<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 June 30, 2000
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 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 July 28, 2000.
32,355,232 shares.
===============================================================================
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
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 Statement of Changes in
Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
______________________
The statements regarding future market prices, operating results,
synergies, sugarbeet acreage, agricultural results, future compliance with debt
covenants, the adequacy of future liquidity, 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 Company's future
earnings and cash flow levels, results of discussions with lenders, 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>
June 30, 2000 September 30,
(Unaudited) 1999
-------------- --------------
(In Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 3,424 $ 7,925
Marketable securities 4,618 65,496
Accounts receivable - trade 88,312 64,458
Inventories:
Finished Products 174,580 157,869
Raw and in-process materials 40,971 61,299
Supplies 33,519 39,896
---------- ----------
Total Inventory 249,070 259,064
Deferred costs and prepaid expenses 35,732 43,461
---------- ----------
Total current assets 381,156 440,404
OTHER INVESTMENTS 4,583 5,009
PROPERTY, PLANT AND EQUIPMENT - net 379,579 402,364
GOODWILL & OTHER INTANGIBLES - net 398,544 406,627
OTHER ASSETS 26,774 26,379
---------- ----------
TOTAL $1,190,636 $1,280,783
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 94,961 $ 141,428
Short-term borrowings 31,644 1,611
Current maturities of long-term debt 5,752 12,114
Other current liabilities 75,209 83,162
---------- ----------
Total current liabilities 207,566 238,315
LONG-TERM DEBT - net of current maturities 516,137 553,577
DEFERRED INCOME TAXES, EMPLOYEE BENEFITS
AND OTHER CREDITS 111,287 115,467
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 310,397 309,847
Stock held by benefit trust - (8,208)
Treasury stock (15,859) (7,611)
Retained earnings 60,617 58,191
Unrealized securities gains - net of income taxes 491 21,205
---------- ----------
Total shareholders' equity 355,646 373,424
---------- ----------
TOTAL $1,190,636 $1,280,783
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In Thousands of Dollars, Except Share and per Share Amounts)
NET SALES $ 466,313 $ 499,977 $ 1,364,077 $ 1,400,735
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 427,820 441,421 1,244,768 1,256,298
Selling, general and administrative 18,111 21,480 62,115 60,177
Depreciation and amortization 13,711 14,017 41,378 39,077
----------- ----------- ----------- -----------
Total 459,642 476,918 1,348,261 1,355,552
----------- ----------- ----------- -----------
OPERATING INCOME 6,671 23,059 15,816 45,183
INTEREST EXPENSE (15,087) (14,532) (43,502) (44,999)
REALIZED SECURITIES GAINS - 2,379 35,874 4,671
LOSS ON INVESTMENT IN PARTNERSHIP - - - (16,706)
OTHER INCOME (LOSS) - net (11) 1,306 807 2,120
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (8,427) 12,212 8,995 (9,731)
PROVISION (BENEFIT) FOR INCOME TAXES (1,962) 5,558 6,569 (191)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (6,465) $ 6,654 $ 2,426 $ (9,540)
=========== =========== =========== ===========
BASIC EARNINGS (LOSS)
PER SHARE OF COMMON STOCK ($0.20) $0.21 $0.08 ($0.30)
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS)
PER SHARE OF COMMON STOCK ($0.20) $0.21 $0.08 ($0.30)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 32,328,646 32,190,208 32,270,848 31,548,191
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------
2000 1999
------ -----
(In Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,426 $ (9,540)
Adjustments for non-cash and non-operating items:
Depreciation & amortization 41,378 39,077
Gain on sale of marketable securities (35,874) (4,671)
Loss on investment in partnership - 16,706
Other 2,890 574
Changes in operating assets and liabilities
(excluding amounts acquired in the
Diamond Crystal acquisition):
Accounts receivables - trade (23,854) 99,439
Inventories 9,994 (66,933)
Deferred costs and prepaid expenses 7,729 3,864
Accounts payable - trade (46,467) 31,654
Other current liabilities (490) (43,378)
-------- ---------
Operating cash flow (42,268) 66,792
