<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission file number 1-10307
______________________________
IMPERIAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487
(Address of principal executive offices, including Zip Code)
(281) 491-9181
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject
t to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of February 9, 2000.
32,219,266 shares.
<PAGE>
IMPERIAL SUGAR COMPANY
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in
Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosure
About Market Risk 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
______________________
The statements regarding future market prices, operating results,
synergies, sugarbeet acreage, agricultural results, future operating
efficiencies and cost savings and other statements that are not historical facts
contained in this Quarterly Report on Form 10-Q are forward-looking statements.
The words "expect", "project", "estimate", "believe", "anticipate", "plan",
"intend", "could", "may", "predict" and similar expressions are also intended
to identify forward-looking statements. Such statements involve risks,
uncertainties and assumptions, including, without limitation, market factors,
the effect of weather and economic conditions, farm and trade policy (including
the impact of the North American Free Trade Agreement, or NAFTA) the ability of
the Company to realize planned cost savings, 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.
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 1999
(Unaudited)
----------------- ------------------
(In Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 14,655 $ 7,925
Marketable securities 19,848 65,496
Accounts receivable - trade 37,904 64,458
Inventories:
Finished products 245,391 157,869
Raw and in-process materials 152,396 61,299
Supplies 39,306 39,896
Deferred costs and prepaid expenses 25,107 43,461
---------- ----------
Total current assets 534,607 440,404
OTHER INVESTMENTS 4,933 5,009
PROPERTY, PLANT AND EQUIPMENT - net 393,271 402,364
GOODWILL & OTHER INTANGIBLES - net 403,918 406,627
OTHER ASSETS 26,963 26,379
---------- ----------
TOTAL $1,363,692 $1,280,783
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 210,058 $ 141,428
Short-term borrowings 38,918 1,611
Current maturities of long-term debt 5,419 12,114
Other current liabilities 71,857 83,162
---------- ----------
Total current liabilities 326,252 238,315
LONG-TERM DEBT - net of current maturities 552,709 553,577
DEFERRED INCOME TAXES, EMPLOYEE BENEFITS
AND OTHER LIABILITIES 113,548 115,467
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 309,913 309,847
Stock held by benefit trust (8,208) (8,208)
Treasury stock (7,611) (7,611)
Retained earnings 72,110 58,191
Unrealized securities gains - net of
income taxes 4,979 21,205
---------- ----------
Total shareholders' equity 371,183 373,424
---------- ----------
TOTAL $1,363,692 $1,280,783
========== ==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
-----------------------
1999 1998
--------- --------
(In Thousands of Dollars,
Except per Share Amounts)
NET SALES $ 468,599 $ 471,761
---------- ----------
COSTS AND EXPENSES:
Cost of sales 424,333 421,581
Selling, general and administrative 21,945 18,893
Depreciation and amortization 13,637 12,564
---------- ----------
Total 459,915 453,038
---------- ----------
OPERATING INCOME 8,684 18,723
INTEREST EXPENSE (14,302) (14,117)
REALIZED SECURITIES GAINS 29,178 -
OTHER INCOME - net 456 416
---------- ----------
INCOME BEFORE INCOME TAXES 24,016 5,022
PROVISION FOR INCOME TAXES 10,097 2,657
---------- ----------
NET INCOME $ 13,919 $ 2,365
========== ==========
BASIC EARNINGS PER SHARE OF COMMON STOCK $0.43 $0.08
========== ==========
DILUTED EARNINGS PER SHARE OF COMMON STOCK $0.43 $0.08
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 32,208,384 30,335,994
========== ==========
See notes to consolidated financial statements.
