-----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, FkTAnDKAXZBKV2EQ4D68a03XFLXap+FbqeaS0++YtSioqn7ZVe1R/Kb2bqptd+uh nh7r5HtJqJJmJjP8zTiy0w== 0000950129-97-005143.txt : 19971209 0000950129-97-005143.hdr.sgml : 19971209 ACCESSION NUMBER: 0000950129-97-005143 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971120 ITEM INFORMATION: FILED AS OF DATE: 19971208 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: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-10307 FILM NUMBER: 97734034 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 11/20/97 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): OCTOBER 17, 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 by Imperial Holly Corporation in connection with its successful completion of the Tender Offer for 50.1% of the outstanding common stock of Savannah Foods & Industries, Inc. 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. Included as Exhibits 99.4 and 99.5 to this Form 8-K/A are the audited consolidated financial statements of Savannah Foods as of and for the year ended September 29, 1996 and the unaudited consolidated financial statements of Savannah Foods as of and for the nine months ended June 29, 1997, respectively. (b) PRO FORMA FINANCIAL INFORMATION. Included as Exhibit 99.6 to this Form 8-K/A is 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. (c) EXHIBITS Exhibit 23.1 -- Consent of Price Waterhouse LLP *Exhibit 99.1 -- Press Release issued by Imperial Holly Corporation on October 17, 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. *Exhibit 99.3 -- Press Release issued by Imperial Holly Corporation on October 31, 1997 Exhibit 99.4 -- Audited Consolidated Financial Statements of Savannah Foods & Industries, Inc. as of September 29, 1996 and October 1, 1995 and for the fiscal years ended September 29, 1996, October 1, 1995 and October 2, 1994. Exhibit 99.5 -- Unaudited Condensed Consolidated Financial Statements of Savannah Foods & Industries, Inc. as of and for the nine months ended June 30, 1997. Exhibit 99.6 -- 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: December 8, 1997 By: /s/ H. P. MECHLER ----------------------------------- H. P. Mechler Vice President -- Accounting 4 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- Exhibit 23.1 -- Consent of Price Waterhouse LLP *Exhibit 99.1 -- Press Release issued by Imperial Holly Corporation on October 17, 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. *Exhibit 99.3 -- Press Release issued by Imperial Holly Corporation on October 31, 1997 Exhibit 99.4 -- Audited Consolidated Financial Statements of Savannah Foods & Industries, Inc. as of September 29, 1996 and October 1, 1995 and for the fiscal years ended September 29, 1996, October 1, 1995 and October 2, 1994. Exhibit 99.5 -- Unaudited Condensed Consolidated Financial Statements of Savannah Foods & Industries, Inc. as of and for the nine months ended June 30, 1997. Exhibit 99.6 -- 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 PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 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 and No. 33-67786) 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 December 8, 1997. Price Waterhouse LLP Atlanta, Georgia December 5, 1997 EX-99.4 3 AUDITED CONSOLIDATED FINANCIAL STMTS-SAVANNAH FOOD 1 EXHIBIT 99.4 Report of Independent Accountants To the Stockholders and Board of Directors of Savannah Foods & Industries, Inc. In our opinion, the accompanying consolidated balance sheets 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 October 1, 1995, and the results of their operations and their cash flows for the fifty-two weeks ended September 29, 1996, October 1, 1995 and October 2, 1994, 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. PRICE WATERHOUSE LLP Atlanta, Georgia November 18, 1996 1 2 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Balance Sheets (In thousands except for shares and per share amounts)
September 29, October 1, 1996 1995 Assets -------------- ------------ Current assets: Cash and cash equivalents $ 15,300 $ 11,574 Accounts receivable 76,109 66,991 Inventories (net of LIFO reserve of $8,018 in 1996 and $10,460 in 1995) (Note 3) 83,929 103,121 Other current assets 5,214 16,116 ------------ ------------ Total current assets 180,552 197,802 Property, plant and equipment (Note 4) 186,546 230,891 Other assets 31,163 47,814 ------------ ------------ $ 398,261 $ 476,507 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings (Note 5) $ 7,500 $ 22,300 Current portion of long-term debt (Note 5) 2,170 6,300 Trade accounts payable 52,701 63,259 Other liabilities and accrued expenses 23,575 22,881 ------------ ------------ Total current liabilities 85,946 114,740 ------------ ------------ Long-term debt (Note 5) 59,754 106,864 ------------ ------------ Deferred employee benefits 78,834 85,254 ------------ ------------ Stockholders' equity (Note 7): 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 31,764 12,190 Retained earnings 193,524 190,176 Treasury stock, at cost (2,568,604 shares in 1996 and 5,068,604 shares in 1995) (15,849) (31,275) Minimum pension liability adjustment (14,038) (14,842) Stock held by benefit trust, at market (2,500,000 shares in 1996) (35,000) - Other (4,039) (3,965) ------------ ------------ Total stockholders' equity 173,727 169,649 ------------ ------------ Commitments and contingencies (Note 10) - - ------------ ------------ $ 398,261 $ 476,507 ============ ============