-------- ---------
INVESTMENT ACTIVITIES:
Acquisition of Diamond Crystal, net of cash acquired - (111,442)
Capital expenditures (12,286) (16,665)
Investment in marketable securities (3,347) (13,409)
Proceeds from sales of marketable securities 64,221 20,492
Proceeds from the maturity of securities 3,996 -
Proceeds from sales of fixed assets 1,875 2,184
Other (3,371) 1,311
-------- ---------
Investing cash flow 51,088 (117,529)
-------- ---------
FINANCING ACTIVITIES:
Short-term debt:
CCC borrowings - advances 51,887 59,888
CCC borrowings - repayments (20,470) (22,448)
Other - net (1,384) (839)
Revolving credit borrowings - net 2,700 86,985
Repayment of long-term debt (46,502) (62,965)
Dividends paid - (2,880)
Issuance of stock and other 448 1,116
-------- ---------
Financing cash flow (13,321) 58,857
-------- ---------
(DECREASE)INCREASE IN CASH AND TEMPORARY INVESTMENTS (4,501) 8,120
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 7,925 2,877
-------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 3,424 $ 10,997
======== =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended June 30, 2000
(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>
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 - - - - - - 2,426 - 2,426
Change in unrealized
securities
gains - net - - - - - - - (20,714) (20,714)
------
Total comprehensive income - - - - - - - - (18,288)
Employee stock purchase and
other plans 67,691 - (25,569) 159 - (40) - - 119
Stock transferred from
benefit trust - 684,971 (684,971) - 8,208 (8,208) - - -
Nonemployee director
compensation plan 91,212 - - 391 - - - - 391
---------- ------- ---------- -------- ------- ------- ------- -------- --------
BALANCE JUNE 30, 2000 33,683,069 - (1,345,819) $310,397 $ - $(15,859) $60,617 $ 491 $355,646
========== ======= ========== ======== ======= ======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
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
June 30. The contracts provide for the sharing of the net selling price (gross
sales price less certain marketing costs, including packaging costs, brokerage,
freight expense and amortization of costs for certain facilities used in
connection with marketing) with growers. 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
June 30. 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 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
foodservice 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 nine
month period ended June 30, 1999, as if the acquisition of Diamond Crystal had
occurred on October 1, 1998, assuming an effective tax rate of 35%.
<TABLE>
<CAPTION>
Nine Months Ended June 30
2000 1999
------------ -----------
Actual Pro Forma
(In Thousands of Dollars, Except Per Share and Share Amounts)
<S> <C> <C>
Net Sales $ 1,364,077 $ 1,411,819
----------- -----------
Cost of Sales 1,244,768 1,265,066
Selling, General and
Administrative Expenses 62,115 61,529
Depreciation and Amortization 41,378 39,510
----------- -----------
Operating Income 15,816 45,714
Interest Expense (43,502) (45,702)
Loss on Investment in Partnership (16,706)
Realized Securities Gains 35,874 4,671
Other Income - net 807 2,120
----------- -----------
Income (Loss) Before Income Taxes 8,995 (9,903)
Provision (Benefit) for Income Taxes 6,569 (13)
----------- -----------
Net Income (Loss) $ 2,426 $ (9,890)
=========== ===========
Basic Earnings (Loss) Per Share
of Common Stock $0.08 $(0.30)
=========== ===========
Diluted Earnings (Loss) Per Share
of Common Stock $0.08 $(0.30)
=========== ===========
Weighted Average Shares Outstanding 32,270,848 32,135,065
=========== ===========
</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):
June 30, September 30,
2000 1999
----------- -----------
Senior Credit Agreement:
Revolving credit facility $ 94,200 $ 91,500
Term loans 151,902 192,068
9-3/4% Senior Subordinated Notes due 2007 250,000 250,000
Industrial revenue bonds 25,149 25,204
8-3/8% Senior Notes due 1999 - 5,801
Other 638 1,118
----------- -----------
Total long-term debt 521,889 565,691
Less current maturities 5,752 12,114
----------- -----------
Long-term debt, net $ 516,137 $ 553,577
=========== ===========
8
<PAGE>
The Company liquidated substantially all of its marketable securities
portfolio in the nine months ending June 30, 2000, and utilized $36.6 million of
the proceeds to pay down senior term loans.
