-----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, Euu+WtvRc75HXYEjsVZYWkBpHNpilPrxc9B4DBCZwoXmdWgopcfa26z0YgPskiuH wh7FcMUqZ+RG2BSHttJ66A== 0000950129-98-000092.txt : 19980114 0000950129-98-000092.hdr.sgml : 19980114 ACCESSION NUMBER: 0000950129-98-000092 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971222 ITEM INFORMATION: FILED AS OF DATE: 19980113 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL HOLLY CORP 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-10307 FILM NUMBER: 98505464 BUSINESS ADDRESS: STREET 1: ONE IMPERIAL SQ STE 200 STREET 2: P O BOX 9 CITY: SUGAR LAND STATE: TX ZIP: 77487 BUSINESS PHONE: 7134919181 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL SUGAR CO /TX/ DATE OF NAME CHANGE: 19880606 8-K/A 1 IMPERIAL HOLLY CORPORATION - DATED 12/22/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 22, 1997 IMPERIAL HOLLY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 001-10307 74-0704500 (STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
ONE IMPERIAL SQUARE, SUITE 200 8016 HIGHWAY 90-A SUGAR LAND, TEXAS 77487 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (281) 491-9181 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 2 This Current Report on Form 8-K/A amends the report on Form 8-K (the "Form 8-K") filed on January 6, 1998 by Imperial Holly Corporation in connection with the consummation of the merger of Savannah Foods & Industries, Inc. with a wholly owned subsidiary of the Company. Capitalized terms used but not defined herein or in the exhibits filed herewith shall have the meanings set forth in the Form 8-K. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The audited consolidated financial statements of Savannah Foods as of September 28, 1997 and September 29, 1996 and for the fiscal years ended September 28, 1997, September 29, 1996 and October 1, 1995 required pursuant to item 7 of this form are included as Exhibit 99.3 hereto. (b) PRO FORMA FINANCIAL INFORMATION. The unaudited pro forma combined condensed financial statements of the Company and Savannah Foods as of and for the year ended March 31, 1997 and for the six months ended September 30, 1996 and 1997 are included as Exhibit 99.4 hereto. (c) EXHIBITS Exhibit 23.1 -- Consent of Arthur Andersen LLP Exhibit 23.2 -- Consent of Price Waterhouse LLP *Exhibit 99.1 -- Press Release issued by Imperial Holly Corporation on December 22, 1997 *Exhibit 99.2 -- Agreement and Plan of Merger, dated September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-40445)). Exhibit 99.3 -- Audited Consolidated Financial Statements of Savannah Foods & Industries, Inc. as of September 28, 1997 and September 29, 1996 and for the fiscal years ended September 28, 1997, September 29, 1996 and October 1, 1995. Exhibit 99.4 -- Pro Forma Combined Condensed Financial Statements of Imperial Holly Corporation and Savannah Foods & Industries, Inc. as of and for the year ended March 31, 1997 and for the six months ended September 30, 1996 and 1997. * Previously Filed. 3 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 hereunto duly authorized. IMPERIAL HOLLY CORPORATION Date: January 12, 1998 By: /s/ H. P. MECHLER ----------------------------------- H. P. Mechler Vice President -- Accounting 4 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- Exhibit 23.1 -- Consent of Arthur Andersen LLP Exhibit 23.2 -- Consent of Price Waterhouse LLP *Exhibit 99.1 -- Press Release issued by Imperial Holly Corporation on December 22, 1997 *Exhibit 99.2 -- Agreement and Plan of Merger, dated September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc.(incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-40445)). Exhibit 99.3 -- Audited Consolidated Financial Statements of Savannah Foods & Industries, Inc. as of September 28, 1997 and September 29, 1996, and for the fiscal years ended September 28, 1997, September 29, 1996 and October 1, 1995. Exhibit 99.4 -- Pro Forma Combined Condensed Financial Statements of Imperial Holly Corporation and Savannah Foods & Industries, Inc. as of and for the year ended March 31, 1997 and for the six months ended September 30, 1996 and 1997.
- ----------------- * Previously Filed. EX-23.1 2 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-30328, No. 33-41769, No. 33-68896 and No. 333-16393) of Imperial Holly Corporation of our report dated November 17, 1997 relating to the financial statements of Savannah Foods & Industries, Inc. which appears in the Current Report on Form 8-K/A of Imperial Holly Corporation dated January 12, 1998. Arthur Andersen LLP Atlanta, Georgia January 12, 1998 EX-23.2 3 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-30328, No. 33-41769, No. 33-68896 and No. 333-16393) of Imperial Holly Corporation of our report dated November 18, 1996 relating to the financial statements of Savannah Foods & Industries, Inc. which appears in the Current Report on Form 8-K/A of Imperial Holly Corporation dated January 12, 1998. Price Waterhouse LLP Atlanta, Georgia January 12, 1998 EX-99.3 4 AUDITED CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Savannah Foods & Industries, Inc. We have audited the accompanying consolidated balance sheet of Savannah Foods & Industries, Inc. and Subsidiaries as of September 28, 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Savannah Foods & Industries, Inc. and Subsidiaries as of September 28, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia November 17, 1997 1 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Savannah Foods & Industries, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Savannah Foods & Industries, Inc. and its subsidiaries at September 29, 1996, and the results of their operations and their cash flows for each of the two fiscal years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Savannah Foods & Industries, Inc. for any period subsequent to September 29, 1996. PRICE WATERHOUSE LLP Atlanta, Georgia November 18, 1996 2 3 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Balance Sheets (In thousands except for shares and per share amounts)
September 28, September 29 1997 1996 -------------- ------------- Assets - - ------ Current assets: Cash and cash equivalents $ 14,677 $ 15,300 Accounts receivable 68,635 76,109 Inventories (net of LIFO reserve of $9,949 in 1997 and $8,018 in 1996) (Note 4) 90,908 83,929 Other current assets 6,175 5,214 -------------- -------------- Total current assets 180,395 180,552 Property, plant and equipment (Note 5) 179,993 186,546 Other assets 38,683 31,163 -------------- -------------- $ 399,071 $ 398,261 ============== ============== Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings (Note 6) $ - $ 7,500 Current portion of long-term debt (Note 6) 7,824 2,170 Trade accounts payable 55,756 52,701 Other liabilities and accrued expenses 23,644 23,575 -------------- -------------- Total current liabilities 87,224 85,946 -------------- -------------- Long-term debt (Note 6) 26,100 59,754 -------------- -------------- Deferred employee benefits 69,058 78,834 -------------- -------------- Stockholders' equity (Note 11): Common stock $.25 par value; $.55 stated value; 64,000,000 shares authorized; 31,306,800 shares issued 17,365 17,365 Capital in excess of stated value 43,639 31,764 Retained earnings 221,949 193,524 Treasury stock, at cost (2,568,604 shares) (15,849) (15,849) Minimum pension liability adjustment - (14,038) Stock held by benefit trust, at market (2,500,000 shares) (46,875) (35,000) Other (3,540) (4,039) -------------- -------------- Total stockholders' equity 216,689 173,727 -------------- -------------- Commitments and contingencies (Note 12) - - -------------- -------------- $ 399,071 $ 398,261 ============== ==============
(The accompanying notes are an integral part of the consolidated financial statements.) 3 4 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Statements of Operations (In thousands except for shares and per share amounts)