(The accompanying notes are an integral part of the consolidated financial statements.) 2 3 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Statements of Operations (In thousands except for shares and per share amounts)
Fiscal Year Ended ----------------------------------------------- September 29, October 1, October 2, 1996 1995 1994 ------------- ------------- ------------- Net sales $ 1,146,332 $ 1,098,544 $ 1,074,367 ------------- ------------- ------------- Operating expenses: Cost of sales and operating expenses 1,028,218 1,002,679 969,621 Selling, general and administrative expenses 54,667 55,866 53,392 Depreciation and amortization 27,994 28,314 28,972 Impairment of long-lived assets (Note 2) 10,280 - - Other costs (Note 11) 3,374 4,284 2,950 ------------- ------------- ------------- 1,124,533 1,091,143 1,054,935 ------------- ------------- ------------- Income from operations 21,799 7,401 19,432 ------------- ------------- ------------- Other income and (expenses): Interest and other investment income 847 1,258 2,170 Interest expense (12,355) (14,847) (13,380) Other income (expense) (610) 110 384 ------------- ------------- ------------- (12,118) (13,479) (10,826) ------------- ------------- ------------- Income (loss) before income taxes and extraordinary item 9,681 (6,078) 8,606 Provision for (benefit from) income taxes (Note 6) 2,738 (2,585) 2,863 ------------- ------------- ------------- Income (loss) before extraordinary item 6,943 (3,493) 5,743 Extraordinary item, net of tax (Note 5) (971) - - ------------- ------------- ------------- Net income (loss) $ 5,972 $ (3,493) $ 5,743 ============= ============= ============= Per share: Income (loss) before extraordinary item $ 0.27 $ (0.13) $ 0.22 Extraordinary item (Note 5) (0.04) - - ------------- ------------- ------------- Net income (loss) $ 0.23 $ (0.13) $ 0.22 ============= ============= ============= Dividends $ 0.10 $ 0.32 $ 0.54 ============= ============= ============= 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.) 3 4 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 3, 1993 $ 17,365 $ 12,190 $ 210,491 $ (31,275) $ (9,453) $ - $ (4,604) $ 194,714 Net income 5,743 5,743 Cash dividends declared (14,169) (14,169) Decrease in minimum pension liability adjustment 1,243 1,243 Decrease in note receivable from employee stock ownership plan 643 643 -------- -------- --------- ---------- ---------- --------- --------- --------- 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 7) 11,449 15,426 (26,875) - Increase in fair market value of stock held by benefit trust (Note 7) 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 ======== ======== ========= ========== ========== ========= ========= =========
(The accompanying notes are an integral part of the consolidated financial statements.) 4 5 SAVANNAH FOODS & INDUSTRIES, INC. Consolidated Statements of Cash Flows (In thousands)
Fiscal Year Ended ---------------------------------------- September 29, October 1, October 2, 1996 1995 1994 ------------- ------------ ---------- Cash flows from operations: Net income (loss) $ 5,972 $ (3,493) $ 5,743 Adjustments to reconcile net income (loss) to net cash provided by operations - Depreciation and amortization 27,994 28,314 28,972 Impairment of long-lived assets (Note 2) 10,280 - - Extraordinary item, net of tax, related to financing activities 971 - - Provision for deferred income taxes (5,173) (207) (5,283) Net loss on disposal of assets 2,595 674 460 Decreases (increases) in working capital - Accounts receivable (9,118) 8,785 11,254 Inventories 20,565 (17,781) 60,299 Other current assets 7,924 (6,952) 2,657 Trade accounts payable (10,558) 6,306 (49,457) Other liabilities and accrued expenses 1,110 (777) 3,373 Other (2,713) 1,122 1,431 ---------- ---------- ---------- Cash provided by operations 49,849 15,991 59,449 ---------- ---------- ---------- Cash flows from investing activities: Additions to property, plant and equipment (7,916) (16,303) (22,218) Proceeds from sale of property, plant and equipment 2,538 784 3,309 Sale of investments 13,869 3,615 18,559 Business sales and (acquisitions) 12,500 (7,050) - Use of escrowed industrial revenue bond funds for additions to property, plant and equipment 3,253 - 3,669 Other (182) (2,182) (2,930) ---------- ---------- ---------- Cash provided by (used for) investing activities 24,062 (21,136) 389 ---------- ---------- ---------- Cash flows from financing activities: (Decrease) increase in short-term borrowings (14,800) 22,300 (26,300) Payments of long-term debt (51,240) (28,703) (2,632) Debt prepayment charge, net of tax (971) - - Liquidation of unused industrial revenue bond escrow balances - 5,742 - Dividends paid (3,280) (11,282) (10,627) Other 106 226 676 ---------- ---------- ---------- Cash used for financing activities (70,185) (11,717) (38,883) ---------- ---------- ---------- Cash flows for year 3,726 (16,862) 20,955 Cash and cash equivalents, beginning of year 11,574 28,436 7,481 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 15,300 $ 11,574 $ 28,436 ========== ========== ==========