The Company's credit agreements require compliance with specified financial
and other covenants. Additionally, the Company's revolving receivable purchase
facility requires compliance with certain financial covenants and is backed by a
liquidity line of credit issued in favor of the receivable purchaser, which
expires October 31, 2000. Such back-up line of credit is required under the
agreement; however, the Company is not a party to the line of credit. Should the
line of credit not be renewed, the revolving receivable purchase agreement would
terminate, placing substantial additional liquidity needs on the Company.
The Company was in compliance with all such covenants at June 30, 2000.
Certain financial and other covenants become more restrictive commencing
September 30, 2000. Had such more restrictive covenants been in place at June
30, 2000, the Company would not have met them. The Company's ability to maintain
compliance with such covenants in the future is a function of its ability to
generate sufficient additional EBITDA (as defined) or reduce indebtedness, or
both, which in turn are dependant on a number of factors, including future
operating results that the Company is unable to predict with certainty. However,
absent substantial improvement in the domestic sugar market that would produce
significantly improved operating results for the Company, the Company may need
to seek relief from certain covenants for the quarter ending September 30, 2000.
If the Company needed to seek and were not able to obtain relief from its
lenders, it would be restricted from further borrowings and may be required to
refinance, restructure or reorganize all or a portion of its indebtedness, sell
assets, obtain additional debt or equity financing or take other actions.
All of the Company's debt agreements and revolving receivable purchase
facility contain cross default provisions.
4. EARNINGS PER SHARE
The following table presents unaudited information necessary to calculate
basic and diluted earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In Thousands of Dollars, Except Share and Per Share Amounts)
<S> <C> <C> <C> <C>
Earnings for basic and diluted
computation:
Net income (loss) $ (6,465) $ 6,654 $ 2,426 $ (9,540)
Adjustments - None - - - -
----------- ----------- ----------- -----------
Adjusted net income (loss) $ (6,465) $ 6,654 $ 2,426 $ (9,540)
=========== =========== =========== ===========
Basic earnings per share:
Weighted average shares
outstanding 32,328,646 32,190,208 32,270,848 31,548,191
=========== =========== =========== ===========
Net income (loss) per share $ (0.20) $ 0.21 $ 0.08 $ (0.30)
=========== =========== =========== ===========
Diluted earnings per share:
Weighted average shares
outstanding 32,328,646 32,190,208 32,270,848 31,548,191
Incremental shares issuable
from assumed exercise of
stock options under the
treasury stock method(1) - 240 - 4,424
----------- ----------- ----------- -----------
Weighted average shares
outstanding - as adjusted 32,328,646 32,190,448 32,270,848 31,552,615
=========== =========== =========== ===========
Net income (loss) per share $ (0.20) $ 0.21 $ 0.08 $ (0.30)
=========== =========== =========== ===========
</TABLE>
----------
(1) Securities excluded from the computation of diluted EPS for June 30, 2000
that could potentially dilute basic EPS in the future were options to
purchase 955,000 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.
9
<PAGE>
5. REPORTABLE SEGMENTS
The Company has identified two reportable segments: sugar and foodservice.
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 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 unaudited financial information concerning the Company's
reportable segments for the three months and nine months ended June 30, 2000 and
1999, is shown in the following table. The "Corporate and Other" column
includes corporate-related items and activities related to the Company's
securitization of receivables.
