because management has determined that such information
is not material to investors. Condensed, combined financial information for
such guarantor subsidiaries was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
September 30, Six Months Ended Year Ended
--------------------- September 20, March 31,
1999 1998 1997 1997
---------- ---------- ---------------- ----------
Income Statement Data
- ---------------------
<S> <C> <C> <C> <C>
Net sales................... $1,626,147 $1,498,842 $253,543 $443,699
Operating income............ 35,520 50,414 16,993 16,606
Net income.................. 7,559 24,875 8,324 3,726
<CAPTION>
September 30,
Balance Sheet Data 1999
- ------------------ ----------------
<S> <C> <C> <C>
Current assets.................................... $361,218
Plant, property and equipment--net................ 345,337
Goodwill--net..................................... 402,459
Current liabilities............................... 184,866
Long-term debt.................................... 22,100
</TABLE>
F-24
<PAGE>
EXHIBIT 4(a)(5)
FOURTH AMENDMENT
Fourth Amendment, dated as of November 18, 1999 (this "Amendment"), to the
Amended and Restated Credit Agreement, dated as of December 22, 1997 (as
heretofore and hereafter amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among Imperial Sugar Company, formerly known
as Imperial Holly Corporation (the "Borrower"), the several Lenders ("Lenders")
from time to time parties thereto, Lehman Commercial Paper, Inc., as Syndication
Agent, Lehman Brothers Inc., as Arranger and Harris Trust and Savings Bank, as
Administrative Agent and Collateral Agent.
WITNESSETH
Whereas, the Borrower has requested that the Lenders amend certain
provisions of the Credit Agreement;
Whereas, the Lenders have agreed to such amendments only upon the terms and
subject to the conditions set forth herein;
Now, Therefore, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreement are used herein as therein
defined.
Section 2. Amendments to the Credit Agreement.
(a) The definition of the term "Consolidated Fixed Charges" appearing in
Section 1.1 of the Credit Agreement shall be amended to read as follows:
" "Consolidated Fixed Charges": for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period, (b)
provision for cash income taxes made by the Borrower or any of its
Subsidiaries on a consolidated basis in respect of such period, (c) regularly
scheduled payments made in cash during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including scheduled
principal payments in respect of the Term Loans) other than (i) the repayment
of principal outstanding under the Tender Facilities at the final maturity
thereof, (ii) any repayment of the Loans made pursuant to Section 2.12(b)
hereof, and (iii) any repayments of the Loans made pursuant to Section
2.12(c) hereof and (d) dividends paid in cash during such period by the
Borrower or any of its Subsidiaries."
(b) Clause (b) of the definition of the term "Excess Cash Flow" contained
in Section 1.1 of the Credit Agreement shall be amended by adding the following
provision as clause (viii) thereof:
<PAGE>
", and (viii) the aggregate amount of all prepayments of Loans made
with the proceeds of any Receivables Securitization Program or of any sale
of marketable securities."
(c) Clause (ii) of Section 2.12(b) of the Credit Agreement shall be
amended to read as follows:
"(ii) the Net Cash Proceeds of the sale or other disposition by the
Borrower of marketable securities owned by it shall not be required to be
applied to prepayments pursuant to this Section 2.12(b) to the extent that
such Net Cash Proceeds are applied (A) with respect to proceeds of any such
sale in an aggregate amount not to exceed $15,000,000, to the repayment of
Revolving Credit Loans no later than the date that is 60 days after the
date the Borrower receives such proceeds, and (B) in all other cases,
reasonably promptly after such sale, to the reinvestment by the Borrower in
other marketable securities of the same general type and quality and such
replacement securities are pledged pursuant to the Guarantee and Collateral
Agreement and the Control Agreement; and".
(d) The last sentence of Section 2.18(d) is hereby amended to read as
follows:
Notwithstanding the foregoing, no Tranche B Term Loan Lender shall
have the right to decline any mandatory prepayment of the Tranche B Term
Loans of such Lender required by Section 2.12(a) with respect to any
issuance of Capital Stock or Subordinated Debt, by Section 2.12(b) in
connection with a sale of marketable securities the proceeds of which are
used to repay Indebtedness (other than a prepayment of Revolving Credit
Loans required by Section 2.12(b)(ii)) or by Section 2.12(b)(iii).
(e) Sections 7.1(a), 7.1(b), 7.1(c) and 7.1(d) of the Credit Agreement
shall be amended to read as follows:
"(a) Consolidated Total Leverage Ratio. Permit the Consolidated
Total Leverage Ratio as at the last day of any period of four consecutive
fiscal quarters of the Borrower ending with any fiscal quarter set forth
below to exceed the ratio set forth below opposite such fiscal quarter:
2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Total
Fiscal Quarter Leverage Ratio
<S> <C>
December 31, 1999 6.00 to 1.00
March 31, 2000 5.75 to 1.00
June 30, 2000 6.00 to 1.00
September 30, 2000 5.25 to 1.00
December 31, 2000 5.50 to 1.00
March 31, 2001 5.50 to 1.00
June 30, 2001 5.20 to 1.00
September 30, 2001 4.60 to 1.00
December 31, 2001 4.60 to 1.00
Thereafter 4.40 to 1.00
</TABLE>
(b) Consolidated Senior Leverage Ratio. Permit the Consolidated
Senior Leverage Ratio as at the last day of any period of four consecutive
fiscal quarters of the Borrower ending with any fiscal quarter set forth
below to exceed the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated Senior
Fiscal Quarter Leverage Ratio
<S> <C>
December 31, 1999 3.35 to 1.00
March 31, 2000 3.35 to 1.00
June 30, 2000 3.35 to 1.00
September 30, 2000 2.75 to 1.00
December 31, 2000 3.20 to 1.00
March 31, 2001 3.00 to 1.00
June 30, 2001 2.80 to 1.00
September 30, 2001 2.40 to 1.00
December 31, 2001 2.40 to 1.00
Thereafter 2.30 to 1.00
</TABLE>
3
<PAGE>
(c) Consolidated Interest Coverage Ratio. Permit the Consolidated
Interest Coverage Ratio for any period of four consecutive fiscal quarters
of the Borrower ending with any fiscal quarter set forth below to be less
than the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated Interest
Fiscal Quarter Coverage Ratio
<S> <C>
December 31, 1999 Not Applicable
March 31, 2000 Not Applicable
June 30, 2000 Not Applicable
September 30, 2000 Not Applicable
December 31, 2000 1.50 to 1.00
March 31, 2001 1.60 to 1.00
June 30, 2001 1.70 to 1.00
September 30, 2001 1.80 to 1.00
December 31, 2001 1.90 to 1.00
Thereafter 2.00 to 1.00
</TABLE>
(d) Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower ending on or after December 31, 2000 to be
less than 1.0 to 1.
