<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 March 31, 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 May 12, 2000.
32,331,550 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 16
______________________
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>
March 31, 2000 September 30,
(Unaudited) 1999
-------------- -------------
(In Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 15,850 $ 7,925
Marketable securities 5,084 65,496
Accounts receivable - trade 52,506 64,458
Inventories:
Finished Products 220,107 157,869
Raw and in-process materials 83,388 61,299
Supplies 36,262 39,896
---------- ----------
Total Inventory 339,757 259,064
Deferred costs and prepaid expenses 31,298 43,461
---------- ----------
Total current assets 444,495 440,404
OTHER INVESTMENTS 4,826 5,009
PROPERTY, PLANT AND EQUIPMENT - net 386,151 402,364
GOODWILL & OTHER INTANGIBLES - net 401,271 406,627
OTHER ASSETS 27,077 26,379
---------- ----------
TOTAL $1,263,820 $1,280,783
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 140,172 $ 141,428
Short-term borrowings 50,161 1,611
Current maturities of long-term debt 5,589 12,114
Other current liabilities 76,043 83,162
---------- ----------
Total current liabilities 271,965 238,315
LONG-TERM DEBT - net of current maturities 518,392 553,577
DEFERRED INCOME TAXES, EMPLOYEE BENEFITS
AND OTHER CREDITS 111,499 115,467
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 310,332 309,847
Stock held by benefit trust (8,208) (8,208)
Treasury stock (7,611) (7,611)
Retained earnings 67,082 58,191
Unrealized securities gains - net of income taxes 369 21,205
---------- ----------
Total shareholders' equity 361,964 373,424
---------- ----------
TOTAL $1,263,820 $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 Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2000 1999 2000 1999
------ ------ ------ ------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 429,165 $ 428,997 $ 897,764 $ 900,758
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 392,615 393,296 816,948 814,877
Selling, general and administrative 22,059 19,804 44,004 38,697
Depreciation and amortization 14,030 12,496 27,667 25,060
----------- ----------- ----------- -----------
Total 428,704 425,596 888,619 878,634
----------- ----------- ----------- -----------
OPERATING INCOME 461 3,401 9,145 22,124
INTEREST EXPENSE (14,113) (16,350) (28,415) (30,467)
REALIZED SECURITIES GAINS 6,696 2,292 35,874 2,292
LOSS ON INVESTMENT IN PARTNERSHIP - (16,706) - (16,706)
OTHER INCOME - net 362 398 818 814
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (6,594) (26,965) 17,422 (21,943)
PROVISION (BENEFIT) FOR INCOME TAXES (1,566) (8,406) 8,531 (5,749)
NET INCOME (LOSS) $ (5,028) $ (18,559) $ 8,891 $ (16,194)
=========== =========== =========== ===========
BASIC EARNINGS (LOSS)
PER SHARE OF COMMON STOCK $ (0.16) $ (0.58) $0.28 $ (0.52)
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS)
PER SHARE OF COMMON STOCK $ (0.16) $ (0.58) $ 0.28 $ (0.52)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 32,276,200 32,138,541 32,242,106 31,227,182
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------
2000 1999
------ ------
(In Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 8,891 $ (16,194)
Adjustments for non-cash and non-operating items:
Depreciation & amortization 27,667 25,060
Gain on sale of marketable securities (35,874) (2,292)
Loss on investment in partnership - 16,706
Other 1,806 1,569
Changes in operating assets and liabilities
(excluding amounts acquired in the
Diamond Crystal acquisition):
Accounts receivables - trade 11,952 15,646
Inventories (80,693) (67,565)
Deferred costs and prepaid expenses 12,163 9,685
Accounts payable - trade (1,256) 20,760
Other current liabilities 673 (24,118)
-------- ---------
Operating cash flow (54,671) (20,743)
-------- ---------
INVESTMENT ACTIVITIES:
Acquisition of Diamond Crystal, net of cash acquired - (111,442)
Capital expenditures (7,739) (9,605)
Investment in marketable securities - (4,656)
