-----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, Liqen+giccuj3RAmV6GkscFUkgML20yZsIKL3t27BIP3Np5P2064W+tPrEG1iIPv J3RZM+1SH27Xq6CTxhI3MQ== 0000899243-02-000302.txt : 20020414 0000899243-02-000302.hdr.sgml : 20020414 ACCESSION NUMBER: 0000899243-02-000302 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL SUGAR CO /NEW/ CENTRAL INDEX KEY: 0000831327 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 740704500 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10307 FILM NUMBER: 02546457 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 d10q.txt FORM 10-Q FOR THE PERIOD ENDING DECEMBER 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2001 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 by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of February 12, 2002. 10,000,000 shares. ______________________________________________________________________________ IMPERIAL SUGAR COMPANY Index
Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Changes in Shareholders' Equity 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3 Quantitative and Qualitative Disclosure About Market Risk 15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16
___________________ Forward-Looking Statements Statements regarding market prices and margins, future operating results, sugarbeet acreage, operating efficiencies, future government action, cost savings, the future status of financing arrangements, our liquidity and ability to finance our operations, proposed sales of assets or businesses, and other statements that are not historical facts contained in this report on Form 10-Q are forward-looking statements. We identify forward-looking statements in this report by using the following words and similar expressions: . expect . project . estimate . believe . anticipate . likely . plan . intend . could . should . may . predict . budget Forward-looking statements involve risks, uncertainties and assumptions, including, without limitation, market factors, energy costs, the effect of weather and economic conditions, farm and trade policy, our ability to realize planned cost savings, the available supply of sugar, available quantity and quality of sugarbeets, court decisions and actions, the results of negotiations, actual or threatened acts of terrorism or armed hostilities and other factors detailed elsewhere in this report and in our other filings with the SEC. Many of such factors are beyond our ability to control or predict. Management cautions against placing undue reliance on forward-looking statements or projecting any future results based on such statements or present or future earnings levels. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this report. 2 PART I - FINANCIAL INFORMATION IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 SEPTEMBER 30, 2001 (Unaudited) ---------------- ------------------ (In Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and temporary investments $ 6,155 $ 7,331 Marketable securities 2,756 2,770 Accounts receivable 34,288 17,768 Notes receivable - securitization affiliate 3,365 12,605 Inventories: Finished products 92,624 82,466 Raw and in-process materials 60,353 52,826 Supplies 31,922 36,457 -------- -------- Total inventory 184,899 171,749 Deferred costs and prepaid expenses 32,164 38,364 -------- -------- Total current assets 263,627 250,587 OTHER INVESTMENTS 4,077 4,293 INVESTMENT IN SECURITIZATION AFFILIATE 12,321 19,933 PROPERTY, PLANT AND EQUIPMENT - net 251,246 275,453 OTHER ASSETS 4,393 5,517 -------- -------- TOTAL $535,664 $555,783 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 56,908 $ 81,514 Short-term borrowings 17,357 532 Current maturities of long-term debt 5,600 3,746 Other current liabilities 83,281 77,142 -------- -------- Total current liabilities 163,146 162,934 LONG-TERM DEBT - net of current maturities 204,610 226,779 DEFERRED EMPLOYEE BENEFITS 86,563 86,413 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 90,000 90,000 Retained earnings (accumulated deficit) (7,303) (6,464) Accumulated other comprehensive income (1,352) (3,879) -------- -------- Total shareholders' equity 81,345 79,657 -------- -------- TOTAL $535,664 $555,783 ======== ========
See notes to consolidated financial statements. 3 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Successor Predecessor Company Company ---------- ------------ Three Months Ended December 31, ------------------------ 2001 2000 --------- ---------- (In Thousands of Dollars, Except per Share Amounts) NET SALES $ 322,268 $ 428,462 ----------- ----------- COSTS AND EXPENSES: Cost of sales 300,915 397,240 Selling, general and administrative 13,745 22,425 Discount on receivables sold to securitization affiliate 1,290 1,628 Depreciation and amortization 5,649 12,795 ----------- ----------- Total 321,599 434,088 ----------- ----------- OPERATING INCOME (LOSS) 669 (5,626) INTEREST EXPENSE (5,910) (11,954) CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS 916 (3,209) GAIN ON SALE OF KING PACKAGING 3,901 - OTHER INCOME (EXPENSE) - net (415) 2,309 ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (839) (18,480) PROVISION (BENEFIT) FOR INCOME TAXES - (5,821) ----------- ----------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ (839) $ (12,659) CUMULATIVE EFFECT OF ACCOUNTING CHANGE - NET OF $1,266,000 OF INCOME TAX - 2,352 ----------- ----------- NET INCOME (LOSS) $ (839) $ (10,307) =========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) before cumulative effect of accounting change $ (0.08) $ (0.39) Cumulative effect of accounting change - 0.07 ----------- ----------- Net income (loss) $ (0.08) $ (0.32) =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 10,000,000 32,400,445 =========== =========== See notes to consolidated financial statements. 