(f) Section 7.2 of the Credit Agreement shall be amended by inserting
therein the following new Section (p):
"(p) In addition to Indebtedness permitted by Section 7.2(k) hereof,
Indebtedness of the Borrower and its Subsidiaries to Commodity Credit
Corporation in an aggregate principal amount not to exceed $25,000,000,
provided all of such Indebtedness is incurred between November 15 of any
year and March 14 of the year immediately following and is paid in full
no later than March 15 of the year immediately following."
(g) Section 7.3 of the Credit Agreement shall be amended by inserting
therein the following new Section (q):
"(q) Liens securing Indebtedness of the Borrower and any of its
Subsidiaries incurred pursuant to Section 7.2(p); provided that such
Liens do not at any time encumber any Property other than the specific
sugar or sugar-related products financed by such Indebtedness."
(h) Section 7.5(i) of the Credit Agreement shall be amended to read as
follows:
"(i) additional Dispositions not to exceed an amount (calculated on
the date of any Disposition) equal t 5% of the Borrower's Consolidated
Tangible Assets (determined as of the last day of the most recently
ended fiscal year of the
4
<PAGE>
Borrower) in the aggregate on a cumulative basis after the Closing
Date, provided that no Default or Event of Default shall occur
hereunder solely as a result of a reduction in the amount of the
Borrower's Consolidated Tangible Assets after the date of a Disposition
that otherwise complied with this Agreement at the time it was made."
(i) Sections 7.6 and 7.7 of the Credit Agreement shall be amended to read
as follows:
"7.6 Limitation on Dividends. Declare or pay any dividend (other
than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets
for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any shares of any class
of Capital Stock of the Borrower or any Subsidiary or any warrants or
options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations
of the Borrower or any Subsidiary (collectively, "Restricted
Payments"), except that (a) any Subsidiary may make Restricted Payments
to the Borrower or any Wholly Owned Subsidiary Guarantor, (b) so long
as no Event of Default has occurred and is continuing the Borrower may
pay dividends on any class of its preferred stock so long as such
dividends are paid solely in the Borrower's preferred stock of the same
class, and (c) so long as no Event of Default has occurred and is
continuing, the Borrower may (i) pay dividends on its common stock in
an aggregate amount not to exceed $3,000,000 during its fiscal year
ending September 30, 2000, and (ii) in any fiscal year thereafter
continue to pay dividends on its common stock in accordance with past
practice during and before the fiscal year ended September 30, 1999 and
in amounts per share not in excess of recent such amounts.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any
Capital Expenditure or Capitalized Refurbishment Expenditure, except
(i) Capitalized Refurbishment Expenditures of the Borrower and its
Subsidiaries in the ordinary course of business not to exceed
$50,000,000 in any fiscal year, (ii) other Capital Expenditures of the
Borrower and its Subsidiaries in the ordinary course of business not to
exceed (a) $35,000,000 in the fiscal year ending September 30, 2000, or
(b) $45,000,000 in any fiscal year thereafter; provided that any
portion of the amount specified in clause (ii) for any fiscal year that
is not expended in such fiscal year may be carried over to increase the
amount of Capital Expenditures permitted under clause (ii) for the
5
<PAGE>
immediately succeeding fiscal year and (iii) to the extent the payment
of such purchase prices constitute a Capital Expenditure, Capital
Expenditures in the amount of the purchase prices paid in connection
with the acquisition of DSLT Inc. and WF."
(j) Section 7.8(k) of the Credit Agreement shall be amended by adding the
following provision at the end thereof;
"; and provided further that the aggregate amount of all such
contributions consisting of cash and Cash Equivalents may not exceed
$15,000,000 during the term of this Agreement;".
(k) Section 10.15 of the Credit Agreement shall be amended by adding the
following provision thereto as clause (j):
"or (j) to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (so
long as such contractual counterparty or professional advisor to such
contractual counterparty agrees to be bound by the provisions of this
Section 10.15)."
(l) Annex A to the Credit Agreement is hereby replaced by Annex A attached
to this Amendment.
(m) The Required Lenders hereby waive compliance with the requirements of
Sections 7.1(a), 7.1(b) and 7.1(c) of the Credit Agreement for the period of
four consecutive fiscal quarters of the Borrower ended September 30, 1999. This
waiver is limited to the matters set forth herein, and the Borrower remains
obligated to comply with the terms of the Credit Agreement and the other Loan
Documents, including Sections 7.1(a), 7.1(b) and 7.1(c) of the Credit Agreement
as amended by this Amendment, as though this waiver had never been granted.
