-----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, JrfF3TCfDMtbpIIk+R3hlxVlZ8qPzSzphYoWADW3a5Yso8Q3vvj8QVlPOuY4WBwY xqUiQwQA1tYrTbHi07w/7g== 0000899243-02-002255.txt : 20020813 0000899243-02-002255.hdr.sgml : 20020813 20020813152740 ACCESSION NUMBER: 0000899243-02-002255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 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: 02729519 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 SUGAR CO /TX/ DATE OF NAME CHANGE: 19880606 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL HOLLY CORP DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.txt FORM 10-Q FOR THE PERIOD 06/30/2002 - ------------------------------------------------------------------------------ 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, 2002 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 August 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 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 18 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 19 ---------------------- Forward-Looking Statements Statements regarding market prices and margins, future operating results, sugarbeet acreage, operating efficiencies, future government and legislative action, cost savings, compliance with covenants in our financial agreements, 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: o expect o project o estimate o believe o anticipate o likely o plan o intend o could o should o may o predict o 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, legislative and administrative actions 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
JUNE 30, 2002 (Unaudited) SEPTEMBER 30, 2001 ------------- ------------------ ASSETS (In Thousands of Dollars) CURRENT ASSETS: Cash and temporary investments $ 39,180 $ 7,331 Marketable securities 3,798 2,770 Accounts receivable 22,698 17,768 Notes receivable - securitization affiliate 12,385 12,605 Inventories: Finished products 92,352 82,466 Raw and in-process materials 57,154 52,826 Supplies 17,412 36,457 --------- --------- Total inventory 166,918 171,749 Deferred costs and prepaid expenses 26,799 38,364 --------- --------- Total current assets 271,778 250,587 OTHER INVESTMENTS 13,706 4,293 INVESTMENT IN SECURITIATION AFFILIATE 14,157 19,933 PROPERTY, PLANT AND EQUIPMENT - net 210,566 275,453 OTHER ASSETS 5,618 5,517 --------- --------- TOTAL $ 515,825 $ 555,783 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 63,467 $ 81,514 Short-term borrowings 21,393 532 Current maturities of long-term debt 6,673 3,746 Other current liabilities 74,091 77,142 --------- --------- Total current liabilities 165,624 162,934 LONG TERM DEBT - net of current maturities 185,955 226,779 DEFERRED EMPLOYEE BENEFITS 64,517 86,413 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, without par value, issuable in series; 5,000,000 shares authorized, none issued -- -- Common stock 90,000 90,000 Retained earnings (deficit) 9,777 (6,464) Accumulated other comprehensive income (48) (3,879) --------- --------- Total shareholders' equity 99,729 79,657 --------- --------- TOTAL $ 515,825 $ 555,783 ========= =========
See notes to consolidated financial statements. 3 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Successor Predecessor Successor Predecessor Company Company Company Company ------------ --------------- ------------ -------------- Three Months Ended Nine Months Ended June 30, June 30, ----------------------------- ---------------------------- 2002 2001 2002 2001 -------------- ------------- ------------- ------------- (In Thousands of Dollars, Except per Share Amounts) NET SALES $ 319,854 $ 372,274 $ 948,525 $1,173,322 --------- --------- --------- ---------- COSTS AND EXPENSES: Cost of sales 295,295 350,254 875,695 1,097,356 Selling, general and administrative 15,305 17,103 46,818 56,444 Discount on receivables sold to securitization affiliate 688 1,424 2,845 5,040 Depreciation and amortization 4,288 12,514 14,390 37,859 --------- --------- --------- ---------- Total 315,576 381,295 939,748 1,196,699 --------- --------- --------- ---------- OPERATING INCOME (LOSS) 4,278 (9,021) 8,777 (23,377) INTEREST EXPENSE (5,325) (6,918) (15,614) (28,165) REORGANIZATION COSTS - (4,170) - (7,705) CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS (340) 395 1,754 (6,795) GAIN ON SALE OF ASSETS 3,913 2,239 21,786 4,331 OTHER INCOME (EXPENSE)- net 260 626 (462) 3,814 --------- --------- --------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 2,786 (16,849) 16,241 (57,897) PROVISION (BENEFIT) FOR INCOME TAXES - (2,751) - (15,964) --------- --------- --------- ---------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,786 (14,098) 16,241 (41,933) CUMULATIVE EFFECT OF ACCOUNTING CHANGE - NET OF $1,266,000 OF INCOME TAX - - - 2,352 --------- --------- --------- ---------- NET INCOME (LOSS) $ 2,786 $ (14,098) $ 16,241 $ (39,581) ========= ========= ========= ========== BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) before cumulative effect of accounting change $ 0.28 $ (0.43) $ 1.62 $ (1.29) Cumulative effect of accounting change - - - 0.07 --------- --------- --------- ---------- Net income (loss) $ 0.28 $ (0.43) $ 1.62 $ (1.22) ========= ========= ========= ========== DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) before cumulative effect of accounting change $ 0.28 $ (0.43) $ 1.62 $ (1.29) Cumulative effect of accounting change - - - 0.07 --------- --------- --------- ---------- Net income (loss) $ 0.28 $ (0.43) $ 1.62 $ (1.22) ========= ========= ========= ========== WEIGHTED AVERAGE SHARES OUTSTANDING 10,000,000 32,412,368 10,000,000 32,408,350 =========== ========== ========== ==========