FISCAL YEAR ENDED --------------------------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ---------------- ----------------- ---------------- Net sales $ 1,191,839 $ 1,146,332 $ 1,098,544 ---------------- ---------------- ---------------- Operating expenses: Cost of sales and operating expenses 1,037,502 1,028,218 1,002,679 Selling, general and administrative expenses 59,850 54,667 55,866 Depreciation and amortization 23,435 27,994 28,314 Impairment of long-lived assets (Note 3) - 10,280 - Other costs (Notes 2, 13) 13,394 3,374 4,284 ---------------- ---------------- ---------------- 1,134,181 1,124,533 1,091,143 ---------------- ---------------- ---------------- Income from operations 57,658 21,799 7,401 ---------------- ---------------- ---------------- Other income and (expenses): Interest and other investment income 874 847 1,258 Interest expense (6,850) (12,355) (14,847) Other (expense) income (465) (610) 110 ---------------- ---------------- ---------------- (6,441) (12,118) (13,479) ---------------- ---------------- ---------------- Income (loss) before income taxes and extraordinary item 51,217 9,681 (6,078) Provision for (benefit from) income taxes (Note 7) 19,136 2,738 (2,585) ---------------- ---------------- ---------------- Income (loss) before extraordinary item 32,081 6,943 (3,493) Extraordinary item, net of tax (Note 6) (376) (971) - ---------------- ---------------- ---------------- Net income (loss) $ 31,705 $ 5,972 $ (3,493) ================ ================ ================ Per share: Income (loss) before extraordinary item $ 1.22 $ 0.27 $ (0.13) Extraordinary item (Note 6) (0.01) (0.04) - ---------------- ---------------- ---------------- Net income (loss) $ 1.21 $ 0.23 $ (0.13) ================ ================ ================ Dividends $ 0.125 $ 0.10 $ 0.32 ================ ================ ================ Weighted average shares outstanding 26,238,196 26,238,196 26,238,196 ================ ================ ================
(The accompanying notes are an integral part of the consolidated financial statements.) 4 5 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Statements of Changes in Stockholders' Equity (In thousands)
Capital in Minimum Excess of Pension Stock Held Common Stated Retained Treasury Liability By Benefit Stock Value Earnings Stock Adjustment Trust Other Total -------- --------- --------- --------- ---------- ---------- -------- -------- Balance at October 2, 1994 $ 17,365 $ 12,190 $202,065 $(31,275) $ (8,210) $ - $ (3,961) $188,174 Net loss (3,493) (3,493) Cash dividends declared (8,396) (8,396) Increase in minimum pension liability adjustment (6,632) (6,632) Increase in cumulative translation adjustment (425) (425) Decrease in note receivable from employee stock ownership plan 421 421 -------- -------- -------- -------- -------- -------- -------- -------- Balance at October 1, 1995 17,365 12,190 190,176 (31,275) (14,842) - (3,965) 169,649 Net income 5,972 5,972 Cash dividends declared (2,624) (2,624) Decrease in minimum pension liability adjustment 804 804 Establish benefit trust with treasury stock (Note 11) 11,449 15,426 (26,875) - Increase in fair market value of stock held by benefit trust (Note 11) 8,125 (8,125) - Increase in cumulative translation adjustment (74) (74) -------- -------- -------- -------- -------- -------- -------- -------- Balance at September 29, 1996 17,365 31,764 193,524 (15,849) (14,038) (35,000) (4,039) 173,727 Net income 31,705 31,705 Cash dividends declared (3,280) (3,280) Increase in fair market value of stock held by benefit trust (Note 11) 11,875 (11,875) - Decrease in minimum pension liability adjustment 14,038 14,038 Decrease in cumulative translation adjustment 499 499 -------- -------- -------- -------- -------- -------- -------- -------- Balance at September 28, 1997 $ 17,365 $ 43,639 $221,949 $(15,849) $ - $(46,875) $ (3,540) $216,689 ======== ======== ======== ======== ======== ======== ======== ========
(The accompanying notes are an integral part of the consolidated financial statements.) 5 6 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Statements of Cash Flows (In thousands)
Fiscal Year Ended ----------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ------------- ------------- ----------- Cash flows from operations: Net income (loss) $ 31,705 $ 5,972 $ (3,493) Adjustments to reconcile net income (loss) to net cash provided by operations - Depreciation and amortization 23,435 27,994 28,314 Impairment of long-lived assets (Note 3) - 10,280 - Extraordinary item, net of tax, related to financing activities 376 971 - Provision for deferred income taxes 9,410 (5,173) (207) Net loss on disposal of assets 110 2,595 674 Decreases (increases) in working capital - Accounts receivable 7,474 (9,118) 8,785 Inventories (6,979) 20,565 (17,781) Other current assets (3,985) 7,924 (6,952) Trade accounts payable 3,055 (10,558) 6,306 Other liabilities and accrued expenses (904) 1,110 (777) Funding of deferred employee benefits in excess of expense accrual (11,241) - - Other 892 (2,713) 1,122 --------- --------- --------- Cash provided by operations 53,348 49,849 15,991 --------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment (15,664) (7,916) (16,303) Proceeds from sale of property, plant and equipment 960 2,538 784 Sale of investments - 13,869 3,615 Business sales and (acquisitions) - 12,500 (7,050) Use of escrowed industrial revenue bond funds for additions to property, plant and equipment - 3,253 - Other - (182) (2,182) --------- --------- --------- Cash (used for) provided by investing activities (14,704) 24,062 (21,136) --------- --------- --------- Cash flows from financing activities: (Decrease) increase in short-term borrowings (7,500) (14,800) 22,300 Payments of long-term debt (28,000) (51,240) (28,703) Debt prepayment charge, net of tax (376) (971) - Liquidation of unused industrial revenue bond escrow balances - - 5,742 Dividends paid (3,280) (3,280) (11,282) Other (111) 106 226 --------- --------- --------- Cash used for financing activities (39,267) (70,185) (11,717) --------- --------- --------- Cash flows for year (623) 3,726 (16,862) Cash and cash equivalents, beginning of year 15,300 11,574 28,436 --------- --------- --------- Cash and cash equivalents, end of year $ 14,677 $ 15,300 $ 11,574 ========= ========= =========
(The accompanying notes are an integral part of the consolidated financial statements.) 6 7 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies: Nature of operations - The Company is engaged in the production, marketing and distribution of food products, primarily refined sugar. The Company produces a complete line of bulk and liquid sugars, packaged sugar, sugar envelopes and sugar products, including edible molasses and liquid animal feeds. The Company also packages and distributes other products such as custom made plastic cutlery meal kits, salt, pepper, artificial sweetener, non-dairy creamer and certain other products which complement its sugar business. Industrial and grocery markets served by the Company are the southeastern, midwestern and eastern parts of the United States, as well as Louisiana and Texas. Products for the foodservice market are distributed throughout the United States. The Company has one primary business segment - Sugar Products. Fiscal year - The Company's fiscal year ends on the Sunday closest to September 30. Fiscal 1997, 1996 and 1995 each included 52 weeks. Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Business entities in which the Company owns 50% or less are accounted for using the equity method. Cash and cash equivalents - Cash and cash equivalents include all investments purchased with an original maturity of 90 days or less which have virtually no risk of loss of the principal value of the investment. Inventories - Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for sugar, packaging materials, and certain other items. Costs for maintenance parts and other non-sugar products are determined using the first-in, first-out (FIFO) and moving average methods. Futures transactions and interest rate swaps - The Company uses futures contracts to manage its inventory and fuel positions, both to set pricing and to reduce the Company's exposure to price fluctuations. It also uses interest rate hedges to fix interest rates on current and anticipated borrowings to reduce exposure to interest rate fluctuations. Under existing accounting literature, these activities are accounted for as hedging activities. To qualify as a hedge the item to be hedged must expose the Company to inventory pricing or interest rate risk and the related contract must reduce that exposure and be designated by the Company as a hedge. To hedge expected transactions, the significant characteristics and expected terms of such transactions must be identified and it must be probable that the transaction will occur. 