<TABLE>
<CAPTION>
Corporate Reconciling
Sugar Foodservice and Other Eliminations Consolidated
---------- ----------- --------- ------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
For the Three Months Ending
June 30, 2000
------------------------------------
Revenues from external customers $ 370,463 $ 95,850 $ 466,313
Intersegment revenues 23,927 1,896 $(25,823) -
Gross margin 28,401 10,092 38,493
Operating income (loss) 6,093 2,250 $ (1,672) 6,671
For the Three Months Ending
June 30, 1999
------------------------------------
Revenues from external customers $ 395,408 $104,569 $ 499,977
Intersegment revenues 25,813 1,786 $(27,599) -
Gross margin 45,824 12,732 58,556
Operating income (loss) 21,098 2,295 $ (334) 23,059
For the Nine Months Ending
June 30, 2000
------------------------------------
Revenues from external customers $1,070,696 $293,381 $1,364,077
Intersegment revenues 73,817 5,581 $(79,398) -
Gross margin 88,248 31,061 119,309
Operating income (loss) 18,678 1,985 $ (4,847) 15,816
For the Nine Months Ending
June 30, 1999
------------------------------------
Revenues from external customers $1,105,813 $294,922 $1,400,735
Intersegment revenues 68,365 5,517 $(73,882) -
Gross margin 106,596 37,841 144,437
Operating income (loss) 36,371 9,146 $ (334) 45,183
</TABLE>
10
<PAGE>
Reconciliation of operating income to net income (loss) before income taxes (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -------------------
2000 1999 2000 1999
---------- --------- -------- -------
<S> <C> <C> <C> <C>
Operating income $ 6,671 $ 23,059 $ 15,816 $ 45,183
Interest expense (15,087) (14,532) (43,502) (44,999)
Securities gains - 2,379 35,874 4,671
Loss on investment in partnership - - - (16,706)
Other income (expense) (11) 1,306 807 2,120
-------- -------- -------- --------
Income (loss) before income taxes $ (8,427) $ 12,212 $ 8,995 $ (9,731)
======== ======== ======== ========
</TABLE>
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. Unaudited, condensed,
combined financial information for such guarantor subsidiaries was as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Income Statement Data
---------------------
Net Sales $406,366 $435,009 $1,176,297 $1,208,920
Operating income 2,776 35,468 7,565 32,519
Net income 3,789 11,313 5,166 11,718
June 30,
2000
----------
Balance Sheet Data
------------------
Current assets $ 363,430
Property, plant and equipment, net 324,277
Goodwill - net 398,544
Current liabilities 178,128
Long-term debt, net 25,050
</TABLE>
7. PRODUCTION CONSOLIDATION
The Company intends to cease processing sugarbeets at the Tracy and
Woodland, California facilities near the end of calendar 2000 following the
completion of the fall production campaign. These factories will continue to
package and distribute refined sugar products with sugar supplied from the
remaining two California beet factories and other Company processing facilities.
The Company intends to sell the real estate surrounding the facilities which,
based on independent appraisals, is expected to generate proceeds in excess of
$30 million, which are required to be applied to the reduction of debt. In
August 2000, the Company announced it was discontinuing cane sugar refining at
its Clewiston, Florida refinery. The Company expects to realize significant cost
efficiencies by concentrating production in the southeastern United States in
its large Savannah, Georgia refinery. As a result of discontinuing the refining
operation in Clewiston, Florida, as well as ceasing to process sugarbeets at
Tracy and Woodland, California, the Company expects to take a charge in fiscal
fourth quarter 2000 of approximately $25 million, of which approximately $13
million is related to impairment costs to write down to fair value the assets
used in those facilities.
11
<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
and borrowings from the Commodity Credit Corporation ("CCC"). The Company's
sugar production operations require substantial seasonal working capital. This
seasonal requirement generally peaks during the Company's second fiscal quarter
when inventory levels are high, and a substantial portion of the payments to raw
material suppliers have been made. At times during the quarter ended March 31,
2000, the Company utilized substantially all of its available borrowing capacity
primarily due to higher inventory levels from record sugarbeet crops. At
June 30, 2000, unused borrowing capacity was $36.5 million, including $25.0
million of additional seasonal CCC borrowing capacity allowed annually under the
Senior Credit Agreement; such additional seasonal capacity expired
July 15, 2000. Unused capacity at August 2, 2000, was $22.5 million. The Company
expects that its liquidity will continue to improve during the balance of fiscal
2000, as seasonal inventory levels decline. Additionally, the Company intends to
participate in the forfeitures of sugar under loan with the CCC in the fourth
quarter of fiscal 2000, which would further reduce inventory and short term
borrowing levels and thus improve liquidity.