-4-
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------
1999 1998
---------- ---------
(In Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 13,919 $ 2,365
Adjustments for non-cash and non-operating items:
Depreciation and amortization 13,637 12,564
Gain on sale of marketable securities (29,178) -
Other 263 791
Changes in operating assets and liabilities
(excluding amounts acquired in the Diamond
Crystal acquisition):
Accounts receivables - trade 26,554 41,754
Inventories (178,029) (153,318)
Deferred costs and prepaid expenses 18,354 17,585
Accounts payable - trade 68,630 50,758
Other current liabilities (3,874) (19,123)
---------- ---------
Operating cash flow (69,724) (46,624)
---------- ---------
INVESTING ACTIVITIES:
Acquisition of Diamond Crystal, net of cash acquired - (111,216)
Capital expenditures (3,365) (5,951)
Proceeds from sales of securities 49,858 6,217
Proceeds from sales of fixed assets 1,711 15
Other (1,527) 4,890
---------- ---------
Investing cash flow 46,677 (106,045)
---------- ---------
FINANCING ACTIVITIES:
Short-term debt:
CCC borrowings - advances 37,804 10,017
Other - net (497) (257)
Revolving credit borrowings (repayments) - net 25,500 144,700
Repayment of long-term debt (33,064) (1,688)
Dividends paid - (950)
Issuance of stock and other 34 406
---------- ---------
Financing cash flow 29,777 152,228
INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 6,730 (441)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 7,925 2,877
---------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 14,655 $ 2,436
========== =========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Common Stock Common Stock
----------------------------------- -------------------------------- Unrealized
Held by Treasury Held by Treasury Retained Securities
Issued Benefit Trust Stock Issued Benefit Trust Stock Earnings Gains Total
--------- ------------- --------- ------- ------------- --------- --------- ----------- -------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1999 33,524,166 (684,971) (635,279) $309,847 $(8,208) $(7,611) $ 58,191 $ 21,205 $373,424
Comprehensive income:
Net income - - - - - - 13,919 - 13,919
Change in unrealized
securities
gains - net - - - - - - (16,226) (16,226)
--------
Total comprehensive
income (2,307)
Employee stock purchase plan
& stock option exercises 8,544 - - 40 - - - - 40
Nonemployee director
compensation plan - - - 26 - - - - 26
---------- -------- -------- -------- ------- ------- -------- ------- --------
BALANCE DECEMBER 31, 1999 33,532,710 (684,971) (635,279) $309,913 $(8,208) $(7,611) $ 72,110 $ 4,979 $371,183
========== ======== ======== ======== ======= ======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
IMPERIAL SUGAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
1. ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect, in the opinion of management, all adjustments,
consisting only of normal recurring accruals, that are necessary for a fair
presentation of financial position and results of operations for the interim
periods presented. These financial statements include the accounts of Imperial
Sugar Company and its majority owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain information and footnote disclosures required by
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. The financial statements included herein should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended September 30,
1999.
Cost of Sales
Payments to growers for sugarbeets are based in part upon the Company's
average net return for sugar sold (as defined in the participating contracts
with growers) during the grower contract years, some of which extend beyond
December 31. The contracts provide for the sharing of the net selling price
(gross sales price less certain marketing costs, including packaging costs,
brokerage, freight expense and amortization of costs for certain facilities used
in connection with marketing) with growers. These financial statements include
an accrual for estimated additional amounts to be paid to growers based on the
average net return realized for sugar sold in each of the contract years through
December 31. The final cost of sugarbeets cannot be determined until the end of
the contract year for each growing area. Manufacturing costs incurred prior to
production are deferred and allocated to production costs based on estimated
total units of production for each sugar manufacturing campaign. Additionally,
the Company's sugar inventories, which are accounted for on a LIFO basis, are
periodically reduced at interim dates to levels below that of the beginning of
the fiscal year. When such interim LIFO liquidations are expected to be restored
prior to fiscal year-end, the estimated replacement cost of the liquidated
layers is utilized as the basis of the cost of sugar sold from beginning of the
year inventory. Accordingly, the cost of sugar utilized in the determination of
cost of sales for interim periods includes estimates which may require
adjustment in future fiscal periods.
Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which is effective for the Company's fiscal year ending September
30, 2001, and 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 the prior year have been reclassified to be consistent
with the fiscal 2000 presentation.
