-----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, ISyYEiTYJe5Ah1IlNkRFT/VCSnce0MztJGHlVuLGjI/r81yRoZn9S/xJNCMses8G YwpQDM90RnPT25RqaqdpNw== 0000899243-03-000286.txt : 20030214 0000899243-03-000286.hdr.sgml : 20030214 20030214141301 ACCESSION NUMBER: 0000899243-03-000286 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 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: 000-16674 FILM NUMBER: 03566085 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 PERIOD ENDING DECEMBER 31, 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 December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ............ 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 13, 2003. 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 14 Item 4 Controls and Procedures 17 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 ---------------------- Forward-Looking Statements Statements regarding future market prices and margins, future operating results, sugarbeet acreage, operating efficiencies, future government action, cost savings, our liquidity and ability to finance our operations, 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 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
DECEMBER 31, SEPTEMBER 30, 2002 2002 (Unaudited) ---------------- -------------- (In Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and temporary investments .......................................... $ 15,726 $ 5,885 Marketable securities ................................................... 2,552 2,907 Accounts receivable (Note 4) ............................................ 63,862 31,788 Notes receivable-securitization affiliate (Note 4) ...................... - 7,084 Inventories: Finished products ..................................................... 58,788 92,303 Raw and in-process materials .......................................... 34,856 39,161 Supplies .............................................................. 9,536 11,544 ----------- ------------ Total inventory ..................................................... 103,180 143,008 Deferred costs and prepaid expenses ..................................... 25,674 11,364 Net assets of discontinued operations (Note 6) .......................... - 51,679 ----------- ------------ Total current assets ................................................ 210,994 253,715 OTHER INVESTMENTS ......................................................... 13,189 14,280 INVESTMENT IN SECURITIZATION AFFILIATE (Note 4) ........................... - 13,895 PROPERTY, PLANT AND EQUIPMENT - net ....................................... 145,454 151,071 OTHER ASSETS .............................................................. 17,272 4,770 ----------- ------------ TOTAL ............................................................... $ 386,909 $ 437,731 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade ................................................ $ 47,714 $ 61,904 Short-term borrowings ................................................... 2,145 3,445 Current maturities of long-term debt (Note 2) ........................... 36,858 6,844 Other current liabilities ............................................... 52,762 50,340 ----------- ------------ Total current liabilities ........................................... 139,479 122,533 LONG-TERM DEBT - net of current maturities (Note 2) ....................... 12,286 148,878 DEFERRED EMPLOYEE BENEFITS ................................................ 71,377 68,060 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 ........................................... 95,316 95,316 Retained earnings ....................................................... 73,412 9,953 Accumulated other comprehensive income .................................. (4,961) (7,009) ----------- ------------ Total shareholders' equity .......................................... 163,767 98,260 ----------- ------------ TOTAL $ 386,909 $ 437,731 =========== ============
See notes to consolidated financial statements. 3 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended December 31, ------------------------ 2002 2001 ---------- --------- (In Thousands of Dollars, Except per Share Amounts) NET SALES .................................................................... $ 277,209 $ 245,594 ----------- ----------- COSTS AND EXPENSES: Cost of sales .............................................................. 256,918 232,668 Selling, general and administrative ........................................ 14,541 11,754 Discount on receivables sold to securitization affiliate ................................................................ 1,930 964 Depreciation and amortization .............................................. 3,355 3,814 Asset impairment and other charges (Note 3) ................................ 2,783 - ----------- ----------- Total .................................................................. 279,527 249,200 ----------- ----------- OPERATING INCOME (LOSS) ...................................................... (2,318) (3,606) INTEREST EXPENSE ............................................................. (584) (5,910) COSTS ASSOCIATED WITH DEBT REPAID ............................................ (4,617) - CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS .................................. (315) 916 GAIN ON SALE OF ASSETS ....................................................... 1,424 (82) OTHER INCOME (EXPENSE) - net ................................................. 862 (428) ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ........................................................ (5,548) (9,110) PROVISION FOR INCOME TAXES ................................................... - - ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS ..................................... $ (5,548) $ (9,110) INCOME FROM DISCONTINUED OPERATIONS (including gain on disposal of $64,141) (Note 6) ........................... 69,007 8,271 ----------- ----------- NET INCOME (LOSS) ............................................................ $ 63,459 $ ( 839) =========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) from continuing operations ................................. $ (0.55) $ (0.91) Income from discontinued operations ...................................... 6.90 0.83 ----------- ----------- Net income (loss) ........................................................ $ 6.35 $ (0.08) =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING........................................... 10,000,000 10,000,000 =========== ===========
See notes to consolidated financial statements. 4 IMPERIAL SUGAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended December 31, -------------------------------- 2002 2001 ------------- -------------- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss) ......................................................... $ 63,459 $ (839) Adjustments for non-cash and non-operating items: Recognition of deferred loss on hedge derivative instruments in net income ............................................. - (645) Unrealized loss on interest rate swaps .................................. (315) (916) Inventory impairment .................................................... 1,920 - Write off of deferred debt costs ........................................ 2,420 - Cash settlements on derivative instruments .............................. 2,946 Depreciation and amortization ........................................... 3,355 3,814 Loss (Gain) on sale of assets ........................................... (1,424) (3,901) Loss (Gain) on sale of discontinued operations .......................... (64,141) - Income from discontinued operations ..................................... (4,866) (8,271) Other ................................................................... (23) 673 Changes in operating assets and liabilities: Accounts receivables .................................................... 10,122 5,932 Inventories ............................................................. 36,518 (16,339) Deferred costs and prepaid expenses ..................................... (14,622) 7,116 Accounts payable - trade ................................................ (15,186) (24,606) Other current liabilities ............................................... (1,565) 9,777 ----------- --------- Net cash (used in) provided by continuing operations ...................... 15,652 (24,851) Net cash provided by discontinued operations .............................. 5,694 10,106 ----------- --------- Net cash provided by (used in) operating activities ............................ 21,346 (15,153) ----------- --------- INVESTING ACTIVITIES: Capital expenditures - discontinued operations ............................ (155) (126) Capital expenditures - continuing operations .............................. (1,470) (1,188) Proceeds from sale of marketable securities ............................... - 21,479 Proceeds from sale of assets .............................................. 6,093 - Proceeds from sale of discontinued operations ............................. 135,116 - Other ..................................................................... (5,943) (351) ----------- --------- Investing cash flow ............................................................ 133,641 19,814 ----------- --------- FINANCING ACTIVITIES: Short-term debt: Commodity Credit Corporation - advances ................................. 14,478 Other - net ............................................................. (1,300) - Long term debt borrowings ................................................. 35,000 - Revolving credit repayment - net .......................................... (25,040) (11,481) Repayment of long-term debt ............................................... (116,538) (8,834) Repurchase accounts receivable ............................................ (37,268) - ----------- --------- Financing cash flow ............................................................ (145,146) (5,837) ----------- --------- INCREASE(DECREASE) IN CASH AND TEMPORARY INVESTMENTS ........................... 9,841 (1,176) CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD ............................ 5,885 7,331 ----------- --------- CASH AND TEMPORARY INVESTMENTS, END OF PERIOD .................................. $ 15,726 $ 6,155 =========== =========
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, 2002 (UNAUDITED)
