-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iz9df4m7/eAA+X8y9nT9/mr467zUB685RbKi4cDwj9k3Dtp1brLtuu4PtI7oES1f tNIfV7SrkbFCgxn7V2bDfQ== /in/edgar/work/20000804/0000899243-00-001812/0000899243-00-001812.txt : 20000921 0000899243-00-001812.hdr.sgml : 20000921 ACCESSION NUMBER: 0000899243-00-001812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL SUGAR CO /NEW/ CENTRAL INDEX KEY: 0000831327 STANDARD INDUSTRIAL CLASSIFICATION: [2060 ] IRS NUMBER: 740704500 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10307 FILM NUMBER: 686037 BUSINESS ADDRESS: STREET 1: ONE IMPERIAL SQ STE 200 STREET 2: P O BOX 9 CITY: SUGAR LAND STATE: TX ZIP: 77487 BUSINESS PHONE: 2814919181 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL HOLLY CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL SUGAR CO /TX/ DATE OF NAME CHANGE: 19880606 10-Q 1 0001.txt FORM 10-Q FOR JUNE 30, 2000 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........ to ........ Commission file number 1-10307 ______________________________ IMPERIAL SUGAR COMPANY (Exact name of registrant as specified in its charter) Texas 74-0704500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487 (Address of principal executive offices, including Zip Code) (281) 491-9181 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 28, 2000. 32,355,232 shares. =============================================================================== IMPERIAL SUGAR COMPANY AND SUBSIDIARIES Index Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Consolidated Statement of Changes in Shareholders' Equity 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 ______________________ The statements regarding future market prices, operating results, synergies, sugarbeet acreage, agricultural results, future compliance with debt covenants, the adequacy of future liquidity, future operating efficiencies and cost savings and other statements that are not historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. The words "expect", "project", "estimate", "believe", "anticipate", "plan", "intend", "could", "may", "predict" and similar expressions are also intended to identify forward-looking statements. Such statements involve risks, uncertainties and assumptions, including, without limitation, market factors, the effect of weather and economic conditions, farm and trade policy (including the impact of the North American Free Trade Agreement, or NAFTA), the Company's future earnings and cash flow levels, results of discussions with lenders, the ability of the Company to realize planned cost savings, the available supply of sugar, available quantity and quality of sugarbeets and other factors detailed elsewhere in this and other Company filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. 2 PART I - FINANCIAL INFORMATION IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, 2000 September 30, (Unaudited) 1999 -------------- -------------- (In Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and temporary investments $ 3,424 $ 7,925 Marketable securities 4,618 65,496 Accounts receivable - trade 88,312 64,458 Inventories: Finished Products 174,580 157,869 Raw and in-process materials 40,971 61,299 Supplies 33,519 39,896 ---------- ---------- Total Inventory 249,070 259,064 Deferred costs and prepaid expenses 35,732 43,461 ---------- ---------- Total current assets 381,156 440,404 OTHER INVESTMENTS 4,583 5,009 PROPERTY, PLANT AND EQUIPMENT - net 379,579 402,364 GOODWILL & OTHER INTANGIBLES - net 398,544 406,627 OTHER ASSETS 26,774 26,379 ---------- ---------- TOTAL $1,190,636 $1,280,783 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 94,961 $ 141,428 Short-term borrowings 31,644 1,611 Current maturities of long-term debt 5,752 12,114 Other current liabilities 75,209 83,162 ---------- ---------- Total current liabilities 207,566 238,315 LONG-TERM DEBT - net of current maturities 516,137 553,577 DEFERRED INCOME TAXES, EMPLOYEE BENEFITS AND OTHER CREDITS 111,287 115,467 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, without par value, issuable in series; 5,000,000 shares authorized, none issued - - Common stock, without par value, 50,000,000 shares authorized 310,397 309,847 Stock held by benefit trust - (8,208) Treasury stock (15,859) (7,611) Retained earnings 60,617 58,191 Unrealized securities gains - net of income taxes 491 21,205 ---------- ---------- Total shareholders' equity 355,646 373,424 ---------- ---------- TOTAL $1,190,636 $1,280,783 ========== ==========
See notes to consolidated financial statements. 3 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (In Thousands of Dollars, Except Share and per Share Amounts) NET SALES $ 466,313 $ 499,977 $ 1,364,077 $ 1,400,735 ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Cost of sales 427,820 441,421 1,244,768 1,256,298 Selling, general and administrative 18,111 21,480 62,115 60,177 Depreciation and amortization 13,711 14,017 41,378 39,077 ----------- ----------- ----------- ----------- Total 459,642 476,918 1,348,261 1,355,552 ----------- ----------- ----------- ----------- OPERATING INCOME 6,671 23,059 15,816 45,183 INTEREST EXPENSE (15,087) (14,532) (43,502) (44,999) REALIZED SECURITIES GAINS - 2,379 35,874 4,671 LOSS ON INVESTMENT IN PARTNERSHIP - - - (16,706) OTHER INCOME (LOSS) - net (11) 1,306 807 2,120 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (8,427) 12,212 8,995 (9,731) PROVISION (BENEFIT) FOR INCOME TAXES (1,962) 5,558 6,569 (191) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (6,465) $ 6,654 $ 2,426 $ (9,540) =========== =========== =========== =========== BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK ($0.20) $0.21 $0.08 ($0.30) =========== =========== =========== =========== DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK ($0.20) $0.21 $0.08 ($0.30) =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 32,328,646 32,190,208 32,270,848 31,548,191 =========== =========== =========== ===========