Section 3. Conditions to Effectiveness. This Amendment (except Section 2(l)
hereof, which shall become effective as of November 18, 1999) shall become
effective as of September 30, 1999 (the "Effective Date") upon satisfaction of
the following conditions precedent:
(a) The execution and delivery of this Amendment by a duly authorized
officer of each of the Borrower, the Agents and the Required Lenders.
(b) Payment of an amendment fee of one-half of one percent (0.5%) of each
Lender's existing Commitment or, with respect to the Term Lenders, the
outstanding principal amount of their Term Loans, to those Lenders that have
executed this Amendment on or prior to November 18, 1999.
Section 4. Representation and Warranties. The Borrower represents
and warrants to each Agent and each Lender that as of the Effective Date, before
and after giving effect to this
6
<PAGE>
Amendment and after giving effect to the waiver contained in Section 2(m)
hereof: (i) no Default or Event of Default has occurred and is continuing; (ii)
the representations and warranties made by the Borrower in or pursuant to the
Credit Agreement or any Loan Documents are true and correct in all material
respects on and as of the Effective Date as if made on such date (except to the
extent that any such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties were true and
correct in all material respects on and as of such earlier date); and (iii) this
Amendment constitutes the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
Section 5. Continuing Effect of Credit Agreement. This Amendment shall not
constitute an amendment or waiver of or consent to any provision of the Credit
Agreement not expressly referred to herein and shall not be construed as an
amendment, waiver or consent to any action on the part of the Borrower that
would require an amendment, waiver or consent of the Agents or the Lenders
except as expressly stated herein. Except as expressly consented to hereby, the
provisions of the Credit Agreement are and shall remain in full force and
effect.
Section 6. Expenses. The Borrower agrees to pay and reimburse the Agents
for all of their reasonable costs and out-of-pocket expenses incurred in
connection with the preparation, execution and delivery of this Amendment and
ancillary documents, including, without limitation, the reasonable fees and
disbursements of counsel to the Agents.
Section 7. Counterparts. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which counterparts when so executed
shall be an original, but all counterparts taken together shall constitute one
and the same instrument.
Section 8. Governing Law. This Amendment shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
7
<PAGE>
In Witness Whereof, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
Imperial Sugar Company
By: /s/ Mark O. Huggins
-----------------------------
Name: Mark O. Huggins
---------------------------
Title: Chief Financial Officer
--------------------------
Lehman Commercial Paper, Inc., as Syndication
Agent and as a Lender
By: /s/ Michele Swanson
-----------------------------
Name: Michele Swanson
---------------------------
Title: __________________________
Harris Trust and Savings Bank, as
Administrative Agent, Collateral Agent,
Issuing Lender and as a Lender
By: /s/ Dianna D. Carr
-----------------------------
Name: Dianna D. Carr
---------------------------
Title: Vice President
--------------------------
Wachovia Bank, N.A.
By: /s/ W. Thompkins Rison, Jr.
-----------------------------
Name: W. Thompkins Rison, Jr.
---------------------------
Title: Vice President
--------------------------
Union Bank of California, N.A.
By: /s/ Hagop V. Jazmadarian
-----------------------------
Name: HAGOP V. JAZMADARIAN
---------------------------
Title: Vice President
--------------------------
8
<PAGE>
US Bancorp AG Credit, Inc.
By: /s/ S. A. Sauer
---------------------------
Name: Sandra A Sauer
-------------------------
Title: Vice President
------------------------
The Bank of New York
By: /s/ R. R. Reedy
---------------------------
Name: RONALD R. REEDY
-------------------------
Title: Vice President
------------------------
Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank
Nederland" New York Branch
By: /s/ M. J. Fabiano
---------------------------
Name: Michael J. Fabiano
-------------------------
Title: Vice President
------------------------
By: /s/
---------------------------
Name:
-------------------------
Title: Senior Vice President
------------------------
CoBank, ACB
By: /s/
___________________________
Name:
_________________________
Title: V. P.
------------------------
Frost National Bank
By: /s/ W. G. Thomas
---------------------------
Name: W. Glenn Thomas
-------------------------
Title: Senior Vice President
------------------------
9
<PAGE>
Credit Agricole Indosuez
By: /s/ Katherine L. Abbott
----------------------------------------
Name: Katherine L. Abbott
--------------------------------------
Title: First Vice President
-------------------------------------
By: /s/ Bradley C. Peterson
----------------------------------------
Name: Bradley C. Peterson
--------------------------------------
Title: Vice President, Manager
-------------------------------------
Wells Fargo Bank (Texas), N.A.
By: /s/ Susan L. Coulter
----------------------------------------
Name: Susan L. Coulter
--------------------------------------
Title: Vice President
-------------------------------------
Balanced High Yield Fund I Ltd.,
By: BHF (USA) Capital Corporation acting as
attorney-in-fact
By: /s/ Dana L. McDougall
----------------------------------------
Name: Dana L. McDougall
--------------------------------------
Title: Vice President
-------------------------------------
By: /s/
----------------------------------------
Name:
--------------------------------------
Title: Associate
-------------------------------------
Metropolitan Life Insurance Company
By: /s/ James A. Dingler
----------------------------------------
Name: James A. Dingler
--------------------------------------
Title: Director
-------------------------------------
10
<PAGE>
Monument Capital Ltd.