Shares Accumulated of Other Common Common Retained Comprehensive Stock Stock Earnings Income(Loss) Total ----------- ----------- -------- ------------- --------- (In Thousands of Dollars) ----------------------------------------------------------- BALANCE SEPTEMBER 30, 2002 .............. 10,000,000 $95,316 $ 9,953 $(7,009) $ 98,260 Comprehensive Income: Net income (loss) ....................... - - 63,459 - 63,459 Change in derivative fair value ........................... - - - 87 87 Recognition of deferred losses in net income ................. - - - 1,961 1,961 -------- Total Comprehensive Income .............. - - - - 65,507 ---------- ------- ------- ------- -------- BALANCE DECEMBER 31, 2002 ............... 10,000,000 $95,316 $73,412 $(4,961) $163,767 ========== ======= ======= ======= ========
See notes to consolidated financial statements. 6 IMPERIAL SUGAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 1. ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. These financial statements include the accounts of Imperial Sugar Company and its majority owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures required by 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, 2002. 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 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, including those described above, 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. Reportable Segments The Company has previously identified two reportable segments: sugar and foodservice. The Company sold the majority of its foodservice division in December 2002, as discussed in footnote 6, and has reported the results of that business as discontinued operations. Therefore, the Company now operates and reports its business as one segment. 7 Accounting Pronouncements Effective October 2002, the Company adopted the provisions of Statement of Financial Accounting Standards 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. Effective October 2002, the Company adopted Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which requires that long-lived assets to be disposed of by sale, including discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 also broadens the reporting requirements of discontinued operations to include all components of an entity that have operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities," which replaced Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." SFAS 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 146 will have a significant impact on its financial statements. Reclassifications Certain amounts in the prior year presentation have been reclassified to be consistent with fiscal 2003. 2. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars): December 31, September 30, 2002 2002 ------------ ------------- Senior bank agreements: Revolving credit facility $ - $ 25,040 Term loans 35,000 115,836 Industrial revenue bonds 3,840 3,840 Non-interest bearing notes 10,304 11,006 ------- -------- Total long-term debt 49,144 155,722 Less current maturities 36,858 6,844 ------- -------- Long-term debt, net $12,286 $148,878 ======= ======== 8 On December 31, 2002, the Company repaid its existing senior bank debt and entered into a $175 million Senior Secured Credit Facility. The new debt consists of a three-year $140 million (subject to a borrowing base calculation) senior secured revolving credit facility ("Revolver") and a three-year $35 million term loan ("Term Loan"). The funds from the new borrowing along with the proceeds of the sale of the foodservice division were used to repay existing senior bank debt, repurchase accounts receivable from the Company's accounts receivable securitization facility, and pay related fees and expenses associated with these transactions. At December 31, 2002, the Company had no outstanding borrowings under the Revolver and was obligated under $36 million of letters of credit issued under the Revolver. The new facility is secured by substantially all of the Company's assets and guaranteed by all the Company's subsidiaries. The agreement contains financial covenants which require, commencing September 30, 2003, maintenance of a minimum EBITDA level and a minimum fixed charge coverage ratio. Interest rates on the term loan are LIBOR plus a margin of 2.75% to 3.50% or prime plus 0.25% to 1.00%. Interest rates on the revolver are LIBOR plus a margin of 2.25% to 3.00% or prime plus zero to 0.50%. The Term Loan is repayable in monthly installments of approximately $583,000, commencing February 1, 2003 with final payment of the remaining balance due January 1, 2006. Although it has a final maturity date of January 1, 2006, the Company classified debt under the Senior Secured Credit Facility as current, pursuant to Emerging Issues Task Force Issue 95-22, as the agreement contains a subjective acceleration clause if there is a material adverse effect, in the opinion of the lender, and provides the lenders direct access to our cash receipts. The Company had interest rate swap agreements with a major financial institution which were terminated in December 2002, under which the Company paid a fixed interest rate of 6.01% on $90.6 million. The Company entered into a new interest rate swap agreement with a major financial institution in January 2003 under which the Company pays a fixed rate of 2.465% and receives a floating interest payment based on 3 month LIBOR, on a notional amount which starts at $25 million and reduces $1.75 million per quarter, until final maturity in December 2005. In connection with the sale of Michigan Sugar, in February 2002, the buyer assumed industrial revenue bonds totaling $18.5 million, for which the Company remains contingently liable. 