See notes to consolidated financial statements. 4 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Successor Predecessor Company Company --------------- --------------- Nine Months Ended June 30, --------------------------------------- 2002 2001 --------------- ----------------- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss) $ 16,241 $ (39,581) Adjustments for non-cash and non-operating items: Cumulative effect of accounting change, net - (2,352) Reclassification adjustment from accumulated other comprehensive income to net income (4,408) (9,866) Change in fair value of interest rate swaps (1,754) 5,870 Cash settlements on derivative instruments - net 6,578 (9,409) Depreciation and amortization 14,390 37,859 Gain on sales of assets (21,786) (4,331) Other (6) 1,818 Changes in operating assets and liabilities: Accounts receivables 6,567 (491) Inventories (15,688) (18,531) Deferred costs and prepaid expenses (1,584) 16,822 Accounts payable - trade (15,284) (111,689) Other liabilities 986 77,137 -------- -------- Operating cash flow (15,748) (56,744) -------- -------- INVESTING ACTIVITIES: Capital expenditures (9,760) (6,710) Proceeds from maturity of securities 1,263 3,006 Proceeds from sale of assets 59,210 56,072 Investment in marketable securities (2,219) (1,666) Other (1,908) (1,138) -------- -------- Investing cash flow 46,586 49,564 -------- -------- FINANCING ACTIVITIES: Short-term debt: Commodity Credit Corporation borrowings - advances 34,268 - Commodity Credit Corporation borrowings - repayments (13,826) - Other - net 419 - Debtor-in-possession credit facility - net - 36,050 Pre-petition revolving credit borrowings - net - 94,000 Post-petition revolving credit borrowings - net 2,682 (116,950) Repayment of long-term debt (22,532) (3,868) Issuance of stock and other - 30 -------- -------- Financing cash flow 1,011 9,262 -------- -------- INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 31,849 2,082 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 7,331 6,533 -------- -------- CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 39,180 $ 8,615 ======== ========
See notes to consolidated financial statements. 5 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE NINE MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
Accumulated Other Shares of Common Retained Comprehensive Common Stock 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 - - 16,241 - 16,241 Change in derivative fair value - - - 8,239 8,239 Recognition of deferred Gains in net income - - - (4,408) (4,408) ------- Total Comprehensive Income - - - - 20,072 ---------- ------- ------- ------- ------- BALANCE JUNE 30, 2002 10,000,000 $90,000 $ 9,777 $ (48) $99,729 ========== ======= ======= ======= =======
See notes to consolidated financial statements. 6 IMPERIAL SUGAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED JUNE 30, 2002 AND 2001 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 experienced in 2001 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 limited operating history since its emergence from bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not attained the levels included in the Company's projections. In June 2002, the Company and its lenders agreed to an amendment to the Restructuring Credit Agreement which, among other things, eliminated or reduced the financial covenant requirements as of June 30 and, subject to attainment of specified conditions, as of September 30, 2002. Financial covenants for subsequent periods beginning with the quarter ending December 31, 2002 were unaffected by this amendment. The specified conditions referred to above include a requirement that we continue our efforts to refinance our debt through a combination of asset sales, new borrowings or other forms of capital, and establishes a timetable for certain actions we must take in that regard. The Company was in compliance with the amended 7 financial covenants for the quarter ended June 30, 2002. Our ability to maintain compliance with the amended covenants as of September 30 depends on our ability to generate sufficient EBIDTA and to attain the specified conditions referred to above, which we cannot predict with certainty. Our ability to maintain compliance with these covenants in future periods depends on our ability to generate sufficient EBITDA or to reduce our indebtedness, or both, and our progress in the efforts describe above, 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 thesse covenants as soon as December 31, 2002. If we fail to comply with some of these covenants, an event of default would occur unless our lenders acted again to excuse compliance or to relax the covenants. 