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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2000 Commission File Number 1-10307
IMPERIAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 491-9181
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock, without par value American Stock Exchange
Rights to Purchase Preferred Stock American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $20 million, based upon the last reported sales
price of the registrant's Common Stock on the American Stock Exchange on
December 13, 2000 and (solely for this purpose) treating all directors,
executive officers and 10% shareholders of the registrant as affiliates.
The number of shares outstanding of each of the registrant's Common Stock,
as of December 13, 2000, was 32,412,369.
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TABLE OF CONTENTS
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Page
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Part I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 9
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders........... 10
Executive Officers of the Registrant.......................... 10
Part II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.......................................... 12
Item 6. Selected Financial Data....................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 19
Item 8. Financial Statements and Supplementary Data................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 22
Part III
Item 10. Directors and Executive Officers of the Registrant............ 23
Item 11. Executive Compensation........................................ 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 30
Item 13. Certain Relationships and Related Transactions................ 31
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 32
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The statements regarding the future status of financing arrangements, the
status and possible outcomes of restructuring discussions, the Company's
liquidity and ability to finance its operations, future market prices,
operating results, synergies, sugar beet acreage, operating efficiencies, cost
savings, government actions regarding sugar and other statements that are not
historical facts contained in this report on Form 10-K are forward-looking
statements. The words "expect", "project", "estimate", "believe",
"anticipate", "plan", "intend", "could", "should", "may", "predict" and
similar expressions are also intended to identify forward-looking statements.
Such statements involve risks, uncertainties and assumptions, including,
without limitation, the negotiating positions of various constituencies, the
results of negotiations, market factors, the effect of weather and economic
conditions, farm and trade policy, the available supply of sugar, available
quantity and quality of sugarbeets, cost and availability of energy and other
resources and other factors detailed elsewhere in this and other Company
filings with the Securities and Exchange Commission. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated.
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PART I
ITEM 1. Business
Imperial Sugar Company (the "Company") is the largest processor and marketer
of refined sugar in the United States and is a leading distributor of sugar,
nutritional products, sauces, seasonings, drink mixes and desserts to the
foodservice industry. The Company, as well as most of the domestic sugar
industry, experienced a very difficult operating environment during the year
ended September 30, 2000, as an oversupply of refined sugar resulted in
historically low selling prices. At September 30, 2000, the Company would have
been in violation of certain financial covenants of its Amended and Restated
Credit Agreement, dated as of December 22, 1997 (the "Senior Credit
Agreement") had the lenders not waived such covenants temporarily. The Company
did not make its scheduled December 15, 2000, interest payment on its 9 3/4%
Senior Subordinated Notes due 2007 (the "Subordinated Debt"). The indenture
for the Subordinated Debt provides for a thirty-day grace period for the
payment of interest, however the Company does not expect to make such payment
currently. Additionally, the Company has contracted a substantial portion of
industrial sugar sales for fiscal 2001 at historically low prices, and raw
sugar prices have not declined as much as refined sugar prices. As a result,
margins on the sale of refined sugar have narrowed and the Company may incur
significant losses and negative cash flows from operations for the year ending
September 30, 2001.
The Company has held discussions with representatives of its principal
lenders about a financial restructuring plan which may occur under the
supervision of a United States Bankruptcy Court. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
The Company operates in two domestic business segments--the sugar segment,
which produces and sells refined sugar and related products, and the
foodservice segment, which sells and distributes numerous products to
foodservice customers. The segment information in Note 12 to the Company's
Consolidated Financial Statements is incorporated herein by reference. The
Company refines raw cane sugar at refineries located in Texas, Georgia and
Louisiana and produces beet sugar at beet sugar factories located in
California, Wyoming, Montana and Michigan. For the year ended September 30,
2000, the Company sold approximately 60 million hundredweight ("cwt") of
refined sugar. The foodservice segment currently operates six facilities in
California, Georgia, Indiana, Iowa and Ohio.
The Company offers a broad product line and sells to a wide range of
customers directly and through wholesalers and distributors. Sugar segment
customers include retail grocers and industrial customers, principally food
manufacturers. Foodservice segment customers include distributors,
restaurants, healthcare institutions, geriatric centers, schools and other
institutions. The Company's sugar products include granulated, powdered,
liquid and brown sugars sold in a variety of packaging options (one pound
boxes to 100-pound bags, individual packets and in bulk) under various brands
(Imperial(R), Holly(R), Spreckels(R), Dixie Crystals(R), Pioneer(R) and
Wholesome Sweeteners(TM)) or private labels. In addition, the Company produces
selected specialty sugar products, including Savannah Gold(TM) (a premium-
priced, free-flowing brown sugar), Sucanat(TM)(sugar milled from organically
grown sugarcane) and specialty sugars used in confections and icings. The
foodservice segment sells sugar in packages from 50-pound bags to individual
packets to foodservice customers, along with complementary nonsugar products,
including salt, pepper and other seasonings, non-nutritive sweeteners, non-
dairy creamers, nutritional products, sauces, drink mixes, desserts, plastic
cutlery and packets of plastic cutlery with seasonings and other items.
Imperial was incorporated in 1924 and is the successor to a cane sugar
plantation and milling operation begun in Sugar Land in the early 1800s that
began producing granulated sugar in 1843. In 1988, the Company purchased Holly
Sugar Corporation ("Holly") and in April 1996, acquired Spreckels Sugar
Company ("Spreckels"). The Company completed its acquisition of Savannah Foods
& Industries, Inc. ("Savannah Foods") in December 1997 and acquired Wholesome
Sweeteners L.L.C. ("Wholesome Sweeteners") and
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Diamond Crystal Specialty Foods, Inc. ("Diamond Crystal") in September and
November 1998, respectively. As used herein "Imperial" or the "Company" refers
to Imperial Sugar Company and its subsidiaries.
Industry Overview
Refined sugar can be produced by either processing sugar beets or processing
and refining sugarcane. The profitability of cane sugar and beet sugar
operations is affected by government programs designed to support the price of
domestic crops of sugar beets and sugarcane, which affect cane sugar and beet
sugar operations differently. See "--Sugar Legislation and Other Market
Factors".
Cane Sugar Production Process. Sugarcane is grown in tropical and
semitropical climates in the United States and some foreign countries.
Sugarcane is processed by raw cane mills promptly after harvest into raw
sugar, which is approximately 98% sucrose and may be stored for long periods
and transported over long distances without affecting its quality. Raw cane
sugar imports currently are limited by United States government programs.
Cane sugar refineries like those operated by the Company purify raw sugar to
produce refined sugar. Operating results of cane sugar refineries are driven
primarily by the spread between raw sugar and refined sugar prices. See "--
Sugar Legislation and Other Market Factors".
Beet Sugar Production Process. Sugar beets can grow wherever a five-month
growing season is possible. In the United States, sugar beets are grown in
California, Colorado, Idaho, Michigan, Minnesota, Montana, Nebraska, North
Dakota, Ohio, Oregon, South Dakota, Washington and Wyoming. Harvest periods
depend on the growing area, but are generally in the early fall, except in
California, where spring and summer harvests also occur.
Sugar beets are highly perishable and must be processed into refined sugar
quickly after harvest to avoid deterioration. Beets may be stored in piles
awaiting processing where temperatures are sufficiently cool. Sugar beets are
converted to refined sugar through a single continuous process at beet sugar
factories. Beet sugar factories are located near the areas in which beets are
grown in order to reduce freight costs and the risk of deterioration before
processing. The Company's staggered harvest seasons with respect to the sugar
beet acreage supplying the Company's sugar beet production facilities allows
it to produce beet sugar year round even though the production campaign at any
single facility generally lasts no more than 180 days. Operating results are
driven primarily by the quantity and quality of sugar beets dedicated to the
factory and the net sales prices received for the refined beet sugar. The beet
processor shares a portion of the net sales price with growers through various
participation or recovery contracts or cooperative arrangements. See "--Raw
Materials and Processing Requirements--Sugar Beet Purchases".
Government Regulation. Federal government programs have existed to support
the price of domestic crops of sugar beets and sugarcane almost continually
since 1934. The regulatory framework that currently affects the domestic sugar
industry includes the Federal Agricultural Improvement and Reform Act of 1996
(the "Farm Bill"), which provides for loans on sugar inventories to first
processors (i.e., raw cane sugar mills and beet processors) and implements a
tariff rate quota which limits the amount of raw and refined sugar that can be
imported into the United States. The North American Free Trade Agreement
("NAFTA"), which was adopted in 1994 and limits the amount of sugar that can
be imported to and exported from Mexico, has to date had a lesser impact on
the United States sugar market. See "--Sugar Legislation and Other Market
Factors."
Domestic Demand. Domestic demand for refined sugar has increased each year
since 1986, and the annual rate of growth over the five-year period ended
September 2000 has ranged from 1.5% to 2.0%.
Domestic Supply. Reduced demand in the early 1980s was absorbed principally
by capacity reductions in the cane sugar refining sector. Approximately one-
third of domestic cane sugar refining capacity was eliminated between 1981 and
1988. Cane sugar refining capacity remained relatively flat from 1988 until
1998, when
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construction of a refinery in Florida with a rated annual capacity of
approximately 10 million cwt was completed. Growth in refined sugar demand
during the last decade has been largely satisfied through increased beet sugar
production. In recent years, there have been a number of expansions to
existing beet sugar factories to allow for increased acreage dedications.
Domestic Refined Sugar Prices. Given the existing domestic supply and demand
situation, the increasing role of beet production and the current status of
government regulation, the price of refined sugar in the United States in
recent years has been driven primarily by the amount of beet sugar supply.
Historically, good crop years have led to relatively soft refined sugar
prices, and weak crop years have led to relatively strong refined sugar
prices.
Products and Sales
Sugar Segment. The principal product line in the sugar segment is refined
sugar, which accounted for approximately 78% of the Company's consolidated net
sales for the year ended September 30, 2000. The Company has a relatively
well-balanced combination of cane and beet sugar sales, with cane sugar
constituting approximately 59% and beet sugar constituting 41% of the
Company's refined sugar sales for the year ended September 30, 2000. Through
Wholesome Sweeteners, the Company also sells sugar produced from organically
grown sugarcane. The Company markets its sugar products to retail grocery and
industrial customers by direct sales and through brokers. For the year ended
September 30, 2000, the Company's sales of refined sugar products to retail
grocery accounted for approximately 26% of sugar segment sales and sales to
industrial customers accounted for 59%.
Grocery Sales. The Company produces and sells granulated white, brown and
powdered sugar to grocery customers in packages ranging from one-pound boxes
to 25-pound bags. Retail packages are marketed under the trade names
Imperial(R), Dixie Crystals(R), Holly(R), Spreckels(R), Pioneer(R) and
Wholesome Sweeteners(TM), and are also sold under retailers' private labels.
Private label packaged sugar, which represents a significant percentage of the
Company's grocery sales, is generally sold at prices lower than those received
for branded sugar. The Company seeks to capitalize on its well-known brands to
increase sales of higher-margin branded products as a percentage of total
grocery sales.
Industrial Sales. The Company produces and sells refined sugar, molasses and
other ingredients to industrial customers, principally food manufacturers, in
bulk, packaged or liquid form. Food manufacturers principally purchase sugar
for use in the preparation of confections, baked products, frozen desserts,
canned goods and various other food products. Historically, the majority of
the Company's industrial sales are made to customers under fixed price,
forward sales contracts with terms of one year or less. Industrial sales
generally provide lower margins than grocery sales.
Specialty Product Sales. The Company produces and sells specialty sugar
products to grocery and industrial customers. Specialty sugar products include
Savannah Gold(TM), a premium-priced free flowing brown sugar marketed
primarily to industrial customers; edible molasses; syrups; Sucanat(TM), sugar
produced from organically grown sugarcane; and specialty sugars used in
confections, fondants and icings. The Company also markets artificial
sweeteners including Sweet Thing(R), a saccharin-based sweetener, and Sweet
Thing II(R), an aspartame-based sweetener.
Foodservice Segment. The Company's foodservice segment sells numerous
products to foodservice customers, including healthcare institutions, ranging
from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-
dairy creamer and plastic cutlery, nutritional dry mixes, nutritional frozen
products, sauces, seasonings, drink mixes, desserts and diet kits(R) (packets
of plastic cutlery with seasonings and other items). During the year ended
September 30, 2000, sugar products sold in the foodservice segment accounted
for 12% of consolidated net sales and 57% of foodservice segment sales. The
Company believes that the foodservice sector is one of the most rapidly
growing segments of the domestic food industry.
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Sales and Marketing. The Company's products in both the sugar and
foodservice segments are sold directly by the Company's sales force and
through independent brokers. The Company maintains sales offices at its
offices in Sugar Land, Texas and Savannah, Georgia and at regional locations
across the United States. The Company considers its marketing and promotional
activities important to its overall sales effort. The Company advertises its
brand names in both print and broadcast media and distributes various
promotional materials, including discount coupons and compilations of recipes.
No customer accounted for 5% or more of the Company's sales for the year ended
September 30, 2000.
Seasonality. Sales of refined sugar are moderately seasonal, normally
increasing during the summer months because of increased demand of various
food manufacturers, including fruit and vegetable packers; shipments of
specialty products (brown and powdered sugar) increase in the fourth calendar
quarter due to holiday baking needs. Although the refining of cane sugar is
not seasonal, the production of beet sugar is a seasonal activity. Each of the
Company's beet sugar factories operates during sugar-making campaigns, which
generally total 120 days to 180 days in length each year, depending upon the
supply of sugar beets available to the factory. Because of the geographical
diversity of its manufacturing facilities, the Company is generally able to
produce beet sugar year-round. While the seasonal production of sugar beets
requires the Company to store significant refined sugar inventory at each
factory, the geographic diversity and staggered periods of production enable
the Company's total investment in inventories to be reduced. Additionally,
these factors reduce the likelihood that adverse weather conditions will
affect all the Company's productive areas simultaneously and aid in
distribution. Sales of the Company's foodservice products are not
significantly seasonal.
By-Products. The Company's sugar segment sells by-products from its beet
sugar processing as livestock feeds to dairymen, livestock feeders and
livestock feed processors. Such by-products include beet pulp and molasses.
The major portion of the beet pulp and molasses produced from sugar beet
operations is sold during and shortly after the sugar-making campaigns. By-
products from beet sugar processing are marketed in the United States, Europe
and Japan. Both the domestic and export markets are highly competitive because
of the availability and pricing of by-products of other sugar beet processors
and corn wet millers, as well as other livestock feeds and grains. The market
price of the Company's by-products relative to the price of competitive feeds
and grains is the principal competitive determinant. Among other factors, the
weather and seasonal abundance of such feeds and grains may affect the market
price of by-products.
Beet Seed. The Company develops, produces and markets commercial seed to
beet growers under contract to the Company as well as growers under contract
to grow for other beet sugar processors. The Company does not sell, nor does
it authorize its growers to utilize, genetically modified seed in their
production program. The Company's beet seed operations are conducted primarily
in Sheridan, Wyoming and Tracy, California. The Company is also active in
sugar beet disease control, as sugar beet growing areas have varying levels of
diseases that affect sugar beet quality and quantity as well as the cost of
processing. The Company has a sugar beet plant pathology disease control
research laboratory in Tracy, California that develops and implements disease
control strategies for all of the Company's sugar beet growing areas.
The Company has an agreement with ADVANTA SEEDS, a partnership of D. J. van
der Have B.V. and Societe Europeenne de Semences, N.V., S.A. ("ADVANTA"),
granting ADVANTA access to the Company's proprietary beet seed breeding
material for varietal seed development in exchange for the exclusive marketing
rights to ADVANTA's beet seed in certain markets in the United States, Canada
and Mexico.
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Manufacturing Facilities
The Company owns and operates three cane sugar refineries and 11 sugar beet
factories. Each facility is served by adequate transportation and is
maintained in good operating condition. The facilities operate continuously
when in operation. The following table shows the location and capacity of each
of the Company's refineries and processing plants:
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Approximate Daily
Melting Capacity
Cane Sugar Refineries (Pounds of Raw Sugar)
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Port Wentworth, Georgia................................ 6,300,000
Gramercy, Louisiana.................................... 4,200,000
Sugar Land, Texas...................................... 4,000,000
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Total................................................ 14,500,000
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Approximate Daily
Slicing Capacity
Beet Sugar Factories (Tons of Sugar Beets)
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Brawley, California.................................... 9,000
Mendota, California.................................... 4,200
Tracy, California*..................................... 5,000
Woodland, California*.................................. 4,000
Caro, Michigan......................................... 4,000
Carrollton, Michigan................................... 3,400
Sebewaing, Michigan.................................... 6,000
Croswell, Michigan..................................... 4,000
Sidney, Montana........................................ 7,000
Torrington, Wyoming.................................... 5,700
Worland, Wyoming....................................... 3,600
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Total................................................ 55,900
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* Sugar production ceased in December 2000 at Tracy and Woodland. See Note 14
to the Consolidated Financial Statements.
The Company operates an ion exclusion facility in Hereford, Texas to
separate refined sugar from molasses, and also uses the facility as a
distribution center. The Company ceased sugar production at its Clewiston,
Florida cane sugar refinery in October 2000, and continues to use the facility
as a distribution center.
The following table shows the location and approximate square footage of the
Company's foodservice manufacturing facilities, each of which is owned by the
Company:
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Foodservice Manufacturing Facilities Square Feet
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Savannah, Georgia................................................ 314,500
Bondurant and Mitchellville, Iowa................................ 152,513
Bremen, Georgia.................................................. 132,400
Perrysburg, Ohio................................................. 131,000
Visalia, California.............................................. 101,500
Indianapolis, Indiana............................................ 63,240
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Raw Materials and Processing Requirements
Raw Cane Sugar. The Company purchases raw cane sugar from domestic sources
of supply located in Louisiana and Florida, as well as from various foreign
countries. The availability of foreign raw cane sugar is determined by the
import quota level designated by applicable regulation. See "--Industry
Overview" and "--Sugar Legislation and Other Market Factors". The Company has
not experienced difficulties in the past in contracting sufficient quantities
of raw cane sugar to supply its refineries.
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Raw cane sugar purchase contracts can provide for the delivery of a single
cargo or for multiple cargoes over a specified period or a specified
percentage of the seller's production over one or more crop years. Contract
terms may provide for fixed prices but generally provide for prices based on
the futures market during a specified period of time. The contracts provide
for a premium if the quality of the raw cane sugar is above a specified grade
or a discount if the quality is below a specified grade. Contracts generally
provide that the seller pays freight, insurance charges and other costs of
shipping.
The Company contracts to purchase raw cane sugar substantially in advance of
the time it delivers the refined sugar produced from that purchase.
Historically, the majority of the Company's industrial sales are under fixed
price, forward sales contracts. In order to mitigate price risk in raw and
refined sugar commitments, the Company manages the volume of refined sugar
sales contracted for future delivery with the volume of raw cane sugar
purchased for future delivery by entering into forward purchase contracts to
buy raw cane sugar at fixed prices and by using other techniques to fix the
price for a portion of sugar purchased. The Company uses the raw sugar futures
market as a hedging and purchasing mechanism, as management deems appropriate.
The Company has access to approximately 350,000 short tons of aggregate raw
sugar storage capacity, including 215,000 short tons of storage capacity at
its Port Wentworth, Georgia refinery. At Port Wentworth, the Company has the
ability to segregate its raw sugar inventory, which allows the Company to
store bonded sugar for re-export. This capability facilitates the Company's
participation in the re-export market. The Company has been active in such
market in the past and expects to be active in the future when pricing and
market conditions are favorable.
Sugar Beet Purchases. In fiscal 2000, the Company purchased sugar beets from
over 2,400 independent growers, which supplied the Company's factories with
sugar beets from approximately 320,000 acres. The sugar beets are purchased
under contracts negotiated with associations representing growers. The Company
contracts for acreage prior to the planting season based on estimated demand,
marketing strategy, processing capacity and historical crop yields. The type
of contract used in the western United States provides for payments to the
grower based on the sugar content of the sugar beets delivered by each grower
and the net selling price of refined beet sugar during the specified contract
year. The type of contract used in Michigan provides for growers to share in
the revenues generated by sales of pulp and molasses, as well as sales of
refined sugar. Most grower contracts provide for a premium to the growers for
delivering beets of superior quality. The net selling price is the gross sales
price less certain marketing costs, including packaging costs, brokerage,
freight expense and amortization costs for certain facilities used in
connection with marketing. Use of this type of participating contract reduces
the Company's exposure to price risks on its refined sugar inventory by
causing the price the Company pays on its sugar beet purchases to vary with
the price received for refined sugar.