By: Alliance Capital Management L.P., as
Investment Manager
By: Alliance Capital Management Corporation,
as General Partner
By: /s/ Joel Serebransky
----------------------------
Name: JOEL SEREBRANSKY
--------------------------
Title: SENIOR VICE PRESIDENT
-------------------------
Oak Mountain Limited
By: Alliance Capital Management L.P., as
Investment Manager
By: Alliance Capital Management Corporation,
as General Partner
By: /s/ Joel Serebransky
----------------------------
Name: JOEL SEREBRANSKY
--------------------------
Title: SENIOR VICE PRESIDENT
-------------------------
Putnam Diversified Income Trust
By: /s/ John R Verani
----------------------------
Name: John R Verani
--------------------------
Title: Vice President
-------------------------
Putnam Variable Trust - Putnam High Yield Fund
By: /s/ John R Verani
----------------------------
Name: John R Verani
--------------------------
Title: Vice President
-------------------------
11
<PAGE>
Van Kampen CLO I, Ltd.
By: Van Kampen Management Inc., as Collateral
Manager
By: /s/ Dennis J. McDonnell
----------------------------
Name: Dennis J. McDonnell
--------------------------
Title: President
-------------------------
Van Kampen CLO II, Ltd.
By: Van Kampen Management Inc., as Collateral
Manager
By: /s/ Dennis J. McDonnell
----------------------------
Name: Dennis J. McDonnell
--------------------------
Title: President
-------------------------
Van Kampen Senior Income Trust
By: /s/ Dennis J. McDonnell
----------------------------
Name: Dennis J. McDonnell
--------------------------
Title: President
-------------------------
Black Diamond CLO 1998 - 1 Ltd.
By: /s/ John H. Cullihane
----------------------------
Name: JOHN H. CULLIHANE
--------------------------
Title: DIRECTOR
-------------------------
Black Diamond International Funding Ltd.
By: /s/ David Dyer
----------------------------
Name: DAVID DYER
--------------------------
Title: Director
-------------------------
12
<PAGE>
KZH Sterling LLC
By: /s/ Peter Chin
----------------------------
Name: Peter Chin
--------------------------
Title: Authorized Agent
-------------------------
PAMCO CAYMAN Ltd.
By: Highland Capital Management,
L.P. as collateral Manager
By: /s/ Todd Travers
----------------------------
Name: Todd Travers
--------------------------
Title: Senior Portfolio Manager
-------------------------
First Union National Bank
By: /s/
----------------------------
Name:
--------------------------
Title: VP
--------------------------
The Pilgrim Prime Rate Trust
By: Pilgrim Investments Inc. as its Investment
Manager
By: /s/ Michel Prince, CFA
----------------------------
Name: MICHEL PRINCE, CFA
--------------------------
Title: VICE PRESIDENT
-------------------------
Pilgrim America High Income Investments, Ltd.
(as Assignee)
By: Pilgrim Investments Inc. as its Investment
Manager
By: /s/ Michel Prince, CFA
----------------------------
Name: MICHEL PRINCE, CFA
--------------------------
Title: VICE PRESIDENT
-------------------------
13
<PAGE>
Sequils-Pilgrim I Limited
By: Pilgrim Investments Inc. as its Investment
Manager
By: /s/ Michel Prince
----------------------------
Name: MICHEL PRINCE, CFA
--------------------------
Title: VICE PRESIDENT
-------------------------
Pilgrim CLO 1999 - I Limited
By: Pilgrim Investments Inc. as its Investment
Manager
By: /s/ Michel Prince
----------------------------
Name: MICHEL PRINCE, CFA
--------------------------
Title: VICE PRESIDENT
-------------------------
14
<PAGE>
Annex A
PRICING GRID FOR REVOLVING CREDIT LOANS,
SWING LINE LOANS, TERM LOANS A AND COMMITMENT FEES
<TABLE>
<CAPTION>
Consolidated Total Applicable Margin for Applicable Margin for Commitment Fee
Level Leverage Ratio Eurodollar Loans Base Rate Loans Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
V Greater than or equal 3.00% 2.00% 0.5%
to 5.00 to 1.00
- ----------------------------------------------------------------------------------------------------------------
IV Less than 5.00 to 1.00 2.75% 1.75% 0.5%
but greater than or
equal to 4.50 to 1.00
- ----------------------------------------------------------------------------------------------------------------
III Less than 4.50 to 1.00 2.50% 1.50% 0.375%
but greater than or
equal to 4.00 to 1.00
- ----------------------------------------------------------------------------------------------------------------
II Less than 4.00 to 1.00 2.25% 1.25% 0.375%
but greater than or
equal to 3.50 to 1.00
- ----------------------------------------------------------------------------------------------------------------
I Less than 3.50 to 1.00 1.75% 0.75% 0.25%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PRICING GRID FOR TRANCHE B TERM LOANS
<TABLE>
<CAPTION>
Consolidated Total Applicable Margin for Applicable Margin for Base
Level Leverage Ratio Eurodollar Loans Rate Loans
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
II Greater than or equal to 4.0% 3.00%
4.75 to 1.00
- -------------------------------------------------------------------------------------------------------
I Less than 4.75 to 1.00 3.50% 2.50%
- -------------------------------------------------------------------------------------------------------
</TABLE>
During the period commencing on November 18, 1999 and ending June 30, 2000
the Applicable Margins on Revolving Credit Loans, Swingline Loans, Term Loans A
and the Commitment Fee Rate shall be those set forth in Level V and the
Applicable Margins for Tranche B Term Loans shall be those set forth in Level
II. Changes in the Applicable Margin with respect to Tranche A Term Loans,
Tranche B Term Loans, Revolving Credit Loans, Swing Line Loans or in the
Commitment Fee Rate resulting from changes in the Consolidated Total Leverage
Ratio shall become effective on the date (the "Adjustment Date") on which
financial statements are delivered to the Lenders pursuant to Section 6.1 (but
in any event not later than the 50th day after the end of each of the first
three quarterly periods of each fiscal year or the 100th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, the Consolidated Total
Leverage Ratio as at the end of the fiscal period that would have been covered
thereby shall for the purposes of this definition be deemed to be greater than
5.00 to 1.00. In addition, at all times while an Event of Default shall have
occurred and be continuing, the Consolidated Total Leverage Ratio shall for the
purposes of this definition be deemed to be greater than 5.00 to 1.00. Each
determination of the Consolidated Total Leverage Ratio pursuant to this
definition shall be made with respect to the period of four consecutive fiscal
quarters of the Borrower ending at the end of the period covered by the relevant
financial statements.