Proceeds from sales of marketable securities 64,221 10,066
Proceeds from sales of fixed assets 1,711 45
Other (2,855) 5,086
-------- ---------
Investing cash flow 55,338 (110,506)
-------- ---------
FINANCING ACTIVITIES:
Short-term debt:
CCC borrowings - advances 51,887 30,630
CCC borrowings - repayments (2,000) -
Other - net (1,337) (1,151)
Revolving credit borrowings - net 3,500 113,100
Repayment of long-term debt (45,210) (3,707)
Dividends paid - (1,990)
Issuance of stock and other 418 768
-------- ---------
Financing cash flow 7,258 137,650
-------- ---------
INCREASE IN CASH AND TEMPORARY INVESTMENTS 7,925 6,401
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 7,925 2,877
-------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 15,850 $ 9,278
======== =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Common Stock Common Stock
-------------------------------- ------------------------------
Held by Held by Unrealized
Benefit Treasury Benefit Treasury Retained Securities
Issued Trust Stock Issued 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 - - - - - - 8,891 - 8,891
Change in unrealized
securities
gains - net - - - - - - - (20,836) (20,836)
--------
Total comprehensive income - - - - - - - (11,945)
Employee stock purchase plan
& stock option exercises 31,094 - - 104 - - - - 104
Nonemployee director
compensation plan 91,212 - - 381 - - - 381
---------- -------- -------- --------- ---------- -------- -------- -------- --------
BALANCE MARCH 31, 2000 33,646,472 (684,971) (635,279) $310,332 $(8,208) $(7,611) $67,082 $ 369 $361,964
========== ======== ======== ========= ========== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 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
March 31. The contracts provide for the sharing of the net selling price (gross
sales price less certain marketing costs, including packaging costs, brokerage,
freight expense and amortization of costs for certain facilities used in
connection with marketing) with growers. 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
March 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 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 six
months period ended March 31, 1999, as if the acquisition of Diamond Crystal had
occurred on October 1, 1998, assuming an effective tax rate of 35%.
Six Months Ended March 31
2000 1999
------ ------
Actual Pro Forma
(In Thousands of Dollars,
Except Per Share Amounts)
Net Sales $ 897,764 $ 911,842
=========== ===========
Cost of Sales 816,948 823,645
Selling, General and
Administrative Expenses 44,004 40,049
Depreciation and Amortization 27,667 25,493
----------- -----------
Operating Income 9,145 22,655
Interest Expense (28,415) (31,170)
Loss on Investment in Partnership (16,706)
Realized Securities Gains 35,874 2,292
Other Income - net 818 814
----------- -----------
Income (Loss) Before Income Taxes 17,422 (22,115)
Provision (Benefit) for Income Taxes 8,531 (5,571)
----------- -----------
Net Income (Loss) $ 8,891 $ (16,544)
=========== ===========
Basic Earnings (Loss) Per Share
of Common Stock $ 0.28 $ (0.51)
=========== ===========
Diluted Earnings (Loss) Per Share
of Common Stock $ 0.28 $ (0.51)
=========== ===========
Weighted Average Shares Outstanding 32,242,106 32,101,572
=========== ===========
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):
March 31, September 30,
2000 1999
----------- -----------
Senior Credit Agreement:
Revolving credit facility $ 95,000 $ 91,500
Term loans 153,037 192,068
9-3/4% Senior Subordinated Notes due 2007 250,000 250,000
Industrial revenue bonds 25,154 25,204
8-3/8% Senior Notes due 1999 - 5,801
Other 790 1,118
----------- -----------
Total long-term debt 523,981 565,691
Less current maturities 5,589 12,114
----------- -----------
Long-term debt, net $ 518,392 $ 553,577
=========== ===========
8
<PAGE>
The Company liquidated substantially all of its marketable securities
portfolio in the six months ending March 31, 2000 and utilized $36.6 million of
the proceeds to pay down senior term loans.