See notes to consolidated financial statements. 4 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, ----------------- 2000 1999 ------ ----- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss) $ 2,426 $ (9,540) Adjustments for non-cash and non-operating items: Depreciation & amortization 41,378 39,077 Gain on sale of marketable securities (35,874) (4,671) Loss on investment in partnership - 16,706 Other 2,890 574 Changes in operating assets and liabilities (excluding amounts acquired in the Diamond Crystal acquisition): Accounts receivables - trade (23,854) 99,439 Inventories 9,994 (66,933) Deferred costs and prepaid expenses 7,729 3,864 Accounts payable - trade (46,467) 31,654 Other current liabilities (490) (43,378) -------- --------- Operating cash flow (42,268) 66,792 -------- --------- INVESTMENT ACTIVITIES: Acquisition of Diamond Crystal, net of cash acquired - (111,442) Capital expenditures (12,286) (16,665) Investment in marketable securities (3,347) (13,409) Proceeds from sales of marketable securities 64,221 20,492 Proceeds from the maturity of securities 3,996 - Proceeds from sales of fixed assets 1,875 2,184 Other (3,371) 1,311 -------- --------- Investing cash flow 51,088 (117,529) -------- --------- FINANCING ACTIVITIES: Short-term debt: CCC borrowings - advances 51,887 59,888 CCC borrowings - repayments (20,470) (22,448) Other - net (1,384) (839) Revolving credit borrowings - net 2,700 86,985 Repayment of long-term debt (46,502) (62,965) Dividends paid - (2,880) Issuance of stock and other 448 1,116 -------- --------- Financing cash flow (13,321) 58,857 -------- --------- (DECREASE)INCREASE IN CASH AND TEMPORARY INVESTMENTS (4,501) 8,120 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 7,925 2,877 -------- --------- CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 3,424 $ 10,997 ======== =========
See notes to consolidated financial statements. 5 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the Nine Months Ended June 30, 2000 (UNAUDITED)
Shares of Common Stock Common Stock ------------------------------------ ------------------------------- Unrealized Held by Treasury Held by Treasury Retained Securities Issued Benefit Trust Stock Issued Benefit Trust Stock Earnings Gains Total -------- ------------- --------- ------ ------------- -------- --------- ---------- ----- (In Thousands of Dollars) BALANCE SEPTEMBER 30, 1999 33,524,166 (684,971) (635,279) $309,847 $(8,208) $(7,611) $58,191 $ 21,205 $373,424 Comprehensive income: Net income - - - - - - 2,426 - 2,426 Change in unrealized securities gains - net - - - - - - - (20,714) (20,714) ------ Total comprehensive income - - - - - - - - (18,288) Employee stock purchase and other plans 67,691 - (25,569) 159 - (40) - - 119 Stock transferred from benefit trust - 684,971 (684,971) - 8,208 (8,208) - - - Nonemployee director compensation plan 91,212 - - 391 - - - - 391 ---------- ------- ---------- -------- ------- ------- ------- -------- -------- BALANCE JUNE 30, 2000 33,683,069 - (1,345,819) $310,397 $ - $(15,859) $60,617 $ 491 $355,646 ========== ======= ========== ======== ======= ======== ======= ======== ========
See notes to consolidated financial statements. 6 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED JUNE 30, 2000 AND 1999 1. ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. These financial statements include the accounts of Imperial Sugar Company and its majority owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures required by generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. Cost of Sales Payments to growers for sugarbeets are based in part upon the Company's average net return for sugar sold (as defined in the participating contracts with growers) during the grower contract years, some of which extend beyond June 30. The contracts provide for the sharing of the net selling price (gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization of costs for certain facilities used in connection with marketing) with growers. These financial statements include an accrual for estimated additional amounts to be paid to growers based on the average net return realized for sugar sold in each of the contract years through June 30. The final cost of sugarbeets cannot be determined until the end of the contract year for each growing area. Manufacturing costs incurred prior to production are deferred and allocated to production costs based on estimated total units of production for each sugar manufacturing campaign. Additionally, the Company's sugar inventories, which are accounted for on a LIFO basis, are periodically reduced at interim dates to levels below that of the beginning of the fiscal year. When such interim LIFO liquidations are expected to be restored prior to fiscal year-end, the estimated