2
<PAGE>
EXHIBIT 10(b)(2)
SCHEDULE OF EMPLOYMENT AGREEMENTS:
P. C. Carrothers
M. S. Flegenheimer
R. W. Hill
M. Q. Huggins
J. M. Kelley
J. C. Kempner
B. A. Oxnard, Jr.
D. H. Roche
W. F. Schwer
W. J. Smith
<PAGE>
EXHIBIT 10(c)(2)
FIRST AMENDMENT TO
SEVERANCE PAY AGREEMENT
This First Amendment to Severance Pay Agreement is made and entered into as
of the 1st day of November, 1998, by and between IMPERIAL HOLLY CORPORATION, a
Texas corporation, (the "Company") and ____________ ("Employee"), an employee of
the Company;
WITNESSETH:
WHEREAS, the parties entered into a Severance Pay Agreement (the
"Agreement") effective as of July 26, 1990 in order to provide a severance
benefit to Employee in the event of Employee's involuntary termination after a
Change in Control (as defined in the Agreement) of the Company; and
WHEREAS, Section 12 of the Agreement provides that the Agreement may be
modified only by a written instrument executed by both parties to the
Agreement; and
WHEREAS, the parties now desire to amend the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the parties hereto amend the Agreement as follows:
Section 4 of the Agreement is hereby amended in its entirety to read as
follows:
4. Parachute Payments. The Company and Employee understand and agree that
the severance pay benefits under this Agreement may constitute "parachute
payments" under Section 280G or any successor provision of the Internal
Revenue Code of 1986, as amended (the "Code"). Notwithstanding any other
provision of this Agreement to the contrary, the aggregate "present value"
of all "parachute payments" payable to or for the benefit of Employee,
whether payable pursuant to this Agreement or otherwise, shall not be
limited to three times the Employee's "base amount" in order to avoid
excise taxes to the Participant under Section 4999 or any successor
provision of the Code or the disallowance of a deduction to the Company
pursuant to Section 280G or any successor provision of the Code. Any
"parachute payment" made to Employee under this Agreement may be considered
an "excess parachute payment". For purposes of this Section 4, the terms
"present value", "parachute payment", "base amount", and "excess parachute
payment" shall have the meanings assigned thereto under Section 280G or any
successor provision of the Code.
Except as amended hereby, the terms and provisions of the Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this First Amendment to Severance
Pay Agreement to be executed by its duly authorized officer, and Employee has
executed this First Amendment, to be effective as of the date first above
written.
Imperial Holly Corporation
ATTEST:
By: _________________________________ By : ________________________________
Name: Roy L. Cordes, Jr. James C. Kempner
Title: Corp. Secretary President and Chief Executive
Officer
_____________________________________
Signature
<PAGE>
EXHIBIT 10(c)(3)
SCHEDULE OF SEVERANCE PAY AGREEMENTS:
P. C. Carrothers
R. W. Hill
J. C. Kempner
W. F. Schwer
<PAGE>
EXHIBIT 10(d)(2)
FIRST AMENDMENT TO THE
IMPERIAL HOLLY CORPORATION
SALARY CONTINUATION PLAN
This First Amendment to the Imperial Holly Corporation Salary Continuation
Plan is effective as of November 1, 1998.
WITNESSETH:
WHEREAS, Imperial Holly Corporation (the "Company") adopted the Imperial
Holly Corporation Salary Continuation Plan, which was amended and restated
effective August 1, 1990 and again amended and restated effective August 1,
1994 (the "Plan"); and
WHEREAS, pursuant to Section 7.01 of the Plan, the Board of Directors of the
Company (the "Board") retained the right to amend the Plan, and the Board now
desires to (i) amend the Plan and (ii) continue the Plan without a gap or
lapse in coverage;
NOW, THEREFORE, the Plan is hereby amended as follows:
Section 4.04 of the Plan is amended to delete the second paragraph thereof
in its entirety and to replace it with the following new second paragraph:
Notwithstanding any other provision of this Plan to the contrary, the
aggregate "present value" of all "parachute payments" payable to or for the
benefit of a Participant in the Plan, whether payable pursuant to the Plan
or otherwise, shall not be limited to three times the Participant's "base
amount" in order to avoid excise taxes to the Participant under Section
4999 or any successor provision of the Internal Revenue Code of 1986, as
amended (the "Code") or the disallowance of a deduction to the Company
pursuant to Section 280G or any successor provision of the Code. Any
"parachute payment" made to a Participant under the Plan may thus be
considered an "excess parachute payment". For purposes of this Section
4.04, the terms "present value", "parachute payment", "base amount" and
"excess parachute payment" shall have the meanings assigned thereto under
Section 280G or any successor provision of the Code.
This First Amendment to the Plan is executed is 1st day of November, 1998,
to be effective as of the date specified above subject to approval or
ratification by the Board. Except as amended hereby, the Plan shall continue
in full force and effect in accordance with its provisions.