The Company's beet sugar operations are dependent upon the quantity, quality
and proximity of sugar beets available to its factories. Sugar beet acreage
varies depending on factors such as prices anticipated by growers for sugar
beets versus alternative crops, prior crop quality, productivity, availability
of irrigation and weather conditions. In addition, the quantity and cost of
refined sugar subsequently produced from the sugar beet crop may be materially
affected by the acreage harvested, disease, insects and unfavorable weather
conditions during the growing, harvesting, processing and storage season.
Once harvested, sugar beets are purchased by the Company and, in some
locations, stored in piles until processed. Under the contracts used in
Michigan and the Rocky Mountains, the beet growers share the risk of
deterioration of the stored sugar beets with the Company. However, the Company
contractually accepts about one-half of the risk with respect to stored sugar
beets in these areas and all of the risk in other areas. The Company believes
that the geographic diversity of its growing areas reduces the risk that
adverse conditions will occur company-wide; however, there can be no assurance
that the Company's results of operations will not be adversely affected by
such risks.
Energy. The primary fuel used by the Company is natural gas, although
certain of the Company's factories use significant amounts of coal. The
Company generates a substantial portion of the electricity used at its
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refineries and factories. The Company can use fuel oil at certain locations
both as an alternative energy source when the price is more attractive and as
a backup to natural gas in the event of curtailment of gas deliveries. Natural
gas and coal supplies are typically purchased under contracts for terms of one
year or more, which do not contain minimum quantity requirements.
Pricing of natural gas contracts is generally fixed for the term or indexed
to a spot market index. The Company has also utilized financial tools such as
futures, swaps and caps to stabilize the price for gas purchases under indexed
contracts. Coal is available in abundant supply domestically, and the Company
is able to purchase coal competitively.
The Company owns a royalty interest in a coal seam methane gas project in
the Black Warrior Basin of Alabama as an additional indirect hedge against
futures natural gas price increases. Gas royalties received during fiscal 2000
were approximately $386,000.
Other Raw Materials. Foundry coke and limestone are used in the beet sugar
extraction process. The Company generally purchases coke under contracts with
one to three-year terms and utilizes rail transportation to deliver the coke
to factories. Domestic coke supplies may become tighter due to environmental
restrictions; the Company has the option of converting existing coke-fired
equipment to natural gas should the availability and economics of coke so
dictate. The Company owns a 50% share of a limestone quarry in Warren, Montana
that supplies the Sidney, Montana and Worland, Wyoming factories with their
annual limestone requirements. The Company operates a limestone quarry in
Cool, California that supplied the Company's Northern California beet
processing factories with limestone. These quarries do not normally supply the
Company's other factories because of high freight costs. Limestone required in
the other factory operations is generally purchased from independent sources
under contracts with one to five-year terms. The Company is negotiating a sale
of its Cool, California quarry.
Research
The Company operates research and development centers in Sugar Land, Texas
and Savannah, Georgia where it conducts research relating to manufacturing
process technology, factory operations, food science and new product
development. In Savannah, the Company operates a "pilot plant" in connection
with its research and development activities where it has developed sugar
products co-crystallized with other flavors such as honey. The Company markets
the co-crystallized specialty products produced at the pilot plant.
Competition
The Company's sugar segment competes with other cane sugar refiners and beet
sugar processors and, in certain product applications, with producers of other
nutritive and non-nutritive sweeteners. The Company's foodservice segment
competes with other foodservice suppliers. Selling price and the ability to
supply the buyer's quality and quantity requirements in a timely fashion are
important competitive factors. Certain competing beet sugar processors have
expanded their production capacity significantly in the recent past. The
additional sugar marketed as a result of this expansion has acted to reduce
refined sugar prices at times during this period. To a lesser extent, refined
sugar also competes with non-nutritive or low-calorie sweeteners, principally
aspartame and, to lesser extents, saccharin and acesulfam-k.
The replacement of refined sugar by high fructose corn syrup ("HFCS") and
non-nutritive sweeteners in the beverage market was substantially completed
over a decade ago. The Company does not currently consider HFCS a significant
competitive threat, as refined sugar and HFCS generally support different
markets. HFCS is primarily a liquid sweetener and generally does not compete
in the dry sugar market.
Sugar Legislation and Other Market Factors
The Company's business and results of operations are substantially affected
by market factors, principally the domestic prices for refined sugar and raw
cane sugar, and the quality and quantity of sugar beets available to
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the Company. These market factors are influenced by a variety of forces,
including the number of domestic acres contracted to grow sugar beets, prices
of competing crops, weather conditions and United States farm and trade
policies. See "--Industry Overview" and "--Raw Materials and Processing
Requirements".
The principal legislation currently supporting the price of domestic crops
of sugar beets and sugarcane is the Farm Bill, which became effective July 1,
1996 and extended the sugar price support program for sugarcane and sugar
beets until June 30, 2003.
CCC Loans. Pursuant to the Farm Bill, the Commodity Credit Corporation
("CCC") is obligated annually to make loans available to domestic first
processors of sugar on existing sugar inventories from the current crop year
production. CCC loans under the Farm Bill are recourse loans unless the tariff
rate quota for imported sugar is set at a level in excess of 1.5 million short
tons raw value ("STRV"). If the tariff rate quota exceeds 1.5 million STRV,
CCC loans will become non-recourse and processors will be obligated to pay
participating growers a predetermined minimum support price. CCC loans mature
September 30 of each year and in no event more than nine months after the
month in which the loan was made. Under the Farm Bill, processors may forfeit
sugar that secures CCC loans to the USDA in lieu of repaying the loans; if the
tariff rate quota is below 1.5 million STRV and the value of the sugar
forfeited as collateral for the loan is inadequate to cover the loan amount,
the USDA may proceed against the processor to recover the difference between
the loan amount and the proceeds from the sale of the forfeited sugar.
Additionally, under the rules governing the CCC loans, a processor will be
required to pay a penalty of approximately one cent per pound of sugar
forfeited. From July to September 2000, a total of 598,000 short tons of
refined sugar and 305,000 STRV of raw sugar were forfeited by various industry
participants in full satisfaction of outstanding loans from the CCC in lieu of
repaying the loans because the forfeited price exceeded the current market
price. The Company forfeited 100,000 short tons of refined sugar in full
satisfaction of $47.1 million of CCC loans.
Tariff Rate Quota. Under the Farm Bill, the USDA utilizes the import quota
and the forfeiture penalty to affect sugar price supports and prevent
forfeitures under the CCC loan program. The USDA annually implements a tariff
rate quota for foreign sugar, which has the effect of limiting the total
available supply of sugar in the United States. The tariff rate quota controls
the supply of raw sugar by setting a punitive tariff on all sugar imported for
domestic consumption that exceeds the determined permitted imported quantity
and is designed to make the importation of the over-quota sugar uneconomical.
To the extent a processor sells refined sugar for export from the United
States, it is entitled to import an equivalent quantity of non-quota eligible
foreign raw sugar. The tariff rate quota for sugar to be allowed entry into
the United States during the year ended September 30, 2000 was 1.50 million
STRV. The USDA currently determines the quota by targeting an ending stocks-
to-use ratio (the projected ratio of available sugar inventories to annual
consumption). A portion of the quota is made available immediately with other
allocations available over time depending on domestic production of raw cane
sugar and refined beet sugar. In September 2000, the USDA announced the raw
sugar tariff rate quota for the year ending September 30, 2001 at 1.50 million
STRV. This quota will enable sugar producers to receive nonrecourse loans from
the CCC.
Other Government Actions. In an effort to reduce the oversupply of refined
sugar, the government implemented a tender process and purchased a total of
132,000 short tons of refined sugar in June 2000, including 82,000 short tons
sold by the Company. In the fall of 2000 the government utilized a payment-in-
kind program to dispose of part of the refined sugar owned by the government,
exchanging with growers 277,000 short tons of refined sugar for not harvesting
102,000 acres planted.
NAFTA. NAFTA contains provisions that allow Mexico to increase its sugar
exports to the United States if Mexico is projected to produce a net surplus
of sugar. The terms of NAFTA have restricted Mexico's exports, which may be in
the form of raw or refined sugar, to the United States to no more than 25,000
STRV annually through the year 2000. Mexico's exports to the United States
will be increased in the event Mexico produces a sugar surplus for two
consecutive years prior to the year 2000 or at any time thereafter. The tariff
rate quota for the year ending September 30, 2001 allocates 116,611 STRV of
raw sugar to Mexico pursuant to NAFTA. The Company's management believes that
increased importation of raw cane sugar from Mexico could benefit the
8
<PAGE>
Company because the proximity of its Sugar Land, Texas refinery to Mexico
could allow the Company to import raw cane sugar more economically than its
competition. However, if imports are in the form of refined cane sugar, the
domestic refined sugar market may be adversely affected.
Employees
At November 1, 2000, the Company employed approximately 3,800 year-round
employees. In addition, the Company employed approximately 2,200 seasonal
employees over the course of the year ended September 30, 2000. While the
Company's Port Wentworth, Georgia refinery employs non-union labor, the
Company has entered into collective bargaining agreements with union
representatives with respect to the employees at the Company's other sugar
segment plants. The Company's Indianapolis, Indiana and Perrysburg, Ohio
foodservice facilities operate under collective bargaining agreements, while
the remainder of its foodservice facilities employ non-union labor. The
Company believes its employee and union relationships are good.
Environmental Regulation
The Company's operations are governed by various federal, state and local
environmental regulations. These regulations impose effluent and emission
limitations, and requirements regarding management of water resources, air
resources, toxic substances, solid waste and emergency planning. The Company
has obtained or is making application for the permits required under these
regulations. The Company has filed Title V applications as required in
California, Wyoming, Montana, Michigan, Texas, Georgia and Florida.
In the past, wastewater odor control has been addressed at the Company's
facilities in Tracy and Woodland, California. The soil and ground water at the
Company's Mendota, California facility have high concentrations of salts. The
Company has developed a prevention plan to install a clay cap on the areas of
concern and to treat the affected ground water. This plan will be accomplished
over a 20 to 30-year period with an expected annual cost ranging from $40,000
to $120,000. The Company has recorded a liability for the estimated costs of
this project. The Company's Torrington, Wyoming facility has made significant
operational modifications in order to meet more restrictive state solid waste
and groundwater regulations. As a result of the cessation of sugar production
at its Clewiston, Florida, Tracy, California and Woodland, California
facilities, the Company expects it will be required to incur costs to
remediate certain production areas, including the removal or capping of
certain former production settling ponds. The Company has provided for the
estimated cost in fiscal 2000. See Note 14 to the Consolidated Financial
Statements.
In November 1998, the Company, through its Diamond Crystal subsidiary,
received a Request for Information Pursuant to Section 104 of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and Section 3007 of Resource Conservation and Recovery Act ("RCRA")
relative to the Beede Waste Oil Site in Plainstow, New Hampshire. Responses to
the information request were last filed in March 1999. The Company's review
has not identified any connection between Diamond Crystal and the transporters
identified for this site. No further requests for information have been
received.
Ongoing compliance with environmental statutes and regulations has not had,
and the Company does not anticipate that it will in the future have, a
material adverse effect on the Company's competitive position since its
competitors are subject to similar regulation. Additional testing requirements
and more stringent permit limitations have resulted in increasing
environmental costs, and the Company expects that the cost of compliance will
continue to increase. Additional capital expenditures will be required to
comply with future environmental protection standards, although the amount of
any further expenditures cannot be accurately estimated. Management does not
believe that compliance will have a materially adverse impact on the Company's
capital resources, operating results or financial condition.
ITEM 2. Properties
The Company owns each of its cane sugar refineries, sugar beet processing
plants and foodservice manufacturing facilities. The Company owns its
corporate headquarters in Sugar Land, Texas and leases other
9
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office space and contracts for throughput and storage at warehouses and
distribution stations. The Company owns additional acreage at its factories
and refineries which is used primarily for settling ponds and as buffers from
nearby communities or is leased as farm and pasture land. Substantially all of
these assets are subject to liens securing the Company's bank debt. The
Company is actively marketing the real estate surrounding the Tracy and
Woodland, California facilities. See "Business--Manufacturing Facilities" and
"Business--Other Raw Materials".
ITEM 3. Legal Proceedings
The Company is a party to litigation and claims which are normal in the
course of its operations; while the results of such litigation and claims
cannot be predicted with certainty, the Company believes the final outcome of
such matters will not have a materially adverse effect on its results of
operations or consolidated financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter
ended September 30, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of Imperial are elected annually to serve for the ensuing
year or until their successors have been elected. The following table sets
forth certain information with respect to the executive officers of Imperial:
<TABLE>
<CAPTION>
Name Age(1) Positions
---- ------ ---------
<S> <C> <C>
James C. Kempner........ 61 President and Chief Executive Officer
Douglas W. Ehrenkranz... 43 Executive Vice President
William F. Schwer....... 53 Executive Vice President and General Counsel
Roger W. Hill........... 61 Managing Director; President and CEO of Holly Sugar
Benjamin A. Oxnard,
Jr. ................... 65 Managing Director; President and CEO of Savannah Foods
Peter C. Carrothers..... 61 Managing Director
Mark Q. Huggins......... 51 Managing Director and Chief Financial Officer
John A. Richmond........ 54 Managing Director
David Roche(2).......... 53 Managing Director
W.J. "Duffy" Smith...... 45 Managing Director
Mark S. Flegenheimer.... 39 Vice President; President of Michigan Sugar Company
H. P. Mechler........... 47 Vice President--Accounting
Karen L. Mercer......... 38 Vice President and Treasurer
Alan K. Lebsock......... 48 Controller
Roy L. Cordes, Jr....... 53 Secretary
</TABLE>
--------
(1) As of December 27, 2000.
(2) The Company has given timely notice to Mr. Roche that his employment
agreement will not be renewed on February 1, 2001.
Except as set forth below, executive officers have held their present
offices for at least the past five years. Positions, unless specified
otherwise, are with the Company.
Mr. Kempner became President and Chief Executive Officer in 1993. Mr.
Kempner served as Executive Vice President from 1988 to 1993 and also served
as Chief Financial Officer from 1988 to April 1998.
Mr. Ehrenkranz became Executive Vice President in July 1999. Mr. Ehrenkranz
joined the Company in April 1995 as Director of Sales, Planning & Market
Development and became Vice President--Sales and
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<PAGE>
Marketing in September 1995 and Managing Director in April 1997. Prior to
joining the Company, Mr. Ehrenkranz was Marketing Manager with PepsiCo's Taco
Bell subsidiary from 1993 to 1994 and held various senior sales management
positions with Procter and Gamble from 1979-1993.
Mr. Schwer became Executive Vice President in July 1999 and served as
Managing Director from October 1995 to July 1999, and General Counsel since
1989. He also served as Senior Vice President from 1993 to 1995. Mr. Schwer
joined Holly as Assistant General Counsel in 1988.
Mr. Hill became a Managing Director in October 1995. He served as Executive
Vice President from 1988 to 1995. Mr. Hill also has been President of Holly
since 1988. Mr. Hill joined Holly in 1963 and served in various capacities,
including Vice President--Agriculture and Executive Vice President.
Mr. Oxnard became a Managing Director in February 1998 and President of
Savannah Foods in October 1999. Since 1996, he had served as Senior Vice
President--Raw Sugar of Savannah Foods. Mr. Oxnard joined Savannah Foods in
1983 as Vice President--Raw Sugar.
Mr. Carrothers became a Managing Director in October 1995. He served as
Senior Vice President--Operations from March to October 1995. Mr. Carrothers
joined the Company as Senior Vice President--Logistics in May 1994.
Mr. Huggins joined the Company as Managing Director and Chief Financial
Officer in September 1999. Prior to joining the Company, Mr. Huggins was
Senior Vice President--Administration, Chief Financial Officer and Treasurer
of Cellstar Corporation from January 1997 to January 1999 and Chief Financial
Officer--Brazil Region until June 1999. Mr. Huggins was Chief Financial
Officer of Van Camp Seafood Company, Inc. ("Van Camp") from 1992 to 1997. In
April 1997 Van Camp filed for protection under the federal bankruptcy laws.
Mr. Richmond became a Managing Director in April 1997 and was named Vice
President--Operations in October 1995. Mr. Richmond has been Senior Vice
President and General Manager, Beet Sugar Operations, of Holly since 1993. Mr.
Richmond joined Holly in 1973 and has held various other positions with Holly
since then.
Mr. Smith joined the Company as a Managing Director in September 1999. Prior
to joining the Company, Mr. Smith was Senior Vice President--Worldwide Product
Supply at Gerber Products Company from 1995 to 1999 and was Vice President--
Operations at Hostess Frito-Lay from 1993 to 1995 and was Vice President and
General Manager at Campbell Soup Company Ltd from 1992 to 1993.
Mr. Flegenheimer became a Vice President of the Company and President of
Michigan Sugar Company in October 1998. Mr. Flegenheimer joined Michigan Sugar
in 1994 as Vice President of Administration and became Vice President and
Chief Operating Officer in 1996.
Mr. Mechler became Vice President--Accounting in April 1997. Mr. Mechler had
been Controller since joining the Company in 1988.
Ms. Mercer became Vice President in April 1997 and has served as Treasurer
since 1994. She joined the Company in 1993.
Mr. Lebsock became Controller in April 1997 and has been Controller for
Holly since October 1990. From October 1984 to September 1990, he was
Assistant Controller for Holly. Mr. Lebsock joined Holly in 1974.
Mr. Cordes joined the Company as Deputy General Counsel in September 1997.
He became Secretary of the Company in July 1998. Prior to joining the Company,
Mr. Cordes was in private law practice from 1995 to 1997 and was a judge in
Fort Bend County, Texas from 1991 to 1994.
11
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
The Company's Common Stock is listed on the American Stock Exchange
("Amex"). On December 14, 2000, Amex notified the Company that trading in the
Company's Common Stock was being halted until further notice from Amex. At
November 30, 2000 there were approximately 2,200 shareholders of record of the
Common Stock. The following table sets forth the high and low sales price per
share of Common Stock, as quoted by Amex, and cash dividends per share
declared in the periods set forth below:
<TABLE>
<CAPTION>
Sales
Price
--------- Cash
Three Months Ended High Low Dividend
------------------ ---- ---- --------
<S> <C> <C> <C>
December 31, 1998......................................... 8.75 6.13 0.03
March 31, 1999............................................ 9.75 6.06 0.03
June 33, 1999............................................. 7.38 5.62 0.03
September 30, 1999........................................ 7.00 5.63 0.03
December 31, 1999......................................... 6.31 2.94 --
March 31, 2000............................................ 4.00 1.50 --
June 30, 2000............................................. 1.94 0.94 --
September 30, 2000........................................ 2.13 1.00 --
</TABLE>
ITEM 6. Selected Financial Data.
Selected financial data for the last six fiscal periods is as follows (in
thousands of dollars, except per share data):
<TABLE>
<CAPTION>
Six Months Year Ended March
Year Ended September 30, Ended 31,
---------------------------------- September 30, -----------------
2000 1999(1) 1998(2) 1997(3) 1997(4) 1996
---------- ---------- ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
For The Period:
Net Sales............. $1,821,231 $1,888,630 $1,783,091 $406,682 $752,595 $616,450
Operating Income
(Loss)............... (27,822) 47,904 38,939 20,359 28,423 (2,431)
Income(Loss) Before
Extraordinary Item... (34,677) (18,124) (5,835) 9,951 11,518 (3,218)
Net Income (Loss)..... (34,677) (18,124) (7,834) 9,951 11,518 (2,614)
Per Share Data:
Basic Income (Loss)
Per Share:
Before Extraordinary
Item............... $ (1.07) $ (0.57) $ (0.24) $ 0.70 $ 0.92 $ (0.31)
Net Income (Loss)... (1.07) (0.57) (0.32) 0.70 0.92 (0.25)
Diluted Income (Loss)
Per Share:
Before Extraordinary
Item............... (1.07) (0.57) (0.24) 0.69 0.90 (0.31)
Net Income (Loss)... (1.07) (0.57) (0.32) 0.69 0.90 (0.25)
Cash Dividends
Declared per share... -- 0.12 0.12 0.03 -- 0.04
At Period End:
Total Assets.......... $1,093,690 $1,280,783 $1,179,800 $457,619 $449,933 $325,319
Long-term Debt--
Net(5)............... 20,000 553,577 525,893 81,304 90,619 89,800
Total Shareholders'
Equity............... 318,601 373,424 352,907 192,959 176,956 111,043
</TABLE>
--------
(1) Includes the results of Diamond Crystal since November 2, 1998, as dis-
cussed in Note 3 to the Consolidated Financial Statements.