(The accompanying notes are an integral part of the consolidated financial statements.) 5 6 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 meal kits, salt, pepper, artificial sweetener, non-diary 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 1996, 1995 and 1994 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, options and interest rate swaps as hedges in its inventory purchasing and cash management programs. Gains and losses on such transactions related to inventory are matched to specific inventory purchases and charged or credited to cost of sales as such inventory is sold. The net cash paid or received on interest rate swaps is included in interest expense. 6 7 Amortization of intangibles - The Company has intangible assets included in "Other assets" aggregating $9,529,000 and $11,912,000 at September 29, 1996 and October 1, 1995, respectively. Goodwill of $5,378,000 at September 29, 1996, and $5,781,000 at October 1, 1995, 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 $2,341,000, $2,169,000 and $2,617,000 for fiscal 1996, 1995 and 1994, respectively. 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. Revenue recognition - The Company recognizes revenue as product is shipped. 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 current year presentation. 7 8 Note 2 - 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. Note 3 - Inventories: A summary of inventories by method of pricing and class is as follows:
September 29, October 1, 1996 1995 ------------- ---------- (In thousands) Last-in, first-out $35,311 $ 64,642 First-in, first-out 9,682 9,807 Moving average 29,462 28,672 Specific identification 9,474 - ------- -------- $83,929 $103,121 ======= ======== Raw materials and work-in-process $17,693 $ 46,533 Packaging materials, parts and supplies 20,713 26,245 Finished goods 36,049 30,343 Payments related to future inventory purchases 9,474 - ------- -------- $83,929 $103,121 ======= ========
The replacement cost of inventories exceeded reported cost by approximately $8,233,000 at September 29, 1996 and $11,101,000 at October 1, 1995. In fiscal 1994 there was a LIFO liquidation which decreased cost of goods sold by $1,762,000 and increased net income by $1,097,000, or $.04 per share. 8 9 Note 4 - Property, Plant and Equipment: Property, plant and equipment is summarized as follows:
September 29, October 1, 1996 1995 ------------- ---------- (In thousands) Land $ 7,498 $ 8,143 Buildings 89,194 94,670 Machinery and equipment 305,717 326,842 Leasehold improvements 1,201 1,201 Projects-in-process 3,119 6,135 -------- -------- 406,729 436,991 Less - Accumulated depreciation and amortization (220,183) (206,100) -------- -------- $186,546 $230,891 ======== ========
Repairs and maintenance expense was $31,699,000, $35,241,000 and $31,584,000 for fiscal 1996, 1995 and 1994, respectively. Note 5 - Long-term Debt, Credit Arrangements and Leases: Long-term debt is summarized as follows:
September 29, October 1, 1996 1995 ------------- ---------- (In thousands) Senior Notes - Series A at 8.35% of $19,941 and $47,857, respectively, and Series B at 7.15% of $5,059 and $12,143, respectively $25,000 $ 60,000 Long-term debt supported by revolving credit facilities with banks - 10,000 Notes payable to banks related to the ESOP 9,815 14,100 Industrial revenue bonds 22,500 22,500 Other long-term debt 4,609 6,564 ------- -------- 61,924 113,164 Less - Current portion (2,170) (6,300) ------- -------- $59,754 $106,864 ======= ========
The Company elected to prepay $35,000,000 of the Senior Notes in 1996. The Company incurred $971,000 (net of $570,000 income tax benefits), or $.04 per share, of related prepayment penalties which are reflected as an extraordinary item in the Consolidated Statement of Operations. 9 10 The remaining Senior Notes are payable in amounts of $8,750,000 in fiscal 1999, $14,792,000 in fiscal 2000, and $1,458,000 in fiscal 2001. The market value of this $25,000,000 fixed rate long-term debt at September 29, 1996 is approximately $26,301,000 based on interest rates at that date. At September 29, 1996, 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 4.99% in 1996. 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 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. 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. At September 29, 1996, $7,500,000 was outstanding as short-term debt. The Company has a Standby Letter of Credit (SLC) in favor of the Senior Note lenders drawn under the revolving credit agreement. The SLC is maintained at 105% of the Senior Notes outstanding and was $26,250,000 at September 29, 1996. In connection with the execution of this agreement, the Senior Note agreement was amended to remove all of the financial ratio covenants. As of September 29, 1996 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 29, October 1, October 2, 1996 1995 1994 ------------- ---------- ---------- (In thousands) Daily average outstanding borrowings $39,004 $31,373 $27,953 Daily weighted average interest rate 5.66% 6.29% 3.82% Maximum borrowings $71,980 $68,500 $62,300 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 29, 1996 and October 1, 1995 were $30,000,000 and $50,000,000, respectively. The fixed rates of interest for swaps outstanding during fiscal 1996 and 1995 were 8.66% and 8.52%, respectively. These swaps expire from December 1997 to February 1998. The effective fixed rate of swapped debt instruments during fiscal 1996 and 1995 was 7.76% and 8.00%, 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 29, 1996, it would have been required to pay the counter-parties to the agreements an aggregate amount of $1,342,000. 