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 is evaluating its operations and intends to continue 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. Additionally, the Company continues its efforts to refinance its debt through a combination of asset sales, new borrowings or other forms of capital. However, there can be no assurances that the Company will be successful in these efforts. 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 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 8 Company's financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates. Reclassifications Certain amounts have been reclassified to conform to the current period presentation. 2. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars): June 30, September 30, 2002 2001 -------- ------------- Senior bank agreements: Revolving credit facility $ 59,975 $ 57,293 Term loans 117,782 139,036 Industrial revenue bonds 3,920 22,500 Non-interest bearing notes 10,951 11,696 -------- -------- Total long-term debt 192,628 230,525 Less current maturities 6,673 3,746 -------- -------- Long-term debt, net $185,955 $226,779 ======== ======== In connection with the sale of Michigan Sugar, the buyer assumed industrial revenue bonds totaling $18.5 million, for which the Company remains contingently liable. Additionally, the Company was obligated under $33.4 million of letters of credit, primarily securing insurance obligations. 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 and nine months ended June 30, 2002 and 2001, is shown in the following table. The "Corporate and Other" column includes corporate-related items and securitization activities. 9
Corporate Food and Reconciling Sugar Service Other Eliminations Consolidated ----------- ------- ----------- ------------ ------------ (Thousands of Dollars) For the Three Months Ending June 30, 2002 - ------------- Revenues from external customers $246,336 $73,518 - - $319,854 Intersegment revenues 41,896 3,872 - $(45,768) - Gross margin 15,688 8,624 - - 24,312 Operating income (loss) (9) 5,002 $(962) - 4,031 For the Three Months Ending June 30, 2001 - ------------- Revenues from external customers $288,754 $ 83,520 - - $372,274 Intersegment revenues 21,219 1,953 - $(23,172) - Gross margin 10,858 11,162 - - 22,020 Operating income (loss) (10,743) 3,146 $ (1,424) - (9,021) For the Nine Months Ending June 30, 2002 - ------------- Revenues from external customers $720,336 $228,189 - - $948,525 Intersegment revenues 108,251 11,383 - $(119,634) - Gross margin 47,197 25,386 - - 72,583 Operating income (loss) 27 11,632 $(3,129) - 8,530 For the Nine Months Ending June 30, 2001 - ------------- Revenues from external customers $898,249 $275,073 - - $1,173,322 Intersegment revenues 64,124 5,650 - $(69,774) - Gross margin 38,235 37,731 - - 75,966 Operating income (loss) (28,418) 10,081 $ (5,040) - (23,377) Total Assets of - --------------- June 30, 2002 $384,772 $54,284 76,769 - $515,825 September 30, 2001 445,791 91,852 18,140 - 555,783
4. SALES OF 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 revenues from sales 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, subject to certain post-closing adjustments, consisted of $29 million cash, $16 million in deferred payments, and the assumption of $18.5 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. 10 Beginning in October 2001, 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. Michigan Sugar Company's sales were $162 million for the twelve months ended September 30, 2001. For the nine months ended June 30, 2002, lease, management and marketing fees totaled $8 million. Additionally, the Company has continued to pursue the sale of assets to reduce debt. During the quarter ended June 30, 2002, the Company completed the sale of its Worland, Wyoming factory and sold surplus land and other non-operating assets for proceeds aggregating $7 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 June 30, 2001 Fiscal 2002 2002 ------------- ----------- ---------- Accrual for cash charges: Severance $ 591 $ 552 $ 39 Environmental costs 5,031 138 4,893 Abandoned lease commitments and other cash costs 1,357 320 1,037 ------- ----- ------ Total $6,979 $1,010 $5,969 ====== ====== ======