4 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) Successor Predecessor Company Company ---------- ------------ Three Months Ended December 31, ------------------------ 2001 2000 --------- ---------- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss) $ (839) $ (10,307) Adjustments for non-cash and non-operating items: Cumulative effect of accounting change, net - (2,352) Recognition of deferred loss on hedge derivative instruments in net income (645) (4,192) Unrealized loss on interest rate swaps (916) 3,209 Cash settlements on derivative instruments 2,946 8,397 Depreciation and amortization 5,649 12,795 Gain on sale of King Packaging (3,901) - Other 673 (221) Changes in operating assets and liabilities: Accounts receivables 5,932 11,206 Inventories (16,339) (115,201) Deferred costs and prepaid expenses 7,116 (1,470) Accounts payable - trade (24,606) 6,524 Other current liabilities 9,777 13,448 -------- --------- Operating cash flow (15,153) (78,164) -------- --------- INVESTING ACTIVITIES: Capital expenditures (1,314) (2,205) Proceeds from sale of King Packaging 21,479 - Other (351) (61) -------- --------- Investing cash flow 19,814 (2,266) -------- --------- FINANCING ACTIVITIES: Short-term debt: Commodity Credit Corporation borrowings - advances 14,478 - Other - net - (421) Revolving credit borrowings - net (11,481) 85,300 Repayment of long-term debt (8,834) (1,293) Issuance of stock and other - 30 -------- --------- Financing cash flow (5,837) 83,616 -------- --------- INCREASE(DECREASE) IN CASH AND TEMPORARY INVESTMENTS (1,176) 3,186 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 7,331 6,533 -------- --------- CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 6,155 $ 9,719 ======== ========= See notes to consolidated financial statements. 5 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended December 31, 2001 (UNAUDITED)
Accumulated Other Shares of Retained Comprehensive Common Stock Common Stock Earnings Income(Loss) Total ------------ ------------ --------- -------------- -------- (In Thousands of Dollars) -------------------------------------------------- BALANCE SEPTEMBER 30, 2001 10,000,000 $90,000 $(6,464) $(3,879) $79,657 Comprehensive Income: Net income (loss) - - (839) - (839) Change in derivative fair value - - - 2,946 2,946 Recognition of deferred gains in net income - - - (419) (419) ------- Total Comprehensive Income - - - - 2,527 ------------ ------------ -------- ------- ------- BALANCE DECEMBER 31, 2001 10,000,000 $90,000 $(7,303) $(1,352) $81,345 ============ ============ ======== ======= =======
See notes to consolidated financial statements. 6 IMPERIAL SUGAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000 1. ACCOUNTING POLICIES Basis of Presentation and Management Plans 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 accounting principles generally accepted in the United States of America 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, 2001. On January 16, 2001, Imperial Sugar Company and substantially all of its subsidiaries filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware. On August 29, 2001, the Company's Second Amended and Restated Joint Plan of Reorganization (the "Plan of Reorganization") became effective, and the Company emerged from bankruptcy court protection. The Company applied the accounting principles provided for in the American Institute of Certified Public Accountant's Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), including fresh start accounting upon emergence. Accordingly, the Company's financial position, results of operations and cash flows for the periods after the Company's emergence from bankruptcy are not comparable to earlier periods. Upon emergence from bankruptcy, the Company's debt aggregated approximately $230 million. The Company's accounts receivable securitization agreement and senior bank agreement contain various financial covenants, which, among other things, require that the Company maintain compliance with certain financial ratios and limits. The financial covenants were set at levels based on financial projections prepared in connection with the Plan of Reorganization, become more restrictive over time and do not accommodate significant downward variations in operating results. The Company's Plan of Reorganization