replacement cost of the liquidated layers is utilized as the basis of the cost of sugar sold from beginning of the year inventory. Accordingly, the cost of sugar utilized in the determination of cost of sales for interim periods includes estimates which may require adjustment in future periods. Accounting Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for the Company's fiscal year ending September 30, 2001, and requires recognition of the fair value of all derivatives as either assets or liabilities in the consolidated balance sheet. The Company will adopt this standard on October 1, 2000, and has not yet determined the impact of adoption on its consolidated financial statements. Reclassifications Certain amounts in the prior year have been reclassified to be consistent with the fiscal 2000 presentation. 7 2. ACQUISITIONS On November 2, 1998, the Company acquired all the outstanding common stock of DSLT Inc. ("Diamond Crystal"), which produces nutritional dry mixes, sauces, seasonings, drink mixes and desserts for distribution to the healthcare and foodservice industries. The acquisition was accounted for by the purchase method and, accordingly, the Company's results of operations incorporate Diamond Crystal's results of operations for all periods beginning on and after the acquisition date. The following table presents certain unaudited pro forma information for the nine month period ended June 30, 1999, as if the acquisition of Diamond Crystal had occurred on October 1, 1998, assuming an effective tax rate of 35%.
Nine Months Ended June 30 2000 1999 ------------ ----------- Actual Pro Forma (In Thousands of Dollars, Except Per Share and Share Amounts) Net Sales $ 1,364,077 $ 1,411,819 ----------- ----------- Cost of Sales 1,244,768 1,265,066 Selling, General and Administrative Expenses 62,115 61,529 Depreciation and Amortization 41,378 39,510 ----------- ----------- Operating Income 15,816 45,714 Interest Expense (43,502) (45,702) Loss on Investment in Partnership (16,706) Realized Securities Gains 35,874 4,671 Other Income - net 807 2,120 ----------- ----------- Income (Loss) Before Income Taxes 8,995 (9,903) Provision (Benefit) for Income Taxes 6,569 (13) ----------- ----------- Net Income (Loss) $ 2,426 $ (9,890) =========== =========== Basic Earnings (Loss) Per Share of Common Stock $0.08 $(0.30) =========== =========== Diluted Earnings (Loss) Per Share of Common Stock $0.08 $(0.30) =========== =========== Weighted Average Shares Outstanding 32,270,848 32,135,065 =========== ===========
Goodwill acquired in this transaction is being amortized over 40 years. 3. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars): June 30, September 30, 2000 1999 ----------- ----------- Senior Credit Agreement: Revolving credit facility $ 94,200 $ 91,500 Term loans 151,902 192,068 9-3/4% Senior Subordinated Notes due 2007 250,000 250,000 Industrial revenue bonds 25,149 25,204 8-3/8% Senior Notes due 1999 - 5,801 Other 638 1,118 ----------- ----------- Total long-term debt 521,889 565,691 Less current maturities 5,752 12,114 ----------- ----------- Long-term debt, net $ 516,137 $ 553,577 =========== =========== 8 The Company liquidated substantially all of its marketable securities portfolio in the nine months ending June 30, 2000, and utilized $36.6 million of the proceeds to pay down senior term loans. The Company's credit agreements require compliance with specified financial and other covenants. Additionally, the Company's revolving receivable purchase facility requires compliance with certain financial covenants and is backed by a liquidity line of credit issued in favor of the receivable purchaser, which expires October 31, 2000. Such back-up line of credit is required under the agreement; however, the Company is not a party to the line of credit. Should the line of credit not be renewed, the revolving receivable purchase agreement would terminate, placing substantial additional liquidity needs on the Company. The Company was in compliance with all such covenants at June 30, 2000. Certain financial and other covenants become more restrictive commencing September 30, 2000. Had such more restrictive covenants been in place at June 30, 2000, the Company would not have met them. The Company's ability to maintain compliance with such covenants in the future is a function of its ability to generate sufficient additional EBITDA (as defined) or reduce indebtedness, or both, which in turn are dependant on a number of factors, including future operating results that the Company is unable to predict with certainty. However, absent substantial improvement in the domestic sugar market that would produce significantly improved operating results for the Company, the Company may need to seek relief from certain covenants for the quarter ending September 30, 2000. If the Company needed to seek and were not able to obtain relief from its lenders, it would be restricted from further borrowings and may be required to refinance, restructure or reorganize all or a portion of its indebtedness, sell assets, obtain additional debt or equity financing or take other actions. All of the Company's debt agreements and revolving receivable purchase facility contain cross default provisions. 4. EARNINGS PER SHARE The following table presents unaudited information necessary to calculate basic and diluted earnings per share.