10 11 The Company has also entered into forward swap agreements for periods ranging from 1998 to 2004 which fix the rate on debt as follows: $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 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 29, 1996, it would have received from the counter-parties to the agreements an aggregate amount of $734,000. Interest expense was $12,355,000 in fiscal 1996, $14,847,000 in fiscal 1995, and $13,380,000 in fiscal 1994. Cash payments of interest were $12,945,000 in fiscal 1996, $13,620,000 in fiscal 1995, and $12,321,000 in fiscal 1994. 11 12 Annual maturities of long-term debt each year for the next five fiscal years are $2,170,000 in 1997, $7,894,000 in 1998, $9,440,000 in 1999, $19,982,000 in 2000, $9,248,000 in 2001, and $13,190,000 in subsequent years through 2017. Lease expense related to operating leases aggregated $2,081,000, $1,552,000, and $1,887,000 in fiscal 1996, 1995 and 1994, respectively. Lease commitments on operating leases exceeding one year for fiscal 1997, 1998, 1999, 2000 and 2001 are $1,265,000, $1,245,000, $837,000, $802,000 and $564,000, respectively. Note 6 - 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 29, October 1, October 2, 1996 1995 1994 ------------ ---------- ---------- (In thousands) Current federal $6,092 $(1,515) $8,071 Current state 1,249 (863) 75 Deferred federal (4,357) (271) (4,794) Deferred state (816) 64 (489) ------ ------- ------ Provision for (benefit from) income taxes $2,168 $(2,585) $2,863 ====== ======= ====== Tax effect of change in: Minimum pension liability adjustment $ 507 $(4,716) $ 720 Cumulative translation adjustment (45) (261) - ------ ------- ------ $ 462 $(4,977) $ 720 ====== ======= ======
Cash payments for income taxes amounted to $537,000, $6,637,000 and $7,504,000 for fiscal 1996, 1995 and 1994, respectively. 12 13 Deferred income tax assets (liabilities) are comprised of the following:
September 29, October 1, 1996 1995 ------------- ---------- (In thousands) Loss on impairment of long-lived assets $ 3,906 $ - Depreciation (21,658) (22,854) Other postretirement benefits 12,565 12,316 Accrued pension liability 8,796 12,769 Deferred compensation 7,743 6,227 Tax benefit purchases (1,143) (2,616) Other non-current 4,009 659 ------- -------- Total net non-current asset 14,218 6,501 ------- -------- Other accrued expenses 2,288 847 Inventory (243) (411) Other current 980 1,226 ------- -------- Total net current asset 3,025 1,662 ------- -------- Net deferred asset $17,243 $ 8,163 ======= ========
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 29, October 1, October 2, 1996 1995 1994 ------------- ---------- ---------- (In thousands) Computed "expected" tax expense (benefit) $3,292 $(2,127) $3,012 Increases (reductions) in taxes resulting from: State income taxes, net of federal income tax benefit 224 280 (269) Tax-free income earned (221) (120) (104) ESOP dividends (17) (254) (506) Tax rate benefit of NOL carryback (600) - - Other 60 (364) 730 ------ ------- ------ 2,738 (2,585) 2,863 Extraordinary item (570) - - ------ ------- ------ Provision for (benefit from) income taxes $2,168 $(2,585) $2,863 ====== ======= ======
Note 7 - Stockholders' Equity: 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. 13 14 During fiscal 1996, the Company established a Benefit Trust (the "Trust") with 2,500,000 shares of treasury stock. The Trust will enhance the Company's financial flexibility to provide funds to satisfy its obligations under various employee benefit plans and agreements. The shares may be sold at the Company's discretion, until March 31, 2011. However, the shares do not have to be sold. Proceeds from the sales, if any, will be used to fund eligible employee benefits. The employee benefits payable from the Trust are primarily included in the $78,834,000 "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". "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 29, 1996, the market value of the stock was $14.00 per share. Total stockholders' equity will increase as the shares are sold from the Trust. Effective April 23, 1996, the Company entered into a one-year employment agreement with the Chairman of the Board of Directors of the Company. The employment agreement grants an option to purchase from the Company 100,000 shares of the Company's common stock at the price of $11.00 per share. The option price coincided with the market price of the Company's common stock on the date the options were granted. The options are exercisable until April 24, 2001. None of the options have yet been exercised. 