and the related financial projections were predicated on improvements in the domestic refined sugar market from the historic lows recently experienced which, along with the deleveraging effects of the reorganization, are important to return the Company to a more sound financial basis. The Company has a very limited operating history since its emergence from bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not demonstrated that it will attain and sustain the levels included in the Company's projections. We currently are in compliance with the financial covenants contained in our debt agreements. Our ability to maintain compliance with these covenants depends on our ability to generate sufficient EBIDTA or to reduce our indebtedness, or both, which in turn depend on a number of factors, including future operating results and sales of assets, that we cannot predict with certainty. Our current forecast is below levels contained in the projections prepared in connection with our plan of reorganization and indicates that we will not meet certain of these covenants during fiscal 2002. If we fail to comply with some of these covenants, an event of default would occur unless our lenders acted to excuse compliance or to relax the covenants. 7 As previously discussed in the Company's Annual Report on Form 10-K for the year ended September 30, 2001, and referred to in the auditors' report contained therein, the uncertainties described above raise substantial doubt about the Company's ability to continue as a going concern. 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 consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. Management intends to sell assets of non-strategic operations and surplus assets and use the proceeds from such sales to repay debt, in an effort to improve the Company's working capital and liquidity. Finally, the Company is in active discussions with its lenders concerning an amendment to its debt agreements to help assure that the Company meets its debt covenants during fiscal 2002. However, there can be no assurances that such amendment will be obtained. Cost of Sales Payments to growers for sugarbeets are based in part upon the Company's average net return for sugar sold (as defined in the participating contracts with growers) during the grower contract years, some of which extend beyond December 31. The contracts provide for the sharing of the net selling price (gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization of costs for certain facilities used in connection with marketing) with growers. These financial statements include an accrual for estimated additional amounts to be paid to growers based on the average net return realized for sugar sold in each of the contract years through December 31. The final cost of sugarbeets cannot be determined until the end of the contract year for each growing area. Manufacturing costs incurred prior to production are deferred and allocated to production costs based on estimated total units of production for each sugar manufacturing campaign. Additionally, the Company's sugar inventories, which are accounted for on a LIFO basis, are periodically reduced at interim dates to levels below that of the beginning of the fiscal year. When such interim LIFO liquidations are expected to be restored prior to fiscal year-end, the estimated replacement cost of the liquidated layers is utilized as the basis of the cost of sugar sold from beginning of the year inventory. Accordingly, the cost of sugar utilized in the determination of cost of sales for interim periods includes estimates which may require adjustment in future fiscal periods. 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. 8 2. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars): December 31, September 30, 2001 2001 ------------ ------------- Senior bank agreements: Revolving credit facility $ 45,812 $ 57,293 Term loans 130,202 139,036 Industrial revenue bonds 22,500 22,500 Non-interest bearing notes 11,696 11,696 -------- -------- Total long-term debt 210,210 230,525 Less current maturities 5,600 3,746 -------- -------- Long-term debt, net $204,610 $226,779 ======== ======== In connection with the sale of Michigan Sugar discussed in Note 4, the Company repaid $10.5 million of the term loans and reduced the revolving credit facility commitment by $8.8 million in February 2002. Additionally, the Michigan Sugar buyer assumed industrial revenue bonds totaling $18.5 million, for which the Company remains contingently liable. 3. 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 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, ranging from 50-pound bags of sugar to individual packets of sugar, salt, pepper, non-dairy creamer, sauces, seasonings, drink mixes and desserts. Summarized financial information concerning the Company's reportable segments for the three months ended December 31, 2001 and 2000, is shown in the following table. The "Corporate and Other" column includes corporate-related items and securitization activities.