(2) Includes the results of Savannah Foods since October 17, 1997, net of
minority interest through December 22, 1997, as discussed in Note 3 to the
Consolidated Financial Statements.
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<PAGE>
(3) In October 1997, the Company changed its fiscal year end from March 31 to
September 30.
(4) Includes the results of Spreckels since April 19, 1996.
(5) At September 30, 2000, substantially all of the Company's long-term debt
was reclassified to current, as discussed in Note 8 to the Consolidated
Financial Statements.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Company is dependent on borrowings under its revolving credit facility,
sales of receivables under its revolving receivable purchase facility and
access to customary trade credit to finance seasonal working capital
requirements and supplement operating cash flow. At September 30, 2000, the
Company would have been in violation of certain financial covenants of the
Senior Credit Agreement had the lenders not waived such covenants temporarily.
The Company did not make its scheduled December 15, 2000, interest payment on
the Subordinated Debt. The indenture for the Subordinated Debt provides for a
thirty-day grace period for the payment of interest, however the Company does
not expect to make such payment currently. Additionally, the Company has
contracted a substantial portion of industrial sugar sales for fiscal 2001 at
historically low prices, and raw sugar prices have not declined as much as
refined sugar prices. As a result, margins on the sale of refined sugar have
narrowed and the Company may incur significant losses and negative cash flows
from operations for the year ending September 30, 2001.
The Company and the Senior Credit Agreement lenders entered into an interim
waiver agreement effective through January 8, 2001, waiving temporarily the
non-compliance with certain financial covenants as of September 30, 2000
described above, and the effect on the Senior Credit Agreement of not paying
the scheduled interest payment on the Subordinated Debt.
The Company's $110 million revolving receivables purchase facility with an
independent issuer of receivables-backed commercial paper (the "Securitization
Facility") is backed by a liquidity line of credit issued in favor of the
receivable purchaser, which has been extended until January 8, 2001. The
Company is not a party to the liquidity line of credit. Should such line of
credit not be renewed, the Securitization Facility would terminate, placing
substantial additional liquidity requirements on the Company.
The indenture governing the Subordinated Debt, the Senior Credit Agreement
and the Securitization Facility agreement each contain cross default
provisions such that a default under one agreement constitutes a default under
each of the others.
The Company has held discussions with an informal committee of holders of
the Subordinated Debt, representatives of the Senior Credit Agreement lenders
and the issuer of the liquidity line of credit backing the Securitization
Facility about a financial restructuring plan. Under the provisions of the
proposed plan, the Subordinated Debt would be converted to equity and the
Senior Credit Agreement would concurrently be amended or replaced with a new
agreement. The terms of the proposed debt to equity conversion, including the
level of continuing equity ownership of existing shareholders, remain under
discussion. Negotiations and discussions with the Senior Credit Agreement
lenders continue in respect of the restructured agreement described above and
interim debtor-in possession financing, should a bankruptcy filing be
required. The proposed restructuring may occur under the supervision of a
United States Bankruptcy Court. The Company has had discussions with the
receivable purchaser concerning extension of the Securitization Facility until
the restructuring is completed. The Company believes that, should the
Securitization Facility not be extended up to or beyond the completion of the
proposed financial restructuring, replacement accounts receivable financing
could be found. While the Company believes that these discussions to-date have
been productive, there can be no assurances that an agreement on the proposed
restructuring can be completed timely.
The interim waiver and the liquidity line of credit discussed above expire
January 8, 2001, and the grace period for the payment of interest on the
Subordinated Debt expires January 14, 2001. Additionally, certain trade
13
<PAGE>
creditors have requested enhancements to their credit terms. Unless the
Company is able to obtain an extension or forbearance with respect to these
deadlines, the lenders could, after such dates, declare the related debt in
default and demand repayment, and the receivable purchaser could declare the
Securitization Facility terminated, all of which would place liquidity demands
on the Company which it could not meet.
The Company's ability to meet its ongoing liquidity and capital requirements
is dependent upon the successful completion of the financial restructuring
described above, the Company's ability to generate sufficient cash flow to
meet its obligations on a timely basis and its ability to obtain other
financing as may be required. Current domestic sugar market conditions are
continuing to have significant negative impact on the Company's operating
results and liquidity. While the Company believes it will be able to complete
a consensual restructuring during fiscal 2001, there can be no assurances that
it will be successful in doing so. The Company is reviewing with its financial
and legal advisors the financial alternatives available to the Company,
including without limitation the debt restructuring proposal described above
and/or the filing of a petition under Chapter 11 of the United States
Bankruptcy Code.
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 year ended September 30, 2000, the Company utilized
substantially all of its available borrowing capacity primarily due to higher
inventory levels from record sugarbeet crops. At September 30, 2000, unused
available borrowing capacity was $97.5 million; at December 28, 2000 such
unused capacity was $14.5 million.
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 the
Subordinated Debt. Assuming the sources of liquidity described above remain
available, the adequacy of such 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 market price for raw sugar, the market price of and demand
for refined sugar and cash flow provided from operations.
Debt at September 30, 2000 was $456.4 million, consisting principally of
$250 million of Subordinated Debt and borrowings under the Senior Credit
Agreement. The Senior Credit Agreement includes a $157.3 million revolving
credit facility (expiring December 2002) and term loans aggregating
$150.8 million. Interest on borrowings under the Senior Credit Agreement is at
floating rates (either a base rate plus a margin ranging from 0.75% to 3% or a
Eurodollar rate plus a margin ranging from 1.75% to 4%). The Company has
entered into interest rate swap agreements with major financial institutions
to effectively fix the interest rate on $214.5 million of the amounts
outstanding under the Senior Credit Agreement at a weighted average annual
rate of 9.3% as of September 30, 2000. The Company is 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 without reduction
of the amounts available under the revolving credit facility.
The Securitization Facility which expires on June 30, 2004, 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 September 30, 2000, the
Company had sold $82.5 million of accounts receivable under the facility.
14
<PAGE>
The Company liquidated approximately $64.2 million of its marketable
securities portfolio in fiscal 2000 and utilized $36.6 million of the net
proceeds to pay down long-term debt.
The Company's debt agreements impose various restrictions that could limit
the Company's ability to respond to market conditions, to provide for
unanticipated capital requirements, to raise additional debt or equity
capital, or to take advantage of business opportunities. 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, a minimum interest coverage
ratio and a minimum fixed charge coverage ratio as well as a minimum adjusted
current ratio and a minimum level of net worth.
The indenture governing the Subordinated Debt contains covenants that limit,
with certain exceptions, the ability of the Company and most of its
subsidiaries to:
. incur additional indebtedness or issue preferred stock;
. pay dividends or make certain other restricted payments by the Company
or its subsidiaries;
. enter into transactions with affiliates;
. make certain asset dispositions;
. in the case of the Company, merge or consolidate with, or transfer
substantially all of its assets to another person;
. encumber assets;
. issue capital stock of wholly owned subsidiaries; or
. engage in certain business activities.
In addition, under certain circumstances, the Company will be required to
offer to repurchase the notes at par, plus accrued and unpaid interest, with
the proceeds of certain asset sales.
The Company's capital expenditures for fiscal 2000 were $16.3 million and
included environmental, safety and obsolescence projects. Fiscal 2001 capital
expenditures are expected to approximate $15 million.
New Accounting Standards
The Financial Accounting Standards Board has issued a number of new
accounting standards discussed in Note 1 to the Consolidated Financial
Statements. These standards, which become effective in fiscal 2001, establish
additional accounting and disclosure requirements. Management has evaluated,
as described in Note 1
15
<PAGE>
to the Consolidated Financial Statements, what effects such requirements will
have on the Company's consolidated financial statements.
Industry Environment
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar and raw cane sugar, the
quantity and quality of sugarbeets available to the Company and the
availability and price of energy and other resources. These market factors are
influenced by a variety of external forces that the Company is unable to
predict, including the number of domestic acres contracted to grow sugarcane
and sugar beets, prices of competing crops, weather conditions and United
States farm and trade policy. The domestic sugar industry is subject to
substantial influence by legislative and regulatory actions. The current farm
bill limits the importation of raw cane sugar, affecting the supply and cost
of raw material available to the Company's cane refineries. See "Business--
Sugar Legislation and Other Market Factors" and "--Competition" and "--
Industry Overview".
Weather conditions during the growing, harvesting and processing seasons,
the availability of acreage to contract for sugarbeets, as well as the effects
of diseases and insects, may materially affect the quality and quantity of
sugarbeets available for purchase as well as the costs of raw materials and
processing. See "Business--Raw Materials and Processing Requirements".
Results of Operations
As more fully discussed in Note 12 to the Consolidated Financial Statements,
the Company's operations are identified into two reportable segments, sugar
and foodservice.
Fiscal 2000 compared to fiscal 1999
Net sales decreased $67.4 million, or 3.6%, in fiscal 2000 primarily due to
lower sales prices for refined sugar, which was partially offset by an
increase in refined sugar volumes. The primary reason refined sugar volumes
increased for the sugar segment was the Company's selling refined sugar
totaling $31.2 million to the government under a U.S. Department of
Agriculture tender program in the third quarter of fiscal 2000. The
foodservice segment's net sales decreased 1.4% in fiscal 2000 primarily as a
result of lower sales prices received for refined sugar sold in foodservice
markets, which more than offset higher nonsugar prices.
Cost of sales for fiscal 2000 decreased $21.8 million or 1.3%, resulting in
a decrease in gross margin as a percent of sales from 9.8% for fiscal 1999 to
7.6% in fiscal 2000. By segment, sugar gross margin as a percent of sales
decreased to 6.8% in fiscal 2000 from 8.9% in fiscal 1999 and foodservice
gross margin as a percent of sales decreased to 10.5% in fiscal 2000 from
13.1% in fiscal 1999. The decrease in gross margin is primarily due to
significantly lower sales prices for refined sugar in both the sugar and
foodservice segments and higher energy costs particularly in California, which
more than offset the benefits from lower raw sugar costs, improved refinery
operations and higher nonsugar sales prices. In addition, the tender of
refined sugar to the government negatively impacted gross margin by $2.4
million.
The Company, as well as most of the domestic sugar industry, experienced a
very difficult operating environment during fiscal 2000. 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 produced a significant oversupply of refined sugar. The market
reacted accordingly, and prices for refined bulk sugar fell 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, caused the market price for
domestic and quota-eligible foreign raw cane sugar to fall over 15%, also to
fifteen-year lows.
The decline in refined sugar prices 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
16
<PAGE>
majority of the decline in prices, so it did not feel the entire impact of the
price decline in fiscal 2000. Similarly, the Company did not realize 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 declined more than raw sugar prices; so despite
the reduced raw material costs, margins were significantly adversely impacted.
In an effort to reduce the oversupply of refined sugar, the government
bought through a tender process 132,000 short tons of refined sugar in June
2000, of which the Company sold 82,000 short tons. The government initiated a
Payment in Kind program ("PIK") in the fall of 2000, in which growers received
277,000 short tons of refined sugar from the government in exchange for not
harvesting 102,000 acres already planted in sugarbeets. Additionally, the
industry participated in permitted forfeitures totaling 598,000 short tons of
refined sugar and 305,000 STRV of raw sugar in full satisfaction of
outstanding loans with the CCC from July through September 2000, in lieu of
repaying the loans, because the forfeiture price exceeded the current market
price. The Company forfeited 100,000 tons of refined sugar in full
satisfaction of $47.1 million of CCC loans. The government tender, the PIK
program and the CCC forfeitures helped reduce the anticipated supply of sugar
in fiscal 2001, which resulted in some increase in industrial market prices
beginning in mid-October 2000. Raw sugar prices also increased in the fall of
2000, rising faster than refined sugar prices. A significant portion of the
Company's industrial sales are made under fixed price, forward sales
contracts, most of which commence October 1 or January 1, and extend for up to
one year. Additionally, the Company prices a portion of its raw sugar
purchases in advance of the time of delivery either through pricing provisions
of its raw sugar contracts or through hedging transactions in the raw sugar
futures market. As a result, the Company's realized sales prices as well as
its realized raw sugar costs tend to lag market price changes. The Company
contracted a significant portion of industrial sugar sales for fiscal 2001
prior to the increase in prices, consequently the Company expects it will not
realize the entire impact of the price increase in fiscal 2001 and that its
margins will be lower than in fiscal 2000, which may cause the Company to
incur significant losses and negative cash flows from operations.
Selling, general and administrative costs increased $1.9 million or 2.2% for
fiscal 2000 due to increased discounts and fees incurred under the Company's
accounts receivable securitization program. The Company entered into the
agreement on June 30, 1999, and 3 months of discount and fees recorded during
fiscal 1999 totaled $1.4 million; discount and fees totaled $6.4 million for
the full fiscal year 2000, an increase of $5.0 million. The increase was
offset by decreases in administrative, sales-related 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 experienced across the Company's operations.
The Company has incurred and expects to continue to incur significantly
increased energy, packaging and benefit costs. The Company has undertaken an
initiative to reduce other costs; approximately half of the 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 costs.
The Company ceased processing sugarbeets at the Tracy and Woodland,
California facilities in December 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. In October 2000, the
Company ceased cane sugar refining at its Clewiston, Florida refinery. The
Company expects to realize 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 recorded charges during the fourth quarter of fiscal 2000 totaling
$27.5 million. See Note 14 to the Consolidated Financial Statements.
17
<PAGE>
Interest expense decreased $2.4 million, or 4.1%, for fiscal 2000 primarily
due to lower overall borrowing levels resulting from the securitization of
accounts receivable and sale of marketable securities, which was partially
offset by higher market interest rates and higher margins.
During fiscal 2000, the Company recognized a gain of $35.9 million from the
sale of the majority of the Company's marketable securities portfolio.
Other income decreased $0.6 million for fiscal 2000 primarily as a result of
a decrease in dividend income due to the sale of the majority of the Company's
marketable securities portfolio.
Fiscal 1999 compared to fiscal 1998
As a result of the Diamond Crystal acquisition on November 2, 1998, the
Company had substantial increases in sales, costs and expenses. Additionally,
the Company completed the acquisition of Savannah Foods in the first quarter
of fiscal 1998. Accordingly the operating results of the fiscal year ended
September 30, 1999 are not directly comparable to the results for fiscal 1998.
The following unaudited pro forma financial information presents the Company's
results of operations for fiscal 1999 and 1998 as if the acquisition of both
Diamond Crystal and Savannah Foods and the related financing transactions had
occurred on October 1, 1997 (in thousands of dollars).
<TABLE>
<CAPTION>
Pro Forma
Twelve Months Ended
September 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales........................................... $1,899,714 $1,982,351
Costs and expenses:
Cost of sales..................................... 1,713,107 1,774,862
Selling, general and administrative............... 86,467 90,000
Asset impairment and other charges................ -- 18,287
Depreciation and amortization..................... 51,705 51,169
---------- ----------
Operating income.................................... 48,435 48,033
Interest expense.................................... (59,774) (58,648)
Realized securities gains........................... 4,697 2,181
Loss on investment in partnership................... (16,706) --
Other income........................................ 1,598 7,680
---------- ----------
Income (loss) before income taxes................... (21,750) (754)
Provision (benefit) for income taxes................ (3,276) 4,635
---------- ----------
Net income (loss)................................... $ (18,474) $ (5,389)
========== ==========
</TABLE>
Pro forma net sales decreased $82.6 million or 4.2% for fiscal 1999
primarily due to lower industrial sugar sales volumes and lower consumer
private label prices, partially offset by higher industrial sugar prices and
increased foodservice segment sales. The sugar segment's net sales decreased
6.6% for fiscal 1999 compared to fiscal 1998 due primarily to lower industrial
volumes as the Company announced higher sales prices for refined sugar for
industrial contracts commencing October 1, 1998. The foodservice increase was
primarily due to higher volumes (principally of sugar sold to foodservice
customers), as well as increased sales of nutritional products including
thickened beverages and frozen shakes. Additionally, the Company realized
higher selling prices on certain nonsugar products.
Pro forma cost of sales for fiscal 1999 decreased $61.8 million or 3.5%,
resulting in pro forma gross margin as a percent of sales of 9.8% compared to
10.5% for fiscal 1998. By segment, sugar pro forma gross margin as a percent
of sales decreased to 7.5% in fiscal 1999 from 8.9% in fiscal 1998 and pro
forma foodservice gross margin as a percent of sales decreased to 13.0% in
fiscal 1999 from 14.1% in fiscal 1998. The foodservice
18
<PAGE>
segment's gross margin declined principally due to product mix and competitive
pricing pressures. The Company decided to delay, until fiscal 2000, the
realization of certain synergies related to its acquisition of Diamond
Crystal, primarily in respect to closing certain plants, and to incur
temporarily higher expense levels in order to maintain adequate levels of
customer service and support current sales levels.
The sugar segment's gross margin declined principally due to lower sugarbeet
quality, higher cane processing costs, and a decline in byproduct sales prices
due to competitive feed grain prices, all of which more than offset higher
industrial sugar prices. Beet sugar costs increased during fiscal 1999 at the
Company's Montana and Michigan factories as a result of lower sugar content in
sugarbeets harvested and warmer temperatures during sugarbeet storage, which
adversely affected sugar recovery. Beet sugar costs were also negatively
affected in Southern California by a large beet crop which extended the
harvest period, adversely impacting beet quality in the late summer and fall
months. The reduced beet quality negatively affected raw material and variable
manufacturing costs which was partially offset by lower unit production costs
from increased production volumes.
The cane operations of the sugar segment had lower industrial volumes and
poor refinery performance in fiscal 1999, resulting in lower yields, and
higher processing costs. The refinery performance was affected in part by
difficulty in processing low quality raw materials received from an offshore
supplier. In addition, the sugar segment's gross margin was impacted by the
effects of Hurricane Floyd, which shut down the Company's largest cane
refinery in Savannah, Georgia for a week, and delayed product deliveries to
certain of the Company's customers. Partially offsetting these factors was a
slight decrease in raw sugar costs.
Pro forma selling, general and administrative costs decreased $3.5 million
or 3.9% for fiscal 1999 compared to fiscal 1998 primarily due to reductions in
volume related selling costs, as well as cost savings in general and
administrative expenses. Following the Savannah Foods and Diamond Crystal
acquisitions the Company undertook significant cost savings initiatives and
reorganized its administrative functions to remove duplication and streamline
such functions. Selling, general and administrative costs include $1.8 million
of discount and fees associated with the sales of receivables during the last
three months of fiscal 1999.
Pro forma interest expense for fiscal 1999 increased $1.1 million or 1.9%
primarily as a result of higher revolving credit borrowings.
The loss on investment in partnership resulted from the write-off of the
Company's investment in Pacific Northwest Sugar Company, a partnership in
which a subsidiary of the Company was a 43% limited partner. See Note 14 to
the Consolidated Financial Statements.
Realized gains on marketable securities increased $2.5 million during fiscal
1999; net unrealized gains, which have not been recognized in the Company's
results of operations, but are shown as a component of comprehensive income
within shareholders' equity, increased $2.2 million during fiscal 1999.
Pro forma other income decreased $6.1 million for fiscal 1999 compared to
fiscal 1998 primarily due to gains recognized on the sale of a former beet
sugar factory site and a distribution facility in fiscal 1998.
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.
The Company uses raw sugar futures and options in its raw sugar 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.
19
<PAGE>
The information in the table below presents the Company's domestic raw sugar
futures positions outstanding as of September 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 Expected
Maturity Maturity
Fiscal 2001 Fiscal 2002
----------- -----------
<S> <C> <C>
Futures Contracts (net long positions):
Contract Volumes (cwt.).............................. 1,318,240 24,640
Weighted Average Contract Price (per cwt.)........... $18.42 $18.98
Contract Amount...................................... $24,282,000 $468,000
Weighted Average Fair Value (per cwt.)............... $20.22 $20.15
Fair Value........................................... $26,653,000 $497,000
</TABLE>
The above information does not include either the Company's physical
inventory or its fixed price purchase commitments for raw sugar. At September
30, 1999, the Company's domestic futures position was a net long position of
2.1 million cwt. at an average contract price of $21.95 and an average fair
value price of $21.18.