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 14 15 modified, and provisions to reduce pension benefits for early retirement were incorporated into this plan. These modifications, 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 29, 1996, the assets of these plans are invested primarily in cash equivalents and commingled institutional stock and bond funds. 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 29, October 1, 1996 1995 ------------- ---------- (In thousands) Actuarial present value of benefit obligation based on current compensation: Vested $(80,235) $(78,364) Nonvested (6,216) (6,927) -------- -------- Accumulated benefit obligation (86,451) (85,291) Increase in present value of benefit obligation to reflect projected compensation increases (4,846) (7,524) -------- -------- Projected benefit obligation (91,297) (92,815) Plan assets at fair value 72,533 62,852 -------- -------- Projected benefit obligation in excess of plan assets (18,764) (29,963) Unrecognized prior service cost (193) 3,386 Unrecognized net loss 29,810 31,876 Unrecognized net asset at transition (1,276) (2,352) Adjustment required to recognize minimum liability (23,495) (25,386) -------- -------- Pension liability included in "Deferred employee benefits" $(13,918) $(22,439) ======== ======== 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 29, October 1, October 2, 1996 1995 1994 ------------- ---------- ----------- (In thousands) Costs related to services provided by employees during the year $2,070 $2,250 $2,401 Interest cost on projected benefit obligation 6,874 6,601 6,274 Actual gain on plan assets (5,939) (6,390) (1,172) Net amortization and deferrals 659 437 (4,564) ------ ------ ------ Pension expense related to defined benefit plans 3,664 2,898 2,939 Supplemental pension benefits 205 190 126 ------ ------ ------ Total pension expense $3,869 $3,088 $3,065 ====== ====== ====== 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 29, October 1, October 2, 1996 1995 1994 ------------ ---------- ---------- (In thousands) Costs related to services provided by employees during the year $ 316 $ 283 $ 285 Interests cost on projected benefit obligation 928 912 781 Net amortization and deferrals 203 169 189 Net curtailment gain (189) - - ------ ------ ------ Total pension expense related to SERP plan $1,258 $1,364 $1,255 ====== ====== ======
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 29, October 1, 1996 1995 ------------- ---------- (In thousands) Actuarial present value of benefit obligation based on current compensation: Vested $ (7,770) $(11,097) Nonvested (648) (917) -------- -------- Accumulated benefit obligation (8,418) (12,014) Increase in present value of benefit obligation to reflect projected compensation increases (2,613) (850) -------- -------- Projected benefit obligation (11,031) (12,864) Unrecognized prior service cost - 197 Unrecognized net loss 700 2,893 Unrecognized net obligation at transition - 70 Adjustment required to recognize minimum liability (273) (2,310) -------- -------- Pension liability included in "Deferred employee benefits" $(10,604) $(12,014) ======== ======== 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 and at October 1, 1995 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 and $14,842,000 at October 1, 1995. Note 9 - Other Retirement and Benefit Plans: The Company has a deferred compensation program, which it modified in 1996. This program allowed directors and certain management employees to defer 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 17 18 and interest at the market rate are accrued as incurred. Interest above the market rate is accrued over the vesting period. The expense related to the Company's deferral plan was $2,523,000 in 1996, $2,320,000 in 1995, and $1,915,000 in 1994. The 1996 amendment terminated all additional employee deferrals effective June 30, 1996. The nonemployee directors' deferral plan was also modified to reduce the guaranteed rate of interest on amounts deferred to 8%, and then to the prime rate in effect each January 1. The effect of this amendment is estimated to have reduced the present value of the payments which ultimately will be paid to the directors under the plan by $2,600,000. As consideration for the reduction in the interest rate on the directors' deferred compensation, a Supplemental Share Unit Plan (the "Plan") was established for nonemployee directors. The Plan granted a number of Share Units (a Share Unit is the equivalent of one share of Company common stock) to each nonemployee director equal to one-half of the director's deferred compensation account balance as of June 30, 1996 divided by a price of $11.00 per Share Unit. These Share Units fully vested on June 30, 1996 and the value of each unit is adjusted upward or downward based on the highest daily closing price of the Company's common stock during the preceding twelve month period. At retirement from the Board of Directors, each nonemployee director will receive, in cash, the value of the Share Units in their deferral account. During 1996, the Company expensed $1,563,000 related to this plan. Future expenses related to this plan will only be incurred as the Company's stock price increases. The Company has included in "Deferred employee benefits" $20,524,000 at September 29, 1996 and $17,694,000 at October 1, 1995 to reflect its liability under its deferred compensation programs. Payments required to be made to participants in these programs for the next five fiscal years are approximately $1,460,000 in 1997, $1,460,000 in 1998, $1,555,000 in 1999, $1,878,000 in 2000 and $2,706,000 in 2001. 