Corporate Food and Reconciling Sugar Service Other Eliminations Consolidated --------- --------- --------- ------------ ------------ (Thousands of Dollars) As of and for the Three Months Ending December 31, 2001 - ----------------- Revenues from external customers $242,471 $ 79,797 - - $ 322,268 Intersegment revenues 44,829 4,608 - $(49,437) - Gross margin 12,690 8,663 - - 21,353 Operating income (1,984) 3,947 $ (1,294) - 669 Total assets 446,225 62,689 26,750 535,664 As of and for the Three Months Ending December 31, 2000 - ----------------- Revenues from external customers $330,287 $ 98,175 - - $ 428,462 Intersegment revenues 22,704 1,945 - $(24,649) - Gross margin 18,403 12,819 - - 31,222 Operating income (6,261) 2,263 $ (1,628) - (5,626) Total assets 844,703 243,873 106,105 - 1,194,681
9 Reconciliation of Operating Income to Net Income before income taxes (in thousands): Three Months Ended December 31, 2001 2000 -------- -------- Operating income (loss) $ 669 $ (5,626) Interest expense (5,910) (11,954) Change in fair value of interest rate swaps 916 (3,209) Sale of King Packaging business 3,901 - Other income (expense) (415) 2,309 -------- -------- Income (loss) before income taxes $ (839) $(18,480) ======== ======== 4. SALES OF BUSINESS ASSETS In December 2001, the Company completed the sale of its King Packaging subsidiary for $28 million, subject to certain post-closing adjustments. Sales proceeds of $2.8 million were escrowed until September 2002 and additional proceeds of $2.8 million were escrowed until June 2003. The Company applied the net proceeds to reduce debt and expects to apply a portion of any escrow funds released to the Company to further reduce debt. King Packaging's sale of kits containing plastic cutlery and seasonings totaled $27 million for the twelve months ended September 30, 2001 and $5 million for the three months ended December 31, 2001. The Company completed the sale of its Michigan Sugar Company subsidiary in February 2002 to a grower-owned cooperative. The sales price was $29 million cash and $16 million in deferred payments, and the assumption of $18 million in industrial revenue bonds, for which the Company remains contingently liable. The Company entered into a sales and marketing agreement under which it will continue to market the refined sugar processed by Michigan Sugar Company for ten years following the sale. Michigan Sugar Company's sales were $162 million for the twelve months ended September 30, 2001 and $1 million for the three months ended December 31, 2001. Prior to the sale, the Company leased the four Michigan factories to the cooperative and managed and operated these factories for the cooperative. The lease agreement provided that the cooperative (1) pay all expenses necessary to operate the four factories and (2) pay the Company a lease management fee based on the number of tons of sugarbeets received at these factories for processing. Lease management fee recognized during the three months ended December 31, 2001 totaled $5 million. 5. OTHER CHARGES The Company accrued for certain future cash charges in conjunction with closing production facilities during prior years as summarized below (in thousands of dollars):
Accrued Accrued Balance at Amounts Balance at September 30, Paid in December 31, 2001 Fiscal 2002 2001 ------------- ----------- ------------ Accrual for cash charges: Severance $ 591 $ 127 $ 464 Environmental costs 5,031 5 5,026 Abandoned lease commitments and other cash costs 1,357 90 1,267 ------ ----- ------ Total $6,979 $ 222 $6,757 ====== ===== ======
10 6. UNCONSOLIDATED SUBSIDIARY In connection with a receivables securitization facility, subsidiaries of the Company sell trade receivables to an unconsolidated, wholly-owned subsidiary of the Company that, in turn, borrows from a third party lender. At December 31, 2001 such securitization affiliate had loans totaling $59 million from the third party lender secured by trade accounts receivable totaling $77 million. Trade receivables sold to the securitization affiliate totaled $363 million for the three months ended December 31, 2001. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with information contained in the Consolidated Financial Statements and the notes thereto. Overview We emerged from bankruptcy protection on August 29, 2001. Our future success will depend on our ability to return to profitability and generate sufficient cash flow to meet our operational and financing requirements, including servicing our indebtedness and maintain compliance with our credit agreement. Other factors that may cause actual results of operations and future financial condition to differ from those expressed or implied in any forward- looking statements contained in this report include domestic prices for refined sugar and raw cane sugar, the quantity and quality of sugarbeets available to us and the availability and price of energy and other resources. We caution that the foregoing list of important factors is not exclusive. A key part of our plan to reduce debt, reduce working capital requirements and improve liquidity is the sale of surplus assets (for example, excess real estate and idle factory assets) and the sale of assets used in non-strategic operations. We sold our King Packaging operation in December 2001 and completed the sale of our Michigan Sugar beet sugar operation in February 2002. We are currently pursuing a number of other sales