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") 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 with the quarter ending December 31, 2000, the
Senior Credit Agreement will require a minimum interest coverage ratio and a
minimum fixed charge coverage ratio.
The Company's revolving receivable purchase facility requires compliance
with certain financial covenants and is backed by a liquidity line of credit
issued in favor of the receivable purchaser, which expires October 31, 2000.
Such back-up line of credit is required under the agreement; however, the
Company is not a party to the line of credit. Should the line of credit not be
renewed, the revolving receivable purchase agreement would terminate, placing
substantial additional liquidity needs on the Company.
During the period November 15 to March 15 each year, the Company is
precluded from incurring additional indebtedness (other than available
borrowings under the Senior Credit Agreement and CCC borrowings allowed
thereunder) based on restrictions in the indenture governing its senior
subordinated notes. The adequacy of available sources of liquidity to finance
the Company's operations through the peak requirements in the first two quarters
of fiscal 2001 is a function of a number of factors, which the Company is unable
to predict. Such factors include the size and sugar content of the sugarbeet
crop contracted to the Company for harvest in the fall of 2000, the market price
for raw sugar, the market price of and demand for refined sugar, cash flow
provided from operations and continued availability of revolving credit
borrowings and revolving receivable sales under the receivable purchase
facility.
12
<PAGE>
The Company was in compliance with all covenants under its credit and
revolving receivable purchase agreements at June 30, 2000. Certain financial and
other covenants become more restrictive commencing September 30, 2000. Had such
more restrictive covenants been in place at June 30, 2000, the Company would not
have met them. The Company's ability to maintain compliance with such covenants
in the future is a function of its ability to generate sufficient additional
EBITDA or reduce indebtedness, or both, which in turn are dependant on a number
of factors, including future operating results that the Company is unable to
predict with certainty. However, absent substantial improvement in the domestic
sugar market that would produce significantly improved operating results for the
Company, the Company may need to seek relief from certain covenants for the
quarter ending September 30, 2000.
If the Company needed to seek and were not able to obtain relief from its
lenders, it would be restricted from further borrowings and may be required to
refinance, restructure or reorganize all or a portion of its indebtedness, sell
assets, obtain additional debt or equity financing or take other actions. The
Company has engaged Wasserstein Perrella & Co. to provide restructuring and
recapitalization advice. Additionally, Credit Suisse First Boston is working
with the Company to attempt to raise equity capital.
Long-term debt at June 30, 2000 was $516.1 million, consisting principally
of $250.0 million of senior subordinated notes and borrowings under the Senior
Credit Agreement. The Senior Credit Agreement includes a $157.0 million
revolving credit facility (available through December 2002) and term loans
aggregating $151.9 million. 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 3.0% or a Eurodollar rate plus a margin ranging from 1.75% to
4.0%). The Company has entered into interest rate swap agreements with major
financial institutions to effectively fix the market interest rate on $215.9
million of the amounts outstanding under the Senior Credit Agreement at a
weighted average annual rate of 9.25% as of June 30, 2000. 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, CCC borrowings are generally limited
to $50 million and reduce dollar for dollar the availability of borrowings under
the revolving line of credit. Additional seasonal CCC borrowings of up to $25
million may be made from November 15 to March 15 each year (extended to July 15
for 2000), without reduction of the amounts available under the revolving credit
facility.
The Company has a revolving receivable purchase facility with an
independent issuer of receivables-backed commercial paper. The agreement
establishes a five-year, $110.0 million revolving receivables purchase facility
that expires on June 30, 2004, 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 0.7%. At June
30, 2000, the Company had sold $88.1 million of accounts receivable under the
facility.
The Company liquidated approximately $64.2 million of its marketable
securities portfolio in the nine months ending June 30, 2000, and utilized $36.6
million of the proceeds to pay down long-term debt.