3. ASSET IMPAIRMENT AND OTHER CHARGES In December 2002, the Company ceased sugar refining operations at its Sugar Land, Texas facility and, subject to union negotiations, intends to continue packaging and distribution operations in Sugar Land. The Company recorded a charge in connection with this action as follows (in thousands of dollars): Impairment of Supplies Inventory ....................... $1,920 Accrual for Cash Costs: Severance(for 40 salaried employees) ................ 593 Environmental Costs ................................. 50 Abandoned Lease Commitments and Other Cash Costs .... 220 ------ Total .................................................. $2,783 ====== The supplies inventory impairment reduces to net realizable value inventories that are not readily transferable to the Company's other production facilities because of difference in equipment or process technologies. 9 In conjunction with the cessation of refining operations in Sugar Land, the Company offered its affected bargaining unit employees severance of $2.3 million even though not required in the collective bargaining agreement in return for certain changes in the agreement. The union leadership rejected the Company's offer and filed a grievance alleging the Company owed unspecified severance pursuant to the existing contract. The Company estimates that severance calculated pursuant to the grievance calculations would be approximately $4 million. Based on the advice of counsel, the Company believes that its interpretation of the contract is correct and intends to contest the union's grievance. Changes in the accrued balance for future cash expenditures in conjunction with closing production facilities is summarized below (in thousands of dollars):
Accrued Accrued Balance at Amounts Amounts Balance at September 30, Accrued in Paid in December 31, 2002 Fiscal 2003 Fiscal 2003 2002 ------------- ------------ ----------- ------------ Accrual for cash charges: Severance $ 593 $ 593 Environmental costs $1,444 50 $ 22 1,472 Abandoned lease commitments and other cash costs 842 220 - 1,062 ------ ----- ----- ------ Total $2,286 $ 863 $ 22 $3,127 ====== ===== ===== ======
4. SALE OF ACCOUNTS RECEIVABLE Previously the Company sold trade receivables to an unconsolidated, wholly-owned subsidiary of the Company that, in turn, borrowed from a third party lender. In December 2002, in connection with the sale of the foodservice segment and the refinancing of the Company's senior bank debt, the Company repurchased all receivables sold under the securitization facility and terminated the facility. 5. STOCK OPTIONS During the three months ended December 31, 2002, the Company granted options to purchase 155,000 shares of common stock at prices ranging from $1.17 to $2.48 per share. The options which vest over a three year period, expire ten years after the date of grant. A total of 1,185,986 options to purchase common stock, which are potentially dilutive in future periods, were excluded from the computation of earnings per share because they were antidilutive for the three months ended December 31, 2002. There were no stock options outstanding during the three months ended December 31, 2001. 6. DISCONTINUED OPERATIONS In October 2002, the Company completed the sale of its beet processing facilities in Sidney, Montana and Torrington, Wyoming, and its Hereford, Texas beet factory. Proceeds from the transaction were $34 million, approximately $925,000 of which was placed in escrow, resulting in a gain of approximately $3.1 million. Sales from these facilities were $88 million for the twelve months ended September 30, 2002. In December 2002, the Company completed the sale of its Diamond Crystal Brands ("DCB") foodservice division. The Company retained a substantial portion of the sugar product sales to the foodservice segment as a result of this disposition. The proceeds from the sale of this division were approximately $115 million (subject to certain post-closing adjustments), including $9.2 million placed in escrow for two years, resulting in a gain of approximately $61.0 million. DCB sales, excluding the portion of sugar product sales retained by the Company, were approximately $171.0 million for the twelve months ended September 30, 2002. 10 The financial statements have been reclassified to reflect these operations as discontinued. The operating results of DCB have been included through December 30, 2002 and the operating results of Sidney, Torrington, and Hereford have been included through October 7, 2002. The net assets of discontinued operations prior to the date of sale were segregated on the balance sheet and components have been detailed below. No provision for income taxes on discontinued operations was recorded because of differences in the book and tax basis of the stock of DCB that was sold in December 2002. Summary operating results of discontinued operations are as follows (in thousands of dollars):