Imperial Holly Corporation
ATTEST:
/s/ W. F. Schwer /s/ James C. Kempner
By: _________________________________ By: _________________________________
Name: William Schwer James C. Kempner
Title: Assistant Secretary President and Chief Executive
Officer
<PAGE>
EXHIBIT 10(i)(2)
SCHEDULE OF CHANGE OF CONTROL AGREEMENTS:
P. C. Carrothers
D. W. Ehrnkranz
H. P. Mechler
K. L. Mercer
<PAGE>
EXHIBIT 10(N)(2)
AMENDMENT NO. 1
Dated as of December 13, 1999
to
RECEIVABLES PURCHASE AGREEMENT
Dated as of June 30, 1999
This AMENDMENT NO. 1 (this "Amendment") dated as of December 13, 1999 is
---------
entered into among IMPERIAL SECURITIZATION CORPORATION (the "Seller"), IMPERIAL
------
DISTRIBUTING, INC.("Imperial"), as Servicer, IMPERIAL SUGAR COMPANY (the
--------
"Performance Guarantor"), FAIRWAY FINANCE CORPORATION (the "Purchaser"), and
--------------------- ---------
NESBITT BURNS SECURITIES INC.("Nesbitt Burns"), as agent for Purchaser (in such
-------------
capacity, together with its successors and assigns, the "Agent").
-----
RECITALS
--------
WHEREAS, the parties hereto have entered into a certain Receivables
Purchase Agreement dated as of June 30, 1999 (the "Agreement");
---------
WHEREAS, the parties hereto wish to make certain changes to the Agreement
as herein provided;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
contained herein and in the Agreement, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
-----------
herein are used as defined in the Agreement.
SECTION 2. Amendments to Agreement. The Agreement is hereby amended as
-----------------------
follows:
2.1. The first sentence of Section 3.1(a) of the Agreement is hereby
--------------
amended by inserting the phrase ", each Program Support Provider" after the term
"Agent."
2.2. Section 4.3(d) of the Agreement is hereby amended in its entirety to
--------------
read as follows:
<PAGE>
"(d) Permitted Investments. Any amounts in the Liquidation Account or the
---------------------
Collection Account, as the case may be, may be invested by the Liquidation
Account Bank or Collection Account Bank, respectively, at Servicer's direction,
in Permitted Investments, so long as Purchaser's interest in such Permitted
Investments is perfected and such Permitted Investments are subject to no
Adverse Claims other than those of the Purchaser provided hereunder; provided,
--------
however, that such investments shall mature not later than one Business Day next
- -------
preceding the last day of any Settlement Period for any Portion of Investment
next succeeding the date of such investment."
2.3. Section 5.3(b) of the Agreement is hereby amended by adding the
--------------
following after the word "Participation" in the first sentence:
"with the prior written consent of the Seller; provided, however, that such
-------- -------
consent shall not be unreasonably withheld; provided, further, that no such
-------- -------
consent shall be required if the participating interests or security interests
in the Participation are granted to the Bank of Montreal, a Canadian chartered
bank acting through its Chicago Branch, any Affiliate of the Purchaser or any
existing Liquidity Bank as of the date of this Amendment."
2.4. Section 5.4(a) of the Agreement is hereby amended in its entirety to
--------------
read as follows:
"Section 5.4. Costs, Expenses and Taxes. (1) In addition to the rights of
-------------------------
indemnification granted under Section 3.1 hereof, the Seller agrees to pay on
-----------
demand all reasonable costs and expenses in connection with the preparation,
execution, delivery and administration (including periodic auditing of Pool
Receivables) of this Agreement, the Liquidity Agreement, and the other documents
and agreements to be delivered hereunder, including all reasonable costs and
expenses relating to the amending, amending and restating, modifying or
supplementing of this Agreement, the Liquidity Agreement and the other documents
and agreements to be delivered hereunder and the waiving of any provisions
thereof, and including in all cases, without limitation, Attorney Costs for the
Agent, the Purchaser, each Program Support Provider and their respective
Affiliates and agents with respect thereto and with respect to advising the
Agent, the Purchaser, each Program Support Provider and their respective
Affiliates and agents as to their rights and remedies under this Agreement and
the other Transaction Documents, and all reasonable costs and expenses, if any
(including Attorney Costs), of the Agent, the Purchaser, each Program Support
Provider and their respective Affiliates and agents, in connection with the
enforcement of this Agreement and the other Transaction Documents."
2.5. Section 5.6 of the Agreement is hereby amended in its entirety to read
-----------
as follows:
"Section 5.6 Confidentiality. Unless otherwise required by applicable law
---------------
(including the disclosure requirement of applicable securities laws), the Seller
agrees to maintain the confidentiality of this Agreement and the other
Transaction Documents (and
<PAGE>
all drafts thereof) in communications with third parties and otherwise; provided
--------
that this Agreement may be disclosed to (a) third parties to the extent such
disclosure is made pursuant to a written agreement of confidentiality in form
and substance reasonably satisfactory to the Agent, (b) any Program Support
Provider and (c) the Seller's legal counsel and auditors if they agree to hold
it confidential; provided that only the terms and conditions of this agreement
--------
may be revealed to such parties and not the details of any fees, pricing or
interest rates."
2.6 The definition of "Attorney Costs" as set forth in the Exhibit I of
---------
the Agreement is hereby amended in its entirety as follows:
"'Attorney Costs' means and includes all fees and disbursements of any law
--------------
firm or other external counsel, the allocated costs of internal legal services
and all disbursements of internal counsel, to be paid as set forth in the Fee
Letter or otherwise in the case of any Program Support Provider, as provided in
Section 5.4."