-7-
<PAGE>
2. ACQUISITIONS
On November 2, 1998, the Company acquired all the outstanding common stock
of DSLT Inc. ("Diamond Crystal"), which produces nutritional dry mixes, sauces,
seasonings, drink mixes and desserts for distribution to the healthcare and food
service industries.
The acquisition was accounted for by the purchase method and, accordingly,
the Company's results of operations incorporate Diamond Crystal's results of
operations for all periods beginning on and after the acquisition date. The
following table presents certain unaudited pro forma information for the three
months period ended December 31, 1998, as if the acquisition of Diamond Crystal
had occurred on October 1, 1998, assuming an effective tax rate of 35%.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------------
1999 1998
Actual Pro forma
----------- -----------
(In Thousands of Dollars)
(unaudited)
<S> <C> <C>
Net Sales $ 468,599 $ 482,845
----------- -----------
Cost of Sales 424,333 430,349
Selling, General and Administrative Expenses 21,945 20,245
Depreciation and Amortization 13,637 12,997
----------- -----------
Operating Income 8,684 19,254
Interest Expense (14,302) (14,820)
Realized Securities Gains 29,178 -
Other Income-net 456 416
----------- -----------
Income Before Income Taxes 24,016 4,850
Provision for Income Taxes 10,097 2,835
----------- -----------
Net Income $ 13,919 $ 2,015
=========== ===========
Basic Earnings Per Share of Common Stock $0.43 $0.06
=========== ===========
Diluted Earnings Per Share of Common Stock $0.43 $0.06
=========== ===========
Weighted Average Shares Outstanding 32,208,384 32,065,406
=========== ===========
</TABLE>
Goodwill acquired in this transaction is being amortized over 40 years.
3. LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
----------- ------------
<S> <C> <C>
Senior Credit Agreement:
Revolving credit facility $ 117,000 $ 91,500
Term loans 164,986 192,068
9-3/4% Senior Subordinated Notes due 2007 250,000 250,000
Industrial revenue bonds 25,202 25,204
8-3/8% Senior Notes due 1999 - 5,801
Other 940 1,118
----------- ----------
Total long-term debt 558,128 565,691
Less current maturities 5,419 12,114
----------- ----------
Long-term debt, net $ 552,709 $ 553,577
=========== ==========
</TABLE>
-8-
<PAGE>
The Company liquidated the majority of its marketable securities portfolio
in the three months ending December 31, 1999 and utilized the after-tax proceeds
to pay down long-term debt.
4. EARNINGS PER SHARE
The following table presents information necessary to calculate basic and
diluted earnings per share.
Three Months Ended
December 31,
------------------------
1999 1998
----------- ----------
(In Thousands of Dollars)
Earnings for basic and diluted computation:
Net income $ 13,919 $ 2,365
Adjustments - None - -
----------- -----------
Adjusted net income $ 13,919 $ 2,365
----------- -----------
Basic earnings per share:
Weighted average shares outstanding 32,208,384 30,335,994
=========== ===========
Net income per share $ 0.43 $ 0.08
=========== ===========
Diluted earnings per share:
Weighted average shares outstanding 32,208,384 30,335,994
Incremental shares issuable from assumed
exercise of stock options under the
treasury stock method(1) - 7,962
----------- -----------
Weighted average shares outstanding - as adjusted 32,208,384 30,343,956
=========== ===========
Net income per share $ 0.43 $ 0.08
=========== ===========
- ----------
(1) Securities excluded from the computation of diluted EPS for the three
months period ending December 31, 1999 that could potentially dilute basic
EPS in the future were options to purchase 1,763,000 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.
5. REPORTABLE SEGMENTS
The Company has identified two reportable segments: sugar and food service.
The segments are strategic business units that offer certain different products
to different customers. The segments are managed separately because each
business requires different production technologies 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.
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 food service segment
sells numerous products to food service 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.
-9-
<PAGE>
Summarized financial information concerning the Company's reportable
segments for the three months ended December 31, 1999 and 1998, is shown in the
following table. The "Corporate and Other" column includes corporate-related
items and securitization activities.