7 8 Gains and losses on futures contracts, including gains and losses upon termination of the contract, are matched to inventory purchases and are included in the carrying value of inventory and charged or credited to cost of sales as such inventory is sold or used in production. The net cash paid or received on interest rate hedges is included in interest expense. Gains or losses on the termination of hedges are deferred and recognized in interest over the period covered by the interest rate hedge. If derivative transactions do not meet the criteria for hedges, the Company recognizes unrealized gains or losses as they occur. If a hedged transaction no longer exists or a hedged anticipated transaction is deemed no longer probable to occur, cumulative gains and losses on the hedge are recognized immediately in income and subsequent changes in fair market value of the derivative transaction are recognized in the period the change occurs. Amortization of intangibles - The Company has intangible assets included in "Other assets" aggregating $7,637,000 and $9,529,000 at September 28, 1997 and September 29, 1996, respectively. Goodwill of $4,974,000 at September 28, 1997, and $5,378,000 at September 29, 1996, is being amortized over fifteen years on a straight-line basis, and other intangible assets are being amortized over five years on a straight-line basis. Amortization expense was $2,288,000, $2,341,000 and $2,169,000 for fiscal 1997, 1996 and 1995, respectively. When factors indicate that goodwill should be evaluated for impairment, the Company uses an estimate of the related operation's discounted cash flows over the remaining life of goodwill in measuring whether or not the goodwill is recoverable. Property, plant and equipment - Property, plant and equipment is valued at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets. In general, buildings are depreciated over 20 years, machinery and equipment over 3 to 15 years and leasehold improvements over 10 years. Accrued expenses related to beet operations - The Company's beet processing plants are generally operated from October through February and then, from March through September, are repaired for the next processing cycle. As sugar is processed from October through February, the Company accrues estimated repair costs and other costs to be incurred in March through September and includes such costs in inventory and, as the sugar is sold, in cost of sales. In contrast, certain other sugarbeet processors capitalize such costs and include them as prepaid expenses related to the next processing cycle. Fair value of financial instruments - For cash, cash equivalents, accounts receivable, trade accounts payable, other liabilities and accrued expenses and short-term borrowings, the carrying amounts approximate fair value because of the short maturities of these instruments. 8 9 Revenue recognition - The Company recognizes revenue as product is shipped. Stock options - The Company measures stock-based compensation expense using the intrinsic value approach of Accounting Principles Board Opinion No. 25. Pro forma disclosures required by Statement of Financial Accounting Standards No. 123 - Accounting for Stock-Based Compensation are included in Note 10. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. Note 2 - Pending Merger of the Company: On September 12, 1997, the Company entered into the Merger Agreement providing for the acquisition of the Company by Imperial Holly. Imperial Holly is a sugar refiner and beet processor headquartered in Sugar Land, Texas. Pursuant to the Merger Agreement, a wholly-owned subsidiary of Imperial Holly ("IHK Sub") initiated a cash tender offer on September 18, 1997 for 50.1% of the Company's outstanding Common Stock at a price of $20.25 per share. The tender offer was closed on October 16, 1997, resulting, on October 24, 1997, in the funding of the acquisition of 14,397,836 shares, or 50.1%, of the Company's Common Stock and a change in control of the Company. Pursuant to the Merger Agreement, IHK Sub will be merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Imperial Holly (the "Merger"). Upon consummation of the Merger, the remaining shares of Company Common Stock will be exchanged for cash and common stock of Imperial Holly so that the aggregate number of shares of the Company's Common Stock to be converted into Imperial Holly common stock will be equal to 30% of all outstanding shares of the Company's Common Stock prior to the time of the cash tender offer. The Merger is expected to close in December 1997. Prior to entering into the Merger Agreement with Imperial Holly, the Company, on July 14, 1997, entered into a merger agreement with Flo-Sun Incorporated ("Flo-Sun"), a Florida based raw sugar producer and refiner. On August 25, 1997, Imperial Holly submitted a proposal to acquire the Company, and after negotiations between the Company and the two parties, the Company's Board of Directors approved the Merger Agreement with Imperial Holly. In accordance with the Flo-Sun merger agreement, the Company paid Flo-Sun a $5,000,000 termination fee and reimbursed Flo-Sun $3,000,000 for expenses in connection with the proposed merger. This $8,000,000 along with the Company's legal fees and other expenses related to the proposed Flo-Sun merger comprise the majority of the $13,394,000 of merger expenses summarized in Note 13. 9 10 Note 3 - Impairment Loss: In the fourth quarter of fiscal 1996, the Company recorded a non-cash impairment loss of $10,280,000 ($6,476,000, or $.25 per share, net of tax) related to a write-down of the property, plant and equipment of the Company's Fremont, Ohio beet sugar facility. A decision was made in 1996 not to run the Fremont facility during fiscal 1997 due to the lack of a viable supply of sugarbeets and beet molasses. As a result, the projected future cash flows from this facility are less than the carrying value of the assets; therefore, an impairment loss has been recognized. The impaired assets include buildings and machinery and equipment used to manufacture, ship, and store refined sugar and its by-products. These assets were written down to their fair value based on the salvage value of the assets. The recognition of this impairment was in accordance with the provisions of Statement of Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of and is not materially different than the amount that would have been recognized under the Company's previous policies. As of September 28, 1997 the Company does not plan on operating the Fremont facility during fiscal 1998. Note 4 - Inventories: A summary of inventories by method of pricing and class is as follows:
September 28, September 29, 1997 1996 ------------ ------------ (In thousands) Last-in, first-out $55,713 $35,311 First-in, first-out 7,501 9,682 Moving average 27,694 29,462 Specific identification - 9,474 ------- ------- $90,908 $83,929 ======= ======= Raw materials and work-in-process $30,720 $17,693 Packaging materials, parts and supplies 16,912 20,713 Finished goods 43,276 36,049 Payments related to future inventory purchases - 9,474 ------- ------- $90,908 $83,929 ======= =======
The replacement cost of inventories exceeded reported cost by approximately $10,246,000 at September 28, 1997 and $8,233,000 at September 29, 1996. 10 11 Note 5 - Property, Plant and Equipment: Property, plant and equipment is summarized as follows:
September 28, September 29, 1997 1996 ------------- ------------ (In thousands) Land $ 7,769 $ 7,498 Buildings 93,081 89,194 Machinery and equipment 314,482 305,717 Leasehold improvements 1,202 1,201 Projects-in-process 9,833 3,119 --------- -------- 426,367 406,729 Less - Accumulated depreciation and amortization (246,374) (220,183) --------- -------- $ 179,993 $186,546 ========= ========
Repairs and maintenance expense was $26,460,000, $31,699,000 and $35,241,000 for fiscal 1997, 1996 and 1995, respectively. Note 6 - Long-term Debt, Credit Arrangements and Leases: Long-term debt is summarized as follows:
September 28, September 29, 1997 1996 ------------ ------------- (In thousands) Senior Notes - Series A at 8.35% of $19,941 and Series B at 7.15% of $5,059 $ - $ 25,000 Notes payable to banks related to the ESOP 9,815 9,815 Industrial revenue bonds 22,500 22,500 Other long-term debt 1,609 4,609 -------- -------- 33,924 61,924 Less - Current portion (7,824) (2,170) -------- -------- $ 26,100 $ 59,754 ======== ========