The information in the table below presents the Company's natural gas
futures positions outstanding as of September 30, 2000.
<TABLE>
<CAPTION>
Expected
Expected Expected Maturity
Maturity Maturity Fiscal
Fiscal 2001 Fiscal 2002 2003
----------- ----------- ----------
<S> <C> <C> <C>
Futures Contracts (long positions):
Contract Volumes (mmbtu)................ 6,330,000 2,650,000 600,000
Weighted Average Contract Price (per
mmbtu)................................. $4.06 $3.63 $3.34
Contract Amount......................... $25,711,000 $9,615,000 $2,003,000
Weighted Average Fair Value (per
mmbtu)................................. $4.88 $4.26 $3.77
Fair Value.............................. $30,862,000 $11,284,000 $2,264,000
</TABLE>
The Company has material amounts of debt with interest rates that float with
market rates, exposing the Company to interest rate risk. The Company has
attempted to reduce this risk by entering into interest rate swap agreements
for a portion of such floating rate debt.
20
<PAGE>
The tables below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations
at September 30, 2000 and 1999, respectively. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. At September 30, 2000, the majority of the Company's
long-term debt was reclassified to current, as discussed in Note 8 to the
Consolidated Financial Statements. For interest rate swaps, the table presents
notional amounts and weighted average interest rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the contractual
payments to be exchanged under the contract. Weighted average variable rates
are based on implied forward rates in the treasury yield curve at the
reporting date.
<TABLE>
<CAPTION>
Expected Maturity Date at September 30, 2000
Fiscal Year Ending September 30,
----------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
------ ----- ----- ----- ----- ------ ------ ------
(In millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt:
Fixed rate debt....... $250.5 -- -- -- -- $20.0 $270.5 $ 58.0
Average interest
rate................. 9.7% -- -- -- -- 6.4% 9.5%
Variable rate debt.... $185.9 -- -- -- -- -- $185.9 $185.9
Average interest
rate................. 9.9% -- -- -- -- -- 9.9%
Interest Rate
Derivatives
Interest rate swaps:
Variable to fixed..... $ 16.8 $17.2 $83.0 $48.2 $49.3 -- $214.5 $ 3.6
Average pay rate...... 6.0% 6.0% 6.0% 5.7% 6.0% -- 6.0%
Average receive rate.. 6.7% 6.6% 6.5% 6.5% 6.5% -- 6.5%
</TABLE>
<TABLE>
<CAPTION>
Expected Maturity Date at September 30, 1999
Fiscal Year Ending September 30,
----------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
----- ----- ----- ------ ----- ------ ------ ------
(In millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt:
Fixed rate debt....... $ 6.4 $ 0.5 -- -- -- $270.0 $276.9 $246.9
Average interest
rate................. 8.3% 7.4% -- -- -- 9.5% 9.5%
Variable rate debt.... $ 5.7 $ 7.4 $ 7.8 $175.2 $38.9 $ 53.8 $288.8 $288.8
Average interest
rate................. 9.3% 9.4% 9.5% 10.0% 10.7% 10.9% 10.2%
Interest Rate
Derivatives
Interest rate swaps:
Variable to fixed..... $15.6 $16.8 $17.2 $ 83.0 $48.2 $ 49.3 $230.1 $ 2.9
Average pay rate...... 6.0% 6.0% 6.0% 6.0% 5.7% 6.0% 6.0%
Average receive rate.. 6.4% 6.8% 7.0% 7.0% 7.0% 7.2% 7.0%
</TABLE>
21
<PAGE>
ITEM 8. Financial Statements and Supplementary Data.
See the index of financial statements and financial statement schedules
under "Exhibits, Financial Statement Schedules and Reports on Form 8-K".
Unaudited quarterly financial data for the last eight fiscal quarters is as
follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
Basic and
Diluted
Net Earnings Cash
Net Gross Income (Loss) Dividends
Sales Margin (Loss) Per Share Per Share
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended September 30,
1999(1):
December 31, 1998............ $471,761 $47,779 $ 2,365 $ 0.08 $0.03
March 31, 1999(2)............ 428,997 33,362 (18,559) (0.58) 0.03
June 30, 1999................ 499,977 56,102 6,654 0.21 0.03
September 30, 1999........... 487,895 37,367 (8,584) (0.27) 0.03
Fiscal Year Ended September 30,
2000:
December 31, 1999(3)......... $468,599 $44,266 $ 13,919 $ 0.43 --
March 31, 2000(3)............ 429,165 36,550 (5,028) (0.16) --
June 30, 2000................ 466,313 38,493 (6,465) (0.20) --
September 30, 2000(4)........ 457,154 19,393 (37,103) (1.15) --
</TABLE>
--------
(1) Includes the results of Diamond Crystal since November 2, 1998 as
discussed in Note 3 to the Consolidated Financial Statements.
(2) Net loss for the second quarter of fiscal 1999 includes a $16.7 million
charge to write-off the Company's investment in a partnership as discussed
in Note 14 to the Consolidated Financial Statements.
(3) The Company recognized gains of $29.2 million and $6.7 million during the
first and second quarters of fiscal 2000, respectively, from the sale of
substantially all of the marketable securities portfolio.
(4) Net loss for the fourth quarter of fiscal 2000 includes a $27.5 million
charge associated with the closure of the Tracy and Woodland, California
facilities and the Clewiston, Florida refinery as discussed in Note 14 to
the Consolidated Financial Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
22
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The Company's Board of Directors is divided into three classes designated
Class I, Class II and Class III, with staggered terms of office. The number of
directors in each of the three classes is to be as nearly equal as possible.
Set forth below is certain information concerning the Company's directors,
including the business experience of each during the last five years and the
age of each director on November 30, 2000.
Directors in Class I (Terms Expiring at the 2001 Annual Meeting of
Shareholders)
John D. Curtin, Jr. has been a director of the Company since 1993. Mr.
Curtin is a private investor. He was Chairman and Chief Executive Officer of
Aearo Corporation, a worldwide manufacturer and supplier of personal safety
protection equipment, from May 1994 to March 1998. Mr. Curtin, age 67, is a
director of Aearo Corporation.
I. H. Kempner, III, age 68, has been Chairman of the Board of Directors of
the Company since 1971 and was first elected a director of the Company in
1967. He became Chairman of the Executive Committee in 1978. Mr. Kempner
joined the Company in 1964 and served in various executive capacities prior to
his election as Chairman of the Board.
James C. Kempner has been a director since 1988 and has been President and
Chief Executive Officer of the Company since 1993. Mr. Kempner was also the
Chief Financial Officer of the Company from 1988 until April 1998. From 1988
to 1993, Mr. Kempner was an Executive Vice President of the Company. Mr.
Kempner, age 61, is a Director of Bouygues Offshore S.A. and the King Ranch.
Daniel K. Thorne has been a director of the Company since 1988. For more
than the past five years, Mr. Thorne has been the President of Star Lake
Cattle Company and Star Lake Properties, Inc., which are engaged in cattle and
timber operations, and Eagle Island Citrus Corporation, a citrus production
operation. Mr. Thorne, age 49, is also President of Star Lake Capital, a
venture capital firm.
Directors in Class II (Terms Expiring at the 2002 Annual Meeting of
Shareholders)
David J. Dilger has been a director of the Company since October 1996. Mr.
Dilger, age 44, has been Chief Executive of Greencore Group plc ("Greencore")
since 1995 and was Chief Operating Officer of Greencore from 1991 to 1995. He
has been a director of Greencore since January 1992.
Edward O. Gaylord, who has been a director of the Company since 1978, has
been the Chairman and a director of Jacintoport Terminal Company, a fuel oil
storage facility, since 1989. Since January 1993, he has been Chairman of EOTT
Energy Corporation, an oil trading and transportation company. Mr. Gaylord,
age 68, is also a director of Seneca Foods Corporation, Kinder Morgan Energy
Partners, L.P. and The Federal Reserve Bank of Dallas, Houston Branch.
Gerald Grinstein has been a director of the Company since October 1996. He
was elected non-executive Chairman of Agilent Technologies in August 1999 and
served as non-executive Chairman of Delta Air Lines from August 1997 until
October 1999. He is also a principal of Madrona Investment Group, L.L.C., a
Seattle based investment company. He served as Chairman and Chief Executive
Officer of Burlington Northern Inc., a diversified transportation and railroad
company from 1990 until September 1995 and served as Chairman until his
retirement in December 1995. Mr. Grinstein, age 68, is a Director of Delta Air
lines, Inc., PACCAR Inc., The Pittston Company, Vans, Inc., and Expedia, Inc.
Robert L. Harrison has been a director of the Company since December 1997.
Mr. Harrison, age 60, has been President of Stevens Shipping & Terminal Co. in
Savannah, Georgia for more than nineteen years. Mr. Harrison served as a
Director of Savannah Foods from 1990 to 1997.
23
<PAGE>
Directors in Class III (Terms expiring at the 2003 Annual Meeting of
Shareholders)
Ann O. Hamilton, a director of the Company since 1974, has recently received
her J.D. degree and become a member of the Maryland bar. She was employed by
the World Bank in Washington, D.C. from 1970 until her retirement in December
1995. Mrs. Hamilton, age 64, was Senior Adviser to the Vice President, South
Asia Region, in 1995. She was Director of the Bangladesh, Bhutan & Nepal
Department from 1993 to 1994, and Director of the Population & Human Resources
Department from 1987 to 1992.
Harris L. Kempner, Jr., a director of the Company since 1966, has been
President of Kempner Capital Management, Inc., an investment advisory firm,
since 1982 and a trustee of the H. Kempner Trust Association since 1967. He
served as Chairman of the Board of United States National Bank from 1988 to
1993 when he became Chairman Emeritus. Mr. Kempner, age 60, is a director of
TNP Enterprises, Inc. and American Indemnity Financial Corporation and an
advisory director of Cullen/Frost Bankers, Inc.
Mr. I. H. Kempner, III and Mr. James C. Kempner are brothers and are first
cousins of Mr. Harris L. Kempner, Jr. In addition, Mrs. Hamilton, Mr. Harris
L. Kempner, Jr., Mr. I. H. Kempner, III, Mr. James C. Kempner and Mr. Thorne
are each descendants of H. Kempner, a Galveston entrepreneur who died in 1894.
See "Executive Officers of the Registrant" included in Part I hereof.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
directors of the Company and beneficial owners of more than 10% of the Common
Stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the American Stock Exchange. Officers,
directors and greater than 10% shareholders are required to furnish the
Company with copies of all Section 16(a) forms they file.
Based on a review of Forms 3 and 4 and amendments thereto filed during the
year ended September 30, 2000 and Forms 5 and amendments thereto, or written
representations that no Form 5s were required, the Company believes that
during the year ended September 30, 2000, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
24
<PAGE>
ITEM 11. Executive Compensation
The following table and narrative sets forth the compensation of the chief
executive officer and the other four most highly compensated executive officers
during the year ended September 30, 2000 (collectively, the "named officers")
for services rendered in all capacities.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------------------ ------------
Shares
Underlying
Name and Fiscal Other Annual Options All Other
Principal Positions Year Salary Bonus(1) Compensation (number)(3) Compensation
------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James C. Kempner....... 2000 $530,000 $39,750 (5) 0 $ 0
President, Chief 1999 527,962 0 (5) 0 0
Executive Officer 1998 497,502 0 (5) 200,000 0
Douglas W. Ehrenkranz.. 2000 $323,391 $23,625 (5) 0 $ 0
Executive Vice
President 1999 249,508 0 (5) 0 0
1998 229,746 0 (5) 65,000 0
Roger W. Hill.......... 2000 $300,000 $ 0 (5) 0 $255,784(4)
Managing Director, 1999 298,846 0 (5) 0 0
and President-- Holly 1998 291,612 0 (5) 65,000 0
Sugar Corporation
William F. Schwer...... 2000 $305,000 $22,875 (5) 0 $ 0
Executive Vice
President 1999 261,984 0 (5) 0 0
and General Counsel 1998 241,253 20,000 (5) 65,000 0
William J. Smith....... 2000 $300,000 $22,500 $46,002(2) 0 $ 0
Managing Director 1999 16,154 0 0 65,000 0
</TABLE>
--------
(1) In fiscal 2000, bonuses paid were pursuant to the Company's Employee
Retension Program; in 1998, Mr. Schwer received a bonus under the Company's
Performance Incentive Plan.
(2) Includes $29,079 of moving expenses paid on behalf of Mr. Smith and a
related tax gross-up payment of $13,185.
(3) No options granted include SARs.
(4) Represents a distribution from the Company's Salary Continuation Plan.
(5) Amount is less than $50,000 or 10% of the sum of salary and bonus.
25
<PAGE>
Stock Options
No stock options were granted to or exercised by the named officers during
fiscal 2000. The following table sets forth certain information with respect
to unexercised options held at September 30, 2000.
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at at
September 30, 2000 September 30, 2000(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. Kempner............ -- -- -- --
Douglas W. Ehrenkranz....... 11,250 11,250 -- --
Roger W. Hill............... 42,500 32,500 -- --
William F. Schwer........... -- -- -- --
William J. Smith............ -- -- -- --
</TABLE>
--------
(1) Calculated based on the September 30, 2000 average of the high and low
market price per share of $1.06 (as reported by the American Stock
Exchange) less the exercise price per share, times the number of shares.
Retirement Plan
The Imperial Sugar Company Retirement Plan (the "Retirement Plan") is a tax
qualified benefit plan covering non-union employees of the Company and its
subsidiaries, including Mr. Kempner, Mr. Ehrenkranz, Mr. Hill and Mr. Schwer,
but excluding non-union employees of Savannah Foods and its subsidiaries. Mr.
Smith will not become a participant in the Retirement Plan until January 1,
2001. The Company has also adopted a Benefit Restoration Plan for certain
participants (including Mr. Kempner, Mr. Hill and Mr. Schwer) to supplement
the benefits payable under the Retirement Plan to the extent that the
limitations on qualified plan benefits mandated by the Internal Revenue Code
of 1986, as amended (the "Code"), reduce retirement benefits that would
otherwise be payable under the Retirement Plan.
Effective for periods after January 1, 1997, compensation under the
Retirement Plan is defined as salary, bonus, overtime and commissions as
reported in the Summary Compensation Table above. For periods prior to January
1, 1997 compensation under the Retirement Plan was defined as taxable
earnings, including salary, bonus and other annual compensation reported in
the Summary Compensation Table above, as well as the taxable income realized
on exercise of stock options and the value for federal income tax purposes of
certain employee benefits and other perquisites. Compensation under the
Benefit Restoration Plan for periods after August 1, 1994 is defined as
authorized base pay plus bonus as reported in the Summary Compensation Table.
Prior to August 1, 1994, compensation was defined in the same manner as the
Retirement Plan.
Benefits payable under the Retirement Plan are limited by various provisions
of the Code that restrict the amount of compensation that may be taken into
account to calculate benefits under qualified plans and other limits on the
maximum benefit payable from qualified plans. To the extent the pension
calculated pursuant to the Retirement Plan would exceed the maximum amount
permitted by the Code, the difference would be payable from the Benefit
Restoration Plan as a discounted lump sum upon the participant's retirement.
Annual benefits under the Retirement Plan are based on five-year average
compensation. Benefits equal 1% of average compensation plus 0.5% of such
compensation in excess of social security covered compensation per each of the
first 35 years of service. Longer serviced individuals, including certain
named officers, are subject to certain grandfathered provisions under prior
plans. Benefits are defined in terms of a five-year certain and life annuity,
with several other payment options available to employees.
26
<PAGE>
The projected total annual benefits from the Retirement Plan and the Benefit
Restoration Plan, exclusive of benefits provided by previously allowed
employee contributions, payable as a five-year certain and life annuity and
commencing at age 65 are as follows: Mr. Hill: $230,500; Mr. Ehrenkranz:
$60,600; Mr. James C. Kempner: $167,100 and Mr. Schwer: $131,500.
Salary Continuation Plan
The Company has agreed to provide lump-sum supplemental retirement and death
benefits to participants (including Messrs. James C. Kempner, Hill and Schwer)
in the Salary Continuation Plan. The plan also provides for monthly salary
continuation payments in the event of disability (as defined). If a
participant's employment is terminated prior to retirement for any reason
other than death, disability or cause (as defined), the participant will be
entitled to receive, upon his attainment of age 55 if his termination is prior
thereto, the actuarial equivalent (as defined) of the payment he would have
received had he retired at age 62 (in certain cases, reduced according to a
vesting schedule specified in the applicable agreement). The Salary
Continuation Plan allows participants who are 100% vested and who have
attained the age of 55 to receive their benefits without termination of
employment if approved by the Executive Compensation Committee. No amounts
will be due under the plan to a participant who is terminated for cause. Mr.
Hill received payments of $255,784 in fiscal 2000 and $405,784 in October 2000
under the Plan. The estimated amounts payable upon retirement at or after age
62 for each of the named officers are as follows: $1,562,818 for Mr. James C.
Kempner, $107,900 for Mr. Hill and $598,349 for Mr. Schwer.
Employment Agreements and Related Arrangements
On March 1, 2000, the Company entered into employment agreements with the
following officers, which as currently in effect provide for the following
annual salaries: Mr. James C. Kempner--$630,000; Mr. Ehrenkranz--$315,000; Mr.
Schwer--$ 305,000; and Mr. Smith--$300,000. The employment agreements provide
for an initial term of employment through February 28, 2001. On February 1,
1998, the Company entered into an employment agreement with Mr. Hill, which as
amended provides for an annual salary of $150,000. The initial term of this
agreement was one year through January 31, 1999. Thereafter, the terms of
employment under each agreement automatically extends for additional one-year
periods, unless the Company or the respective executive notifies the other
party of its intention not to extend the term at least 60 days prior to the
end of the then current term. If the executive's employment is terminated
(except for Mr. Hill), by the Company without Cause (as defined) or by the
executive for Good Reason (as defined), the executive will be entitled to
receive as a severance payment a lump sum equal to the present value of two
times annual base salary. In addition, the Company will be required to pay a
lump sum equal to three times the executive's annual salary if his employment
is terminated by the Company without Cause or by the executive for Good Reason
within the two-year period following a Change in Control (as defined). If it
is determined that any payment made under the employment agreement, or another
plan or agreement of the Company, in the event of a Change of Control would be
considered an "excess parachute payment", as defined in Section 280G of the
Internal Revenue Code and subject to excise tax under Section 4999 of the
Code, then the executive would be entitled to an additional "gross-up payment"
that will place him in the same after-tax economic position as if such payment
had not been considered an excess parachute payment. If the named executive
officer had been terminated without Cause or had resigned with Good Reason as
of September 30, 2000 and within two years of a change in control, payments
under the employment agreements would have been $1,890,000 for Mr. James C.
Kempner, $945,000 for Mr. Ehrenkranz, $450,000 for Mr. Hill, $915,000 for Mr.
Schwer, and $900,000 for Mr. Smith.
The Company has a Severance Pay Agreement with Mr. Hill. This Severance Pay
Agreement provides that in the event of Mr. Hill's death or involuntary
termination of employment (as defined) prior to his attaining age 65 but after
a change in control of the Company (as defined), Mr. Hill or his beneficiary
shall be entitled to receive a payment equal to the greater of (i) the product
of one-fourth of his average monthly salary over the preceding twelve months
multiplied by the number of full years of service with the Company and its
affiliates, or (ii) the total of the annual bonuses received during the 36
months preceding his death or involuntary
27
<PAGE>
termination of employment. If a change of control had occurred and if Mr.
Hill's service had been terminated as of September 30, 2000 under the
conditions described above, the amount due under the Severance Pay Agreement
would have been at the new pay rate for Mr. Hill.
The Company has established an Executive Benefits Trust which may be used to
fund its obligations under certain otherwise unfunded benefit, retirement and
deferred compensation plans providing benefits to executive officers of the
Company in the event of a change in control.
Compensation of Directors
Pursuant to the Nonemployee Director Compensation Plan, directors who are
not employees of the Company receive their annual retainer, currently $18,000,
in the form of shares of Common Stock, rather than cash. The number of shares
awarded on the annual election of directors is equal to 167% of the otherwise
applicable cash annual retainer, divided by the fair market value per share of
Common Stock on the date of such annual election. These shares are subject to
restrictions on sale or other transfer, and cannot be sold or transferred
until the earliest of a director's death, disability, cessation of status as a
director or the occurrence of a change in control of the Company. At the July
28, 2000 Board Meeting the directors voted to suspend this payment effective
on January 1, 2001.