- -----------
2.7 The definition of "Defaulted Receivable" as set forth in the Exhibit I
---------
of the Agreement is hereby amended in its entirety as follows:
"'Defaulted Receivable' means a Receivable:
--------------------
(i) as to which any payment, or part thereof, remains unpaid for
more than 60 days from the due date for such Receivable or such other
number of days from the due date for such Receivable approved by the Agent
subject to the satisfaction of the Rating Agency Condition;
(ii) as to which the Obligor thereof or any other Person obligated
thereon or owning any Related Security in respect thereof becomes the
subject of any Insolvency Proceeding; or
(iii) which, consistent with the Credit and Collection Policy, would
be written off the Seller's books as uncollectible."
2.8. Clause (i) of the definition of "Delinquent Receivable" as set forth
in the Exhibit I of the Agreement is hereby amended in its entirety as follows:
---------
"(i) as to which any payment, or part thereof, remains unpaid for
more than 30 days from the due date for such Receivable or such other
number of days from the due date for such Receivable approved by the Agent
subject to the satisfaction of the Rating Agency Condition; or".
2.9. Clause (i) of the definition of "Eligible Receivables" as set forth in
Exhibit I of the Agreement is hereby amended in its entirety as follows:
- ---------
<PAGE>
"(i) the Obligor of which is (i) a United States resident or OECD resident;
provided, however, if the Obligor of such Receivable is a resident of a
- -------- -------
jurisdiction other than the United States or OECD, such Obligor's obligations
with respect to such Receivables are supported by a letter of credit or guaranty
from an entity with a rating of at least (a) A by Standard & Poor's and (b) A2
by Moody's, (ii) not a government or a governmental subdivision, affiliate or
agency; provided, however, if the Obligor of such Receivable is a government or
-------- -------
a governmental subdivision, affiliate or agency, the aggregate Outstanding
Balance of all Pool Receivables of such Obligor that are Eligible Receivables
when added to the aggregate Outstanding Balance of all other Eligible
Receivables of Obligors that are governments or governmental subdivisions,
affiliates or agencies shall not exceed 3% of the Net Receivables Pool Balance,
(iii) not an Affiliate of Imperial or any Affiliate of Imperial, (iv) not
subject to an exchange agreement with any Originator, and (v) not deemed
unacceptable by the Agent, and;"
2.10. The definition of "Investment Grade" as set forth in the Exhibit I
---------
of the Agreement is hereby amended by deleting the word "or" immediately
following the reference to "Standard & Poor's" in the second line thereof, and
substituting therefor the word "and".
2.11. The definition of "Normal Concentration Percentage" as set forth in
the Exhibit I of the Agreement is hereby amended in its entirety as follows:
---------
"'Normal Concentration Percentage' for any Obligor means at any time 2.5%
-------------------------------
if such Obligor is not a Special Obligor, or if such Obligor is a Special
Obligor, 8% if such Special Obligor is rated A or better by S&P and A2 or better
by Moody's, 6% if such Special Obligor is rated BBB+ or better by S&P and Baa1
or better by Moody's and 4% if such Special Obligor is not so rated but is rated
at least BBB- by S&P and Baa3 by Moody's."
2.12. The definition of "Total Reserves" as set forth in Exhibit I of the
---------
Agreement is amended in its entirety as follows:
"'Total Reserves' means the sum of the Discount Reserve, the Loss Reserve
--------------
and the Servicing Fee Reserve."
2.13 Exhibit IV of the Agreement is hereby amended to add the following at
----------
the end thereof:
"(s) Credit Agreement. Imperial will provide to the Agent (in multiple
----------------
copies, if requested by the Agent) the following:
(i) as soon as possible and in any event within 5 Business Days
after a Responsible Officer of Imperial obtains knowledge thereof, notice
of any amendment, modification or waiver in any of the financial covenants
set forth in Section 7 of the Credit Agreement.
---------
<PAGE>
(ii) as soon as possible and in any event within 50 days after the
end of each of the first three quarters of each fiscal year of Imperial
and 100 days after the last fiscal quarter of each fiscal year of Imperial,
a copy of the certificate provided to the lenders under the Credit
Agreement with respect to the financial covenants contained in Section 7 of
---------
the Credit Agreement."
2.14 Paragraph (h) of Exhibit V of the Agreement is hereby amended in its
---------
entirety as follows:
"; or (h) As of the last day of any Fiscal Month (i) the arithmetic
average for the most recent three Fiscal Months of (A) the Default Ratios from
November 30, 1999 until May 31, 2000 shall exceed 7% and thereafter shall exceed
6%, or (B) the Delinquency Ratios from November 30, 1999 until May 31, 2000
shall exceed 12.5% and thereafter shall exceed 10%, or (C) the Dilution Ratio
shall exceed 2.5% or (ii) the arithmetic average of the Loss-to-Liquidation
Ratios for the most recent twelve Fiscal Months shall exceed 1%; or"
2.15 Paragraph (m) of Exhibit V of the Agreement is hereby amended in its
---------
entirety as follows:
"; or (m) Imperial shall fail to perform and comply with each of
the financial covenants set forth in Section 7 of the Credit Agreement as in
---------
effect on the date hereof, (but without giving effect to any other amendment,
-----------
modification or waiver to such financial covenants from time to time under the
Credit Agreement, except as set forth below), each of which covenants and
agreements, together with all related definitions, exhibits and ancillary
provisions, are hereby incorporated in this Agreement by reference as though
specifically set forth in this paragraph (m) and shall survive the termination
and/or expiration of the Credit Agreement; provided, however, that if at least
-----------------
50% of the Lenders (as such term is defined in the Credit Agreement) including
Harris, and the Bank of Montreal, a Canadian chartered bank acting through its
Chicago Branch (but not any Person to whom the Bank of Montreal may grant, sell
or assign all or any part of its rights under this Agreement, the Participation
or any liquidity agreement related to this Agreement) approves any amendment,
modification or waiver of any financial covenant set forth in Section 7 of the
---------
Credit Agreement, then a Termination Event shall occur with respect to a failure
to comply with such financial covenant only if Imperial shall fail to comply
with the financial covenant set forth in Section 7, of the Credit Agreement as
---------
so amended, modified or waived; or"
2.16 Exhibit V of the Agreement is hereby amended to add the following at
---------
the end thereof:
"; or (n) the occurrence of an event of default set forth in
Section 8 of the Credit Agreement as in effect on the date hereof, (regardless
- ---------
of whether such event of default may be amended, modified or waived from time to
time in accordance with the
<PAGE>
Credit Agreement), each of which events of default and agreements, together with
all related definitions, exhibits and ancillary provisions, are hereby
incorporated in this Agreement by reference as though specifically set forth in
this paragraph (n) and shall survive the termination and/or expiration of the
Credit Agreement; provided, however, that if at least 50% of the Lenders (as
-----------------
such term is defined in the Credit Agreement) including Harris approves any
amendment, modification or waiver of any event of default set forth in Section 8
---------
of the Credit Agreement, then a Termination Event shall occur with respect to a
failure to comply with such event of default only if Imperial shall fail to
comply with the event of default set forth in Section 8, of the Credit Agreement
---------
as so amended, modified or waived."