The Company elected to prepay $25,000,000 of the Senior Notes in 1997. The Company incurred $376,000 (net of $236,000 income tax benefits), or $.01 per share, of related prepayment penalties which are reflected as an extraordinary item in the Consolidated Statement of Operations. The Company prepaid $35,000,000 of the Senior Notes in 1996 and incurred $971,000 (net of $570,000 income tax benefits), or $.04 per share, of related prepayment penalties. At September 28, 1997, the Company had $9,815,000 in notes payable related to the Employee Stock Ownership Plan (ESOP) and $22,500,000 of industrial revenue bonds. These notes and bonds carry tax-advantaged variable rates of interest equal to approximately 5.59% in 1997. The ESOP loans are payable as follows: $6,215,000 in fiscal 1998 and $3,600,000 payable in fiscal 1999 through fiscal 2001. The $22,500,000 industrial revenue bonds are payable as follows: $4,500,000 in 2000; $4,500,000 in 2001; $6,000,000 in $1,000,000 11 12 annual installments in 2002 through 2007; $3,500,000 in 2004; $2,500,000 in $500,000 installments from 2001 through 2005; and $1,500,000 due in 2017. These bonds are secured by financing statements on project-related equipment, the cost of which approximates the bond amounts. On April 1, 1996, the Company entered into a $120,000,000 revolving credit facility which expires on January 1, 2000, and automatically extends by one year on each anniversary date of the agreement. On October 16, 1997, the Company reduced the amount of this revolving credit facility from $120,000,000 to $60,000,000 and amended the expiration date to a date not later than January 31, 1998. In general, this facility enables the Company to borrow funds at LIBOR plus 1/2% to 3/4%, depending upon achievement of specified financial targets. The Company pays an annualized facility fee of 1/10% and an annualized fee of 1/10% of the unused portion of the facility. As of September 28, 1997 the Company was in compliance with all of its debt covenants. Short-term borrowings, including borrowings under the Company's revolving credit facilities which were for temporary working capital needs, are summarized as follows:
Fiscal Year Ended ------------------------------------------ September 28, September 29, October 1, 1997 1996 1995 ------------- ------------- ---------- (In thousands) Daily average outstanding borrowings $ 5,789 $39,004 $31,373 Daily weighted average interest rate 5.79% 5.66% 6.29% Maximum borrowings $45,000 $71,980 $68,500 Amount outstanding at year-end $ - $ 7,500 $22,300
The Company uses interest rate exchange agreements, more commonly called interest rate swaps, to manage its interest rate exposure. Swaps were entered into to fix the interest rate on variable debt at rates which the Company considered attractive at the time the agreements were consummated. When the Company entered into these agreements, it compared its anticipated interest costs to other long-term borrowing sources such as private placements and other fixed rate borrowing options. The notional amounts of swaps outstanding at September 28, 1997 and September 29, 1996 were $30,000,000. The fixed rates of interest for swaps outstanding during fiscal 1997 and 1996 were 8.83% and 8.66%, respectively. These swaps expire from December 1997 to February 1998. The effective fixed rate of swapped debt instruments during fiscal 1997 and 1996 was 7.53% and 7.76%, respectively. Accordingly, the Company has realized its desired objectives in the use of these financing instruments. If the Company had canceled these agreements as of September 28, 1997, it would have been required to pay the counter-parties to the agreements an aggregate amount of $188,047. The Company has also entered into forward swap agreements for periods ranging from 1998 to 2004 which fix the rate on the following debt: $20,000,000 in 1998-1999, $30,000,000 in 2000, $50,000,000 in 2001, $90,000,000 in 2002 and $80,000,000 in 2003-2004. The Company 12 13 entered into these agreements to fix the rate on variable rated debt intended to be borrowed during this time period. The swaps require the Company to pay fixed rates ranging from 6.5% to 7.0% against 90 day LIBOR. These transactions were entered into to protect the Company against interest rate increases and to fix future interest rates at rates the Company considers attractive. If the Company had canceled these agreements as of September 28, 1997, it would have been required to pay an aggregate amount of $187,794. Interest expense was $6,850,000 in fiscal 1997, $12,355,000 in fiscal 1996, and $14,847,000 in fiscal 1995. Cash payments of interest were $6,138,000 in fiscal 1997, $12,945,000 in fiscal 1996, and $13,620,000 in fiscal 1995. Annual maturities of long-term debt each year for the next five fiscal years are $7,824,000 in 1998, $500,000 in 1999, $5,000,000 in 2000, $7,600,000 in 2001, $1,500,000 in 2002, and $11,500,000 in subsequent years through 2017. Lease expense related to operating leases aggregated $2,098,000, $2,081,000, and $1,552,000 in fiscal 1997, 1996 and 1995, respectively. Lease commitments on operating leases exceeding one year for fiscal 1998, 1999, 2000, 2001 and 2002 are $1,255,000, $1,156,000, $1,124,000, $504,000 and $504,000, respectively. Note 7 - Income Taxes: Pre-tax income for all years presented was taxed exclusively in the United States. The provision for (benefit from) income taxes is comprised of the following:
Fiscal Year Ended ----------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ------------- ------------- ------------ (In thousands) Current federal $ 7,990 $ 6,092 $(1,515) Current state 1,500 1,249 (863) Deferred federal 8,564 (4,357) (271) Deferred state 846 (816) 64 ------- ------- ------- Provision for (benefit from) income taxes $18,900 $ 2,168 $(2,585) ======= ======= ======= Tax effect of change in: Minimum pension liability adjustment $ 8,607 $ 507 $(4,716) Cumulative translation adjustment 306 (45) (261) ------- ------- ------- $ 8,913 $ 462 $(4,977) ======= ======= =======
Cash payments for income taxes amounted to $19,837,000, $537,000 and $6,637,000 for fiscal 1997, 1996 and 1995, respectively. 13 14 Deferred income tax assets (liabilities) are comprised of the following:
September 28, September 29, 1997 1996 ------------- ------------- (In thousands) Loss on impairment of long-lived assets $ 3,906 $ 3,906 Depreciation (23,916) (21,658) Other postretirement benefits 12,928 12,565 Accrued pension liability (5,407) 8,796 Deferred compensation 8,968 7,743 Tax benefit purchases - (1,143) Other non-current 3,133 4,009 -------- -------- Total net non-current (liability) asset (388) 14,218 -------- -------- Other accrued expenses 885 2,288 Inventory (2,078) (243) Other current 609 980 -------- -------- Total net current (liability) asset (584) 3,025 -------- -------- Net deferred (liability) asset $( 972) $ 17,243 ======== ========
A reconciliation between the provision for (benefit from) income taxes and the amount computed by applying the U. S. federal income tax rate to income before income taxes and extraordinary item is as follows:
Fiscal Year Ended ----------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ------------- ------------- ---------- (In thousands) Computed "expected" tax expenses (benefit) $ 17,712 $ 3,292 $(2,127) Increases (reductions) in taxes resulting from: State income taxes, net of federal income tax benefit 1,524 224 280 Tax-free income earned (756) (221) (120) Tax rate benefit of NOL carryback - (600) - Merger costs 177 - - Other 479 43 (618) --------- ------- ------- 19,136 2,738 (2,585) Extraordinary item (236) (570) - --------- ------- ------- Provision for (benefit from) income taxes $ 18,900 $ 2,168 $(2,585) ======== ======= =======
Note 8 - Pension Plans: Substantially all employees and retirees of the Company are covered by noncontributory defined benefit pension plans. The Company also provides supplemental pension benefits to certain retired employees. The supplemental pension benefits are determined annually by the Board of Directors. The Company's largest defined benefit plan provides employees a retirement benefit based on a percentage of their final three year average pay. Effective July 1, 1996, this percentage of final pay was modified, and provisions to reduce pension benefits for early retirement were incorporated into this plan. These modifications, 14 15 along with some other minor changes, reduced the "projected benefit obligation" at September 29, 1996 by $3,009,000. Benefits under the noncontributory defined benefit pension plans for bargaining employees are primarily based on years of service. The Company's contribution policy for all pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act. At September 28, 1997, the assets of these plans are invested primarily in commingled institutional stock and bond funds and cash equivalents. The following table sets forth the status of the Company's qualified defined benefit pension plans and the pertinent assumptions used in computing this information as of the end of each respective year:
September 28, September 29, 1997 1996 ------------- ------------- (In thousands) Actuarial present value of benefit obligation based on current compensation: Vested $ (90,985) $ (80,235) Nonvested (1,580) (6,216) --------- --------- Accumulated benefit obligation (92,565) (86,451) Increase in present value of benefit obligation to reflect projected compensation increases (9,371) (4,846) --------- --------- Projected benefit obligation (101,936) (91,297) Plan assets at fair value 100,537 72,533 --------- --------- Projected benefit obligation in excess of plan assets (1,399) (18,764) Unrecognized prior service cost (162) (193) Unrecognized net loss 26,990 29,810 Unrecognized net asset at transition (230) (1,276) Adjustment required to recognize minimum liability - (23,495) --------- --------- Pension asset included in "Other assets" and pension (liability) included in "Deferred employee benefits" $ 25,199 $ (13,918) ========= ========= Actuarial assumptions: Discount rate 7.5% 7.5% Projected salary increases 4.5% 4.5%
15 16 Pension expense and the assumed rate of return on plan assets used to calculate it are summarized as follows:
Fiscal Year Ended --------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ------------ ------------ --------- (In thousands) Costs related to services provided by employees during the year $ 2,104 $ 2,070 $ 2,250 Interest cost on projected benefit obligation 6,846 6,874 6,601 Actual gain on plan assets (17,023) (5,939) (6,390) Net amortization and deferrals 10,689 659 437 -------- ------- ------- Pension expense related to defined benefit plans 2,616 3,664 2,898 Supplemental pension benefits 217 205 190 -------- ------- ------- Total pension expense $ 2,833 $ 3,869 $ 3,088 ======== ======= ======= Actuarial assumption: Expected long-term rate of return on plan assets 9.5% 9.5% 9.5%
The Company has an unqualified Supplemental Executive Retirement Plan (SERP) which it amended in 1996 by freezing the years of credited service for participants as of June 30, 1996. This modification reduced the "projected benefit obligation" at September 29, 1996 by $3,689,000. The actuarially determined expense related to the SERP is summarized as follows:
Fiscal Year Ended ------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ------------- ------------- ---------- (In thousands) Costs related to services provided by employees during the year $ - $ 316 $ 283 Interest cost on projected benefit obligation 908 928 912 Net amortization and deferrals 136 203 169 Net curtailment gain - (189) - Total pension expense related to ------ ------- ------ SERP plan $1,044 $ 1,258 $1,364 ====== ======= ======
16 17 The table below summarizes the status of the SERP plan and the pertinent assumptions used in computing this information at the end of each respective year:
September 28, September 29, 1997 1996 ------------- ------------- (In thousands) Actuarial present value of benefit obligation based on current compensation: Vested $ (9,659) $ (7,770) Nonvested (61) (648) -------- -------- Accumulated benefit obligation (9,720) (8,418) Increase in present value of benefit obligation to reflect projected compensation increases (3,544) (2,613) -------- -------- Projected benefit obligation (13,264) (11,031) Unrecognized prior service cost - - Unrecognized net loss 2,666 700 Adjustment required to recognize minimum liability - (273) -------- -------- Pension liability included in "Deferred employee benefits" $(10,598) $(10,604) ======== ======== Actuarial assumptions: Discount rate 7.5% 7.5% Projected salary increases 4.5% 4.5%
In accordance with the provisions of Statement of Financial Accounting Standards No. 87 - Employers' Accounting for Pensions, the Company has recorded an additional minimum liability at September 29, 1996 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued (prepaid) pension expense for its pension and SERP plans. The additional liability has been offset by an intangible asset which is included in "Other assets" to the extent of previously unrecognized prior service cost. Amounts in excess of previously unrecognized prior service cost are recorded net of the related deferred tax benefit as a reduction of stockholders' equity of $14,038,000 at September 29, 1996. As a result of significant funding and improved asset performance during fiscal 1997, the Company was not required to record an additional minimum pension liability at September 28, 1997. Note 9 - Other Retirement and Benefit Plans: The Company has a deferred compensation program, which it modified in 1996. The modification, effective June 30, 1996, terminated all additional employee deferrals and reduced the guaranteed rate of interest paid on amounts deferred by active nonemployee directors to 8% initially, and then to the prime rate in effect on each January 1. This program allowed directors and certain management employees to defer all or a portion of their compensation and earn a guaranteed interest rate on the deferred amounts. In effect, such amounts deferred are unsecured loans to the Company. The deferred salaries and interest at the market rate are accrued as incurred. Interest above the market rate is accrued over the vesting period. The interest expense related to the Company's deferral plan was $2,529,000 in 1997, $2,523,000 in 1996, and $2,320,000 in 1995. 17 18 In addition to the above deferred compensation program for directors and certain management employees, the Company maintains two stock-based deferred compensation programs for non-employee directors. See Note 10 - Stock-Based Compensation for an explanation of these programs. The Company has included in "Deferred employee benefits" $23,661,000 at September 28, 1997 and $20,524,000 at September 29, 1996 to reflect its liability under its deferred compensation programs. As of September 28, 1997, payments required to be made to participants in these programs for the next five fiscal years are approximately $1,510,000 in 1998, $1,607,000 in 1999, $1,939,000 in 2000, $2,921,000 in 2001 and $2,323,000 in 2002. Subsequent to September 28, 1997, Imperial Holly purchased 50.1% of the Company's Common Stock. As a result, the "change in control" provisions of the nonemployee directors deferred compensation programs were implemented. These provisions allow the nonemployee directors the option of electing to receive immediate payment of their vested balances in these programs. After these elections were made, payments required to be made to participants in these programs for the next five fiscal years are approximately $7,707,000 in 1998, $1,607,000 in 1999, $1,930,000 in 2000, $2,029,000 in 2001 and $2,058,000 in 2002. The Company sponsors 401(k) plans in which substantially all non-bargaining employees and certain bargaining unit employees are eligible to participate. These plans allow eligible employees to save a portion of their salary on a pre-tax basis. The Company makes monthly contributions to these plans which aggregated $416,000 in 1997, $449,000 in 1996, and $437,000 in 1995. The Company also sponsors an Employee Stock Ownership Plan (ESOP). Substantially all non-bargaining employees participate and receive shares in their account at the discretion of the Board of Directors. Expenses related to this plan have been immaterial in 1997, 1996, and 1995. Under the terms of the Company's short-term incentive compensation program, $5,635,000 was accrued in "Other liabilities and accrued expenses" at September 28, 1997. 18 19 The Company also sponsors benefit plans that provide postretirement health care and life insurance benefits to certain employees who meet the applicable eligibility requirements. The cost of postretirement health care and life insurance benefits is summarized as follows:
Fiscal Year Ended -------------------------------------- September 28, September 29, October 1, 1997 1996 1995 ------------ ------------- --------- (In thousands) Costs related to services provided by employees during the year $ 430 $ 520 $ 476 Interest cost on accumulated benefit obligation 2,370 2,408 2,447 ------ ------ ------ Total postretirement benefit expense $2,800 $2,928 $2,923 ====== ====== ======
The actuarial and recorded liabilities for these postretirement benefits, none of which have been funded, and the pertinent assumptions used to compute this information are as follows:
September 28, September 29, 1997 1996 ------------- ------------- (In thousands) Accumulated postretirement benefit obligation: Retirees $(23,513) $(20,594) Active participants (5,961) (11,865) -------- -------- Accumulated benefit obligation (29,474) (32,459) Unrecognized net gain (5,325) (1,329) -------- -------- Accrued postretirement benefit obligation included in "Deferred employee benefits" $(34,799) $(33,788) ======= ======== Actuarial assumptions: Discount rate 7.5% 7.5% Health care cost trend rate - Fiscal 1997 - 1999 7.5% 7.5% Fiscal 2000 - 2004 6.0% 6.0% Thereafter 5.0% 5.0%