4. EARNINGS PER SHARE
The following table presents unaudited information necessary to calculate
basic and diluted earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
2000 1999 2000 1999
------ ------ ------ ------
(In Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Earnings for basic and diluted
computation:
Net income (loss) $ (5,028) $ (18,559) $ 8,891 $ (16,194)
Adjustments - None - - - -
----------- ----------- ----------- -----------
Adjusted net income (loss) $ (5,028) $ (18,559) $ 8,891 $ (16,194)
=========== =========== =========== ===========
Basic earnings per share:
Weighted average shares
outstanding 32,276,200 32,138,541 32,242,106 31,227,182
=========== =========== =========== ===========
Net income (loss) per share $ (0.16) $ (0.58) $ 0.28 $ (0.52)
=========== =========== =========== ===========
Diluted earnings per share:
Weighted average shares
outstanding 32,276,200 32,138,541 32,242,106 31,227,182
Incremental shares issuable
from assumed exercise of
stock options under the
treasury stock method(1) - - - -
----------- ----------- ----------- -----------
Weighted average shares
outstanding - as adjusted 32,276,200 32,138,541 32,242,106 31,227,182
=========== =========== =========== ===========
Net income (loss) per share $ (0.16) $ (0.58) $ 0.28 $ (0.52)
=========== =========== =========== ===========
</TABLE>
- ----------
(1) Securities excluded from the computation of diluted EPS for March 31, 2000
that could potentially dilute basic EPS in the future were options to
purchase 1,797,350 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 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.
9
<PAGE>
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 six months ended March 31, 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
March 31, 2000
- ----------------------------
Revenues from external customers $333,732 $ 95,433 $429,165
Intersegment revenues 23,690 1,806 $(25,496) -
Gross margin 26,858 9,692 36,550
Operating income (loss) 3,826 (1,836) $ (1,529) 461
For the Three Months Ending
March 31, 1999
- ----------------------------
Revenues from external customers $330,094 $ 98,903 $428,997
Intersegment revenues 20,594 1,809 $(22,403) -
Gross margin 22,224 13,477 35,701
Operating income 64 3,337 3,401
For the Six Months Ending
March 31, 2000
- ----------------------------
Revenues from external customers $700,233 $197,531 $897,764
Intersegment revenues 49,890 3,685 $(53,575) -
Gross margin 59,847 20,969 80,816
Operating income (loss) 12,585 (265) $ (3,175) 9,145
For the Six Months Ending
March 31, 1999
- ----------------------------
Revenues from external customers $710,405 $190,353 $900,758
Intersegment revenues 42,552 3,731 $(46,283) -
Gross margin 60,772 25,109 85,881
Operating income 15,273 6,851 22,124
</TABLE>
Reconciliation of operating income to net income (loss) before income taxes (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Operating income $ 461 $ 3,401 $ 9,145 $ 22,124
Interest expense (14,113) (16,350) (28,415) (30,467)
Securities gains 6,696 2,292 35,874 2,292
Loss on investment in partnership -- (16,706) -- (16,706)
Other income (expense) 362 398 818 814
-------- -------- -------- ---------
Income (loss) before income taxes $ (6,594) $(26,965) $ 17,422 $(21,943)
======== ======== ======== =========
</TABLE>
10
<PAGE>
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 Six Months Ended
March 31, March 31,
------------------ -----------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income Statement Data
Net Sales $370,533 $372,271 $769,931 $773,911
Operating income (1,787) (15,210) 4,789 (2,949)
Net income (loss) (1,446) (6,714) 1,377 405
March 31,
2000
---------
Balance Sheet Data
Current assets $405,651
Property, plant and equipment, net 330,147
Goodwill - net 401,271
Current liabilities 212,041
Long-term debt, net 24,889
</TABLE>
7. SUBSEQUENT EVENT
The Company has had discussions with California sugarbeet growers about their
acquiring the sugarbeet processing operations in Tracy and Woodland, California;
however, the growers have not been able to enter into a transaction with the
Company. In April 2000, the Company announced its intention to cease processing
sugarbeets in those factories at the end of calendar 2000 following the
completion of the fall campaign. These factories will continue to package and
distribute refined sugar products with sugar supplies sourced from the two
remaining California beet factories and other Company processing facilities.