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 June 30, 2002 the securitization affiliate had loans totaling $59 million from the third party lender secured by trade accounts receivable totaling $88 million. Trade receivables sold to the securitization affiliate aggregated $1.0 billion during the nine months ended June 30, 2002. 7. STOCK OPTIONS During the first nine months of fiscal 2002, the Company granted options to purchase 1,202,456 shares of common stock at prices ranging from $5.55 to $4.00 per share. The options, which vest over a three year period, expire ten years after the date of grant. For the three and nine month periods ended June 30, 2002, such options were anti-dilutive for purposes of earnings per share calculations. 8. NEW ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145 which, among other things, amends prior statements to require that gains and losses from the extinguishment of debt generally be classified within continuing operations. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 11 2002 and early application is encouraged. The Company does not believe that the adoption of SFAS No. 145 will have a significant impact on its financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which replaces Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity". SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not believe that the adoption of SFAS No. 146 will have a significant impact on its financial statements. 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, as well as legislative and regulatory actions. 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 expect to realize in excess of $100 million of proceeds from sales after our reorganization. Through June 30, 2002, we have realized $59 million from asset sales, including the sale of our King Packaging operation in December 2001 and the sale of our Michigan Sugar beet sugar operation in February 2002. 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 such 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 June 30, 2002, and the consolidated statements of operations and cash flows for the three and nine months ended June 30, 2002 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. 12 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. We have repaid the term loans and reduced the revolving credit facility commitment by an aggregate of $39.7 million from the proceeds of asset sales this fiscal year, leaving a balance of $117.8 million of term loans and a revolving credit commitment of $98.9 million. At June 30, 2002, the balance of the revolving credit facility was $60.0 million and we had cash and temporary investments of $39.1 million. Additionally, we had short-term borrowings from the Commodity Credit Corporation totaling $20 million to finance seasonal inventory increases. We had unused capacity under the revolving credit facility of approximately $13 million at August 12, 2002. We are required to make mandatory prepayments of the term loans and reduce proportionately the commitment under the revolving credit facility from net cash proceeds of: o asset sales, excluding receivables securing the receivables securitization facility o casualty and condemnation events o certain equity issuances o 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: o incur other indebtedness o incur other liens o undergo any fundamental changes o sell assets o declare or pay dividends o make investments, loans, advances, acquisitions and specified capital expenditures o modify debt instruments o engage in transactions with affiliates o enter into sale and leaseback transactions o change our fiscal periods o enter into or permit to exist any agreement that restricts our ability to pledge assets 13 o enter into or permit to exist any agreement that restricts the ability of a material subsidiary to pay dividends or other distributions o engage in another type of business o pay or incur repair and maintenance expenses related to certain plants o 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: o a minimum ratio of EBITDA to net interest expense o a minimum ratio of current assets to current liabilities o a minimum net worth requirement o a minimum EBITDA requirement o a maximum ratio of total net debt to EBITDA o a minimum ratio of EBITDA less capital expenditures to fixed charges 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 experienced in 2001 which, along with the deleveraging effects of the reorganization, are important to return our company to a more sound financial basis. We have a limited operating history since our emergence from bankruptcy, and the refined sugar market, while significantly improved over the prior year, has not attained the levels included in the projections. In June 2002, we agreed with the lenders to an amendment to the Restructuring Credit Agreement which, among other things, eliminated or reduced the financial covenant requirements as of June 30 and, subject to attainment of specified conditions, as of September 30, 2002. Financial covenants for subsequent periods beginning with the quarter ending December 31, 2002 were unaffected by this amendment. The specified conditions referred to above include a requirement that we continue our efforts to refinance our debt through a combination of asset sales, new borrowings or other forms of capital, and establishes a timetable for certain actions we must take in that regard. We are in compliance with the amended financial covenants for the quarter ended June 30, 2002. Our ability to maintain compliance with the amended covenants as of September 30 depends on our ability to generate sufficient EBIDTA and to attain the specified conditions referred to above, which we cannot predict with certainty. Our ability to maintain compliance with these covenants in future periods depends on our ability