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (In Thousands of Dollars, Except Share and Per Share Amounts) Earnings for basic and diluted computation: Net income (loss) $ (6,465) $ 6,654 $ 2,426 $ (9,540) Adjustments - None - - - - ----------- ----------- ----------- ----------- Adjusted net income (loss) $ (6,465) $ 6,654 $ 2,426 $ (9,540) =========== =========== =========== =========== Basic earnings per share: Weighted average shares outstanding 32,328,646 32,190,208 32,270,848 31,548,191 =========== =========== =========== =========== Net income (loss) per share $ (0.20) $ 0.21 $ 0.08 $ (0.30) =========== =========== =========== =========== Diluted earnings per share: Weighted average shares outstanding 32,328,646 32,190,208 32,270,848 31,548,191 Incremental shares issuable from assumed exercise of stock options under the treasury stock method(1) - 240 - 4,424 ----------- ----------- ----------- ----------- Weighted average shares outstanding - as adjusted 32,328,646 32,190,448 32,270,848 31,552,615 =========== =========== =========== =========== Net income (loss) per share $ (0.20) $ 0.21 $ 0.08 $ (0.30) =========== =========== =========== ===========
- ---------- (1) Securities excluded from the computation of diluted EPS for June 30, 2000 that could potentially dilute basic EPS in the future were options to purchase 955,000 shares, to be issued under the Company's employee stock incentive plan and 3,000 shares to be issued under the nonemployee director stock option plan. 9 5. REPORTABLE SEGMENTS The Company has identified two reportable segments: sugar and foodservice. The segments are strategic business units that offer certain different products to different customers. The segments are managed separately because each business requires different production technologies and marketing strategies. The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies. The Company accounts for intersegment sales as if the sales were to third parties, that is, at current market prices. The Company evaluates performance based on operating income of the respective business units. The sugar segment produces and sells refined sugar and related products. The segment's products include granulated, powdered, liquid, liquid blends and brown sugars, which are primarily sold to grocery and industrial customers and by-products from the production of refined sugar. The foodservice segment sells numerous products to foodservice customers, including healthcare institutions, ranging from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-dairy creamer and plastic cutlery, nutritional dry mixes, frozen nutritional products, sauces, seasonings, drink mixes, desserts and diet kits. Summarized unaudited financial information concerning the Company's reportable segments for the three months and nine months ended June 30, 2000 and 1999, is shown in the following table. The "Corporate and Other" column includes corporate-related items and activities related to the Company's securitization of receivables.
Corporate Reconciling Sugar Foodservice and Other Eliminations Consolidated ---------- ----------- --------- ------------- ------------ (Thousands of Dollars) For the Three Months Ending June 30, 2000 - ------------------------------------ Revenues from external customers $ 370,463 $ 95,850 $ 466,313 Intersegment revenues 23,927 1,896 $(25,823) - Gross margin 28,401 10,092 38,493 Operating income (loss) 6,093 2,250 $ (1,672) 6,671 For the Three Months Ending June 30, 1999 - ------------------------------------ Revenues from external customers $ 395,408 $104,569 $ 499,977 Intersegment revenues 25,813 1,786 $(27,599) - Gross margin 45,824 12,732 58,556 Operating income (loss) 21,098 2,295 $ (334) 23,059 For the Nine Months Ending June 30, 2000 - ------------------------------------ Revenues from external customers $1,070,696 $293,381 $1,364,077 Intersegment revenues 73,817 5,581 $(79,398) - Gross margin 88,248 31,061 119,309 Operating income (loss) 18,678 1,985 $ (4,847) 15,816 For the Nine Months Ending June 30, 1999 - ------------------------------------ Revenues from external customers $1,105,813 $294,922 $1,400,735 Intersegment revenues 68,365 5,517 $(73,882) - Gross margin 106,596 37,841 144,437 Operating income (loss) 36,371 9,146 $ (334) 45,183
10 Reconciliation of operating income to net income (loss) before income taxes (in thousands):
Three Months Ended Nine Months Ended June 30, June 30, ----------------------- ------------------- 2000 1999 2000 1999 ---------- --------- -------- ------- Operating income $ 6,671 $ 23,059 $ 15,816 $ 45,183 Interest expense (15,087) (14,532) (43,502) (44,999) Securities gains - 2,379 35,874 4,671 Loss on investment in partnership - - - (16,706) Other income (expense) (11) 1,306 807 2,120 -------- -------- -------- -------- Income (loss) before income taxes $ (8,427) $ 12,212 $ 8,995 $ (9,731) ======== ======== ======== ========
6. GUARANTOR SUBSIDIARIES Substantially all of the Company's consolidated subsidiaries fully and unconditionally guarantee the Company's 9-3/4% Senior Subordinated Notes due 2007. The Company does not publish separate financial statements and other disclosures for such guarantor subsidiaries because management has determined that such information is not material to investors. Unaudited, condensed, combined financial information for such guarantor subsidiaries was as follows (in thousands of dollars):