Additionally, for fiscal 2000 each director of the Company who is not an
officer of the Company received $1,000 for each Board meeting attended. Each
such director who served on a committee currently received $1,000 for each
committee meeting attended if the meeting is not held on the same day as a
Board meeting. At the October 31, 2000 Board Meeting the directors voted to
suspend the payment of $1,000 for each meeting attended. Each director is also
reimbursed by the Company for travel expenses incurred in connection with
attendance at Board or committee meetings or other business of the Company.
Under the Company's 1989 Nonemployee Director Stock Option Plan, each
director of the Company who is not an employee of the Company is automatically
granted an option on the date the director becomes a director of the Company
(or July 27, 1989, if later). Each option permits the optionee to purchase
1,500 shares of Common Stock at an exercise price per share equal to 50% of
the fair market value of a share of Common Stock on the date the option is
granted. Options granted under the Nonemployee Director Stock Option Plan are
not exercisable until the optionee has completed three years of service as a
director of the Company. In the event of a "change in control" of the Company
(as defined in the Nonemployee Director Stock Option Plan), any unvested
portion of the options will immediately become exercisable in full. No
director options were granted nor exercised during the year ended September
30, 2000.
The Imperial Sugar Company Retirement Plan for Nonemployee Directors is a
non-qualified retirement plan providing monthly retirement benefits to retired
directors of the Company who never served as employees of the Company. The
plan provides for payments, commencing at the later of age 65 or retirement,
equal to the retainer received by the director (or the cash equivalent
thereof) at the date of the director's retirement for up to ten years after
retirement (based on years of service) to a director who retires after
completion of three years of service. Death benefits equal to 50% of the
retirement benefit are paid to a surviving spouse.
The Company has understandings with Mr. I. H. Kempner, III providing that
Mr. Kempner will provide consulting services to the Company concerning sugar
industry related matters and that for such services the Company will pay Mr.
Kempner a monthly retainer of $3,500 and a per diem amount for each day of
travel on Company business. These arrangements are currently scheduled to
expire on December 31, 2000 but are expected to be renewed.
Mr. Dilger has declined to receive any remuneration for his services as a
director.
28
<PAGE>
Compensation Committee Interlocks and Insider Participation
Mr. Gaylord is a member of the Executive Compensation Committee. In 1989,
the Company became one of the limited partners of ChartCo Terminal, L.P.
("ChartCo") upon the formation thereof and made a capital contribution of
$1,000,000 to ChartCo. A company owned by Mr. Gaylord is the general partner
of ChartCo, which owns an interest in a fuel oil terminal in Houston, Texas.
The percentage interests of the partners in ChartCo are in proportion to their
respective capital contributions.
29
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
ownership of Common Stock as of November 30, 2000 of each director of the
Company, each of the named officers who is currently employed by the Company,
each person known to the Company to be the beneficial owner of 5% or more of
Common Stock and all directors and executive officers of the Company as a
group. Unless otherwise indicated, the beneficial owners have sole voting and
investment power over the shares of Common Stock listed below.
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock
--------------------
Number of Percentage
Name Shares of Class
---- --------- ----------
<S> <C> <C>
John D. Curtin, Jr................................... 20,856 *
David J. Dilger(2)................................... 4,900,000 15.1%
Edward O. Gaylord.................................... 33,464 *
Greencore Group plc.................................. 4,900,000 15.1%
St. Stephen's Green House
Earlsfort Terrace
Dublin 2, Ireland
Gerald Grinstein(1).................................. 24,680 *
Ann O. Hamilton(3)................................... 251,260 *
Robert L. Harrison(1)(11)............................ 29,874 *
Roger W. Hill(1)..................................... 63,339 *
Harris L. Kempner, Jr.(4)(5)......................... 1,546,418 4.8%
I. H. Kempner, III(1)(4)(6).......................... 1,653,036 5.1%
P. O. Box 25
Sugar Land, Texas 77487-0025
James C. Kempner(4)(7)............................... 1,600,864 4.9%
Dimensional Fund Advisors, Inc....................... 2,607,010 8.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
William F. Schwer.................................... 19,320 *
Douglas W. Ehrenkranz(1)............................. 22,098 *
Daniel K. Thorne(8).................................. 588,165 1.8%
United States National Bank(9)....................... 1,934,971 6.0%
P. O. Box 179
Galveston, Texas 77553
Harris K. Weston(4)(10).............................. 2,423,573 7.5%
Dinsmore & Shohl
1900 Chemed Center
255 East 5th Street
Cincinnati, Ohio 45202
All directors and executive officers as a group (24
persons)(1)......................................... 8,140,150 25.1%
</TABLE>
--------
* Percentage of shares of Common Stock beneficially owned does not exceed 1%
of the class.
(1) Includes shares subject to stock options exercisable within 60 days as
follows: Mr. I. H. Kempner, III, 50,000 shares; Mr. Hill, 42,500 shares;
Mr. Grinstein, 750 shares; Mr. Harrison, 1,500 shares; Mr. Ehrenkranz,
11,250 shares and all directors and executive officers as a group,
223,637 shares.
(2) Includes the shares held by Greencore, of which Mr. Dilger is the Chief
Executive and a director. Mr. Dilger disclaims beneficial ownership of
such shares.
30
<PAGE>
(3) Includes 49,072 shares of Common Stock owned by a testamentary trust as
to which Mrs. Hamilton is successor trustee and has voting and investment
power.
(4) Includes 1,408,373 shares of Common Stock owned by the H. Kempner Trust
Association, over which Mr. I. H. Kempner, III, Mr. James C. Kempner, Mr.
Harris L. Kempner, Jr. and Mr. Harris K. Weston share voting power and
investment power as co-trustees with one other co-trustee.
(5) Includes 6,420 shares of Common Stock held by Mr. Kempner's wife, as to
which he shares voting and investment power. Mr. Kempner disclaims
beneficial ownership as to such shares.
(6) Includes 4,443 shares of Common Stock held by Mr. Kempner's wife, as to
which Mr. Kempner disclaims beneficial ownership.
(7) Includes 6,750 shares of Common Stock owned by a trust of which Mr.
Kempner is a beneficiary.
(8) Includes 327,142 shares of Common Stock owned by a testamentary trust as
to which Mr. Thorne is the sole beneficiary and a co-trustee. Also
includes 166,947 shares owned by the Alan Pryce-Jones Trust, of which Mr.
Thorne is a co-trustee, and 18,722 shares owned by the Daniel K. Thorne
Foundation, of which Mr. Thorne is President. Also includes 875 shares
owned by his wife of which Mr. Thorne disclaims beneficial ownership.
(9) Consists of 1,934,971 shares of Common Stock which United States National
Bank holds as trustee of various trusts for descendants of H. Kempner,
but not including any shares that are held in nominee form for others.
United States National Bank has sole voting power over 1,934,971 shares.
The information given is based on information furnished by the
stockholder.
(10) Includes 2,700 shares of Common Stock held by Mr. Weston's wife and
46,800 shares of Common Stock held by Mr. Weston's daughters. Mr. Weston
disclaims beneficial ownership as to such shares. Also includes 106,200
shares of Common Stock owned by Mr. Weston as trustee for two trusts for
the benefit of Mr. Weston's daughters and 396,000 shares of Common Stock
owned by Mr. Weston as trustee of three charitable annuity lead trusts,
as to all of which shares Mr. Weston disclaims beneficial ownership.
(11) Includes 4,580 shares of Common Stock held by Mr. Harrison's wife as to
which Mr. Harrison disclaims beneficial ownership.
ITEM 13. Certain Relationships and Related Transactions
Fayez Sarofim & Co. acts as an investment advisor to the Company, the
Retirement Plan and other employee benefit plans maintained by the Company.
During the year ended September 30, 2000, Fayez Sarofim & Co. received
approximately $597,000 for such services. Fayez Sarofim retired from the Board
of Directors effective January 28, 2000. The information under the caption
"Compensation Committee Interlocks and Insider Participation" in Item 11 is
incorporated by reference.
31
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
Independent Auditors' Report.......................................... F-1
Consolidated Balance Sheets at September 30, 2000 and 1999............ F-2
Consolidated Statements of Operations for the years ended September
30, 2000, 1999 and 1998.............................................. F-3
Consolidated Statements of Changes in Shareholders' Equity for the
years ended September 30, 2000, 1999 and 1998........................ F-4
Consolidated Statements of Cash Flow for the years ended September 30,
2000, 1999 and 1998.................................................. F-5
Notes to Consolidated Financial Statements............................ F-6
</TABLE>
(a)(2) Financial Statement Schedules.
All schedules and other statements for which provision is made in the
applicable regulations of the Commission have been omitted because they are
not required under the relevant instructions or are inapplicable.
(a)(3) Exhibits.
Asterisk indicates exhibit previously filed with the Commission and
incorporated herein by reference as indicated.
<TABLE>
<C> <S>
*3(a) Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(b) to the Company's Registration Statement on
Form S-4 (Registration No. 33-20959)).
*3(b) Articles of Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998 (File
No. 1-10307)).
*3(c) Statement of Resolution establishing Series of Shares designated
Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form 10-
K for the year ended March 31, 1990 (File No. 1-10307) (the "1990
Form 10-K")).
*3(d) Statement of Resolution increasing number of shares designated Series
A Junior Participating Preferred Stock (incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990 (File No. 1-10307)).
*3(e)(1) Rights Agreement dated as of September 14, 1989 between the Company
and The Bank of New York, as Rights Agent (incorporated by reference
to Exhibit 1 to the Company's Current Report on Form 8-K dated
September 21, 1989 (File No. 1-10307)).
*3(e)(2) Amendment to Rights Agreement dated as of January 27, 1995
(incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated January 27, 1995 (File No. 1-10307)).
*3(e)(3) Amendment to Rights Agreement dated December 11, 1998 (incorporated
by reference to Exhibit 3(e)(3) to the Company's Annual Report on
Form 10-K for the year ended September 30, 1998 (the "1998 Form 10-
K")).
*3(f) By-Laws of the Company (incorporated by reference to Exhibit 3(b) to
the Company's Annual Report on Form 10-K for the year ended March
31, 1989 (File No. 0-16674) (the "1989 Form 10-K")).
*3(g)(1) Investor Agreement dated August 29, 1996 by and among the Company,
Greencore Group plc and Earlsfort Holdings B.V. (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K
dated September 5, 1996 (File No. 1-10307) (the "September 5, 1996
Form 8-K")).
</TABLE>
32
<PAGE>
<TABLE>
<C> <S>
*3(g)(2) Registration Rights Agreement dated August 29, 1996 by and among the
Company, Greencore Group plc and Earlsfort Holdings B.V.
(incorporated by reference to Exhibit 4.2 to the September 5, 1996
Form 8-K).
*3(g)(3) Amendment to Investor Agreement and Registration Rights Agreement
dated November 19, 1998 by and among the Company, Greencore Group
plc and Earlsfort Holdings B.V. (incorporated by reference to
Exhibit 3(g)(3) to the 1998 Form 10-K).
*3(h)(1) Agreement and Plan of Merger, dated September 12, 1997, among
Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah
Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1
to the Company's Registration Statement on Form S-4 (Registration
No. 333-40445) (the "Savannah S-4")).
*3(h)(2) Agreement and Plan of Merger, dated September 4, 1998, as amended by
amendment dated as of October 22, 1998, among Imperial Holly
Corporation, IHK Acquisition Corp. and DSLT Inc. (incorporated by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-
K dated November 2, 1998).
*4(a)(1) Amended and Restated Credit Agreement dated as of December 22, 1997
among Imperial Holly Corporation, as Borrower, the Several Lenders
from time to time Parties thereto, Lehman Brothers, Inc., as
Arranger, Lehman Brothers Commercial Paper, Inc., as Syndication
Agent and Harris Trust and Savings Bank, as Administrative and
Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to
the Company's Registration Statement on Form S-4 (Registration
No. 333-44955)(the "Exchange Offer S-4")).
*4(a)(2) First Amendment to the Company's Amended and Restated Credit
Agreement dated March 31, 1998 (incorporated by reference to Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1999 (the "June 1999 Form 10-Q")).
*4(a)(3) Second Amendment to the Company's Amended and Restated Credit
Agreement dated September 28,
1998 (incorporated by reference to Exhibit 4.2 to the June 1999 Form
10-Q).
*4(a)(4) Third Amendment to the Company's Amended and Restated Credit
Agreement dated June 30, 1999 (incorporated by reference to the
Company's Current Report on Form 8-K dated June 30, 1999 (the "June
1999 Form 8-K").
*4(a)(5) Fourth Amendment to the Company's Amended and Restated Credit
Agreement dated November 18, 1999 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended September
30, 1999 (File No. 1-10307)).
*4(a)(6) Amended and Restated Guarantee and Collateral Agreement dated, as of
December 22, 1997, made by Imperial Holly Corporation and certain of
its Subsidiaries in favor of Harris Trust and Savings Bank, as
Collateral Agent (incorporated by reference to Exhibit 4(a)(2) to
the Exchange Offer S-4).
*4(a)(7) Interim Waiver Agreement between the Company and the lenders pursuant
to the Amended and Restated Credit Agreement (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated December 13, 2000 (File No. 1-10307)).
*4(b)(1) Indenture dated as of December 22, 1997 between the Company, certain
subsidiaries of the Company and The Bank of New York, as Trustee,
relating to the Company's 9 3/4% Senior Subordinated Notes due 2007
(including form of 9 3/4% Senior Subordinated Note due 2007 and form
of Subsidiary Guarantee) (incorporated by reference to Exhibit 4(b)
to the Exchange Offer S-4)).
4(b)(2) Supplemental Indenture dated as of September 30, 1998 between the
Company, certain subsidiaries of the Company and the Bank of New
York, as Trustee relating to the Company's 9 3/4% Senior
Subordinated Notes due 2007.
4(b)(3) Resignation, Appointment and Acceptance Agreement dated November 2,
2000 between the Company, the Bank of New York, as resigning trustee
to the Indenture relating to the Company's 9 3/4% Senior
Subordinated Notes, and the United States Trust Company of New York,
the successor trustee.
</TABLE>
33
<PAGE>
<TABLE>
<C> <S>
* 4(c)(1) Receivable Purchase Agreement dated as of June 30, 1999 between the
Company, Imperial Securitization Corporation, Imperial
Distributing, Inc., Fairway Finance Corporation and Nesbitt Burns
Securities, Inc. (incorporated by reference to Exhibit 10.1 to the
June 1999 Form 8-K).
* 4(c)(2) Purchase and Contribution Agreement dated as of June 30, 1999
between the Originators named therein, Imperial Securitization
Corporation and Imperial Distributing, Inc. (incorporated by
reference to Exhibit 10.2 to the June 1999 Form 8-K).
4(c)(3) Amendment No. 1 to the Company's Receivable Purchase Agreement dated
December 13, 1999.
4(c)(4) Amendment No. 2 to the Company's Receivable Purchase Agreement dated
March 27, 2000.
The Company is a party to several debt instruments under which the
total amount of securities authorized does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to
the Commission upon request.
Exhibits 10(a) through 10(l) relate to management contracts or
compensatory plans.
*10(a) Imperial Holly Corporation Stock Incentive Plan (as amended and
restated effective May 1, 1997) (incorporated by reference to
Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1997 (File No. 1-10307) (the "1997 Form 10-
K")).
10(b)(1) Specimen of Employment Agreement (Form A) for certain of the
Company's officers.
10(b)(2) Specimen of Employment Agreement (Form B) for certain of the
Company's officers.
10(b)(3) Schedule of Employment Agreements.
*10(b)(4) Specimen of Employment Agreements with Roger W. Hill and John A.
Richmond dated February 1, 1998 (incorporated by reference to
Exhibit 10(b)(1) to the 1998 Form 10-K).
*10(b)(5) Employment Agreement with W. W. Sprague III dated as of December 23,
1997 (incorporated by reference to Exhibit 10(b)(3) to the 1998
Form 10-K.
*10(c) Specimen of the Company's Severance Pay Agreements for certain of
its officers (incorporated by reference to Exhibit 10.2 to the
September 1990 Form 10-Q).
*10(d)(1) Imperial Holly Corporation Salary Continuation Plan (as amended and
restated effective August 1, 1994) (incorporated by reference to
Exhibit 10(b)(1) to the September 1994 Form 10-Q).
*10(d)(2) Specimen of the Company's Salary Continuation Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(b)(2) to the
September 1994 Form 10-Q).
*10(d)(3) Specimen of the Company's Salary Continuation Agreement (Graduated
Vesting) (incorporated by reference to Exhibit 10(b)(3) to the
September 1994 Form 10-Q).
*10(d)(4) Schedule of Salary Continuation Agreements (incorporated by
reference to Exhibit 10(d)(4) to the Company's Annual Report on
Form 10-K for the year ended March 31, 1996 (File No. 1-10307) (the
"1996 Form 10-K")).
*10(e)(1) Imperial Holly Corporation Benefit Restoration Plan (as amended and
restated effective August 1, 1994) (incorporated by reference to
Exhibit 10(c)(1) to the September 1994 Form 10-Q).
*10(e)(2) Specimen of the Company's Benefit Restoration Agreement (Fully
Vested) (incorporated by reference to Exhibit 10(c)(2) to the
September 1994 Form 10-Q).
*10(e)(3) Specimen of the Company's Benefit Restoration Agreement (Graduated
Vesting) (incorporated by reference to Exhibit 10(c)(3) to the
September 1994 Form 10-Q).
*10(e)(4) Schedule of Benefit Restoration Agreements (incorporated by
reference to Exhibit 10(e)(4) to the 1996 Form 10-K).
*10(f)(1) Imperial Holly Corporation Executive Benefits Trust (incorporated by
reference to Exhibit 10.5 to the September 1990 Form 10-Q).
*10(f)(2) First Amendment to the Company's Executive Benefits Trust dated June
4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the 1994
Form 10-K).
*10(g) Imperial Holly Corporation 1989 Nonemployee Director Stock Option
Plan (incorporated by reference to Exhibit A to the Company's Proxy
Statement dated June 16, 1989 for the 1989 Annual Meeting of
Shareholders, File No. 0-16674).
</TABLE>
34
<PAGE>
<TABLE>
<C> <S>
*10(h) Imperial Holly Corporation Retirement Plan For Nonemployee Directors
(incorporated by reference to Exhibit 10(j) to the 1994 Form 10-K).
*10(i)(1) Specimen of the Company's Change of Control Agreement (incorporated
by reference to Exhibit 10(d)(1) to the September 1994 Form 10-Q).
*10(i)(2) Schedule of Change of Control Agreements (incorporated by reference
to Exhibit 10(i)(2) to the 1997 Form 10-K).
*10(j) Independent Consultant Agreement between I. H. Kempner III and the
Company (incorporated by reference to Exhibit 10(k) to the 1996
Form 10-K).
*10(k) Specimen of the Company's Restricted Stock Agreement with certain of
its officers (incorporated by reference to Exhibit 10(k) to the
1997 Form 10-K).
*10(l) Schedule of Restricted Stock Agreements (incorporated by reference
to Exhibit 10(l) to the 1997 Form 10-K).
*10(m) Agreement of Limited Partnership of ChartCo Terminal, L.P.
(incorporated by reference to Exhibit 10(j) to the 1990 Form 10-K).
21 Subsidiaries of the Company.
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated December 13, 2000.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on December 28,
2000.
Imperial Sugar Company
/s/ James C. Kempner
By:__________________________________
James C. Kempner
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on December 28, 2000.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ James C. Kempner President, Chief Executive
____________________________________ Officer, and Director
James C. Kempner (Principal Executive
Officer)
/s/ Mark Q. Huggins Managing Director and Chief
____________________________________ Financial Officer
Mark Q. Huggins (Principal Financial
Officer)
/s/ H. P. Mechler Vice President, Accounting
____________________________________ (Principal Accounting
H. P. Mechler Officer)
/s/ I. H. Kempner, III Chairman of the Board of
____________________________________ Directors
I. H. Kempner, III
/s/ John D. Curtin, Jr. Director
____________________________________
John D. Curtin, Jr.
Director
____________________________________
David J. Dilger
/s/ Edward O. Gaylord Director
____________________________________
Edward O. Gaylord
/s/ Gerald Grinstein Director
____________________________________
Gerald Grinstein
/s/ Ann O. Hamilton Director
____________________________________
Ann O. Hamilton
/s/ Robert L. Harrison Director
____________________________________
Robert L. Harrison
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ Harris L. Kempner, Jr. Director
____________________________________
Harris L. Kempner, Jr.