to generate sufficient EBITDA or to reduce our indebtedness, or both, and our progress in the efforts described above, 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 as soon as December 31, 2002. If we fail to comply with some of these covenants, an event of default would occur unless our lenders acted again to excuse 14 compliance or to relax the covenants. If we do not cure or obtain a waiver for an event of default, our lenders might accelerate our debt obligations so that they would 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. Interest rates on borrowings under the Restructuring Credit Agreement were increased by 1.5% for the three months ended June 30, 2002 and by 6.5% for the six months ending December 31, 2002, although there are certain provisions to reduce the interest rate paid during the six months ending December 31, 2002 by 5.5% in the event the facility is refinanced or otherwise paid off. The amended agreement provides that an amount equal to the increase would be added to the outstanding balances of the loans at the end of each quarter, rather than paid in cash. 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 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 June 30, 2002, the Originators had sold $88 million of receivables and Imperial Sugar Securitization had outstanding advances from GECC totaling $59 million. In June 2002, we agreed to an amendment of this facility on terms similar to the amendment of the Restructuring Credit Agreement. Our capital expenditures for fiscal 2002 are expected to be approximately $15 million, including approximately $5 million in the fourth fiscal quarter, primarily for environmental, safety and production replacement projects. Our sugar production operations require substantial seasonal working capital. This seasonal requirement generally increases during the first fiscal quarter and 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. New Accounting Pronouncements In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145 which, among other things, amends prior statements to require that gains and losses from the extinguishment of debt generally be classified within continuing operations. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002 and early application is encouraged. The Company does not believe that the adoption of SFAS No. 145 will have a significant impact on its financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which replaces Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity". SFAS No. 146 requires companies to recognize 15 costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not believe that the adoption of SFAS No. 146 will have a significant impact on its financial statements. 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. A new farm bill, which becomes effective October 1, 2002, extends the price support program for domestic crops of sugarbeets and sugar cane, by continuing the existing tariff rate quota and the CCC loan programs. The new farm bill will, in certain circumstances, institute marketing allotments on sugarbeet processors like ourselves and domestic raw cane sugar producers who supply raw sugar to us. The USDA has announced that allotments will be in effect for the crop year beginning October 1, 2002, but has not announced the processor by processor amounts. Additionally under the new farm bill, CCC loans will be non-recourse in all circumstances and the forfeiture penalty is eliminated. We are not able to predict the impact, if any, this new law will have on our operations. 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. Three and Nine Months Ended June 30, 2002 Net sales decreased $52.4 million, or 14.1%, for the three months and $224.8 million, or 19.2%, for the nine months ended June 30, 2002 compared to 2001, primarily as a result of the disposition of business assets during the past twelve months. Sugar segment sales declined $35.6 million for the quarter and $116.3 million for the nine months as a result of leasing the Michigan Sugar beet factories in the fall of 2001; the sale of the Michigan facilities was completed in February 2002. Additionally, current year sales were reduced approximately $5.0 million for the quarter and $51.6 million for the nine months, as a result of the closure of two northern California beet factories in December 2000. Sugar sales prices increased 13% and 9% during the three and nine month periods, respectively. Sale of the nutritional products business in April 2001 and the King Packaging operations in December 2001, reduced foodservice segment sales by $11.7 million for the quarter and $46.7 million for the nine months. Additionally, nonsugar prices were somewhat lower in certain product categories 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. Gross margin as a percent of sales improved from 5.9% for the three months ending June 30, 2001 to 7.6% for the three months ending June 30, 2002, and improved from 6.5% to 7.6% for the nine month periods. Sugar segment gross margin as a 16 percent of sales increased from 3.8% to 6.4% for the quarter and from 4.3% to 6.6% for the nine months. Foodservice gross margin as a percent of sales decreased from 13.4% to 11.7% for the quarter and from 13.7% to 11.1% for the nine months. The increase in gross margin for the sugar segment is primarily due to higher refined sugar prices and lower energy costs, partially offset by higher raw sugar costs. 