from which, together with the King Packaging and Michigan Sugar transactions, we expect to realize in excess of $100 million of proceeds. After the closing of the Michigan Sugar transaction, we have realized $52 million of such proceeds. We can provide no assurance that we will complete any future dispositions or as to the amount or timing of our receipt of any proceeds from those dispositions. Our financial results have been affected by our filing for reorganization under chapter 11 of the Bankruptcy Code on January 16, 2001 and our emergence from bankruptcy. The consolidated balance sheet information at September 30, 2001 and December 31, 2001, and the consolidated statements of operations and cash flows for the three months ended December 31, 2001 reflect results after the consummation of our plan of reorganization and the application of the principles of fresh start accounting in accordance with the provisions of SOP 90-7. Our company before and our company after adopting fresh start accounting are different reporting entities and our consolidated financial statements have not been prepared on the same basis. We operate in two domestic business segments. Our sugar segment produces and sells refined sugar and related products. Our foodservice segment sells and distributes sugar and numerous other products to foodservice customers. The segments are managed separately because each business requires different production techniques and marketing strategies. 11 Liquidity and Capital Resources We entered into a restructuring credit facility and a receivables facility when we emerged from bankruptcy. These facilities replaced our debtor-in- possession financing agreement which provided for financing that we used during the pendency of our reorganization. Restructuring Credit Agreement - As part of our plan of reorganization, we entered into a restructuring credit agreement with a group of lenders led by Harris Trust and Savings Bank as administrative and collateral agent. Our obligations under the credit agreement are guaranteed by certain of our direct and indirect subsidiaries. The credit agreement extends and continues, in part, the revolving credit facility and term loans provided to us by substantially the same group of lenders prior to our bankruptcy and during the pendency of the bankruptcy. In connection with the sale of our King Packaging operations in December 2001, we repaid $8.7 million of the term loans and reduced the revolving credit facility commitment by $7.3 million to $109.6 million. We had unused capacity under the revolving credit facility of approximately $29.5 million at December 31, 2001. Sales proceeds totaling $19.3 million from the Michigan Sugar Company sale were applied to permanently reduce debt in February 2002. We are required to make mandatory prepayments of the term loan and reduce proportionately the commitment under the revolving credit facility from net cash proceeds of: . asset sales, excluding receivables securing the receivables securitization facility . casualty and condemnation events . new equity issuances . excess cash flow (as defined in the restructuring credit agreement). Our obligations under the restructuring credit agreement are secured by a lien on substantially all of our personal property and the personal property of the subsidiaries guaranteeing our obligations (in each case, excluding receivables that are securing the receivables securitization facility), as well as substantially all of our real property and the real property of the subsidiaries. In addition, the restructuring credit agreement contains negative covenants limiting our ability to, among other things: . incur other indebtedness . incur other liens . undergo any fundamental changes . sell assets . declare or pay dividends . make investments and acquisitions and specified capital expenditures . modify debt instruments . engage in transactions with affiliates . enter into sale and leaseback transactions . change our fiscal periods . enter into or permit to exist any agreement that restricts our ability to pledge assets . enter into or permit to exist any agreement that restricts the ability of a material subsidiary to pay dividends or other distributions . engage in another type of business 12 . pay or incur repair and maintenance expenses related to certain plants . make use of proceeds of borrowings under the credit facility for purposes other than those specified in the agreement. The restructuring credit agreement also contains financial covenants requiring us to comply with the following: . a minimum ratio of EBITDA to net interest expense . a minimum ratio of current assets to current liabilities . a minimum net worth requirement . a minimum EBITDA requirement . a maximum ratio of total net debt to EBITDA The terms used in these financial covenants have specific meanings as defined in the restructuring credit agreement. The restructuring credit agreement also includes customary events of default, including a change of control. Borrowings will generally be available subject to the accuracy of all representations and warranties, including the absence of a material adverse change and the absence of any default or event of default. The financial covenants contained in the restructuring credit facility were set at levels based on projections prepared in connection with our plan of reorganization, become more restrictive over time and do not