The real estate surrounding the facilities will be sold and the proceeds applied
to the reduction of debt. The Company is currently analyzing the fair values of
the factories, which have a net book value of approximately $15 million at March
31, 2000, to measure the potential for an asset impairment loss, as well as
severance and other cash costs related to this decision .
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 March
31, 2000, unused borrowing capacity was $19.0 million. The Company expects that
its liquidity will continue to improve during the balance of fiscal 2000, as
seasonal inventory levels decline. The Company is currently precluded from
incurring additional indebtedness (other than available borrowings under the
revolving credit agreement) based on restrictions in the indenture governing its
senior subordinated notes and the Senior Credit Agreement. The adequacy of
available sources of liquidity to finance the Company's operations through 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
and cash flow provided from operations during the next four fiscal quarters.
Long-term debt at March 31, 2000, was $518.4 million, consisting principally
of $250.0 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 $157.0 million revolving credit facility
(available through December 2002) and term loans aggregating $153.0 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 interest rate on $227.3 million of the amounts outstanding
under the Senior Credit Agreement at a weighted average annual rate of 9.24% as
of March 31, 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, seasonal CCC borrowings of up to $25.0 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, $110.0 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 0.7%. At March 31, 2000, the Company
had sold $84.1 million of accounts receivable under the facility.
12
<PAGE>
The Company liquidated approximately $64.2 million of its marketable
securities portfolio in the six months ending March 31, 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 $25.0 million primarily for environmental, safety and obsolescence
projects.
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;
. 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 $250.0 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.
13
<PAGE>
The Company was in compliance with all covenants under its credit
agreement at March 31, 2000. However, 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, obtain additional debt or equity financing or take other
actions.
Results of Operations
Net sales were virtually unchanged for the three month period ended March
31, 2000 compared to the same period of the prior year as an increase in sugar
segment revenues were largely offset by decreased foodservice net sales. Sugar
segment revenues increased 1.1% for the quarter, principally due to an increase
in refined sugar volumes, offset by lower sales prices for refined sugar as a
result of an oversupply of refined sugar in the domestic sugar market.
Foodservice segment revenues declined primarily due to lower sugar prices. Net
sales decreased $3.0 million, or 0.3%, for the six month period ended March 31,
2000, compared to the same period of the prior year, principally due to lower
sales prices for refined sugar, which were partially offset by an increase in
refined sugar volumes. The foodservice segment's sales increased $7.2 million
due to the inclusion in fiscal 2000 of a full six months sales of Diamond
Crystal, which was acquired in November 1998. Pro forma foodservice net sales
decreased 1.9% for the six month period ended March 31, 2000, compared to the
same period of the prior year. The foodservice segment's net sales declined
primarily as a result of lower sales prices received for refined sugar sold in
food service markets.
Gross margin for the three month period ended March 31, 2000 increased $0.8
million or 2.4% compared to the same period of the prior year, and as a percent
of sales increased to 8.5% from 8.3%. The sugar segment's gross margin
increased $4.6 million or 20.9% compared to the same period of the prior year,
reflecting better quality sugarbeets processed during the period resulting from
improved growing and storage conditions in the Company's Rocky Mountain and
Michigan sugarbeet growing areas. However, the favorable impact of improved
weather conditions, as well as lower raw cane sugar costs, was reduced
considerably by significantly lower sales prices for refined sugar. Gross margin
for the foodservice segment was $9.7 million or 10.2% of sales for the three
month period ended March 31, 2000, down from $13.5 million or 13.6% from the
same period of the prior year, principally due to integration costs and
transitional operating inefficiencies arising from the consolidation of four
facilities into two, as well as the decline in refined sugar sales prices.