The Company's capital expenditures for fiscal 2000 are expected to
approximate $20.0 million, primarily for environmental, safety and obsolescence
projects.
13
<PAGE>
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 requirements, to raise additional debt or equity capital
or to take advantage of business opportunities. In addition to the financial
covenants described above, 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;
. 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.
The indenture governing the Company's $250.0 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.
All of the Company's debt agreements and revolving receivable purchase
facility contain cross default provisions.
Results of Operations
---------------------
Net sales decreased $33.7 million, or 6.7%, for the three months and $47.7
million, or 3.4% for the nine months ended June 30, 2000, compared to the same
periods pro forma of the prior year. The decrease in net sales for both the
three and nine month periods ended June 30, 2000, compared to 1999 were due to
lower sales prices for refined sugar, which was partially offset by an increase
in refined sugar volumes. The Company sold refined sugar totaling $31.2 million
to the government under a U.S. Department of Agriculture tender program in the
third quarter, which was the reason the sugar segment's refined sugar volumes
increased for the period. The foodservice segment's net sales decreased 8.3% for
the three months and 4.1% for the nine month period ended June 30, 2000,
compared to the pro forma amounts for the same periods of the prior year,
primarily as a result of lower sales prices received for refined sugar sold in
foodservice markets.
14
<PAGE>
Gross margin as a percent of sales declined from 11.7% to 8.3% for the
quarter and from 10.3% to 8.7% for the nine months, primarily due to
significantly lower sales prices for refined sugar in both the sugar and
foodservice segments, which more than offset the benefits from lower raw sugar
costs. In addition, gross margin was negatively impacted by the tender of
refined sugar to the government, which was sold at a loss of $2.4 million.
The Company, as well as the rest of the domestic sugar industry, has
experienced a very difficult operating environment, and the Company does not
anticipate that the fundamentals of the domestic sugar industry will improve
over the near term. 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 has produced a significant
oversupply of refined sugar. The market has reacted accordingly, and prices for
refined bulk sugar have fallen to fifteen-year lows, with published industry
prices declining over 20%. 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 15%, 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.
The decline in refined sugar prices has reduced 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 is not
feeling the entire impact of the price decline in fiscal 2000. Similarly, the
Company is not realizing 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, margins are significantly
adversely impacted.
While the Company has incurred and expects to continue to incur increasing
energy, packaging and benefit costs, it has undertaken an initiative to reduce
other costs, with savings at a $15 million annual run rate by the beginning of
the fourth quarter of fiscal 2000. Approximately half of those savings are from
reducing operating costs in the sugar refining operations, with the remaining
cost savings from more efficient purchasing and savings in manufacturing costs
in the foodservice segment, as well as a reduction in selling, general &
administrative costs. Additionally, the Company is instituting new procurement
procedures using third-party procurement groups which have the potential of
reducing these costs.
The Company intends to cease processing sugarbeets at the Tracy and
Woodland, California facilities at the end of calendar 2000 following the
completion of the fall production campaign. These factories will continue to
package and distribute refined sugar products with sugar supplied from the
remaining two California beet factories and other Company processing facilities.
The Company intends to sell the real estate surrounding the facilities which,
based on independent appraisals, is expected to generate proceeds in excess of
$30 million, which will be applied to the reduction of debt. In August 2000, the
Company announced it was discontinuing cane sugar refining at its Clewiston,
Florida refinery. The Company expects to realize significant cost efficiencies
by concentrating production in the southeastern United States in its large
Savannah, Georgia refinery. As a result of discontinuing the refining operation
in Clewiston, Florida, and ceasing to process sugarbeets at Tracy and Woodland,
California, the Company expects to take a charge in fiscal fourth quarter 2000
of approximately $25 million, of which approximately $13 million is related to
impairment costs to write down to fair value the assets used in those
facilities.