/s/ Daniel K. Thorne Director
____________________________________
Daniel K. Thorne
</TABLE>
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Imperial Sugar Company
Sugar Land, Texas
We have audited the accompanying consolidated balance sheets of Imperial
Sugar Company and subsidiaries (the "Company") as of September 30, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity and cash flow for each of the three years in the period ended September
30, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at September 30,
2000 and 1999, and the results of its operations and its cash flow for each of
the three years in the period ended September 30, 2000 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, at September 30, 2000, the
Company would have been in violation of certain covenants of a long-term debt
agreement had the lenders not temporarily waived the covenants. The Company's
failure to meet these covenants and its recurring losses from operations raise
substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Deloitte & Touche LLP
Houston, Texas
December 28, 2000
F-1
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
----------------------
2000 1999
---------- ----------
(In Thousands of
Dollars)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and temporary investments......................... $ 6,533 $ 7,925
Marketable securities.................................. 4,612 65,496
Accounts receivable--trade, net........................ 63,378 64,458
Inventories:
Finished products.................................... 97,625 157,869
Raw and in-process materials......................... 50,261 61,299
Supplies............................................. 39,585 39,896
Deferred costs & prepaid expenses...................... 48,251 43,461
---------- ----------
Total current assets............................... 310,245 440,404
OTHER INVESTMENTS...................................... 5,179 5,009
PROPERTY, PLANT AND EQUIPMENT--Net..................... 357,681 402,364
GOODWILL AND OTHER INTANGIBLES--Net of accumulated
amortization of $30,420,000 in 2000 and $18,319,000 in
1999.................................................. 395,818 406,627
OTHER ASSETS........................................... 24,767 26,379
---------- ----------
TOTAL.............................................. $1,093,690 $1,280,783
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable--trade................................ $ 105,457 $ 141,428
Short-term borrowings.................................. 1,671 1,611
Current and deemed current maturities of long-term debt
(Notes 2 and 8)....................................... 436,350 12,114
Deferred income taxes--net............................. 16,285 10,719
Other current liabilities.............................. 114,646 72,443
---------- ----------
Total current liabilities.......................... 674,409 238,315
---------- ----------
LONG-TERM DEBT--Net of current maturities (Notes 2 and
8).................................................... 20,000 553,577
DEFERRED INCOME TAXES--Net............................. 1,117 32,481
DEFERRED EMPLOYEE BENEFITS............................. 79,563 82,986
COMMITMENTS AND CONTINGENCIES (Notes 2 and 13)
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............................................ 310,452 309,847
Stock held by benefit trust............................ -- (8,208)
Treasury stock......................................... (15,859) (7,611)
Retained earnings...................................... 23,514 58,191
Unrealized securities gains--net of income taxes....... 494 21,205
---------- ----------
Total shareholders' equity......................... 318,601 373,424
---------- ----------
TOTAL.............................................. $1,093,690 $1,280,783
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
2000 1999 1998
---------- ---------- ----------
(In Thousands of Dollars, Except
Share and Per Share Amounts)
<S> <C> <C> <C>
NET SALES................................. $1,821,231 $1,888,630 $1,783,091
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales........................... 1,682,529 1,704,339 1,614,752
Selling, general and administrative..... 87,004 85,115 65,358
Asset impairment and other charges (Note
14).................................... 27,541 -- 18,287
Depreciation and amortization........... 51,979 51,272 45,755
---------- ---------- ----------
Total................................. 1,849,053 1,840,726 1,744,152
---------- ---------- ----------
OPERATING INCOME (LOSS)................... (27,822) 47,904 38,939
INTEREST EXPENSE--Net..................... (56,656) (59,071) (48,718)
REALIZED SECURITIES GAINS--Net............ 35,874 4,697 2,181
LOSS ON EQUITY INVESTMENT IN PARTNERSHIP
(Note 14)................................ -- (16,706) --
OTHER INCOME--Net......................... 954 1,598 6,386
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST........................ (47,650) (21,578) (1,212)
PROVISION (CREDIT) FOR INCOME TAXES....... (12,973) (3,454) 2,857
MINORITY INTEREST......................... -- -- 1,766
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (34,677) (18,124) (5,835)
EXTRAORDINARY ITEM--Net of tax............ -- -- (1,999)
---------- ---------- ----------
NET INCOME (LOSS)......................... $ (34,677) $ (18,124) $ (7,834)
========== ========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Income (loss) before extraordinary
item................................... $ (1.07) $ (0.57) $ (0.24)
Net income (loss)....................... $ (1.07) $ (0.57) $ (0.32)
WEIGHTED AVERAGE SHARES OUTSTANDING....... 32,293,759 31,712,602 24,177,762
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of Common Stock Common Stock
--------------------------------- --------------------------- Accumulated
Held by Held by Other
Benefit Treasury Benefit Treasury Retained Comprehensive
Issued Trust Stock Amount Trust Stock Earnings Income Total
---------- ---------- ---------- -------- -------- -------- -------- ------------- --------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30,
1997.................. 14,283,775 -- -- $ 83,707 -- -- $ 90,870 $ 18,382 $192,959
Comprehensive income:
Net loss.............. -- -- -- -- -- -- (7,834) -- (7,834)
Change in unrealized
securities gains--
net of $748,000
tax.................. -- -- -- -- -- -- -- 1,390 1,390
--------
Total comprehensive
income............. (6,444)
--------
Cash dividends ($0.12
per share)............ -- -- -- -- -- -- (2,886) -- (2,886)
Stock issued in
acquisition........... 13,176,193 (814,810) -- 174,584 (10,796) -- -- -- 163,788
Sale of common stock... 377,358 -- -- 5,000 -- -- -- -- 5,000
Stock sold to benefit
trust................. 505,440 (505,440) -- 5,023 (5,023) -- -- -- --
Stock transferred from
benefit trust......... -- 121,197 (121,197) -- 1,452 $ (1,452) -- -- --
Employee stock plans... 25,938 -- -- 325 -- -- -- -- 325
Nonemployee director
compensation plan..... 17,287 -- -- 165 -- -- -- -- 165
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
BALANCE September 30,
1998.................. 28,385,991 (1,199,053) (121,197) 268,804 (14,367) (1,452) 80,150 19,772 352,907
Comprehensive income:
Net loss.............. -- -- -- -- -- -- (18,124) -- (18,124)
Change in unrealized
securities gains--
net of $769,000
tax.................. -- -- -- -- -- -- -- 1,433 1,433
--------
Total comprehensive
income............. (16,691)
--------
Cash dividends ($0.12
per share)............ -- -- -- -- -- -- (3,835) -- (3,835)
Stock issued in
acquisition........... 5,006,770 -- -- 40,054 -- -- -- -- 40,054
Stock transferred from
benefit trust......... -- 514,082 (514,082) -- 6,159 (6,159) -- -- --
Employee stock plans... 91,629 -- -- 658 -- -- -- -- 658
Nonemployee director
compensation plan..... 39,776 -- -- 331 -- -- -- 331
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
BALANCE September 30,
1999.................. 33,524,166 (684,971) (635,279) 309,847 (8,208) (7,611) 58,191 21,205 373,424
Comprehensive income:
Net loss.............. -- -- -- -- -- -- (34,677) -- (34,677)
Change in unrealized
securities gains--
net of $11,152,000
tax.................. -- -- -- -- -- -- -- (20,711) (20,711)
--------
Total comprehensive
income............. (55,388)
--------
Stock transferred from
benefit trust......... -- 684,971 (684,971) -- 8,208 (8,208) -- -- --
Restricted shares
withheld.............. -- -- (25,569) -- -- (40) -- -- (40)
Employee stock plans... 109,906 -- -- 214 -- -- -- -- 214
Nonemployee director
compensation plan..... 91,212 -- -- 391 -- -- -- 391
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
BALANCE September 30,
2000.................. 33,725,284 -- (1,345,819) $310,452 $ -- $(15,859) $ 23,514 $ 494 $318,601
========== ========== ========== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
2000 1999 1998
-------- --------- ---------
(In Thousands of Dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................ $(34,677) $ (18,124) $ (7,834)
Adjustments for noncash and nonoperating
items:
Impairment loss............................ 16,066 -- 12,538
Loss on equity investment in partnership... -- 16,706 --
Extraordinary item--net.................... -- -- 1,999
Minority interest.......................... -- -- 1,766
Depreciation & amortization................ 51,979 51,272 45,755
Gain on sale of securities................. (35,874) (4,697) (2,181)
Deferred income taxes...................... (12,623) (11,355) (2,579)
Other...................................... 3,951 1,991 2,651
Changes in operating assets and liabilities
(excluding operating assets and liabilities
acquired in the purchase acquisitions):
Accounts receivables--trade................ 1,080 84,619 (9,077)
Inventories................................ 26,871 (40,245) 21,278
Deferred costs and prepaid expenses........ (6,541) (3,255) 8,814
Accounts payable--trade.................... (35,971) 28,387 (3,638)
Other liabilities.......................... 35,383 892 (23,501)
-------- --------- ---------
Operating cash flow...................... 9,644 106,191 45,991
-------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired........... -- (112,455) (361,218)
Capital expenditures......................... (16,303) (26,805) (42,419)
Investment in marketable securities.......... (3,273) (14,141) (10,837)
Proceeds from sale of marketable securities.. 64,221 15,300 4,337
Proceeds from maturity of marketable
securities.................................. 3,996 5,881 7,189
Proceeds from sale of fixed assets........... 4,157 2,589 4,989
Other........................................ (2,085) 1,617 (6,108)
-------- --------- ---------
Investing cash flow...................... 50,713 (128,014) (404,067)
-------- --------- ---------
FINANCING ACTIVITIES:
Sale of common stock......................... -- -- 5,000
Short-term borrowings:
CCC borrowings--advances................. 105,072 60,112 37,037
CCC borrowings--repayments............... (57,975) (60,112) (37,037)
Other short-term borrowings--net......... 60 450 (44,330)
Revolving credit borrowings--net............. (61,500) 89,100 2,400
Long-term debt:
Proceeds................................... -- -- 523,274
Repayment.................................. (47,841) (59,681) (132,229)
Dividends paid............................... -- (3,835) (2,886)
Stock option proceeds and other.............. 435 837 370
-------- --------- ---------
Financing cash flow...................... (61,749) 26,871 351,599
-------- --------- ---------
INCREASE (DECREASE) IN CASH AND TEMPORARY
INVESTMENTS................................... (1,392) 5,048 (6,477)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF
YEAR.......................................... 7,925 2,877 9,354
-------- --------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF YEAR.... $ 6,533 $ 7,925 $ 2,877
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000, 1999, and 1998
1. ACCOUNTING POLICIES
The Company
The consolidated 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. The Company
operates in two domestic business segments--the production and sale of refined
sugar and the sale and distribution of products for the foodservice industry.
Revenues are recognized when title passes, generally when products ship. The
Company is significantly affected by market factors, including domestic prices
for refined sugar and raw cane sugar. These market factors are influenced by a
variety of external forces, including the number of domestic acres contracted
to grow sugar cane and sugarbeets, prices of competing crops, weather
conditions and United States farm and trade policy. Federal legislation and
regulations provide for mechanisms designed to support the price of domestic
sugar crops, principally through the limitations on importation of raw cane
sugar for domestic consumption. In addition, agricultural conditions in the
Company's growing areas may materially affect the quality and quantity of
sugar beets available for purchase as well as the unit costs of raw materials
and processing.
A significant portion of the Company's industrial sales are made under fixed
price, forward sales contracts, which extend for up to one year. The Company
also contracts to purchase raw cane sugar substantially in advance of the time
it delivers the refined sugar produced from the purchase. To mitigate its
exposure to future price changes, the Company attempts to manage the volume of
refined sugar sales contracted for future delivery and the volume of raw cane
sugar contracted for future delivery, when feasible. Additionally, the Company
utilizes a participatory sugarbeet purchase contract, described below, which
relates the cost of sugarbeets to the net selling price realized on refined
beet sugar sales.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
estimates and assumptions that affect the reported amounts as well as certain
disclosures. The Company's financial statements include amounts that are based
on management's best estimates and judgments. Actual results could differ from
those estimates.
Cash and Temporary Investments
Temporary investments consist of short-term, highly liquid investments with
maturities of 90 days or less at the time of purchase.
Marketable Securities
All of the Company's marketable securities are classified as "available for
sale", and accordingly are reflected in the Consolidated Balance Sheet at fair
market value, with the aggregate unrealized gain, net of related deferred tax
liability, included as a separate component of comprehensive income within
shareholders' equity. Cost for determining gains and losses on sales of
marketable securities is determined on the FIFO method.
Inventories
Inventories are stated at the lower of cost or market. Cost of sugar is
determined under the last-in, first-out ("LIFO") method. All other costs are
determined under the first-in, first-out ("FIFO") method.
If only the FIFO cost method had been used, inventories would have been
higher by $3.0 million at September 30, 2000, $15.7 million at September 30,
1999, and $16.7 million at September 30, 1998. Reductions
F-6
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
in inventory quantities in the year ended September 30, 2000 resulted in
liquidations of LIFO inventory layers carried at costs prevailing in prior
years. The effect of this liquidation was to increase the net loss by about
$0.3 million ($0.01 per share) in fiscal 2000.
Sugarbeets Purchased
Payments to growers for sugarbeets are based in part upon the Company's
average net return for sugar sold (as defined in the participating contracts
with the growers) during the grower contract years, some of which extend
beyond the fiscal year end. The contracts provide for the sharing of the net
selling price (gross sales price less certain marketing costs, including
packaging costs, brokerage, freight expense and amortization of costs for
certain facilities used in connection with marketing) with growers. Cost of
sales includes an accrual for estimated additional amounts to be paid to
growers based on the average net return realized to date for sugar sold in
each of the contract years through the end of the fiscal year. The final cost
of sugarbeets cannot be determined until the end of the contract year for each
growing area.
Hedge Accounting
The Company uses raw sugar futures and options in its raw sugar purchasing
programs and uses 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.
Manufacturing Costs Prior to Production
Certain manufacturing costs incurred between processing periods which are
necessary to prepare each factory for the next processing campaign are
deferred and allocated to the cost of sugar produced in the subsequent
campaign. Such amounts are included in deferred costs and prepaid expenses.
Property and Depreciation
Property is stated at cost and includes expenditures for renewals and
improvements and capitalized interest. Maintenance and repairs are charged to
current operations. When property is retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the respective
accounts, and any gain or loss on disposition is included in income.
Depreciation is provided principally on the straight-line or sum-of-the-
years' digits methods over the estimated service lives of the assets. In
general, buildings are depreciated over 20 years, machinery and equipment over
3 to 15 years and leasehold improvements over 10 years.
Capitalization of Computer Software
The Company capitalizes certain costs in connection with the development of
internal-use computer software.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to be held and
used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future
cash flows resulting
F-7
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
from the use of the asset or its disposition. Measurement of an impairment
loss for long-lived assets and certain identifiable intangible assets that
management expects to hold and use are based on the fair value of the asset.
Long-lived assets and certain identifiable intangible assets to be disposed of
are reported at the lower of carrying amount or net realizable value.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized over the life of the
agreements as an increase or decrease in interest expense. The Company does
not use these instruments for trading purposes, rather it uses them to hedge
the impact of interest rate fluctuations on floating rate debt.
Fair Value of Financial Instruments
The fair value of financial instruments is estimated based upon market
trading information, where available. Absent published market values for an
instrument, management estimates fair values based upon quotations from
broker/dealers or interest rate information for similar instruments. The
carrying amount of cash and temporary investments, accounts receivable,
accounts payable, short-term borrowings and other current liabilities
approximates fair value because of the short maturity and/or frequent
repricing of those instruments.
Federal Income Taxes
Federal income tax expense includes the current tax obligation or benefit
and the change in deferred income tax liability for the period. Deferred
income taxes result from temporary differences between financial and tax bases
of certain assets and liabilities.
Environmental Matters
The Company provides for environmental remediation costs based on estimates
of known environmental remediation exposure when such amounts are probable and
estimable. Ongoing environmental compliance costs, including maintenance and
monitoring costs, are expensed as incurred. Capital costs incurred to prevent
future environmental contamination are capitalized.
Accounting Pronouncements
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended, is
effective for the Company as of October 1, 2000. SFAS 133 requires that an
entity recognize all derivatives as either assets or liabilities measured at
fair value. The accounting for changes in the fair value of a derivative
depends on the use of the derivative. The effective portion of the change in
the fair value of derivatives used as hedges are reported as other
comprehensive income, with all other changes reported in net income. Adoption
of these new accounting standards will result in an after tax credit for the
cumulative effect of an accounting change to net income of approximately $2.4
million and an after tax credit to other comprehensive income of approximately
$7.7 million in the first quarter of fiscal 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), as amended, which summarizes certain of the SEC's
views in applying accounting principles generally accepted in the United
States of America to revenue recognition in financial statements. Management
does not expect the adoption of SAB 101 to have a material effect on the
Company's results of operation or financial position. The Company is required
to adopt SAB 101 in the fourth quarter of fiscal 2001.
F-8
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
Reclassifications
Certain amounts in prior years have been reclassified to be consistent with
the 2000 presentation.
2. BASIS OF PRESENTATION AND RESTRUCTURING PLANS
The accompanying consolidated financial statements have been prepared on the
going concern basis of accounting, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The conditions described below raise substantial doubt about the Company's
ability to continue as a going concern. The Company has experienced net losses
each of the three years in the period ended September 30, 2000. At September
30, 2000, the Company would have been in violation of certain financial
covenants of its Amended and Restated Credit Agreement, dated as of December
22, 1997 (the "Senior Credit Agreement") had the lenders not waived such
covenants temporarily. The Company did not make its scheduled December 15,
2000, interest payment on its 9 3/4% Senior Subordinated Notes due 2007 (the
"Subordinated Debt"). The indenture for the Subordinated Debt provides for a
thirty-day grace period for the payment of interest, however the Company does
not expect to make such payment currently. Additionally, the Company has
contracted a substantial portion of industrial sugar sales for fiscal 2001 at
historically low prices, and raw sugar prices have not declined as much as
refined sugar prices. As a result, margins on the sale of refined sugar have
narrowed and the Company may incur significant losses and negative cash flows
from operations for the year ending September 30, 2001. The consolidated
financial statements do not include any adjustments that may result from the
resolution of these uncertainties.
As discussed in Note 8 to the consolidated financial statements, the
Company's Senior Credit Agreement consists of a $157.3 million revolving
credit facility which expires in December 2002 and $150.8 million in term
loans with a final maturity in December 2005. The Company and the Senior
Credit Agreement lenders entered into an interim waiver agreement effective
through January 8, 2001, waiving temporarily the non-compliance with certain
financial covenants as of September 30, 2000 described above, and the effect
on the Senior Credit Agreement of not paying the scheduled interest payment on
the Subordinated Debt.
As discussed in Note 5 to the consolidated financial statements, the Company
has a $110 million revolving receivables purchase facility with an independent
issuer of receivables-backed commercial paper (the "Securitization Facility")
which allows the Company to sell certain accounts receivable on a non-recourse
basis. The Securitization Facility agreement is backed by a liquidity line of
credit issued in favor of the receivable purchaser, which has been extended
until January 8, 2001. The Company is not a party to the liquidity line of
credit. Should such line of credit not be renewed, the Securitization Facility
would terminate, placing substantial additional liquidity requirements on the
Company.
The indenture governing the Subordinated Debt, the Senior Credit Agreement
and the Securitization Facility agreement each contain cross default
provisions such that a default under one agreement constitutes a default under
each of the others.
The Company has held discussions with an informal committee of holders of
the Subordinated Debt, representatives of the Senior Credit Agreement lenders
and the issuer of the liquidity line of credit backing the Securitization
Facility about a financial restructuring plan. Under the provisions of the
proposed plan, the Subordinated Debt would be converted to equity and the
Senior Credit Agreement would concurrently be amended or replaced with a new
agreement. The terms of the proposed debt to equity conversion, including the
level of continuing equity ownership of existing shareholders, remain under
discussion. Negotiations and discussions with the Senior Credit Agreement
lenders continue in respect of the restructured agreement described above and
interim debtor-in possession financing, should a bankruptcy filing be
required. The proposed
F-9
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
restructuring may occur under the supervision of a United States Bankruptcy
Court. The Company has had discussions with the receivable purchaser
concerning extension of the Securitization Facility until the restructuring is
completed. The Company believes that, should the Securitization Facility not
be extended up to or beyond the completion of the proposed financial
restructuring, replacement accounts receivable financing could be found. While
the Company believes that these discussions to-date have been productive,
there can be no assurances that an agreement on the proposed restructuring can
be completed timely.