Three Months Ended December 31, -------------------------------- 2002 2001 ------------- ------------ NET SALES .................................................................. $ 49,986 $ 76,674 COST AND EXPENSES .......................................................... 44,625 70,564 DEPRECIATION ............................................................... 794 1,835 ---------- ---------- OPERATING INCOME FROM DISCONTINUED OPERATIONS .............................. 4,567 4,275 OTHER INCOME ............................................................... 303 13 GAIN ON SALE OF ASSETS ..................................................... (4) 3,983 PROVISION FOR INCOME TAXES ................................................. - - ---------- ---------- INCOME FROM DISCONTINUED OPERATIONS ........................................ $ 4,866 $ 8,271 ========== ========== Net assets of discontinued operations are as follows (in thousands of dollars): September 30, 2002 ------------------ CURRENT ASSETS ............................................................. $ 21,665 PROPERTY, PLANT AND EQUIPMENT, NET ......................................... 55,648 -------- TOTAL ASSETS ........................................................ 77,313 -------- CURRENT LIABILITIES ........................................................ 17,395 OTHER LONG-TERM LIABILITIES ................................................ 8,239 -------- TOTAL LIABILITIES ................................................... 25,634 -------- Net assets of discontinued operations ................................. $ 51,679 ========
11 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 have significantly de-leveraged our balance sheet and improved our liquidity and our operating results since emerging from bankruptcy in August 2001. A key part of our strategy was the sale of surplus assets (for example, excess real estate and idle factory assets) and certain operating units. In the first quarter of fiscal 2003 we completed the sales of our Sidney, Montana, Torrington, Wyoming and Hereford, Texas sugarbeet factories and our foodservice business for gross proceeds of approximately $34 million and $115 million respectively. As a result, our total debt has been reduced from $231 million upon our emergence from bankruptcy to $51 million upon our refinancing completed December 31, 2002. In connection with our de-leveraging efforts, we have shifted our focus to marketing and distributing our sugar products in core geographic markets in the Southeast, Southwest and West Coast. We have historically operated in two domestic business segments. Our sugar segment produces and sells refined sugar and related products. Our foodservice segment, which we sold in December 2002, sold and distributed sugar and numerous other products to foodservice customers. The segments were managed separately because each business required different production techniques and marketing strategies. Liquidity and Capital Resources On December 31, 2002, we entered into a new credit facility with a group of lenders led by Bank of America and General Electric Capital Corporation. The initial funding under the new facility, together with the cash proceeds from the sale of our foodservice operations, was used to repay our existing senior bank debt and repurchase accounts receivable sold under our securitization agreement, which were both terminated. The new facility consists of a $35 million three-year term loan and a $140 million (subject to a borrowing base calculation) three-year revolving credit facility, including a $50 million sub-limit for letters of credit. At December 31, 2002 we had no outstanding borrowings under the revolving credit facility. As of February 13, 2003, we had no outstanding revolving credit facility borrowings and had unused borrowing capacity of $27 million pursuant to the borrowing base calculation under the revolving credit facility. The facility is secured by substantially all of our assets and is guaranteed by all of our subsidiaries. The agreement contains covenants limiting our ability to, among other things: . incur other indebtedness . incur other liens . undergo any fundamental changes . declare or pay dividends . engage in transactions with affiliates . enter into sale and leaseback transactions . change our fiscal periods . enter into mergers or consolidations . sell assets . prepay other debt In addition, the agreement requires that, commencing September 30, 2003, we comply each quarter with the following: . a minimum level of earnings before interest, taxes, depreciation and amortization ("EBITDA") . a minimum fixed charge coverage ratio The facility also includes customary events of default, including a change of control. Borrowings will generally be available subject to a borrowing base and 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. Although the facility has a final maturity date of January 1, 2006, the Company has classified debt under the new credit facility as current, pursuant to Emerging Issues Task Force Issue 95-22 as the agreement contains a subjective acceleration clause if there is a material adverse effect, in the opinion of the lenders, and provides the lenders direct access to our cash receipts. 