15
<PAGE>
Excluding the expenses related to the Company's accounts receivable
securitization program of $1.6 million for the quarter and $4.8 million for the
nine months ended June 30, 2000, as this program was not in place in the year
ago period, selling, general and administrative costs were $5.0 million lower
for the three months and $4.2 million lower for the nine months ended June 30,
2000, compared to the pro forma amounts for the same periods of the prior year.
The decline is principally from reduced sales-related, administrative and
promotional costs in the sugar segment, lower fixed and other overhead costs in
the foodservice segment resulting from previously announced plant closures and
from other expense reductions achieved across the Company's operations.
Interest expense increased for the three months ended June 30, 2000
compared to prior year, due primarily to higher market interest rates and higher
margins, which were partially offset by lower overall borrowing levels resulting
from the securitization of accounts receivable and sale of marketable
securities. Interest expense for the nine months ended June 30, 2000 decreased
as lower overall borrowing levels more than offset higher interest rates.
During the nine months ended June 30, 2000, the Company recognized a gain
of $35.9 million from the sale of the majority of the Company's marketable
securities portfolio.
The loss on investment in partnership included in the prior year resulted
from the write-off of the Company's investment in Pacific Northwest Sugar
Company, a partnership in which the Company was a 43% limited partner.
Other Income for the three and nine months ended June 30, 2000 was lower
than the comparable period of the prior year primarily as a result of a decrease
in dividend income due to the sale of the majority of the Company's marketable
securities portfolio in fiscal 2000. Additionally, the Company recognized a
gain of $1.2 million on the sale of land at a former beet sugar factory during
the three months ended June 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company uses raw sugar futures and options in its inventory purchasing
programs and natural gas futures to hedge natural gas purchases used in its
manufacturing operations. Gains and losses on raw sugar futures and options are
matched to specific inventory purchases and charged or credited to cost of sales
as such inventory is sold. Gains and losses on natural gas futures are matched
to the natural gas purchases and charged to cost of sales in the period of the
purchase. 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 June 30, 2000. The Company's world
sugar positions are not material to its consolidated financial position, results
of operations or cash flows.
<TABLE>
<CAPTION>
Expected Maturity Expected Maturity
Domestic Raw Sugar Fiscal 2000 Fiscal 2001
------------------ --------------------- --------------------
(net short positions) (net long positions)
<S> <C> <C>
Futures Contracts:
Contract Volumes (cwt.) 243,040 35,840
Weighted Average Contract Price (per cwt.) $ 19.23 $ 19.61
Contract Amount $4,674,173 $702,901
Weighted Average Fair Value (per cwt.) $ 18.82 $ 19.30
Fair Value $4,574,013 $ 69,880
</TABLE>
The above information does not include either the Company's physical
inventory or its fixed price purchase commitments for raw sugar.
16
<PAGE>
The information in the table below presents the Company's natural gas
futures position outstanding as of June 30, 2000 .
<TABLE>
<CAPTION>
Expected Expected Expected
Maturity Maturity Maturity
Natural Gas Fiscal 2000 Fiscal 2001 Fiscal 2002
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Futures Contracts (long positions):
Contract Volumes (mmbtu) 550,000 4,900,000 150,000
Weighted Average Contract Price (per mmbtu) $ 4.41 $ 3.65 $ 3.46
Contract Amount $2,427,000 $17,886,000 $519,000
Weighted Average Fair Value (per mmbtu) $ 4.46 $ 4.01 $ 3.53
Fair Value $2,453,000 $19,633,000 $529,000
</TABLE>
Although the Company's position in derivative financial instruments and
other financial instruments has not changed materially since September 30, 1999,
the market value on the Company's interest rate swaps have increased to $6.7
million due to the rise in interest rates.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits required to be filed with this report are listed below:
Exhibit 27 Financial Data Schedules
The Company is a party to several long-term 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 Securities and Exchange Commission
upon request.
(b) The Company did not file any current reports on Form 8-K during the
three months ended June 30, 2000.
17
<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: August 4, 2000 By: /s/ Mark Q. Huggins
-------------------
Mark Q. Huggins
Managing Director
and Chief Financial Officer
(Principal Financial Officer)
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