Three Months Ended Nine Months Ended June 30, June 30, ------------------- --------------------- 2000 1999 2000 1999 -------- -------- --------- --------- Income Statement Data --------------------- Net Sales $406,366 $435,009 $1,176,297 $1,208,920 Operating income 2,776 35,468 7,565 32,519 Net income 3,789 11,313 5,166 11,718 June 30, 2000 ---------- Balance Sheet Data ------------------ Current assets $ 363,430 Property, plant and equipment, net 324,277 Goodwill - net 398,544 Current liabilities 178,128 Long-term debt, net 25,050
7. PRODUCTION CONSOLIDATION The Company intends to cease processing sugarbeets at the Tracy and Woodland, California facilities near the end of calendar 2000 following the completion of the fall production campaign. These factories will continue to package and distribute refined sugar products with sugar supplied from the remaining two California beet factories and other Company processing facilities. The Company intends to sell the real estate surrounding the facilities which, based on independent appraisals, is expected to generate proceeds in excess of $30 million, which are required to be applied to the reduction of debt. In August 2000, the Company announced it was discontinuing cane sugar refining at its Clewiston, Florida refinery. The Company expects to realize significant cost efficiencies by concentrating production in the southeastern United States in its large Savannah, Georgia refinery. As a result of discontinuing the refining operation in Clewiston, Florida, as well as ceasing to process sugarbeets at Tracy and Woodland, California, the Company expects to take a charge in fiscal fourth quarter 2000 of approximately $25 million, of which approximately $13 million is related to impairment costs to write down to fair value the assets used in those facilities. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- The Company's primary capital requirements generally include working capital, debt service and capital expenditures. The primary sources of capital are expected to be operating cash flow, borrowings under the revolving credit facility, sales of receivables under the revolving receivable purchase facility and borrowings from the Commodity Credit Corporation ("CCC"). The Company's sugar production operations require substantial seasonal working capital. This seasonal requirement generally peaks during the Company's second fiscal quarter when inventory levels are high, and a substantial portion of the payments to raw material suppliers have been made. At times during the quarter ended March 31, 2000, the Company utilized substantially all of its available borrowing capacity primarily due to higher inventory levels from record sugarbeet crops. At June 30, 2000, unused borrowing capacity was $36.5 million, including $25.0 million of additional seasonal CCC borrowing capacity allowed annually under the Senior Credit Agreement; such additional seasonal capacity expired July 15, 2000. Unused capacity at August 2, 2000, was $22.5 million. The Company expects that its liquidity will continue to improve during the balance of fiscal 2000, as seasonal inventory levels decline. Additionally, the Company intends to participate in the forfeitures of sugar under loan with the CCC in the fourth quarter of fiscal 2000, which would further reduce inventory and short term borrowing levels and thus improve liquidity. The Company's Amended and Restated Credit Agreement, dated as of December 22, 1997, as most recently amended November 18, 1999, ("the Senior Credit Agreement") requires the Company to maintain compliance with certain specified financial covenants, including a maximum ratio of total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") and senior debt to EBITDA, as well as a minimum adjusted current ratio and a minimum level of net worth. Commencing with the quarter ending December 31, 2000, the Senior Credit Agreement will require a minimum interest coverage ratio and a minimum fixed charge coverage ratio. The Company's revolving receivable purchase facility requires compliance with certain financial covenants and is backed by a liquidity line of credit issued in favor of the receivable purchaser, which expires October 31, 2000. Such back-up line of credit is required under the agreement; however, the Company is not a party to the line of credit. Should the line of credit not be renewed, the revolving receivable purchase agreement would terminate, placing substantial additional liquidity needs on the Company. During the period November 15 to March 15 each year, the Company is precluded from incurring additional indebtedness (other than available borrowings under the Senior Credit Agreement and CCC borrowings allowed thereunder) based on restrictions in the indenture governing its senior subordinated notes. The adequacy of available sources of liquidity to finance the Company's operations through the peak requirements in the first two quarters of fiscal 2001 is a function of a number of factors, which the Company is unable to predict. Such factors include the size and sugar content of the sugarbeet crop contracted to the Company for harvest in the fall of 2000, the market price for raw sugar, the market price of and demand for refined sugar, cash flow provided from operations and continued availability of revolving credit borrowings and revolving receivable sales under the receivable purchase facility. 