accommodate significant downward variations in operating results. Our plan of reorganization and the related financial projections were predicated on improvements in the domestic refined sugar markets from the historic lows recently experienced which, along with the deleveraging effects of the reorganization, are important to return our company to a more sound financial basis. We have a very limited operating history since our emergence from bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not demonstrated that it will attain and sustain the levels included in the projections. We are currently in compliance with all financial covenants of our debt agreements. Our ability to maintain compliance with these covenants depends on our ability to generate sufficient EBIDTA or to reduce our indebtedness, or both, which in turn depend on a number of factors, including future operating results and sales of assets, that we cannot predict with certainty. Our current forecast is below levels contained in the projections prepared in connection with our plan of reorganization and indicates that we will not meet certain of these covenants during fiscal 2002. If we fail to comply with some of these covenants, an event of default would occur unless our lenders acted to excuse compliance or to relax the covenants. We are in active discussions with our lenders concerning an amendment of the covenants but, we cannot provide assurance that we will obtain an amendment. If we do not cure or obtain a waiver for an event of default, our debt obligations might become payable immediately, we would be restricted from further borrowings under the facility and we might be required to refinance, restructure or reorganize all or a portion of our indebtedness, sell assets, obtain additional debt or equity financing or take other actions. We cannot assure you that we would be able to achieve any of these steps. Receivables Facility - On August 28, 2001, Imperial Sugar Securitization, LLC, an indirect, wholly owned, unconsolidated subsidiary of Imperial Sugar, entered into a Receivables Funding Agreement with, among others, General Electric Capital Corporation ("GECC"), as lender and administrative agent. Under this agreement, GECC and any other participating lenders agree to lend up to $110 13 million to Imperial Sugar Securitization based on a variable advance rate of up to 85% of eligible accounts receivable, as defined in the agreement. The loans are secured primarily by the accounts receivable owned by Imperial Sugar Securitization. The facility is available until August 28, 2004. Imperial Sugar Securitization purchases accounts receivable from certain subsidiaries of Imperial Sugar Company (the "Originators") under a receivables sale agreement. This agreement requires each Originator to sell or contribute all accounts receivable it generates to Imperial Sugar Securitization on a daily basis. The Originators receive a combination of cash and notes for sold accounts and equity in Imperial Sugar Securitization for contributed accounts. At December 31, 2001, the Originators had sold $77 million of receivables and Imperial Sugar Securitization had outstanding advances from GECC totaling $59 million. Our capital expenditures for fiscal 2002 are expected to be approximately $20 million, primarily for environmental, safety and production replacement projects. Our sugar production operations require substantial seasonal working capital. This seasonal requirement generally peaks during our second fiscal quarter when inventory levels are high, and a substantial portion of the payments to raw material suppliers have been made. Management believes that the credit facility and cash flow from operations will provide sufficient capital to meet anticipated working capital and operational needs for at least the next twelve months. Results of Operations Industry Environment Our results of operations substantially depend on market factors, including domestic prices for refined sugar and raw cane sugar, the quantity and quality of sugarbeets available to us and the availability and price of energy and other resources. These market factors are influenced by a variety of external forces that we are unable to predict, 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. 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 Imperial Sugar's cane refineries. The domestic sugar market is currently improving, although not as rapidly as we forecasted in our bankruptcy plan of reorganization. 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. Net sales decreased $106.2 million, or 24.8%, for the three months ending December 31, 2001 compared to 2000 primarily due to a decline in sugar and byproduct sales volumes as a result of leasing the Michigan Sugar beet factories in the fall of 2001, and closure of two northern California beet factories in December 2000. Sale of the nutritional products business in April 2001 and the King Packaging operations in December 2001, reduced foodservice segment sales by $16 million. Sugar sales prices increased during the quarter in both the sugar and foodservice segment and were partially offset by somewhat lower nonsugar prices in the foodservice segment. Future sales volumes are expected to continue at lower levels than comparable historical periods as a result of the sales of business assets. 