The interim waiver and the liquidity line of credit discussed above expire
January 8, 2001, and the grace period for the payment of interest on the
Subordinated Debt expires January 14, 2001. Additionally, certain trade
creditors have requested enhancements to their credit terms. Unless the
Company is able to obtain an extension or forbearance with respect to these
deadlines, the lenders could, after such dates, declare the related debt in
default and demand repayment, and the receivable purchaser could declare the
Securitization Facility terminated, all of which would place liquidity demands
on the Company which it could not meet.
The Company's continuation as a going concern is dependent upon the
successful completion of the financial restructuring described above, the
Company's ability to generate sufficient cash flow to meet its obligations on
a timely basis and its ability to obtain financing as may be required. Current
domestic sugar market conditions are continuing to have significant negative
impact on the Company's operating results and liquidity. While the Company
believes it will be able to complete a consensual restructuring during fiscal
2001, there can be no assurances that it will be successful in doing so. The
Company is reviewing with its financial and legal advisors the financial
alternatives available to the Company, including without limitation the debt
restructuring proposal described above and/or the filing of a petition under
Chapter 11 of the United States Bankruptcy Code.
3. ACQUISITIONS
Diamond Crystal
On November 2, 1998 the Company acquired all the outstanding common stock of
DSLT Inc. ("Diamond Crystal") in a merger of a wholly owned subsidiary of the
Company, with and into Diamond Crystal. Consideration for the acquisition paid
at closing consisted of $79.6 million cash, 5.0 million shares of common stock
and the repayment of $28.3 million of Diamond Crystal debt. The merger
consideration was subject to adjustments based on an acquisition date balance
sheet of Diamond Crystal and other factors. In April 1999, additional
consideration of $.6 million cash and 34,710 shares of the Company's common
stock was paid based on the resolution of certain factors. The cash portion of
the merger consideration was funded by borrowing under the Company's existing
revolving credit agreement.
Diamond Crystal produces nutritional dry mixes, sauces, seasonings, drink
mixes and desserts for distribution to the healthcare and foodservice
industries. The purchase method was used to account for the acquisition and
Diamond Crystal's results of operations are included in the Company's
consolidated financial statements commencing November 2, 1998. The excess of
purchase price over the book value of net assets acquired ("goodwill") is
being amortized over 40 years.
An allocation of the aggregate purchase price of $184.6 million, including
$31.9 million of liabilities assumed, has been made to current assets ($33.3
million), plant, property and equipment ($18.8 million) and goodwill ($132.0
million). Liabilities assumed include $2.7 million for the estimated costs to
close two Diamond Crystal production facilities, as well as cost related to
the involuntary termination of certain administrative employees, both of which
were completed in fiscal 2000.
F-10
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
Savannah Foods
During fiscal 1998, the Company acquired Savannah Foods and Industries, Inc.
a Georgia based producer and marketer of sugar and related products ("Savannah
Foods"), in a two step transaction. The Company completed the first step on
October 17, 1997, when it accepted for payment pursuant to a tender offer
shares representing 50.1% of Savannah Foods outstanding common stock for
aggregate consideration of $261 million cash. The second step was completed
December 22, 1997, when Savannah Foods was merged with a subsidiary of the
Company. As a result of the two step acquisition, the consolidated financial
statements include a minority interest in the earnings of Savannah Foods
through December 22, 1997. In consideration for the Merger, Savannah Foods'
stockholders received $106 million cash and 12.4 million shares of the
Company's common stock.
The purchase method was used to account for the acquisition and Savannah
Foods' results of operations are included in the Company's consolidated
financial statements commencing October 17, 1997, net of minority interest
through December 22, 1997. Purchased intangibles, which include brand related
intangibles and the excess of purchase price over the book value of net assets
acquired ("goodwill") are being amortized over 40 years.
An allocation of the aggregate purchase price of $749.9 million, including
$215.8 million of liabilities assumed, has been made to current assets ($201.8
million), plant, property and equipment ($253.0 million), other assets ($11.1
million) and purchased intangible assets ($284.1 million). Liabilities assumed
include $4.5 million for the estimated cost related to the involuntary
termination of certain administrative employees.
The following table presents unaudited, summarized pro forma operating
results as if the acquisition of both Diamond Crystal and Savannah Foods and
the related financing transactions had occurred on October 1, 1997, assuming
effective income tax rates of 35% to 38%.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
2000 1999 1998
---------- ---------- ----------
(Actual) (Pro forma) (Pro forma)
(In Thousands of Dollars, Except
Per Share Amounts)
<S> <C> <C> <C>
Net sales.................................. $1,821,231 $1,899,714 $1,982,351
---------- ---------- ----------
Cost of sales.............................. 1,682,529 1,713,107 1,774,862
Selling, general and administrative........ 87,004 86,467 90,000
Depreciation and amortization.............. 51,979 51,705 51,169
Asset impairment and other charges......... 27,541 -- 18,287
---------- ---------- ----------
Operating income (loss).................... (27,822) 48,435 48,033
Interest expense........................... (56,656) (59,774) (58,648)
Securities gains (losses).................. 35,874 4,697 2,181
Loss on investment in partnership.......... -- (16,706) --
Other income............................... 954 1,598 7,680
---------- ---------- ----------
Income (loss) before income taxes.......... (47,650) (21,750) (754)
Provision (benefit) for income taxes....... (12,973) (3,276) 4,635
---------- ---------- ----------
Income (loss) before extraordinary item.... $ (34,677) $ (18,474) $ (5,389)
========== ========== ==========
Basic earnings (loss) per share............ $ (1.07) $ (0.57) $ (0.17)
========== ========== ==========
</TABLE>
F-11
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
Wholesome Sweeteners
In September 1998, the Company acquired Wholesome Sweeteners for cash of
$5.1 million. Wholesome is a leading supplier of organic sweeteners to the
U.S. consumer and industrial markets. The purchase method was used to account
for the acquisition. Pro forma effects of the acquisition are not material to
the Company's consolidated results of operations.
Amortization of goodwill and other intangibles totaled $10.8 million, $11.0
million and $8.9 million in fiscal 2000, 1999 and 1998, respectively.
4. MARKETABLE SECURITIES
Marketable securities consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, 2000
-----------------------------
Gross
Unrealized
Fair Holding
Amortized Market ------------
Cost Value Gains Losses
--------- ------ ----- ------
<S> <C> <C> <C> <C>
US Government securities maturing in 2001.... $3,548 $3,602 $ -- $(54)
Common stocks................................ 254 1,010 756 --
------ ------ ---- ----
Total........................................ $3,802 $4,612 $756 $(54)
====== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Gross
Unrealized
Fair Holding
Amortized Market --------------
Cost Value Gains Losses
--------- ------- ------- ------
<S> <C> <C> <C> <C>
US Government securities................... $ 4,273 $ 4,253 -- $ (20)
Common stocks.............................. 28,601 61,243 $33,164 (522)
------- ------- ------- -----
Total...................................... $32,874 $65,496 $33,164 $(542)
======= ======= ======= =====
</TABLE>
The Company liquidated substantially all of its marketable securities
portfolio in fiscal 2000, and utilized $36.6 million of the net proceeds to
pay down senior term loans. Realized securities gains are reported net of
realized losses of $0.5 million in fiscal 2000. There were no realized
securities losses during fiscal 1999 or 1998. Marketable securities at
September 30, 2000 were pledged to secure certain insurance obligations.
Other investments include the Company's royalty interest in a coal seam
methane gas project, which is accounted for at amortized cost. The Company has
a limited partnership interest in a company which owns an interest in a fuel
oil terminal in Houston, Texas; a director of the Company is the general
partner.
5. SALE OF ACCOUNTS RECEIVABLE
On June 30, 1999, the Company entered into a five-year receivables purchase
agreement with an independent issuer of receivables-backed commercial paper.
Through a wholly owned special purpose subsidiary, Imperial Securitization
Corporation ("Imperial Securitization"), the Company agreed to sell on an
ongoing basis and without recourse, an undivided percentage ownership interest
in designated pools of accounts receivable. To maintain the balance in the
designated pools of accounts receivable sold, the Company is obligated to sell
undivided percentage interests in new receivables as existing receivables are
collected. The agreement permits the sale of up to $110.0 million of undivided
interests in accounts receivable through June 2004. The Company records such
transfers as sales of the related accounts receivable.
F-12
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
The Company's Securitization Facility requires compliance with certain
financial covenants, principally a maximum receivables delinquency rate and a
maximum receivables dilution rate, and is backed by a liquidity line of credit
issued in favor of the receivable purchaser, which expired October 31, 2000
and was extended to January 8, 2001. Such back-up line of credit is required
under the agreement, although the Company is not a party to the line of
credit.
The Company had sold an undivided interest in its accounts receivable to the
purchaser at September 30, 2000 and 1999 of $82.5 million and $105.0 million,
respectively. The proceeds from the initial sale of accounts receivable were
used to pay down debt under its senior secured credit facilities. At September
30, 2000 and 1999, the Company's retained interest was $42.1 million and $43.0
million, respectively; the fair value of the retained interest approximated
its book value.
The discount under this agreement is variable based on the general level of
interest rates on commercial paper plus administrative fees typical in such
transactions. These costs were approximately $6.4 million in fiscal 2000 and
$1.4 million for fiscal 1999 and were included in selling, general and
administrative in the accompanying Consolidated Statement of Operations. The
Company receives compensation for servicing the accounts receivables that
approximates its cost to provide such services. Accordingly, no servicing
assets or liability is recorded.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
September 30,
-----------------
2000 1999
-------- --------
<S> <C> <C>
Land...................................................... $ 42,927 $ 44,698
Buildings, machinery and equipment........................ 540,774 545,531
Construction in progress.................................. 13,073 29,577
-------- --------
Total................................................... 596,774 619,806
Less accumulated depreciation............................. 239,093 217,442
-------- --------
Property, Plant and Equipment--Net........................ $357,681 $402,364
======== ========
</TABLE>
7. SHORT-TERM BORROWINGS
The Company borrows short-term from banks under various unsecured lines of
credit and from the Commodity Credit Corporation ("CCC") under the USDA's
price support loan program. CCC borrowings, which mature September 30 each
year, are secured by refined beet sugar inventory and are recourse or
nonrecourse to the Company depending upon certain regulatory conditions.
During fiscal 2000, the Company participated in permitted forfeitures of
refined sugar in full satisfaction of $47.1 million of outstanding loans with
the CCC in lieu of repaying the loans because the forfeiture price exceeded
the current market price. The Company accounted for this transaction as a debt
repayment. The net book value of inventory forfeited approximated the debt
discharged, including interest.
Outstanding short-term borrowings at September 30, 2000 and 1999 were $1.7
million and $1.6 million, respectively. The weighted-average interest rate for
the outstanding short-term borrowings were 8.45% and 6.35% for fiscal 2000 and
1999, respectively.
F-13
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
8. LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30,
----------------
2000 1999
------- --------
<S> <C> <C>
Senior Credit Agreement:
Revolving credit facility................................... $30,000 $ 91,500
Term loans.................................................. 150,769 192,068
9 3/4% Senior Subordinated Notes due 2007..................... 250,000 250,000
Industrial revenue bonds...................................... 25,100 25,204
8 3/8% Senior Notes due 1999.................................. -- 5,801
Other......................................................... 481 1,118
------- --------
Total long-term debt...................................... 456,350 565,691
Less current and deemed current maturities.................... 436,350 12,114
------- --------
Long-term debt, net........................................... $20,000 $553,577
======= ========
</TABLE>
Debt consists principally of $250.0 million of Subordinated Debt and
borrowings under the Senior Credit Agreement. The Senior Credit Agreement
includes a $157.3 million revolving credit facility (available through
December 2002) and term loans aggregating $150.8 million. CCC borrowings of up
to $50 million reduce the amounts available under the revolving credit
facility. Additionally, CCC borrowings of up to $25 million seasonally may be
made without reducing the availability of borrowings under the revolving
credit facility.
The industrial revenue bonds consist of various issues at fixed and variable
interest rates, ranging from 4.72% to 6.55%. $5.1 million mature in fiscal
2001 and the remaining $20 million have maturity dates ranging from 2015 to
2025.
Except for the Subordinated Debt, the carrying amount of the Company's debt
approximates fair value. The fair value of the Subordinated Debt at September
30, 2000 was approximately $37.5 million.
The Senior Credit Agreement is secured by substantially all of the Company's
assets. The Senior Credit Agreement and the indenture for the Subordinated
Debt contain restrictive covenants which may limit, among other things, the
Company's ability to incur additional indebtedness, make capital expenditures
and investments or pay dividends.
The Senior Credit Agreement requires quarterly compliance with certain
financial covenants including a total and senior leverage ratio, working
capital ratio, minimum leverage of net worth, and, commencing December 31,
2000, an interest coverage ratio, and fixed charge coverage ratio. The Company
was not in compliance with certain of these covenants at September 30, 2000.
The Company did not make its scheduled $12.1 million interest payment due
December 15, 2000 on the Subordinated Debt; the Indenture for the Subordinated
Debt provides a thirty-day grace period for the payment of interest. As a
result of these conditions, substantially all of the Company's long-term debt
has been deemed to be current. See Note 2.
Interest on borrowings under the Senior Credit Agreement is at floating
rates (either a base rate plus a margin from 0.75% to 3% or a Eurodollar rate
plus a margin from 1.75% to 4%). The Company has entered into interest rate
swap agreements with major financial institutions to effectively fix the
interest rate on $214.5 million
F-14
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
under the Senior Credit Agreement at a weighted average annual rate of 9.3% as
of September 30, 2000. If the Company had been required to settle the interest
rate swap agreements as of September 30, 2000, the Company would receive $3.6
million. The Company is exposed to credit risk in the event of nonperformance
by counterparties to its interest rate swap agreements. The Company
anticipates that its counterparties will fully perform their obligations under
the agreements.
Cash paid for interest on short and long-term debt was $54.5 million for
fiscal 2000, $57.2 million for fiscal 1999, and $45.2 million for fiscal 1998.
Interest capitalized as part of the cost of constructing assets was $.5
million for fiscal 2000, $.4 million for fiscal 1999, and $1.2 million for
fiscal 1998.
In fiscal 1998, the Company incurred an extraordinary item of $1,999,000,
net of tax of $1,075,000, in connection with the repurchase of its 8 3/8%
Senior Notes due 1999.
9. INCOME TAXES
The components of the consolidated income tax provision (credit), including
amounts reported as an extraordinary item, were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Year Ended September
30,
-------------------------
2000 1999 1998
-------- ------- ------
<S> <C> <C> <C>
Federal:
Current....................................... $ -- $ 7,512 $2,419
Tax benefit of operating loss carryforward
utilized (generated)......................... (920) (19,327) 3,332
Deferred...................................... (11,703) 7,972 (4,663)
State........................................... (350) 389 694
-------- ------- ------
Total....................................... $(12,973) $(3,454) $1,782
======== ======= ======
</TABLE>
F-15
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
The tax effects of temporary differences which give rise to the Company's
deferred tax assets and liabilities were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Assets Liabilities Total Assets Liabilities Total
------- ----------- -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Current:
Marketable securities
valuation
differences.......... -- $ (265) $ (265) -- $ (11,418) $(11,418)
Inventory valuation
differences,
principally purchase
accounting........... -- (14,818) (14,818) -- (13,973) (13,973)
Manufacturing costs
prior to production
deducted currently... -- (13,746) (13,746) -- (12,004) (12,004)
Accruals not currently
deductible........... $ 9,868 -- 9,868 $ 5,437 -- 5,437
Alternate minimum tax
differences.......... 1,499 -- 1,499 902 -- 902
Operating loss
carryforward......... -- -- -- 19,327 -- 19,327
Other................. 1,177 -- 1,177 1,010 -- 1,010
------- -------- -------- ------- --------- --------
Total current....... 12,544 (28,829) (16,285) 26,676 (37,395) (10,719)
------- -------- -------- ------- --------- --------
Noncurrent:
Depreciation
differences,
including purchase
accounting........... -- (54,542) (54,542) -- (63,268) (63,268)
Accruals not currently
deductible........... 24,738 -- 24,738 24,022 -- 24,022
Operating loss
carryforward......... 20,247 -- 20,247 -- -- --
Other................. 8,440 -- 8,440 6,765 -- 6,765
------- -------- -------- ------- --------- --------
Total noncurrent.... 53,425 (54,542) (1,117) 30,787 (63,268) (32,481)
------- -------- -------- ------- --------- --------
Total................... $65,969 $(83,371) $(17,402) $57,463 $(100,663) $(43,200)
======= ======== ======== ======= ========= ========
</TABLE>
The consolidated income tax provision is different from the amount which
would be provided by applying the statutory federal income tax rate of 35% to
the Company's income before taxes (including extraordinary item). The reasons
for the differences from the statutory rate are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
2000 1999 1998
-------- ------- -------
<S> <C> <C> <C>
Income taxes computed at the statutory federal
rate............................................. $(16,678) $(7,552) $(1,501)
Non deductible goodwill amortization............ 3,787 3,847 2,424
Non taxable interest and dividends.............. (162) (291) (316)
State income taxes.............................. (350) 253 451
Other........................................... 430 289 724
-------- ------- -------
Total......................................... $(12,973) $(3,454) $ 1,782
======== ======= =======
</TABLE>
Income taxes paid were $1.7 million in fiscal 2000, $1.0 million in fiscal
1999, and $4.0 million in fiscal 1998. Net operating loss carryforwards expire
for tax purposes from 2011 to 2015.
F-16
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
10. EMPLOYEE BENEFITS
Defined Benefit Pension Plans and Postretirement Benefits Other Than Pensions
Substantially all of the Company's nonseasonal employees are covered by
retirement plans. Certain unionized employees are covered by an industry-wide
plan, and other employees are covered by Company-sponsored defined benefit
plans. Under the Company-sponsored defined benefit plans, retirement benefits
are primarily a function of years of service and the employee's compensation
for a defined period of employment. The Company funds pension costs at an
actuarially determined amount based on normal cost and the amortization of
prior service costs, gains, and losses over the remaining service periods.
Additionally, the Company provides a supplemental non-qualified, unfunded
pension plan for certain officers whose benefits under the qualified plan are
limited by federal tax law. The Company provides a non-qualified retirement
plan for non-employee directors, which provides benefits based upon years of
service as a director and the retainer in effect at the date of a director's
retirement. Certain of the Company's subsidiaries sponsor benefit plans that
provide postretirement health care and life insurance benefits to certain
employees who meet the applicable eligibility requirements.