12 The Company was in compliance with all covenants under its credit and revolving receivable purchase agreements at June 30, 2000. Certain financial and other covenants become more restrictive commencing September 30, 2000. Had such more restrictive covenants been in place at June 30, 2000, the Company would not have met them. The Company's ability to maintain compliance with such covenants in the future is a function of its ability to generate sufficient additional EBITDA or reduce indebtedness, or both, which in turn are dependant on a number of factors, including future operating results that the Company is unable to predict with certainty. However, absent substantial improvement in the domestic sugar market that would produce significantly improved operating results for the Company, the Company may need to seek relief from certain covenants for the quarter ending September 30, 2000. If the Company needed to seek and were not able to obtain relief from its lenders, it would be restricted from further borrowings and may be required to refinance, restructure or reorganize all or a portion of its indebtedness, sell assets, obtain additional debt or equity financing or take other actions. The Company has engaged Wasserstein Perrella & Co. to provide restructuring and recapitalization advice. Additionally, Credit Suisse First Boston is working with the Company to attempt to raise equity capital. Long-term debt at June 30, 2000 was $516.1 million, consisting principally of $250.0 million of senior subordinated notes and borrowings under the Senior Credit Agreement. The Senior Credit Agreement includes a $157.0 million revolving credit facility (available through December 2002) and term loans aggregating $151.9 million. Interest on borrowings under the Senior Credit Agreement is based on floating rates (either a base rate plus a margin ranging from 0.75% to 3.0% or a Eurodollar rate plus a margin ranging from 1.75% to 4.0%). The Company has entered into interest rate swap agreements with major financial institutions to effectively fix the market interest rate on $215.9 million of the amounts outstanding under the Senior Credit Agreement at a weighted average annual rate of 9.25% as of June 30, 2000. The Company will be required to make prepayments, with certain exceptions, equal to 100% of the net proceeds from certain new indebtedness, the sale of equity securities and the disposition of assets, including proceeds from the sale of stock of any subsidiaries, plus 75% of excess cash flow (as defined). The Senior Credit Agreement is secured by substantially all of the assets of the Company and its subsidiaries. Borrowings from the CCC are secured by beet sugar inventories. Under terms of the Senior Credit Agreement, CCC borrowings are generally limited to $50 million and reduce dollar for dollar the availability of borrowings under the revolving line of credit. Additional seasonal CCC borrowings of up to $25 million may be made from November 15 to March 15 each year (extended to July 15 for 2000), without reduction of the amounts available under the revolving credit facility. The Company has a revolving receivable purchase facility with an independent issuer of receivables-backed commercial paper. The agreement establishes a five-year, $110.0 million revolving receivables purchase facility that expires on June 30, 2004, which allows the Company to sell certain accounts receivables on a non-recourse basis. Receivables are sold under the agreement at discount rates based on a commercial paper rate plus a margin of 0.7%. At June 30, 2000, the Company had sold $88.1 million of accounts receivable under the facility. The Company liquidated approximately $64.2 million of its marketable securities portfolio in the nine months ending June 30, 2000, and utilized $36.6 million of the proceeds to pay down long-term debt. The Company's capital expenditures for fiscal 2000 are expected to approximate $20.0 million, primarily for environmental, safety and obsolescence projects. 13 The Company's debt agreements impose various restrictions that could limit the Company's ability to respond to market conditions, to provide for unanticipated capital requirements, to raise additional debt or equity capital or to take advantage of business opportunities. In addition to the financial covenants described above, the Company and each of its subsidiaries is subject to negative covenants contained in the Senior Credit Agreement that restrict, subject to specified exceptions: . the incurrence of additional indebtedness and other obligations and the granting of additional liens; . mergers, acquisitions and dispositions; . investments, loans and advances; . dividends, stock repurchases and redemptions; . prepayment or repurchase of other indebtedness and amendments to certain agreements governing indebtedness; . transactions with affiliates; . capital expenditures; . sales and leasebacks; . changes in fiscal periods; . changes of lines of business; and . entering into agreements that prohibit the creation of liens or limit the subsidiaries' ability to pay dividends. The indenture governing the Company's $250.0 million senior subordinated notes contains covenants that limit, with certain exceptions, the ability of the Company and most of its subsidiaries to: . incur additional indebtedness or issue certain redeemable preferred stock, or in the case of subsidiaries, any preferred stock; . pay dividends or make certain other restricted payments by the Company or its subsidiaries; . enter into transactions with affiliates; . make certain asset dispositions; . in the case of the Company, merge or consolidate with, or transfer substantially all of its assets to another person; . encumber assets; . issue capital stock of wholly owned subsidiaries; or . engage in