14 Cost of sales for the three months ending December 31, 2001 decreased $96.3 million or 24.2%, resulting in a decrease in gross margin as a percent of sales from 7.3% for the three months ending December 31, 2000 to 6.6% for the three months ending December 31, 2001. By segment, sugar gross margin as a percent of sales decreased from 5.6% to 5.2% and foodservice gross margin as a percent of sales decreased from 13.1% to 10.9%. The decrease in gross margin for the foodservice segment was primarily due to the sale of the high margin nutritional products business and an increase in sugar costs, partially offset by manufacturing cost decreases. The decrease in gross margin for the sugar segment is primarily due to higher raw sugar costs, almost completely offset by lower energy and other manufacturing costs, as well as higher sales prices for refined sugar. 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, lagged market price changes for the three months ending December 31, 2001. An oversupplied domestic sugar market resulted in historically low refined sugar prices last year. Certain government actions, including a payment-in-kind program, helped reduce the supply of sugar, and a smaller domestic sugarbeet crop processed in the fall of 2001 has resulted in increases in industrial market prices on contracts commencing October 1, 2001 or January 1, 2002. The Company expects that its sugar sales margins will improve during fiscal 2002. However the sugar market has not demonstrated that it will achieve or sustain the levels included in the financial projections prepared in connection with the Company's Plan of Reorganization. Selling, general and administrative costs decreased $9.0 million or 37.5% for the three months ending December 31, 2001 compared to 2000, primarily due to costs savings initiatives and reductions related to the sale or leasing of certain operations. Additionally, last year's totals include $3.2 million of costs incurred prior to the Company filing a petition for relief under chapter 11 of the U.S. Bankruptcy Code. Depreciation and amortization decreased primarily as a result of fresh start accounting adjustments to plant, property and equipment, and intangible assets. Interest expense decreased $6.0 million for the three months ending December 31, 2001 compared to 2000 primarily due to the debt restructuring accomplished in the Company's bankruptcy, as well as lower overall borrowing levels resulting from lower inventory levels. Other income decreased $2.7 million for the three months ending December 31, 2001 compared to 2000 primarily due to the Company selling certain emissions reduction credits from nonoperating facilities in California in the prior year. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We use raw sugar futures and options in our raw sugar purchasing programs and natural gas futures to hedge natural gas purchases used in our manufacturing operations. Gains and losses on raw sugar futures and options are matched to 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. 15 The information in the table below presents our domestic and world raw sugar futures positions outstanding as of December 31, 2001. Our world sugar option positions are not material to our consolidated financial position, results of operations or cash flows. Expected Expected Maturity Maturity Fiscal 2002 Fiscal 2003 ----------- ----------- Domestic Futures Contracts (net long positions): Contract Volumes (cwt.)........................... 2,283,680 166,880 Weighted Average Contract Price (per cwt.)........ $ 21.51 $ 21.37 Contract Amount................................... $49,119,000 $3,566,000 Weighted Average Fair Value (per cwt.)............ $ 21.47 $ 21.35 Fair Value........................................ $49,030,000 $3,563,000 Expected Expected Maturity Maturity Fiscal 2002 Fiscal 2003 ----------- ----------- World Futures Contracts (net long positions): Contract Volumes (cwt.)........................... 1,037,000 45,000 Weighted Average Contract Price (per cwt.)........ $ 6.59 $ 6.40 Contract Amount................................... $ 6,839,000 $ 287,000 Weighted Average Fair Value (per cwt.)............ $ 6.56 $ 6.47 Fair Value........................................ $ 6,804,000 $ 290,000 The above information does not include either our physical inventory or our fixed price purchase commitments for raw sugar. The information in the table below presents our natural gas futures positions outstanding as of December 31, 2001. Expected Maturity Fiscal 2002 ----------------- Futures Contracts (long positions): Contract Volumes (mmbtu)..................... 5,610,000 Weighted Average Contract Price (per mmbtu).. $ 3.10 Contract Amount.............................. $17,372,000 Weighted Average Fair Value (per mmbtu)...... $ 2.67 Fair Value................................... $14,995,000 The Company's position in derivative financial instruments and other derivative instruments has not changed materially since September 30, 2001. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) None. 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. 16 (b) Reports on Form 8-K The Company did not file any current reports on Form 8-K during the three months ended December 31, 2001. 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: February 13, 2002 By: /s/ J. Chris Brewster --------------------- J. Chris Brewster Managing Director and Chief Financial Officer (Principal Financial Officer) 18 -----END PRIVACY-ENHANCED MESSAGE-----