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 $449,000, $437,000 and $408,000 in fiscal 1996, 1995 and 1994, respectively. 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 29, October 1, October 2, 1996 1995 1994 ------------- ---------- ---------- (In thousands) Costs related to services provided by employees during the year $ 520 $ 476 $ 669 Interest cost on accumulated benefit obligation 2,408 2,447 2,369 ------ ------ ------ Total postretirement benefit expense $2,928 $2,923 $3,038 ====== ====== ======
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 29, October 1, 1996 1995 ------------- ---------- (In thousands) Accumulated postretirement benefit obligation: Retirees $(20,594) $(20,473) Active participants (11,865) (11,634) -------- -------- Accumulated benefit obligation (32,459) (32,107) Unrecognized net gain (1,329) (1,000) -------- -------- Accrued postretirement benefit obligation included in "Deferred employee benefits" $(33,788) $(33,107) ======== ======== Actuarial assumptions: Discount rate 7.5% 7.5% Health care cost trend rate - Fiscal 1996 - 7.5% 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 29, 1996 by approximately $1,983,000 and would have increased postretirement benefit expense by approximately $221,000 in fiscal 1996. 19 20 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 1996, 1995, and 1994. Note 10 - 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 5. However, the Company does not anticipate non-performance by the counter-parties to the transactions. As of the end of fiscal 1996, approximately $2,500,000 of a claim by the United States Customs Service (Customs) remains unresolved. Customs has alleged that drawback claims prepared by the Company for certain export shipments of sugar during the years 1984 to 1988 are technically and/or substantively deficient and that the Company, therefore, is not entitled to amounts previously received under these drawback claims. The Company disputes Customs' findings and has been vigorously protesting this matter with Customs. The ultimate resolution of this matter is not expected to have a materially adverse effect on the Company's financial position or results of operations. 20 21 Note 11 - Quarterly Financial Information (Unaudited): Unaudited quarterly financial information for fiscal 1996 and 1995 is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (In thousands except for per share amounts) 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 Fiscal 1995 Net sales $282,477 $253,377 $275,554 $287,136 Gross profit 28,848 20,907 20,472 25,638 Other costs - - - (4,284) Income (loss) from operations 8,428 299 199 (1,525) Net income (loss) 3,618 (1,927) (2,428) (2,756) Per share .14 (.07) (.10) (.10)
"Other costs" included above and in the Consolidated Statements of Operations includes the following:
First Second Third Fourth Quarter Quarter Quarter Quarter 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) ====== ======= ======= ======= Fiscal 1995 Net loss on asset disposals $(1,197) Litigation settlement (1,615) Cost of workforce reduction (1,472) ------- Other costs $(4,284) =======
A $1,514,000 net gain on the disposal of assets in the first quarter of fiscal 1996 has been reclassified to income from operations from other income (expense), where it was shown in the first quarter 10-Q. 21 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. (a) Previous independent accountants On October 17, 1996, the Registrant notified Price Waterhouse LLP that it would be dismissed as the Registrant's independent accountants upon completion of its audit of the consolidated financial statements as of and for the fiscal year ended September 29, 1996. This audit was completed on November 18, 1996. The reports of Price Waterhouse LLP on the consolidated financial statements of the Registrant as of and for the fiscal years ended September 29, 1996 and October 1, 1995 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. The Registrant's Audit Committee and Board of Directors made and approved the decision to change independent accountants. In connection with its audits for the fiscal years ended September 29, 1996 and October 1, 1995 and through November 18, 1996, there have been no disagreements with Price Waterhouse LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Price Waterhouse LLP would have caused them to make reference thereto in their report on the consolidated financial statements for such years. During the fiscal years ended September 29, 1996 and October 1, 1995 and through November 18, 1996, there have been no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)). The Registrant has requested that Price Waterhouse LLP furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. Copies of such letters, one dated October 22, 1996 and one dated November 18, 1996 were filed as Exhibits 16-1 to two Form 8-K's filed with the SEC. The Form 8-K's were dated October 17, 1996 and November 18, 1996, respectively. 