certain business activities. In addition, under certain circumstances, the Company will be required to offer to repurchase the notes at par, plus accrued and unpaid interest, with the proceeds of certain asset sales. All of the Company's debt agreements and revolving receivable purchase facility contain cross default provisions. Results of Operations - --------------------- Net sales decreased $33.7 million, or 6.7%, for the three months and $47.7 million, or 3.4% for the nine months ended June 30, 2000, compared to the same periods pro forma of the prior year. The decrease in net sales for both the three and nine month periods ended June 30, 2000, compared to 1999 were due to lower sales prices for refined sugar, which was partially offset by an increase in refined sugar volumes. The Company sold refined sugar totaling $31.2 million to the government under a U.S. Department of Agriculture tender program in the third quarter, which was the reason the sugar segment's refined sugar volumes increased for the period. The foodservice segment's net sales decreased 8.3% for the three months and 4.1% for the nine month period ended June 30, 2000, compared to the pro forma amounts for the same periods of the prior year, primarily as a result of lower sales prices received for refined sugar sold in foodservice markets. 14 Gross margin as a percent of sales declined from 11.7% to 8.3% for the quarter and from 10.3% to 8.7% for the nine months, primarily due to significantly lower sales prices for refined sugar in both the sugar and foodservice segments, which more than offset the benefits from lower raw sugar costs. In addition, gross margin was negatively impacted by the tender of refined sugar to the government, which was sold at a loss of $2.4 million. The Company, as well as the rest of the domestic sugar industry, has experienced a very difficult operating environment, and the Company does not anticipate that the fundamentals of the domestic sugar industry will improve over the near term. Following a period of expansion in acreage planted in sugarbeets, the rate of which has exceeded growth in domestic demand for refined sugar, the largest domestic sugarbeet crop in history has produced a significant oversupply of refined sugar. The market has reacted accordingly, and prices for refined bulk sugar have fallen to fifteen-year lows, with published industry prices declining over 20%. The largest cane sugar crop in history, again due to acreage expansion as well as the development of higher yielding cane varieties, has caused the market price for domestic and quota foreign raw cane sugar to fall over 15%, also to fifteen-year lows. Additionally, the prospect of substantially higher imports of sugar from Mexico beginning on October 1, 2000, under NAFTA, may exacerbate the current oversupply. The decline in refined sugar prices has reduced margins both in the Company's sugarbeet processing operations, where the Company shares in the net revenues from refined sugar with the growers, as well as in its cane sugar refinery operations. The Company contracted a portion of industrial sugar sales for fiscal 2000 prior to the majority of the decline in prices, so it is not feeling the entire impact of the price decline in fiscal 2000. Similarly, the Company is not realizing the entire benefit of the lower raw sugar prices in fiscal 2000 because it contracted for its raw sugar supplies as it contracted for refined cane sugar industrial sales, pricing some of its raw sugar needs at higher levels. Overall, refined sugar prices have fallen more than raw sugar prices; so despite the reduced raw material costs, margins are significantly adversely impacted. While the Company has incurred and expects to continue to incur increasing energy, packaging and benefit costs, it has undertaken an initiative to reduce other costs, with savings at a $15 million annual run rate by the beginning of the fourth quarter of fiscal 2000. Approximately half of those savings are from reducing operating costs in the sugar refining operations, with the remaining cost savings from more efficient purchasing and savings in manufacturing costs in the foodservice segment, as well as a reduction in selling, general & administrative costs. Additionally, the Company is instituting new procurement procedures using third-party procurement groups which have the potential of reducing these costs. The Company intends to cease processing sugarbeets at the Tracy and Woodland, California facilities at the end of calendar 2000 following the completion of the fall production campaign. These factories will continue to package and distribute refined sugar products with sugar supplied from the remaining two California beet factories and other Company processing facilities. The Company intends to sell the real estate surrounding the facilities which, based on independent appraisals, is expected to generate proceeds in excess of $30 million, which will be applied to the reduction of debt. In August 2000, the Company announced it was discontinuing cane sugar refining at its Clewiston, Florida refinery. The Company expects to realize significant cost efficiencies by concentrating production in the southeastern United States in its large Savannah, Georgia refinery. As a result of discontinuing the refining operation in Clewiston, Florida, and ceasing to process sugarbeets at Tracy and Woodland, California, the Company expects to take a charge in fiscal fourth quarter 2000 of approximately $25 million, of which approximately $13 million is related to impairment costs to write down to fair value the assets used in those facilities. 