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. 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, lag market price changes. An oversupplied domestic sugar market resulted in historically low refined sugar prices last fiscal 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. However, the sugar market has not achieved the levels included in the financial projections prepared in connection with the Company's Plan of Reorganization. Selling, general and administrative costs decreased $1.8 million or 10.5% for the three months and decreased $9.6 million or 17.1% for the nine months ended June 30, 2002 compared to 2001. Included in the current fiscal year totals are costs relating to ongoing bankruptcy claims activity of $0.1 million for the third quarter and $1.4 million for the nine month period. Last year's nine month 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. Costs incurred during the pendency of the bankruptcy case last year are reported separately as Reorganization Costs. Excluding bankruptcy related costs, selling, general and administrative costs decreased $1.3 million for the quarter and $7.3 million for the nine months, primarily due to cost savings initiatives and reductions related to the sale or leasing of certain operations, offset by increased professional services costs. Depreciation and amortization decreased primarily as a result of fresh start accounting adjustments to plant, property and equipment, and intangible assets, as well as a result of assets sales. Interest expense decreased $1.8 million for the three months and $12.8 million for the nine months ending June 30, 2002 compared to 2001 primarily due to the debt restructuring accomplished in the Company's bankruptcy, as well as debt reductions from proceeds of asset sales. Interest rates on our Restructuring Credit Agreement will increase by 5% during the quarters ending September 30, 2002 and December 31, 2002, from the rate in effect in the quarter ended June 30, 2002, as a result of the amendment agreed to in June 2002. Other income decreased $0.4 million for the three months and $4.3 million for the nine months ending June 30, 2002 compared to 2001 primarily due to gains on the settlement of certain trade liabilities in the second quarter of the prior fiscal year. 17 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 and options to hedge natural gas purchases used in our manufacturing operations. The information in the table below presents our domestic and world raw sugar futures positions outstanding as of June 30, 2002. Our world sugar option positions are not material to our consolidated financial position, results of operations or cash flows.
Expected Expected Maturity Maturity Fiscal 2003 Fiscal 2004 ----------- ----------- Domestic Futures Contracts (net long positions): Contract Volumes (cwt.) 816,480 48,160 Weighted Average Contract Price (per cwt.) $20.71 $20.74 Contract Amount $16,906,000 $999,000 Weighted Average Fair Value (per cwt.) $20.25 $20.55 Fair Value $16,538,000 $990,000 Expected Maturity Fiscal 2003 ----------------- World Futures Contracts (net long positions): Contract Volumes (cwt.) 1,291,360 Weighted Average Contract Price (per cwt.) $5.45 Contract Amount $7,032,000 Weighted Average Fair Value (per cwt.) $5.10 Fair Value $6,581,000
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 and options positions outstanding as of March 31, 2002. Expected Maturity Fiscal 2002 ---------------- Futures Contracts (long positions): Contract Volumes (mmbtu) 1,180,000 Weighted Average Contract Price (per mmbtu) $3.16 Contract Amount $3,727,000 Weighted Average Fair Value (per mmbtu) $3.28 Fair Value $3,866,450 Expected Maturity Fiscal 2003 ---------------- Natural Gas Option Contracts (long): Contract Volumes (mmbtu) 3,500,000 Weighted Average Strike Price $3.46 Contract Amount $1,586,000 Fair Value $2,254,000 Natural Gas Option Contracts (short): Contract Volumes (mmbtu) 1,300,000 Weighted Average Strike Price $3.67 Contract Amount $744,000 Fair Value $790,000 18 The Company's interest rate swaps position 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. (b) Reports on Form 8-K The Company filed a current report on Form 8-K on April 10, 2002 in connection with amendments to its Restructuring Credit Agreement and its Receivable Funding Agreement. The Company filed a current report on Form 8-K on July 2, 2002, in connection with amendments to its Restructuring Credit Agreement and its Receivable Funding Agreement. 19 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 13, 2002 By: /s/ J. Chris Brewster -------------------------------- J. Chris Brewster Executive Vice President and Chief Financial Officer (Principal Financial Officer) 20 -----END PRIVACY-ENHANCED MESSAGE-----