22 23 (b) New independent accountants The Registrant engaged Arthur Andersen LLP as its new independent accountants as of December 16, 1996. During the fiscal years ended September 29, 1996 and October 1, 1995 and through December 16, 1996, the Registrant has not consulted with Arthur Andersen LLP on items which (1) were or should have been subject to SAS 50 (Reports on the Application of Accounting Principles) or (2) concerned the subject matter of a disagreement or reportable event with the former independent accountants, (as described in Regulation S-K Item 304(a)(2)). 23 EX-99.5 4 UNAUDITED CON. CONSOLIDATED FIN. STMTS-SAVANNAH 1 EXHIBIT 99.5 Savannah Foods & Industries, Inc. Consolidated Balance Sheets (In thousands except for shares and per share amounts) (Unaudited)
June 29, September 29, 1997 1996 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 11,249 $ 15,300 Accounts receivable 70,580 76,109 Inventories (net of LIFO reserve of $7,970 in fiscal 1997 and $8,018 in fiscal 1996) (Note 2) 141,386 83,929 Other current assets 6,716 5,214 ------------ ------------ Total current assets 229,931 180,552 Property, plant and equipment (net of accumulated depreciation of $231,333 in fiscal 1997 and $220,183 in fiscal 1996) 175,927 186,546 Other assets 29,234 31,163 ------------ ------------ $ 435,092 $ 398,261 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 3,800 $ 7,500 Current portion of long-term debt 8,253 2,170 Trade accounts payable 88,463 52,701 Accrued expenses related to beet operations 9,730 - Other liabilities and accrued expenses 23,898 23,575 ------------ ------------ Total current liabilities 134,144 85,946 ------------ ------------ Long-term debt (Note 3) 26,230 59,754 ------------ ------------ Deferred employee benefits 73,785 78,834 ------------ ------------ Stockholders' equity: 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 39,108 31,764 Retained earnings 220,231 193,524 Treasury stock, at cost (2,568,604 shares) (15,849) (15,849) Minimum pension liability adjustment (14,038) (14,038) Stock held by benefit trust, at market (2,500,000 shares) (42,344) (35,000) Other (3,540) (4,039) ------------ ------------ Total stockholders' equity 200,933 173,727 ------------ ------------ $ 435,092 $ 398,261 ============ ============
(The accompanying notes are an integral part of the consolidated financial statements.) 1 2 Savannah Foods & Industries, Inc. Consolidated Statements of Operations (In thousands except for shares and per share amounts) (Unaudited)
For the For the Quarter Ended Three Quarters Ended ---------------------------- ---------------------------- June 29, June 30, June 29, June 30, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net sales $ 303,546 $ 287,462 $ 883,156 $ 842,675 ------------ ------------ ------------ ------------ Operating expenses: Cost of sales and operating expenses 263,100 256,336 768,703 760,957 Selling, general and administrative expenses 15,102 13,475 44,241 41,026 Depreciation and amortization 5,663 6,745 17,769 21,074 ------------ ------------ ------------ ------------ 283,865 276,556 830,713 823,057 ------------ ------------ ------------ ------------ Income from operations 19,681 10,906 52,443 19,618 ------------ ------------ ------------ ------------ Other income and (expenses): Interest and other investment income 339 163 661 575 Interest expense (1,530) (3,013) (5,412) (9,678) Other income (expense) (94) (481) (301) (632) ------------ ------------ ------------ ------------ (1,285) (3,331) (5,052) (9,735) ------------ ------------ ------------ ------------ Income before income taxes and extraordinary item 18,396 7,575 47,391 9,883 Provision for income taxes (6,994) (2,849) (18,012) (3,657) ------------ ------------ ------------ ------------ Income before extraordinary item 11,402 4,726 29,379 6,226 Extraordinary item, net of tax (Note 3) (376) (698) (376) (698) ------------ ------------ ------------ ------------ Net income $ 11,026 $ 4,028 $ 29,003 $ 5,528 ============ ============ ============ ============ Per share: Income before extraordinary item $ 0.43 $ 0.18 $ 1.12 $ 0.24 Extraordinary item (Note 3) (0.01) (0.03) (0.01) (0.03) ------------ ------------ ------------ ------------ Net income $ 0.42 $ 0.15 $ 1.11 $ 0.21 ============ ============ ============ ============ Dividends $ 0.0375 $ 0.0250 $ 0.0875 $ 0.0750 ============ ============ ============ ============ Weighted average shares outstanding 26,238,196 26,238,196 26,238,196 26,238,196 ============ ============ ============ ============
(The accompanying notes are an integral part of the consolidated financial statements.) 2 3 Savannah Foods & Industries, Inc. Consolidated Statements of Cash Flows (Unaudited)