<TABLE>
<CAPTION>
Corporate Reconciling
Sugar Food Service and Other Eliminations Consolidated
----------- ------------- ------------ ------------ ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
For the Three Months Ending
December 31, 1999
- -----------------------------
Revenues from external customers $366,501 $102,098 - - $468,599
Intersegment revenues 26,200 1,879 - $(28,079) -
Gross margin 32,989 11,277 - - 44,266
Operating income 8,759 1,571 (1,646) - 8,684
For the Three Months Ending
December 31, 1998
- -----------------------------
Revenues from external customers $380,311 $ 91,450 - - $471,761
Intersegment revenues 21,958 1,922 - $(23,880) -
Gross margin 38,548 11,632 - - 50,180
Operating income 15,209 3,514 - - 18,723
</TABLE>
Reconciliation of Operating Income to Net Income before income taxes (in
thousands):
Three Months Ended December 31,
1999 1998
-------- --------
Operating income $ 8,684 $ 18,723
Interest expense (14,302) (14,117)
Securities gains 29,178 -
Other income (expense) 456 416
-------- -------
Income before income taxes $ 24,016 $ 5,022
======== =======
6. GUARANTOR SUBSIDIARIES
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 and other
disclosures 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):
Three Months Ended
December 31,
--------------------
1999 1998
-------- --------
(unaudited)
Income Statement Data
Net Sales $399,398 $401,640
Operating income 6,576 12,261
Net income (loss) (217) 7,119
December 31,
1999
--------
Balance Sheet Data
Current assets $526,097
Property, plant and equipment, net 337,113
Goodwill - net 403,918
Current liabilities 317,809
Long-term debt, net 25,100
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's primary capital requirements generally 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 December 31, 1999, was $552.7 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 $165.0 million. At
December 31, 1999, the Company had $12 million unused borrowing capacity under
the revolving credit facility. Interest on borrowings under the Senior Credit
Agreement is based on 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 $228.7 million of the
amounts outstanding under the Senior Credit Agreement at a weighted average
annual rate of 9.24% as of December 31, 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.
The Company has entered into a receivables purchase agreement with an
independent issuer of receivables-backed commercial paper. The agreement
establishes a five-year, $110 million revolving receivables purchase facility,
which allows the Company to sell certain accounts receivables on a non-recourse
basis. Receivables are sold under the agreement at discount rates based on a
commercial paper rate plus a margin of 0.44%. At December 31, 1999, the Company
had sold $102 million of accounts receivable under the facility.
The Company liquidated approximately $49.9 million of its marketable
securities portfolio in the three months ending December 31, 1999, and utilized
the after-tax proceeds to pay down long-term debt. The Company intends to
liquidate a substantial portion of the remainder of its marketable securities
portfolio in the second quarter of fiscal 2000.
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:
-11-
<PAGE>
. the incurrence of additional indebtedness and other obligations and the
granting of additional liens;
. mergers, acquisitions and dispositions;
. investments, loans and advances;
. 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, as well as a minimum adjusted current
ratio and a minimum level of net worth. Commencing on December 31, 2000, the
Senior Credit Agreement will require a minimum interest coverage ratio and a
minimum fixed charge coverage ratio.
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 certain redeemable preferred
stock, or in the case of subsidiaries, any 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 2000 are expected to
approximate $25 million primarily for environmental, safety and obsolescence
projects.
The Company is unable to predict future operating results, and accordingly
there can be no assurance 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 and continue to remain in
compliance with financial covenants of the Senior Credit Agreement. 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 or
restructure all or a portion of its existing indebtedness or obtain additional
debt or equity financing.
-12-
<PAGE>
Year 2000 Issues
In 1998, the Company began a program to identify and remediate possible
exposures related to the impact on its computer systems of the year 2000
("Y2K"). Such program was completed in fiscal 1999 and, to date, the Company has
not experienced interruptions in normal business operations or a failure of
computer systems related to Y2K issues.
Results of Operations
The Company completed the Diamond Crystal acquisition on November 2, 1998.