12 Interest on the term loan accrues at LIBOR plus a margin that varies (based on utilization) between 2.75% and 3.50% or at a base rate (the Bank of America prime rate) plus a margin that varies from 0.25% to 1.00%. Interest on revolving credit borrowings accrue at LIBOR plus a margin of 2.25% to 3.00% or the base rate plus a margin of zero to 0.50%. Our capital expenditures for fiscal 2003 are expected to total $20 million, and include productivity, packaging, and computer systems improvements, as well as normal replacement projects. Our sugar production operations require seasonal working capital. Following the sale of our Rocky Mountain sugarbeet factories, which had substantial working capital requirements in the first half of our 2002 fiscal year, this seasonal requirement is expected to peak during our third fiscal quarter when inventory levels are high, and a substantial portion of the payment to raw material supplies 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 and the marketing of refined beet and raw cane sugar, potentially affecting refined sugar sales prices and volumes as well as the supply and cost of raw material available to our cane refineries. 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 increased $31.6 million, or 12.9%, for the three months ended December 31, 2002 compared to 2001 primarily due to a 7% increase in sugar prices as well as somewhat higher sales volumes. Following a period of oversupply and low prices in prior years, the domestic sugar markets experienced increases in sugar prices during fiscal 2002. Because of our forward priced sales contracts, some of which are written on a calendar year basis, we saw prices rising during the first quarter of fiscal 2002 and level off in later quarters. Our prices realized in the first quarter of fiscal 2003 are higher than those during the same period last year, and we expect that they will remain above corresponding prior year levels for the remainder of the year. Cost of sales for the three months ended December 31, 2002 increased by $24.2 million or 10.4% compared to the same period for 2001. Increased cost of sales was a result of higher raw material and manufacturing costs (both fixed and variable) at sugar cane and sugarbeet facilities. Sugarbeet costs increased in proportion to sales price increases and raw cane costs increased due to market factors. Manufacturing costs were higher due primarily to increased energy prices and employee benefit costs. Absent a change in the energy markets, we expect that energy costs will continue to increase. Gross margin as a percentage of revenue increased from 5.3% for the three months ended December 31, 2001 to 7.3% for the three months ended December 31, 2002, 13 as the increase in cost of sales was less than the increase in refined sugar prices. A significant portion of the Company's industrial sales are made under fixed price, forward sales contracts, most of which commence October 1 or January 1, and extend for up to one year. Additionally, the Company prices a portion of its raw sugar purchases in advance of the time of delivery either through pricing provisions of its raw sugar contracts or through hedging transactions in the raw sugar futures market. As a result, the Company's realized sales prices, as well as its realized raw sugar costs, lagged market price changes for the three months ended December 31, 2002. The Company incurred approximately $2.8 million in charges in the quarter ended December 31, 2002 associated with discontinuance of refining at the Sugar Land refinery. These costs include severance, impairment of inventory and environmental costs. Selling, general and administrative costs increased $2.8 million or 23.7% for the three months ended December 31, 2002 compared to 2001, primarily due to increased professional fees and other costs incurred in connection with our initiatives to rationalize our businesses and restructure our capital requirements, including trailing bankruptcy costs. Such costs totaled $2.1 million in the three months ended December 31, 2002 and $0.7 million in the three months ended December 31, 2001. Additionally, increased medical and pension costs, partially offset by a decrease in advertising and marketing costs, contributed to the increase in selling general and administrative costs in the quarter. Depreciation and amortization decreased primarily as a result of sales of assets disposed of in the Michigan and Worland beet factory sales in February and June 2002, respectively. Interest expense decreased $5.3 million for the three months ended December 31, 2002 compared to 2001 as a result of lower market interest rates and lower borrowing levels resulting from the sale of business units. As a result of our repaying the senior bank debt in December 2002, the prior bank agreement provided for a refund of interest of $2.1 million which had been charged to expense in fiscal 2002; interest expense in the first quarter of fiscal 2003 has been reduced by this amount. The Company incurred costs of $4.6 million for the three months ended December 31, 2002, related to the write-off of prior deferred debt costs during the refinancing of the senior secured debt facility, as well as restructuring advisory fees incurred in the process of refinancing the prior credit facility. We realized gains on sales of surplus real estate totaling $1.4 million during the quarter ended December 31, 2002. Income from discontinued operations includes the operating results of DCB and the sugarbeet factories in Sidney, Torrington and Hereford through the dates of their sale, as well as the gains realized on the sale of these businesses. 