The following table presents the benefit obligation, changes in plan assets,
the funded status of the pension plans and the assumptions used (in thousands
of dollars):
<TABLE>
<CAPTION>
Postretirement Benefits
Pension Benefits Other Than Pensions
------------------ ------------------------
Year Ended Year Ended
September 30, September 30,
------------------ ------------------------
2000 1999 2000 1999
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year....................... $221,540 $220,998 $ 36,126 $ 35,029
Acquisition.................... -- 8,342 -- 3,712
Service cost................... 5,418 5,956 567 370
Interest cost.................. 16,176 15,034 2,644 2,642
Amendments..................... 990 3,382 419 --
Actuarial (gain)/loss.......... (2,677) (16,463) 967 (3,679)
Curtailment loss............... (174) -- -- --
Expenses paid.................. (1,304) (1,527) -- --
Benefits paid.................. (14,466) (14,182) (2,688) (1,948)
-------- -------- ----------- -----------
Benefits obligation at end of
year.......................... 225,503 221,540 38,035 36,126
======== ======== =========== ===========
Change in plan assets:
Fair value of plan assets at
beginning of year............. 248,383 230,000 -- --
Acquisition.................... -- 7,443 -- --
Actual return on plan assets... 18,821 24,297 -- --
Employer contribution.......... 2,118 2,405 2,688 1,948
Expenses paid.................. (1,304) (1,580) -- --
Benefits paid.................. (14,466) (14,182) (2,688) (1,948)
-------- -------- ----------- -----------
Fair value of plan assets at
end of year................... 253,552 248,383 -- --
======== ======== =========== ===========
Funded status.................... 28,049 26,843 (38,035) (36,126)
Unrecognized actuarial
(gain)/loss..................... (45,252) (47,739) 4,430 4,687
Unrecognized prior service cost.. 7,576 7,280 419 --
Unrecognized net transition
obligation (asset).............. -- (1,113) -- --
Adjustment for fourth quarter
contributions................... 290 518 706 571
-------- -------- ----------- -----------
Net amount recognized............ $ (9,337) $(14,211) $ (32,480) $ (30,868)
======== ======== =========== ===========
</TABLE>
F-17
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Postretirement Benefits
Pension Benefits Other Than Pensions
------------------ ------------------------
September 30, September 30,
------------------ ------------------------
2000 1999 2000 1999
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Amounts recognized in the
statement of financial position
consist of:
Accrued benefit liability..... $(11,637) $(16,074) $ (32,480) $ (30,868)
Intangible asset.............. 2,300 1,863 -- --
-------- -------- ----------- -----------
Net amount recognized........... $ (9,337) $(14,211) $ (32,480) $ (30,868)
======== ======== =========== ===========
</TABLE>
The assumptions used and the annual cost related to these plans consist of
the following:
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------
Pension Benefits 2000 1999
---------------- ------- -------
<S> <C> <C>
Weighted-average assumptions:
Discount rate............................................. 7.75% 7.5%
Expected return on plan assets............................ 9.0% 9.0%
Rate of compensation increase............................. 4.5-5.0% 4.5-5.0%
Components of net periodic benefit cost of Company-sponsored
plans:
Service cost.............................................. $ 5,418 $ 5,956
Interest cost............................................. 16,176 15,034
Expected return on plan assets............................ (21,833) (20,827)
Amortization of prior service cost........................ 799 580
Amortization of transition (asset)/obligation............. (22) 103
Recognized actuarial (gain)/loss.......................... (3,582) (1,972)
------- -------
Net periodic benefit cost................................... (3,044) (1,126)
Curtailment effect recognized............................... (316) 96
------- -------
Total net periodic benefit cost--Company-sponsored plans.... (3,360) (1,030)
Industry-wide plan for certain unionized employees.......... 512 467
------- -------
Total pension cost........................................ $(2,848) $ (563)
======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30,
--------------
Postretirement Benefits Other Than Pensions 2000 1999
------------------------------------------- ------ ------
<S> <C> <C>
Discount rate assumptions....................................... 7.75% 7.5%
Components of net periodic benefit cost:
Service cost.................................................. $ 567 $ 370
Interest cost................................................. 2,644 2,642
Recognized actuarial (gain)/loss.............................. 66 229
Amortization of net transition obligation (asset)............. -- 65
------ ------
Net periodic benefit cost....................................... $3,277 $3,306
====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $22.0 million, $20.3 million, and
$0.5 million, respectively, as of September 30, 2000 and $21.4 million, $19.1
million, and $0.6 million, respectively, as of September 30, 1999.
F-18
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
The assumed health care cost trend rate used in measuring the accumulated
benefit obligation for postretirement benefits other than pensions as of
September 30, 2000 was 9.0% for 2001. The rate was assumed to decrease
gradually to 5.5% for 2008 and remain at that level thereafter. Assumed health
care cost trend rates have a significant effect on the amounts reported for
the health care plan. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
Point Point
Increase Decrease
------------ ------------
(In Thousands of Dollars)
<S> <C> <C>
Effect on total service and interest cost
components......................................... $ 434 $ (356)
Effective on postretirement benefit obligation...... 3,525 (2,966)
</TABLE>
401(k) Plans
Substantially all of the employees may elect to defer up to 15% of their
annual compensation in the Company sponsored 401(k) tax deferred savings
plans. The Company makes matching contributions in some of these plans. The
amounts charged to expense for each of the periods presented for these plans
were not significant.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan and originally reserved 1.0
million shares of common stock. The plan provides substantially all year-round
employees the option to purchase shares of common stock either through open
market purchases at market value or directly from the Company at 85% of market
value. The amounts charged to compensation expense for each of the periods
presented for the discount on shares purchased under the latter alternative
were not significant.
F-19
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
11. SHAREHOLDERS' EQUITY
Earnings per Share
The following table presents information necessary to calculate basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
2000 1999 1998
---------- ---------- ----------
(In Thousands of Dollars, Except
per Share Amounts)
<S> <C> <C> <C>
Earnings for basic and diluted computation:
Income (loss) before extraordinary item.. $ (34,677) $ (18,124) $ (5,835)
========== ========== ==========
Net income (loss)........................ $ (34,677) (18,124) $ (7,834)
========== ========== ==========
Basic earnings per share:
Weighted average shares outstanding...... 32,293,759 31,712,602 24,177,762
========== ========== ==========
Income (loss) per share before
extraordinary item...................... $ (1.07) $ (0.57) $ (0.24)
========== ========== ==========
Net income (loss) per share.............. $ (1.07) $ (0.57) $ (0.32)
========== ========== ==========
Diluted earnings per share:
Weighted average shares outstanding...... 32,293,759 31,712,602 24,177,762
Incremental shares issuable from assumed
exercise of stock options under the
treasury stock method (1)............... -- -- --
---------- ---------- ----------
Weighed average shares outstanding--as
adjusted................................ 32,293,759 31,712,602 24,177,762
========== ========== ==========
Income (loss) per share before
extraordinary item...................... $ (1.07) $ (0.57) $ (0.24)
========== ========== ==========
Net income (loss) per share.............. $ (1.07) $ (0.57) $ (0.32)
========== ========== ==========
</TABLE>
--------
(1) Securities excluded from the computation of diluted EPS for the years
ended September 30, 2000, 1999 and 1998, that could potentially dilute
basic EPS in the future were options to purchase 1,028,000, 1,854,000 and
1,981,000 shares, respectively, to be issued under the Company's employee
stock incentive plan and 3,000 shares for each fiscal year, to be issued
under the nonemployee director stock option plan for fiscal years.
The Company measures compensation cost of stock-based compensation using the
intrinsic value method. The Company's reported net income and earnings per
share would have been reduced had compensation cost for the Company's stock-
based compensation plans been determined using the fair value method of
accounting. For purposes of estimating the fair value disclosures below, the
fair value of each stock option has been estimated on the grant date with a
Black-Scholes option-pricing model using the following weighted-average
assumptions: expected volatility of 38% to 42%; risk-free interest rate of
5.49% to 7.06%; and expected lives of 7 to 10 years. The effects of using the
fair value method of accounting on net income and earnings per share are
indicated in the unaudited pro forma amounts below (in thousands of dollars,
except per share amounts):
F-20
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Income (loss) before extraordinary item
As reported..................................... $(34,677) $(18,124) $(5,835)
Pro forma....................................... (34,694) (19,265) (6,725)
Net income (loss)
As reported..................................... (34,677) (18,124) (7,834)
Pro forma....................................... (34,694) (19,265) (8,724)
Basic earnings per share:
Income (loss) before extraordinary item
As reported..................................... $ (1.07) $ (0.57) $ (0.24)
Pro forma....................................... (1.07) (0.61) (0.28)
Net Income (loss)
As reported..................................... $ (1.07) $ (0.57) $ (0.32)
Pro forma....................................... (1.07) (0.61) (0.36)
</TABLE>
Shareholder Rights Plan
The Company has a shareholder rights plan. Rights under the plan, which are
currently attached to the common stock, entitle the holder to purchase two
three-hundredths of a share of a new series of Junior Participating Preferred
Stock (204,833 in total as of September 30, 2000) at a price of $60 (subject
to adjustment). The Rights are not exercisable until the earlier of ten days
after the public announcement that a person or group has acquired 15% or more
(25% or more for persons who were 10% shareholders on January 27, 1995) of the
Company's outstanding common stock (an "Acquiring Person") or ten business
days after the commencement of a tender offer to acquire such an interest.
Under certain circumstances, the Rights, other than the Rights held by the
Acquiring Person, will become exercisable for common stock of the Company (or
an acquirer) with a market value equal to two times the exercise price of the
Right. The Rights are redeemable, at 2/3 cents per Right, at any time prior to
a person becoming an Acquiring Person. The Rights will expire on October 31,
2007.
In connection with the sale of common stock to Greencore Group plc
("Greencore") in 1996, the Board of Directors took action under the
Shareholder Rights Plan to increase the ownership percentage that would
trigger the plan with respect to Greencore to 30% during the term of the
Investor Agreement between Greencore and the Company (not more than 5 years).
Thereafter, the trigger level would be increased to 35%, until such time as
Greencore's investment falls below 15%, at which time the trigger level
becomes 15%. Greencore had the right to designate two nominees for election as
directors of the Company. During the term of the Investor Agreement, Greencore
will be required to vote for the director nominees recommended by the Board of
Directors. During the term of the Investor Agreement, Greencore is also
subject to restrictions relative to certain actions regarding the Company.
Stock Incentive Plan
The Company has a stock incentive plan, and has reserved 2.2 million shares
of common stock which are available for grant at September 30, 2000. The plan
provides for the granting of incentive awards in the form of stock options,
stock appreciation rights (SARs), restricted stock, performance units and
performance shares at the discretion of the Executive Compensation Committee
of the Board of Directors. Stock options have an exercise price equal to the
fair market value of the shares of common stock at date of grant, become
exercisable in annual increments for up to five years commencing one year
after date of grant, and expire not more than ten years from date of grant.
F-21
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
Stock option activity in the plan was as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Price Exercise Price Exercise Price
Options per Share Options per Share Options per Share
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance....... 1,854,135 $9.04 1,980,504 $9.63 582,895 $10.33
Granted................. 85,000 2.91 256,500 6.49 1,492,827 9.40
Expired or cancelled.... (911,448) 8.60 (293,644) 11.47 (80,049) 11.25
Exercised............... -- -- (89,225) 6.44 (15,169) 7.60
--------- --------- ---------
Balance, September 30... 1,027,687 8.92 1,854,135 9.04 1,980,504 9.63
========= ========= =========
Exercisable as of
September 30........... 564,981 9.65 613,034 9.44 435,726 10.09
========= ========= =========
</TABLE>
Options outstanding at September 30, 2000 consisted of the following:
<TABLE>
<CAPTION>
Exercisable Options
Weighted- ------------------------
Weighted- Average Weighted-
Range of Average Remaining Average
Exercise Prices Number of Exercise Price Contractual Number of Exercise Price
per Share Options per Share Life Options per Share
--------------- --------- -------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
$2.81-$2.94 85,000 $2.91 9.3 years -- --
$6.00-$8.87 175,875 8.06 5.1 years 138,500 $8.33
$9.12-$12.25 695,187 9.43 7.3 years 355,106 9.45
$13.19-$15.50 71,625 13.22 5.9 years 71,375 13.21
</TABLE>
Nonemployee Director Stock Option Plan
The Company has a director stock option plan and has reserved 30,000 shares
of common stock for issuance. The plan provides for the automatic granting to
each nonemployee director of options to purchase 1,500 shares of common stock
at a price equal to 50% of the fair market value at date of grant. The options
become exercisable upon the completion of three years of service as a
director, and expire over a two-year period from the date first exercisable.
Stock option activity in the plan was as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
Price Price Price
Options per Share Options per Share Options per Share
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance....... 3,000 $6.61 3,000 $6.61 2,250 $7.56
Granted................. -- -- 1,500 5.38
Expired................. -- -- (750) 7.00
Exercised............... -- -- --
----- ----- -----
Ending Balance.......... 3,000 6.61 3,000 6.61 3,000 6.61
===== ===== =====
Exercisable at Period
End.................... 1,500 7.84 -- --
===== ===== =====
</TABLE>
Options outstanding at September 30, 2000 have a range of exercise prices of
$5.38 to $7.84, and a weighted-average remaining contractual life of 1.6
years.
F-22
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
Nonemployee Director Compensation Plan
The Company has a nonemployee director compensation plan which provides for
the annual award of common stock to directors in lieu of their cash retainer.
Shares of common stock awarded pursuant to this plan totaled 91,212 in fiscal
2000, 39,776 in fiscal 1999, and 17,287 in fiscal 1998.
12. REPORTABLE SEGMENTS
The Company has identified two reportable segments: sugar and foodservice.
The segments are strategic business units that offer different products to
different customers. The segments are managed separately because each business
requires different production technology and marketing strategies.
The accounting policies of the segments are 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 financial information concerning the Company's reportable
segments for the years ended September 30, 2000, 1999 and 1998 is shown in the
following table. The "Corporate and Other" column includes corporate-related
items and Imperial Securitization.
<TABLE>
<CAPTION>
Corporate Reconciling
Sugar Foodservice and Other Eliminations Consolidated
---------- ----------- --------- ------------ ------------
(In Thousands of Dollars)
As of and for the Year Ended
September 30, 2000
------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $1,429,242 $391,989 $1,821,231
Intersegment revenues... 98,026 7,298 $(105,324) --
Gross margin............ 97,378 41,324 138,702
Depreciation and
amortization........... 37,473 10,297 $4,209 51,979
Operating income........ (23,785) 2,421 (6,458) (27,822)
Total assets............ 747,337 250,802 95,551 1,093,690
Capital expenditures.... 13,486 1,345 1,472 16,303
</TABLE>
<TABLE>
<CAPTION>
Corporate Reconciling
Sugar Foodservice and Other Eliminations Consolidated
---------- ----------- --------- ------------ ------------
(In Thousands of Dollars)
As of and for the Year Ended
September 30, 1999
------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $1,490,981 $397,649 -- -- $1,888,630
Intersegment revenues... 92,493 7,234 -- $(99,727) --
Gross margin............ 132,007 52,284 -- -- 184,291
Depreciation and
amortization........... 38,849 9,782 $ 2,641 -- 51,272
Operating income........ 35,661 14,037 (1,794) -- 47,904
Total assets............ 870,894 247,834 162,055 -- 1,280,783
Capital expenditures.... 17,569 3,723 5,513 -- 26,805
</TABLE>
F-23
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Corporate Reconciling
Sugar Foodservice and Other Eliminations Consolidated
---------- ----------- --------- ------------ ------------
(In Thousands of Dollars)
As of and for the Year Ended
September 30, 1998
------------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $1,529,189 $253,902 -- -- $1,783,091
Intersegment revenues... 37,532 7,252 -- $(44,784) --
Gross margin............ 146,931 21,408 -- -- 168,339
Depreciation and
amortization........... 37,532 6,268 $1,955 -- 45,755
Operating income........ 33,533 5,406 -- -- 38,939
Total assets............ 968,312 116,642 94,846 -- 1,179,800
Capital expenditures.... 35,489 872 6,058 -- 42,419
</TABLE>
Reconciliation of operating income to net loss before income taxes, minority
interest and extraordinary item (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Operating income................................. $(27,822) $ 47,904 $38,939
Interest expense--net............................ (56,656) (59,071) (48,718)
Realized securities gains--net................... 35,874 4,697 2,181
Loss on partnership investment................... -- (16,706) --
Other income--net................................ 954 1,598 6,386
-------- -------- -------
Loss before income taxes, minority interest and
extraordinary item.............................. $(47,650) $(21,578) $(1,212)
======== ======== =======
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims which are normal in the course
of its operations; while the results of such litigation and claims cannot be
predicted with certainty, the Company believes the final outcome of such
matters will not have a materially adverse effect on its results of operations
or consolidated financial position.
The Company was obligated under $29.9 million in outstanding letters of
credit at September 30, 2000.
The Company leases certain facilities and equipment under cancelable and
noncancelable operating leases. Total rental expenses for all operating leases
amounted to $6.2 million in fiscal 2000, $6.5 million in fiscal 1999, and $7.8
million in fiscal 1998.
The aggregate future minimum lease commitments under noncancelable operating
leases at September 30, 2000 are summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Operating
Fiscal Year Ending September 30, Leases
-------------------------------- ---------
<S> <C>
2001............................................................. 2,971
2002............................................................. 1,899
2003............................................................. 1,539
2004............................................................. 1,135
2005............................................................. 766
Thereafter....................................................... 2,857
</TABLE>
The aggregate future minimum amount to be received under sub-leases was $1.9
million at September 30, 2000.
F-24
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
14. OTHER INCOME STATEMENT INFORMATION
The Company ceased processing sugarbeets at the Tracy and Woodland,
California facilities near the end of calendar 2000 following the completion
of the fall production campaigns. 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. In October
2000, the Company ceased cane sugar refining at its Clewiston, Florida
refinery and concentrated production in the southeastern United States in its
large Savannah, Georgia refinery. As a result, the Company recorded charges
during the fourth quarter of fiscal 2000 totaling $27.5 million as summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
Accrued
Amounts Balance at
Paid in September 30,
Total Fiscal 2000 2000
------- ----------- -------------
<S> <C> <C> <C>
Accrual for cash charges:
Severance for approximately 280 employees.. $ 3,203 -- $ 3,203
Environmental costs........................ 6,245 -- 6,245
Abandoned lease commitments and other cash
costs..................................... 2,026 -- 2,026
------- -------
Subtotal cash charges.................... 11,474 $11,474
------- =======
Noncash charges--asset impairment of:
Property and equipment..................... 15,142
Beet seed inventory........................ 924
-------
Subtotal noncash charges................. 16,066
-------
Total impairment and other charges........... $27,540
=======
</TABLE>
Severance costs for employees at the affected production facilities was
estimated based upon the positions eliminated and the Company's severance
policy or collective bargaining agreements and does not include any portion of
the employees' salary through their severance dates. No severance was paid
through September 30, 2000; the Company estimates that all of the accrued
severance will be paid during fiscal 2001 when the facilities cease production
operations.
The Company accrued $6.2 million related to expected environmental exit
costs associated with the California and Florida facilities. The Company
expects it will be required to incur costs to remediate certain production
areas, including the removal or capping of certain former production settling
ponds. The Company expects to spend approximately $1.0 million during fiscal
2001, with the remaining amounts estimated to be expended over a 3-year
period.
The Company recorded an asset impairment charge of $15.1 million to write
down the book value of buildings and equipment which will no longer be used in
the Company's sugar operations to the estimated value to be realized upon
disposal. Additionally, the Company provided an allowance for the impairment
of the book value of beet seed inventory varieties which were developed
specifically for the Northern California growing region.
The Company recorded $6.8 million of cost of sales resulting from balances
between subsidiaries during the fourth quarter of 2000.
In fiscal 1999, the Company recorded charges totaling $16.7 million to
write-off its investment in Pacific Northwest Sugar Company, a partnership in
which a subsidiary of the Company was a 43% limited partner. In connection
with the restructuring of the partnership's debt, the Company transferred its
limited partnership
F-25
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 2000, 1999, and 1998
interest to an affiliate of the general partner. An agreement dated April 26,
1999 terminated the Company's involvement with the project and includes mutual
releases among the parties. As a result of the agreement, the general partner
became the sole owner of the partnership, which constructed, owns and operates
a beet sugar processing facility in Moses Lake, Washington. The facility
experienced substantial operating losses in its first year of operation; the
Company's share of such losses on the equity accounting method totaled
approximately $10.5 million and is included in the above-mentioned charge.
In fiscal 1998, the Company incurred a $1.0 million charge for severance and
related costs in connection with the reorganization of administrative
functions after the acquisition of Savannah Foods. Substantially all such
amounts were paid by September 30, 1999. Additionally, a charge of $3.8
million was recorded for the loss the Company expected to incur in fulfilling
its industrial sales commitments in California at higher costs as a result of
the abnormal weather experienced there during the spring months.
In fiscal 1998, the Company ceased sugarbeet processing at its Hereford,
Texas factory, and provided $1.0 million for the estimated cash closure costs,
principally severance costs in connection with the layoff of approximately 60
employees. Substantially all such amounts were paid by September 30, 1999. The
Company continues to operate a molasses desugarization plant at the Hereford
facility by processing molasses from other beet sugar factories. The Company
recorded a $12.5 million asset impairment loss to reduce the carrying value of
the sugarbeet processing plant to its estimated fair value and to reduce the
carrying value of the molasses desugarization plant to its fair value, which
was based on the present value of the projected future cash flows.
Interest income and dividends totaled $1.2 million for fiscal 2000, $1.7
million for fiscal 1999, and $2.7 million for fiscal 1998.
The Company conducts all its operations through its consolidated
subsidiaries, substantially all of whom fully and unconditionally guarantee
the Company's Subordinated Debt. The Company does not publish separate
financial statements for such guarantor subsidiaries because management has
determined that such information is not material to investors. However,
substantially all of its consolidated revenues and income are earned by and
substantially all of its consolidated assets are owned by such guarantor
subsidiaries.
F-26