Increasing the health care cost trend rate assumption by one percentage point would have increased the accumulated postretirement benefit obligation as of September 28, 1997 by approximately $1,597,000 and would have increased postretirement benefit expense by approximately $221,000 in fiscal 1997. Note 10 - Stock-Based Compensation: The Company has four stock-based compensation plans which are described below. On December 16, 1996, the Board of Directors adopted the 1996 Equity Incentive Plan and granted options for employees to purchase 187,558 shares of Common Stock. The options granted vested over a three-year period. Under the terms of the Merger Agreement with Imperial Holly, the 187,558 options became vested, and 19 20 employees holding these options will, in general, receive cash for the difference between $20.25 and their exercise price of $13.94, and the options and the plan will be canceled. The cost related to this plan was $43,000 in fiscal 1997. In fiscal 1996 the Company had entered into an agreement which granted the Company's Chairman of the Board an option to purchase 100,000 shares of Common Stock. This option was surrendered back to the Company in 1997 unexercised and there are no continuing rights under this option. To make accounting estimates to calculate the fair value of the above options at the date of grant using the Black-Scholes option pricing model, the Company assumed a dividend yield of 1.0%, expected volatility of 36.5%, a risk free interest rate of 6.2%, and an expected life of 5 years. If compensation costs for options had been recorded based on the fair value of the options at the date of grant, such costs, and reported net income, would have changed by insignificant amounts. The Company maintains two share unit plans for the non-employee members of its Board of Directors ("Outside Directors"). One plan relates to the modification of prior deferred compensation agreements and the other relates to annual retainers paid to the Directors after June 30, 1996. Effective June 30, 1996, the existing deferred compensation agreements with all active Outside Directors were modified to reduce the guaranteed interest rate to 8%, and then to the prime rate in effect on each January 1. The effect of this modification is estimated to have reduced the present value, as of June 30, 1996, of the payments which ultimately will be paid to the Outside Directors under the related deferred compensation agreements by $2,600,000. As consideration for the reduction in the interest rate credited on the Outside Directors' deferred compensation, a Supplemental Share Unit Plan was established for these Directors. This plan granted 111,619 share units (a share unit is the equivalent of one share of Company Common Stock) to these Directors at an $11.00 per share unit price. At the $11.00 per share unit price these share units had a value of $1,228,000 compared to the $2,600,000 reduced value of the deferred compensation agreements. The value of each share unit fluctuates based on the highest daily closing price of the Company's Common Stock during the preceding twelve-month period. Dividend equivalents are reinvested in additional share units. Under the terms of the Merger Agreement with Imperial Holly Corporation, these share units were valued at $20.25 and the Outside Directors have the option to receive cash upon consummation of the Merger, or to defer the cash value of such share units and to receive interest at the prime rate. The Board of Directors adopted a Non-Employee Directors' Compensation Plan as of July 1, 1996. Under this plan, the annual compensation paid to the Directors as a retainer was set at 1,820 share units per year for 5 1/2 years. Each Director vests in 455 20 21 share units on the last day of each calendar quarter, as long as the Director remains on the Board of Directors. Under this plan, 110,110 share units were granted which covered the 5 1/2 year term of the Plan. In fiscal 1997, 8,645 shares were forfeited. In fiscal 1996 and fiscal 1997, respectively, 5,005 and 19,110 share units vested. Under the terms of the Plan, when Imperial Holly successfully tendered for 50.1% of the outstanding shares of the Company, 69,615 share units, which would have been received through the 5 1/2 year Plan term, became vested. All vested share units were valued at $20.25 and the Outside Directors have the option to receive cash upon consummation of the Merger, or to defer the cash value of such share units and to receive interest at the prime rate. The expense related to the two share unit plans for the Outside Directors was $951,000 in fiscal 1997 and $1,633,000 in fiscal 1996. Note 11 - Stockholders' Equity and Benefit Trust: The Certificate of Incorporation of the Company, as amended, authorizes a class of preferred stock to consist of up to 1,000,000 shares of $.50 par value stock. The Board of Directors can determine the characteristics of the preferred stock without further stockholder approval. During fiscal 1996, the Company established a Benefit Trust (the "Trust") with 2,500,000 shares of treasury stock. The purpose of this Trust was to enhance the Company's financial flexibility to provide funds to satisfy its obligations under various employee benefit plans and agreements. The employee benefits payable from the Trust are primarily included in the $69,058,000 "Deferred employee benefits" liability. Shares held by the Trust are not considered outstanding for earnings per share calculations until they are sold, but are considered outstanding for shareholder voting purposes. The shares are voted based upon the voting results of the shares held in the Company's Employee Stock Ownership Plan. To record this transaction, the Company reduced "Treasury stock" by the average cost of these shares to the Company, or $15,426,000, and the fair market value of the stock was recorded as "Stock held by benefit trust" to reflect a note payable to the Company for the market value of the 2,500,000 shares of stock. "Capital in excess of stated value" was increased for the difference of $11,449,000 between the cost of the shares and their fair value. Each quarter, "Stock held by benefit trust" is adjusted to the fair market value of the shares held in the Trust, and an adjustment for the same amount is made to "Capital in excess of stated value". At September 28, 1997, the market value of the stock was $18.75 per share. Once the tender offer and Merger with Imperial Holly is completed as discussed in Note 2, the Benefit Trust will have received an estimated $38,415,000 and 921,000 shares of Imperial Holly Corporation common stock. Under the terms of the Trust, as amended, the cash received from the tender offer was used to repay to the Company the 21 22 note payable due for the shares, plus accrued interest, aggregating $27,621,000. The balance of the cash will be used to purchase common stock of Imperial Holly. This purchased stock, along with the 921,000 shares of Imperial Holly common stock received in the Merger, can only be used to either make, or to reimburse Imperial Holly for, payments due to Savannah Foods employees and retirees for liabilities under deferred compensation plans aggregating $23,661,000 and under supplemental executive retirement plans aggregating $10,598,000 at September 28, 1997. Note 12 - Commitments and Contingencies: The Company has contracted for the purchase of a substantial portion of its future raw sugar requirements. Prices to be paid for raw sugar under these contracts are based in some cases on market prices during the anticipated delivery month. In other cases prices are fixed and, in these instances, the Company generally obtains commitments from its customers to buy the sugar prior to fixing the price, or enters into futures transactions to hedge the commitment. The Company is exposed to loss in the event of non-performance by the other party to the interest rate swap agreements discussed in Note 6. However, the Company does not anticipate non-performance by the counter-parties to the transactions. As of the end of fiscal 1997, the Company has resolved substantially all of the claims by the United States Customs Service (Customs) in the Company's favor. Customs had alleged that drawback claims prepared by the Company for certain export shipments of sugar during the years 1984 to 1988 were technically and/or substantively deficient and that the Company, therefore, was not entitled to amounts previously received under these drawback claims. The Company disputed Customs' findings and has been vigorously protesting this matter with Customs. The Company has employment agreements with certain senior management which contain "change in control" provisions. The Company could be required to pay up to $5,900,000 to these employees as a result of Imperial Holly's purchase of 50.1% of the Company's Common Stock. 22 23 Note 13 - Quarterly Financial Information (Unaudited): Unaudited quarterly financial information for fiscal 1997 and 1996 is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In thousands except for per share amounts) Fiscal 1997 - - ----------- Net sales $303,121 $276,489 $303,546 $308,683 Gross profit 37,652 36,355 40,446 39,884 Other costs - - - (13,394) Income from operations 16,408 16,354 19,681 5,215 Income before extraordinary item 9,148 8,829 11,402 2,702 Per share .35 .34 .43 .10 Net income 9,148 8,829 11,026 2,702 Per share .35 .34 .42 .10 Fiscal 1996 - - ----------- Net sales $304,409 $250,804 $287,462 $303,657 Gross profit 27,937 24,951 31,151 34,075 Impairment loss - - - (10,280) Other costs 1,525 (3,800) - (1,099) Income from operations 8,550 162 10,906 2,181 Income (loss) before extraordinary item 3,543 (2,043) 4,726 717 Per share .14 (.08) .18 .03 Net income (loss) 3,543 (2,043) 4,028 444 Per share .14 (.08) .15 .02