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. 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. 14 The information in the table below presents our domestic and world raw sugar futures positions outstanding as of December 31, 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 (long positions): Contract Volumes (cwt.) ................................................... 2,713,760 263,200 Weighted Average Contract Price (per cwt.) ................................ $ 22.18 $ 21.66 Contract Amount ........................................................... $60,201,527 $ 5,700,127 Weighted Average Fair Value (per cwt.) .................................... $ 22.25 $ 21.89 Fair Value ................................................................ $60,390,254 $ 5,762,445 Expected Maturity Fiscal 2003 ----------- World Futures Contracts (long positions): Contract Volumes (mmbtu) .................................................. 1,102,080 Weighted Average Contract Price (per mmbtu) ............................... $ 6.29 Contract Amount ........................................................... $6,937,507 Weighted Average Fair Value (per mmbtu) ................................... $ 6.75 Fair Value ................................................................ $7,436,166
The above information does not include either our physical inventory or our fixed price purchase commitments for raw sugar. 15 The information in the table below presents our natural gas futures and options positions outstanding as of December 31, 2002.
Expected Maturity Fiscal 2003 ----------- Futures Contracts (long positions): Contract Volumes (mmbtu) ............................................. 1,650,000 Weighted Average Contract Price (per mmbtu) .......................... $ 3.85 Contract Amount ...................................................... $6,346,795 Weighted Average Fair Value (per mmbtu) .............................. $ 4.44 Fair Value ........................................................... $7,332,450 Natural Gas Option Contracts (long positions): Contract Volumes ..................................................... 2,000,000 Weighted Average Strike Price ........................................ $ 3.60 Contract Amount ...................................................... $ 975,999 Fair Value ........................................................... $2,087,450 Natural Gas Option Contracts (short positions): Contract Volumes ..................................................... 300,000 Weighted Average Strike Price ........................................ $ 3.80 Contract Amount ...................................................... $ 152,499 Fair Value ........................................................... $ 37,950
16 During December 2002, the Company terminated its interest swap agreement. The Company entered into a new swap agreement in January 2003 as described in footnote 2 to the financial statements. Item 4. CONTROLS AND PROCEDURES Within 90 days prior to the filing of this report, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, concluded that our disclosure controls and procedures were effective in ensuring that material information relating to us with respect to the period covered by this report was made known to them. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of that evaluation. 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 During the three months ended December 31, 2002, the Company filed one current report on Form 8-K on October 15, 2002, in connection with the sale of its beet processing facilities in Sidney, Montana, Torrington, Wyoming and Hereford, Texas. The Company filed a current report on Form 8-K on January 9, 2003 in connection with the adoption of its Shareholder Rights Plan. The Company filed a current report on Form 8-K on January 14, 2003 in connection with the sale of its Diamond Crystal Brands foodservice business. 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 14, 2003 By: /s/ Darrell D. Swank ----------------------------- Darrell D. Swank Executive Vice President and Chief Financial Officer 18 CERTIFICATION I, Robert A. Peiser, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Imperial Sugar Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have; a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 By: /s/ Robert A. Peiser --------------------------------------- Robert A. Peiser President and Chief Executive Officer 19 CERTIFICATION I, Darrell D. Swank, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Imperial Sugar Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have; a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): d. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 By: /s/ Darrell D. Swank ---------------------------------- Darrell D. Swank Executive Vice President and Chief Financial Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----