SECTION 3. Miscellaneous.
-------------
3.1. Effectiveness. This Amendment shall become effective on the date when
-------------
the Agent shall have received an original counterpart (or counterparts) of this
Amendment, executed and delivered by each of the parties hereto, or other
evidence satisfactory to the Agent of the execution and delivery of this
Amendment by such parties.
3.2. References to Agreement. Upon the effectiveness of this Amendment,
-----------------------
each reference in the Agreement to "this Agreement", "hereunder", "hereof",
"herein", or words of like import shall mean and be a reference to the Agreement
as amended hereby, and each reference to the Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the
Agreement shall mean and be a reference to the Agreement as amended hereby.
3.3. Effect on the Agreement. Except as specifically amended above, the
-----------------------
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect and are
hereby ratified and confirmed.
3.4. No Waiver. The execution, delivery and effectiveness of this
---------
Amendment shall not operate as a waiver of any right, power or remedy of any
party under the Agreement or any other document, instrument or agreement
executed in connection therewith, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
3.5. Governing Law. This Amendment, including the rights and duties of the
-------------
parties hereto, shall be governed by, and construed in accordance with, the laws
of the State of Texas (without giving effect to the conflict of laws principles
thereof).
3.6. Successors and Assigns. This Amendment shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
<PAGE>
3.7. Headings. The Section headings in this Amendment are inserted for
--------
convenience of reference only and shall not affect the meaning or interpretation
of this Amendment or any provision hereof.
3.8. Counterparts. This Amendment may be executed by the parties hereto in
-------------
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
IMPERIAL SECURITIZATION CORPORATION
-----------------------------------
By: /s/ W.F. SCHWER
-------------------------------------
Name: W.F. Schwer
Title: President
IMPERIAL DISTRIBUTING, INC.,
as Servicer
By: /s/ W.F. SCHWER
-----------------------------------
Name: W.F. Schwer
Title: Sr. Vice President
IMPERIAL SUGAR COMPANY,
as Performance Guarantor
By: /s/ MARK Q. HUGGINS
-----------------------------------
Name: Mark Q. Huggins
Title: Managing Director and Chief
Financial Officer
<PAGE>
FAIRWAY FINANCE CORPORATION, as Purchaser
By: /s/ DWIGHT JENKINS
------------------------------------------
Name: Dwight Jenkins
Title: Vice President
NESBITT BURNS SECURITIES INC., as Agent
By: /s/ DAVID J. KUCERA
------------------------------------------
Name: David J. Kucera
Title: Managing Director
By: /s/ JAMES P. WALSH
------------------------------------------
Name: James P. Walsh
Title: Managing Director
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation
---------- ---------------
<S> <C>
Holly Sugar Corporation...................................... New York
Diamond Crystal Brands, Inc.................................. Delaware
Michigan Sugar Company....................................... Michigan
Imperial Savannah LP......................................... Delaware
Diamond Crystal Specialty Foods, Inc. ....................... Michigan
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-30328, 33-41769 and 33-68896, each on Form S-8, and in Registration Statement
No. 333-69059 on Form S-3 of Imperial Sugar Company of our report dated November
30, 1999, appearing in this Form 10-K of Imperial Sugar Company for the year
ended September 30, 1999.
Houston, Texas
December 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
IMPERIAL SUGAR COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 7,925
<SECURITIES> 65,496
<RECEIVABLES> 64,458
<ALLOWANCES> 0
<INVENTORY> 259,064
<CURRENT-ASSETS> 440,404
<PP&E> 619,806
<DEPRECIATION> 217,442
<TOTAL-ASSETS> 1,280,783
<CURRENT-LIABILITIES> 238,315
<BONDS> 553,577
0
0
<COMMON> 309,847
<OTHER-SE> 63,577
<TOTAL-LIABILITY-AND-EQUITY> 1,280,783
<SALES> 1,888,630
<TOTAL-REVENUES> 1,888,630
<CGS> 1,714,020
<TOTAL-COSTS> 1,714,020
<OTHER-EXPENSES> 51,272
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,071
<INCOME-PRETAX> (21,578)
<INCOME-TAX> (3,454)
<INCOME-CONTINUING> (18,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,124)
<EPS-BASIC> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