"Other costs" included above and in the Consolidated Statements of Operations include the following:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In thousands) Fiscal 1997 - - ----------- Merger related costs: Termination fee and expenses $ - $ - $ - $ (8,000) Legal and administrative expenses - - - (3,894) Cost of workforce reduction - - - (1,500) ------- ------- ------- -------- Other costs $ - $ - $ - $(13,394) ======= ======= ======= ======== Fiscal 1996 - - ----------- Net gain (loss) on asset disposals $1,525 $(3,800) $ - $ (376) Cost of workforce reduction - - - (723) ------- ------- ------- -------- Other costs $1,525 $(3,800) $ - $ (1,099) ======= ======= ======= ========
23 EX-99.4 5 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1 EXHIBIT 99.4 PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the Tender Offer and the Merger, using the purchase method of accounting for the Company's acquisition of Savannah Foods, after giving effect to the pro forma reclassifications and adjustments described in the accompanying notes. These unaudited pro forma combined condensed financial statements have been prepared from, and should be read in conjunction with, the historical consolidated financial statements and notes thereto of the Company and of Savannah Foods. The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to: the Tender Offer; the Merger; the funding of the Credit Facility and the Notes (collectively the "Debt Financing"), the purchase of $5 million of Imperial Common Stock by H. Kempner Trust Association (the "H. Kempner Trust Financing"); and the successful tender offer for $75.4 million principal amount of the Company's 8 3/8% Senior Notes due 1999 (the "Debt Tender Offer"), as if each had occurred on September 30, 1997. The Unaudited Pro Forma Combined Condensed Statements of Earnings for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996 give effect to the Tender Offer, the Debt Tender Offer, the Debt Financing, the H. Kempner Trust Financing and the Merger as if each had occurred at the beginning of the earliest period presented. Savannah Foods' results of operations, which are reported on a fiscal year ending on the Sunday closest to September 30, have been adjusted to a March 31 year end. The estimates of the fair value of Savannah Foods' assets and liabilities are based on valuations which are preliminary. Such valuations will be updated to the effective date of the Merger and may change from the amounts shown herein; however the Company and Savannah Foods do not expect such changes to be material. The unaudited pro forma combined condensed financial statements are intended for informational purposes and are not necessarily indicative of the future financial position or future results of the combined companies or of the financial position or the results of operations that would have actually occurred had the Merger been in effect as of the date or for the periods presented. The Unaudited Pro Forma Combined Condensed Statements of Earnings do not reflect any benefits from cost savings or revenue enhancements that are anticipated to result from the integration of operations of the Company and Savannah Foods. Such cost savings and revenue enhancements are discussed in Note 8 to the Unaudited Pro Forma Combined Condensed Statements of Earnings. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1997
HISTORICAL -------------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED ---------- ------------ ------------- ------------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales................................ $752,595 $1,170,729 $ -- $ 1,923,324 Cost of sales............................ 651,677 1,031,475 (944)(1) 1,682,208 Selling, general and administrative...... 57,722 56,255 -- 113,977 Depreciation & amortization.............. 14,773 25,771 9,328 (2) 47,156 (2,716)(3) Impairment of long-lived assets.......... -- 10,280 -- 10,280 Cost of workforce reduction.............. -- 723 -- 723 -------- ---------- -------- ----------- Operating income............... 28,423 46,225 (5,668) 68,980 Interest expense......................... 12,430 9,572 34,914 (5) 56,916 Other (income) expense................... (1,695) 285 -- (1,410) -------- ---------- -------- ----------- Income before income taxes............... 17,688 36,368 (40,582) 13,474 Income tax provision..................... 6,170 12,948 (11,684)(6) 7,434 -------- ---------- -------- ----------- Income before extraordinary item......... $ 11,518 $ 23,420 $(28,898) $ 6,040 ======== ========== ======== =========== Average shares outstanding............... 12,576,489 Shares sold to H. Kempner Trust.......... 377,358 (7) Shares issued in Merger.................. 12,029,962 (7) ----------- Pro forma average shares outstanding..... 24,983,809 =========== Pro forma earnings per share............. $ 0.24 ===========
1 2 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
HISTORICAL -------------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED ----------- ----------- -------------- -------------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales................................. $406,682 $612,229 -- $ 1,018,911 Cost of sales............................. 348,869 531,899 (308)(1) 880,460 Selling, general and administrative....... 30,668 30,711 -- 61,379 Depreciation & amortization............... 6,786 11,329 4,664(2) 22,883 104(3) Merger related costs...................... -- 13,394 (13,394)(4) -- -------- -------- -------- ----------- Operating income................ 20,359 24,896 8,934 54,189 Interest expense.......................... 5,301 2,968 17,797(5) 26,066 Other (income) expense.................... (735) (294) -- (1,029) -------- -------- -------- ----------- Income before income taxes................ 15,793 22,222 (8,863) 29,152 Income tax provision...................... 5,842 8,118 (1,618)(6) 12,342 -------- -------- -------- ----------- Income before extraordinary item.......... $ 9,951 $ 14,104 $ (7,245) $ 16,810 ======== ======== ======== =========== Average shares outstanding................ 14,247,193 Shares sold to H. Kempner Trust........... 377,358(7) Shares issued in Merger................... 12,029,962(7) ----------- Pro forma average shares outstanding...... 26,654,513 =========== Pro forma earnings per share.............. $ 0.63 ===========
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
HISTORICAL -------------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED ----------- ----------- -------------- -------------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales................................. $393,955 $591,119 $ -- $ 985,074 Cost of sales............................. 341,157 525,872 (636)(1) 866,393 Selling, general and administrative....... 29,057 27,116 -- 56,173 Depreciation & amortization............... 7,293 13,665 4,664(2) 24,618 (1,004)(3) Cost of workforce reduction............... -- 723 -- 723 Impairment of long-lived assets........... -- 10,280 -- 10,280 -------- -------- -------- ----------- Operating income................ 16,448 13,463 (3,024) 26,887 Interest expense.......................... 6,337 5,690 17,300(5) 29,327 Other (income) expense.................... (1,046) 400 -- (646) -------- -------- -------- ----------- Income before income taxes................ 11,157 7,373 (20,324) (1,794) Income tax provision...................... 4,080 1,930 (5,854)(6) 156 -------- -------- -------- ----------- Income before extraordinary item.......... $ 7,077 $ 5,443 $(14,470) $ (1,950) ======== ======== ======== =========== Average shares outstanding................ 11,009,476 Shares sold to H. Kempner Trust........... 377,358(7) Shares issued in Merger................... 12,029,962(7) ----------- Pro forma average shares outstanding...... 23,416,796 =========== Pro forma earnings per share.............. (0.08) ===========