Accordingly, the results of operations reported for the quarter ended December
31, 1998, include only two of the three months of the quarter of Diamond
Crystal's operations. The pro forma financial information included in the Notes
to Consolidated Financial Statements and discussed below presents the combined
results of the companies as if the acquisition and related financing
transactions had occurred as of September 30, 1998.
Pro forma net sales decreased 3.0% for the three months ended December 31,
1999, compared to the same period of the prior year, principally due to lower
sales prices for refined sugar as a result of an oversupply of refined sugar in
the domestic sugar market and from lower sugar sales volumes. The food service
segment's pro forma net sales were virtually unchanged for the three months
ended December 31, 1999 compared to the same period of the prior year,
decreasing less than 0.4%. Decreases in the food service segment's refined sugar
sales prices were offset by higher selling prices on certain nonsugar products.
Pro forma gross margin for the three months ended December 31, 1999,
declined $8.2 million or 15.7% compared to the same period of the prior year,
and as a percent of sales declined to 9.4% from 10.9%. The sugar segment's gross
margin declined $5.6 million or 14.4% compared to the same period of the prior
year. While the Company's cane sugar refining operations benefited from lower
costs for raw sugar, this benefit was more than offset by lower production
volumes and reduced sales prices for refined sugar. Higher production volumes in
the sugarbeet processing operations, due to a record sugarbeet crop, contributed
to reduced unit production costs which offset the impact of lower prices. Pro
forma gross margin for the food service segment was $11.3 million or 10.8% of
sales for the three months ended December 31, 1999, down from $13.9 million or
12.5% from the same period of the prior year, principally due to the impact of
lower refined sugar prices and of costs related to the integration of
operations, offset somewhat by cost savings from the consolidation of facilities
which occurred late in the period.
Following a period of expansion in acreage planted in sugarbeets, the rate
of which has exceeded growth in domestic demand for refined sugar, the largest
domestic sugarbeet crop in history is producing what is expected to be a
significant oversupply of refined sugar. The market has reacted accordingly, and
prices for refined bulk sugar have fallen to fifteen-year lows. The largest cane
sugar crop in history, again due to acreage expansion as well as the development
of higher yielding cane varieties, has caused the market price for domestic and
quota foreign raw cane sugar to fall over 20% within a period of six months,
also to fifteen-year lows. Additionally, the prospect of substantially higher
imports of sugar from Mexico beginning on October 1, 2000 under NAFTA, may
exacerbate the current oversupply.
-13-
<PAGE>
The decline in refined sugar prices is expected to reduce margins both in
the Company's sugarbeet processing operations, where the Company shares in the
net revenues from refined sugar with the growers, as well as in its cane sugar
refinery operations. The Company contracted a portion of industrial sugar sales
for fiscal 2000 prior to the majority of the decline in prices, so it should not
feel the entire impact of the price decline in fiscal 2000. Similarly, the
Company does not expect to see the entire benefit of the lower raw sugar prices
in fiscal 2000 because it contracted for its raw sugar supplies as it contracted
for refined cane sugar industrial sales, pricing some of its raw sugar needs at
higher levels. Overall, refined sugar prices have fallen more than raw sugar
prices; so despite the reduced raw material costs, future margins are expected
to be adversely impacted.
The Company has undertaken a cost savings initiative, with reductions
targeted to reach a $15 million annual run rate from which it expects to begin
realizing in the fourth quarter of fiscal 2000. Additionally, the Company is
analyzing its competitive advantages and evaluating the optimal mix of
production, packaging and logistics assets, along with product offerings, to
compete in the sectors of the industry which have the most reasonable
opportunity for profit. The Company is exploring the possible sale of its Tracy
and Woodland, California factories to a sugarbeet grower group and has indicated
that it expects to cease beet sugar production at those facilities after the
fall 2000 campaigns, should such sale not take place.
During the three months ended December 31, 1999, the Company closed and
sold a food service facility in Moore, Oklahoma. The Company expects to close
the food service facility in Wilmington, Massachusetts in the second quarter of
fiscal 2000. The Company expects to reduce costs in the food service segment as
a result of consolidating production in its remaining facilities.