15 Excluding the expenses related to the Company's accounts receivable securitization program of $1.6 million for the quarter and $4.8 million for the nine months ended June 30, 2000, as this program was not in place in the year ago period, selling, general and administrative costs were $5.0 million lower for the three months and $4.2 million lower for the nine months ended June 30, 2000, compared to the pro forma amounts for the same periods of the prior year. The decline is principally from reduced sales-related, administrative and promotional costs in the sugar segment, lower fixed and other overhead costs in the foodservice segment resulting from previously announced plant closures and from other expense reductions achieved across the Company's operations. Interest expense increased for the three months ended June 30, 2000 compared to prior year, due primarily to higher market interest rates and higher margins, which were partially offset by lower overall borrowing levels resulting from the securitization of accounts receivable and sale of marketable securities. Interest expense for the nine months ended June 30, 2000 decreased as lower overall borrowing levels more than offset higher interest rates. During the nine months ended June 30, 2000, the Company recognized a gain of $35.9 million from the sale of the majority of the Company's marketable securities portfolio. The loss on investment in partnership included in the prior year resulted from the write-off of the Company's investment in Pacific Northwest Sugar Company, a partnership in which the Company was a 43% limited partner. Other Income for the three and nine months ended June 30, 2000 was lower than the comparable period of the prior year primarily as a result of a decrease in dividend income due to the sale of the majority of the Company's marketable securities portfolio in fiscal 2000. Additionally, the Company recognized a gain of $1.2 million on the sale of land at a former beet sugar factory during the three months ended June 30, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company uses raw sugar futures and options in its inventory purchasing programs and natural gas futures to hedge natural gas purchases used in its manufacturing operations. Gains and losses on raw sugar futures and options are matched to specific inventory purchases and charged or credited to cost of sales as such inventory is sold. Gains and losses on natural gas futures are matched to the natural gas purchases and charged to cost of sales in the period of the purchase. The Company does not enter into futures or option transactions for trading purposes. The information in the table below presents the Company's domestic raw sugar futures position outstanding as of June 30, 2000. The Company's world sugar positions are not material to its consolidated financial position, results of operations or cash flows.
Expected Maturity Expected Maturity Domestic Raw Sugar Fiscal 2000 Fiscal 2001 - ------------------ --------------------- -------------------- (net short positions) (net long positions) Futures Contracts: Contract Volumes (cwt.) 243,040 35,840 Weighted Average Contract Price (per cwt.) $ 19.23 $ 19.61 Contract Amount $4,674,173 $702,901 Weighted Average Fair Value (per cwt.) $ 18.82 $ 19.30 Fair Value $4,574,013 $ 69,880
The above information does not include either the Company's physical inventory or its fixed price purchase commitments for raw sugar. 16 The information in the table below presents the Company's natural gas futures position outstanding as of June 30, 2000 .
Expected Expected Expected Maturity Maturity Maturity Natural Gas Fiscal 2000 Fiscal 2001 Fiscal 2002 - ----------- ----------- ----------- ----------- Futures Contracts (long positions): Contract Volumes (mmbtu) 550,000 4,900,000 150,000 Weighted Average Contract Price (per mmbtu) $ 4.41 $ 3.65 $ 3.46 Contract Amount $2,427,000 $17,886,000 $519,000 Weighted Average Fair Value (per mmbtu) $ 4.46 $ 4.01 $ 3.53 Fair Value $2,453,000 $19,633,000 $529,000
Although the Company's position in derivative financial instruments and other financial instruments has not changed materially since September 30, 1999, the market value on the Company's interest rate swaps have increased to $6.7 million due to the rise in interest rates. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The exhibits required to be filed with this report are listed below: Exhibit 27 Financial Data Schedules The Company is a party to several long-term debt instruments under which the total amount of securities authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii) (A) of Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. (b) The Company did not file any current reports on Form 8-K during the three months ended June 30, 2000. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. IMPERIAL SUGAR COMPANY (Registrant) Dated: August 4, 2000 By: /s/ Mark Q. Huggins ------------------- Mark Q. Huggins Managing Director and Chief Financial Officer (Principal Financial Officer) 18 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's unaudited condensed consolidated financial statements for the nine months ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 3,424 4,618 88,312 0 249,070 381,156 627,570 247,991 1,190,636 207,566 516,137 0 0 310,397 45,249 1,190,636 1,364,077 1,364,077 1,244,768 1,244,768 0 0 43,502 8,995 6,569 2,426 0 0 0 2,426 0.08 0.08
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