Gross margin for the six months ended March 31, 2000 decreased $5.1 million
or 5.9% compared to the same period of the prior year, and as a percent of sales
decreased to 9.0% from 9.5%. The sugar segment's gross margin decreased $0.9
million or 1.5% 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. Gross margin
for the foodservice segment was $21.0 million or 10.6% of sales for the six
month period ended March 31, 2000, down from $25.1 million or 13.2% from the
same period of the prior year, principally due to lower refined sugar prices and
the aforementioned costs of consolidating facilities.
14
<PAGE>
The Company, as well as 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
approximately 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 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, margins are adversely
impacted.
The Company has undertaken a cost savings initiative, with reductions
targeted to reach a $15 million annual run rate by the beginning of the fourth
quarter of fiscal 2000. Approximately half of those savings are expected to
come 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 working
to optimize and rationalize production assets to free up excess capital for debt
reduction. The Company has had discussions with California sugarbeet growers
about their acquiring the sugarbeet processing operations in Tracy and Woodland,
California; however, the growers have not been able to enter into a transaction
with the Company. Therefore, the Company intends to cease processing sugarbeets
in those facilities at the end of calendar 2000 following the completion of the
fall campaign. These factories will continue to package and distribute refined
sugar products with sugar supplies sourced from the remaining two California
beet factories and other Company processing facilities. The real estate
surrounding the facilities will be sold and the proceeds applied to the
reduction of debt; see Note 7 to the Consolidated Financial Statements.
Selling, general and administrative costs were $2.3 million higher for the
three months and $4.0 million higher for the pro forma six months ended March
31, 2000, compared to the same periods of the prior year, primarily due to the
discount on the securitization of certain of the Company's accounts receivable
of $1.5 million and $3.2 million, respectively. This program was not in place
in the year ago period. The increase is also due to bad debt expense of $1.0
million in the second quarter of fiscal 2000 related to the bankruptcy of
AmeriServe Food Distribution, Inc., a foodservice segment customer. Absent
these two charges, selling general and administrative costs declined.
15
<PAGE>
Interest expense for the three and six months ended March 31, 2000
decreased as lower overall borrowing levels more than offset higher interest
rates.
During the three and six months ended March 31, 2000, the Company
recognized gains of $6.7 million and $35.9 million, respectively, from the sale
of substantially all 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.
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 March 31, 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
Fiscal 2000 Fiscal 2001
--------------------- --------------------
(net short positions) (net long positions)
<S> <C> <C>
Futures Contracts:
Contract Volumes (cwt.) 1,041,600 91,960
Weighted Average Contract Price (per cwt.) $ 18.80 $ 19.96
Contract Amount $19,582,166 $1,835,848
Weighted Average Fair Value (per cwt.) $ 19.34 $ 19.17
Fair Value $20,140,938 $1,762,802
</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 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 March 31, 2000.
16
<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: May 12, 2000 By: /s/ Mark Q. Huggins
-------------------
Mark Q. Huggins
Managing Director
and Chief Financial Officer
(Principal Financial Officer)
17
<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 six
months ended March 31, 2000 and qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,850
<SECURITIES> 5,084
<RECEIVABLES> 52,506
<ALLOWANCES> 0
<INVENTORY> 339,757
<CURRENT-ASSETS> 444,495
<PP&E> 622,923
<DEPRECIATION> 236,772
<TOTAL-ASSETS> 1,263,820
<CURRENT-LIABILITIES> 271,965
<BONDS> 518,392
0
0
<COMMON> 310,332
<OTHER-SE> 51,632
<TOTAL-LIABILITY-AND-EQUITY> 1,263,820
<SALES> 897,764
<TOTAL-REVENUES> 897,764
<CGS> 816,948
<TOTAL-COSTS> 816,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,415
<INCOME-PRETAX> 17,422
<INCOME-TAX> 8,531
<INCOME-CONTINUING> 8,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,891
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