Pro forma selling, general and administrative costs were $1.7 million
higher for the three months ended December 31, 1999, compared to the same period
of the prior year, primarily due to the discount on the securitization of
certain of the Company's accounts receivable, which program was not in place in
the year ago period.
Interest costs decreased on a pro form basis as lower overall borrowing
levels more than offset higher interest rates.
During the three months ended December 31, 1999, the Company recognized a
gain of $29.2 million before tax, from the sale of the majority of the Company's
marketable securities portfolio.
ITEM 3. 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 in the table below presents the Company's domestic raw
sugar futures position outstanding as of December 31, 1999. The Company's world
sugar positions are not material to its consolidated financial position, results
of operations or cash flows.
-14-
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Expected Maturity
Fiscal 2000 Fiscal 2001
----------------- ------------------
<S> <C> <C>
Futures Contract (net long positions):
Contract Volumes (cwt.) 1,471,680 515,200
Weighted Average Contract Price (per cwt.) $ 20.67 $ 19.77
Contract Amount $30,426,000 $10,187,000
Weighted Average Fair Value (per cwt.) $ 19.14 $ 19.14
Fair Value $28,170,000 $ 9,862,000
</TABLE>
The above information does not include either the Company's physical
inventory or its fixed price purchase commitments for raw sugar.
The Company's position in derivative financial instruments and other
financial instruments has not changed materially since September 30, 1999.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Shareholders held on January 28, 2000 the
following proposals were acted upon:
Proposal 1 - Nominees for Directors were elected to serve as Class III
Directors for terms of office expiring in 2003 by the vote totals as follow:
NUMBER OF VOTES
FOR WITHHELD
---------- ---------
Ann O. Hamilton 27,286,248 1,058,252
Harris L. Kempner, Jr. 28,097,126 247,374
H. E. Lentz 28,119,694 224,806
Kevin C. O'Sullivan 28,125,870 218,630
Class I Directors, whose terms of office continue until 2001 are John D.
Curtin, I. H. Kempner III, James C. Kempner and Daniel K. Thorne.
Class II Directors, whose terms of office continue until 2002 are David J.
Dilger, Edward O. Gaylord, Gerald Grinstein and Robert L. Harrison.
Proposal 2 - The appointment of Deloitte & Touche LLP as auditors of the
Company for the fiscal year ending September 30, 2000 was ratified by a vote of
28,228,196 (87.6%) for and 76,717 (.23%) against with 39,587 (.12%) abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits required to be filed with this report are listed below:
Exhibit 27 Financial Data Schedules
Registrant is a party to several long-term debt instruments under which in
each case the total amount of securities authorized does not exceed 10% of the
total assets of Registrant and its subsidiaries on a consolidated basis.
Pursuant to paragraph 4(iii) (A) of Item 601(b) of Regulation S-K, Registrant
agrees to furnish a copy of such instruments to the Securities and Exchange
Commission upon request.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPERIAL SUGAR COMPANY
(Registrant)
Dated: February 11, 2000 By: /s/ Mark Q. Huggins
---------------------------
Mark Q. Huggins
Managing Director
and Chief Financial Officer
(Principal Financial Officer)
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,655
<SECURITIES> 19,848
<RECEIVABLES> 37,904
<ALLOWANCES> 0
<INVENTORY> 437,093
<CURRENT-ASSETS> 534,607
<PP&E> 621,382
<DEPRECIATION> 228,111
<TOTAL-ASSETS> 1,363,692
<CURRENT-LIABILITIES> 326,252
<BONDS> 552,709
0
0
<COMMON> 309,913
<OTHER-SE> 61,270
<TOTAL-LIABILITY-AND-EQUITY> 1,363,692
<SALES> 468,599
<TOTAL-REVENUES> 468,599
<CGS> 424,333
<TOTAL-COSTS> 424,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,302
<INCOME-PRETAX> 24,016
<INCOME-TAX> 10,097
<INCOME-CONTINUING> 13,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,919
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
</TABLE>