2 3 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1997 AND THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (1) Represents the adjustment of pension and other employee benefit costs due to elimination of the amortization of deferred gains and losses on a purchase accounting basis. (2) Represents the amortization of goodwill and brand related intangibles over 40 years and debt issuance costs related to the Debt Financing over the terms of the respective loans. (3) Represents the adjustment in depreciation due to the step-up of Savannah Foods' property, plant and equipment to fair value. Pro forma depreciation is calculated on the straight-line method over estimated useful lives of eight to 37 years for real property improvements and five to ten years for machinery and equipment. (4) Represents elimination of the charge for costs related to the Merger recognized in the Savannah Foods historical financial results. (5) Represents additional interest under the Debt Financing. The weighted average interest rate on the Debt Financing is assumed to be 8.53%, 8.58% and 8.51% for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996, respectively. A 0.125% increase or decrease in the assumed weighted average interest rate would change pro forma interest expense for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996 by $650,000, $329,000 and $321,000, respectively. (6) Represents the tax effect of the adjustments above, excluding amortization of goodwill and brand related intangibles, based on the statutory rate in effect for the periods shown. (7) Represents the additional shares issued in the Merger and the H. Kempner Trust Financing, assuming the closing price (as defined in the Merger Agreement) of Imperial Common Stock is $13.25. If the closing price were assumed to be $17.25, the number of additional shares issued in the Merger and the H. Kempner Trust Financing would be 9,585,234, and pro forma earnings per share would be $0.27, $0.71 and $(0.09) for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996, respectively. 3 4 (8) The Unaudited Pro Forma Combined Condensed Statements of Earnings do not give any effect to the costs savings and revenue enhancements which the Company expects will result from integrating the operations of the companies after the Merger. Management expects to begin to realize such cost savings and revenue enhancements in the fiscal year ending September 30, 1998. The full annual impact of such cost savings and revenue enhancements is expected to be achieved in the fiscal year ending September 30, 1999, and is preliminarily estimated to include the following (in millions of dollars): Reduction of administrative costs resulting from elimination of duplicate functions.................................... $13.5 Reduction of freight and distribution costs resulting from more efficient sourcing of customer orders................ 7.0 Reductions in costs resulting from refocused selling, marketing and promotion expense........................... 7.5 Reduction of costs resulting from optimizing the operating schedules of the combined production facilities........... 5.0 Reduction of costs of procuring operating and packaging supplies of the combined production facilities............ 7.0 ----- Total............................................. $40.0 =====
Additionally, the Company believes, based upon preliminary analysis, that there are potential opportunities to achieve improved operating results by expanding the distribution of high value added products to each companies respective markets, to expand sugar beet acreage supplying Savannah Foods' sugar beet processing plants and to achieve reductions in working capital by negotiating new arrangements with suppliers. 4 5 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET SEPTEMBER 30, 1997
HISTORICAL --------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED -------- --------- ------------ ---------- (IN THOUSANDS OF DOLLARS) Cash...................................... $ 9,354 $ 14,677 $ -- $ 24,031 Marketable securities..................... 55,883 -- -- 55,883 Accounts receivable....................... 62,158 68,635 -- 130,793 Inventories............................... 127,375 90,908 9,949(1) 228,232 Manufacturing costs prior to production... 22,357 -- 16,747(2) 39,104 Prepaid expenses.......................... 5,448 6,175 -- 11,623 -------- -------- --------- ---------- Total current assets............ 282,575 180,395 26,696 489,666 Notes receivable & other investments...... 13,250 -- -- 13,250 Property, plant & equipment -- net........ 154,309 179,993 73,000(3) 407,302 Intangible assets......................... -- -- 302,954(4) 302,954 Investment in Savannah Foods.............. 3,123 -- (3,123)(11) -- Other assets.............................. 4,642 38,683 (3,636)(5) 39,689 -------- -------- --------- ---------- Total Assets.................... $457,899 $399,071 $ 395,891 $1,252,861 ======== ======== ========= ========== Accounts payable.......................... $ 53,923 $ 55,756 $ -- $ 109,679 Short-term borrowings..................... 43,091 -- (43,091)(7) -- Current maturities of long-term debt...... 1,173 7,824 5,600 14,597 Other current liabilities................. 54,525 23,644 -- 78,169 -------- -------- --------- ---------- Total current liabilities....... 152,712 87,224 (37,491) 202,445 Long-term debt............................ 81,304 26,100 432,669(7) 540,073 Deferred taxes and other credits.......... 30,924 69,058 33,086(6) 154,773 21,705(8) Common stock.............................. 83,707 17,365 164,397(9) 271,485 23,381(10) (17,365)(11) Additional paid in capital................ -- 43,639 (43,639)(11) -- Retained earnings......................... 90,870 221,949 (221,949)(11) 89,084 (1,786)(7) Treasury stock............................ -- (15,849) 15,849(11) -- Benefit Trust............................. -- (46,875) 46,875(11) (23,381) (23,381)(10) Other equity.............................. 18,382 (3,540) 3,540(11) 18,382 -------- -------- --------- ---------- Total equity.................... 192,959 216,689 (54,078) 355,570 -------- -------- --------- ---------- Total........................... $457,899 $399,071 $ 395,891 $1,252,861 ======== ======== ========= ==========
5 6 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET SEPTEMBER 30, 1997 (1) Represents the adjustment of Savannah Foods' finished goods inventories to net realizable value, less an allowance for a normal profit margin, and of raw material inventories to replacement cost. (2) Represents an adjustment to conform Savannah Foods' accounting policy for certain manufacturing costs incurred between processing periods which are necessary to prepare the factory for the next processing campaign, to that of the Company's. (3) Represents the adjustment to fair value of Savannah Foods' property, plant and equipment as follows (in thousands): Land............................................... $10,000 Real property improvements......................... 39,000 Machinery and equipment............................ 24,000 ------- Total.................................... $73,000 =======
(4) Represents intangible assets including an estimate of the excess purchase price over the book value of Savannah Foods' net assets acquired ("goodwill"), brand related intangibles and debt acquisition cost. (5) Represents the adjustment of other assets to fair value. (6) Represents the adjustment to fair value of pension and other employee benefit plan liabilities. (7) Represents the adjustment to reflect the borrowings under the Debt Financing to finance the cash consideration paid in the Tender Offer and the Merger, to purchase the Senior Notes in the Debt Tender Offer and to pay related fees and expenses. (8) Represents the net deferred tax effect of various adjustments to the Combined Condensed Balance Sheet. (9) Represents the issuance of Imperial Common Stock to Savannah Foods stockholders in the Merger, and sale of Imperial Common Stock in the H. Kempner Trust Financing, the proceeds of which were used to reduce the borrowing requirements. (10) Represents the effect of transactions with a Savannah Foods' benefit trust as a result of the Tender Offer, the Merger and the use of the related cash received by the trust to repay the benefit trust's note to Savannah Foods and purchase additional shares of Imperial Common Stock. (11) Represents the elimination of Savannah Foods' historical equity and Imperial Holly's costs of the acquisition capitalized at September 30, 1997. 6 -----END PRIVACY-ENHANCED MESSAGE-----