For the Three Quarters Ended ------------------------------ June 29, June 30, 1997 1996 ----------- ----------- (In thousands of dollars) Cash flows from operations: Net income $ 29,003 $ 5,528 Adjustments to reconcile net income to net cash provided by operations - Depreciation and amortization 17,769 21,074 Extraordinary item, net of tax, related to financing activities 376 698 Net loss on disposal of assets 186 1,871 Decreases (increases) in working capital - Accounts receivable 5,529 (7,406) Inventories (57,457) (40,850) Other current assets (1,502) 5,652 Trade accounts payable 35,762 9,983 Accrued expenses related to beet operations 9,730 15,815 Other liabilities and accrued expenses 323 (3,806) (Decrease) increase in deferred employee benefits (5,049) 473 Other 1,343 200 ----------- ----------- Cash provided by (used for) operations 36,013 9,232 ----------- ----------- Cash flows from investing activities: Additions to property, plant and equipment (6,432) (5,412) Proceeds from sale of property, plant and equipment 812 2,458 Sale of investments - 13,869 Liquidation of business - 12,500 Use of escrowed industrial revenue bond funds for additions to property, plant and equipment - 2,862 Other - (381) ----------- ----------- Cash (used for) provided by investing activities (5,620) 25,896 ----------- ----------- Cash flows from financing activities: (Decrease) increase in short-term borrowings (3,700) (951) Payments of long-term debt (27,441) (22,907) Debt prepayment charge, net of tax (376) (698) Dividends paid (2,296) (1,968) Other (631) (412) ----------- ----------- Cash (used for) provided by financing activities (34,444) (26,936) ----------- ----------- Cash flows for period (4,051) 8,192 Cash and cash equivalents, beginning of period 15,300 11,574 ----------- ----------- Cash and cash equivalents, end of period $ 11,249 $ 19,766 =========== ===========
(The accompanying notes are an integral part of the consolidated financial statements. 3 4 Savannah Foods & Industries, Inc. Notes to Consolidated Financial Statements (Unaudited) (1) The information furnished reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of Management, necessary for a fair statement of the results for the interim periods. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation. (2) A summary of inventories by class is as follows:
June 29, September 29, 1997 1996 --------- ------------- (In thousands of dollars) Raw materials and work-in-process $ 52,033 $17,693 Packaging materials, parts and supplies 16,198 20,713 Finished goods 73,155 36,049 Payments related to future inventory purchases - 9,474 -------- ------- $141,386 $83,929 ======== =======
(3) The Company elected to prepay the remaining $25 million of its Senior Notes in May 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. (4) Futures Transactions and Interest Rate Swaps: The Company uses futures contracts to manage its inventory and fuel positions, both to set pricing on purchases 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. 4 5 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. (5) 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 uses interest rate swap agreements to manage its interest rate exposure. The Company is exposed to loss in the event of non-performance by the other party to these swaps. However, the Company does not anticipate non-performance by the counter-parties to the transactions. On April 14, 1997, the Company received a ruling favorable in all material respects on its protest against a claim of approximately $2,500,000 by the United States Customs Service (Customs). Customs had alleged that drawback claims prepared by the Company for certain export shipments were deficient and that the Company may have to repay such claims. The Company is currently preparing specific documentation requested by Customs in order to enable the agency to process and finalize the drawback claims in accordance with the favorable ruling. The pending resolution of this matter is not expected to have a material effect on the Company's cash flows, financial position or results of operations. 5 EX-99.6 5 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1 EXHIBIT 99.6 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 a $255 million senior secured credit facility, a $250 million subordinated notes offering, and the replacement of existing revolving lines of credit (collectively the "Debt Financing") to replace the Tender Credit Facility and to provide for the cash portion of the consideration in the Merger; 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 33,844 (5) 55,846 Other (income) expense................... (1,695) 285 -- (1,410) -------- ---------- -------- ----------- Income before income taxes............... 17,688 36,368 (39,512) 14,544 Income tax provision..................... 6,170 12,948 (11,310)(6) 7,808 -------- ---------- -------- ----------- Income before extraordinary item......... $ 11,518 $ 23,420 $(28,202) $ 6,736 ======== ========== ======== =========== 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............. $ 0.27 ===========
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 17,262(5) 25,531 Other (income) expense.................... (735) (294) -- (1,029) -------- -------- -------- ----------- Income before income taxes................ 15,793 22,222 (8,328) 29,687 Income tax provision...................... 5,842 8,118 (1,431)(6) 12,529 -------- -------- -------- ----------- Income before extraordinary item.......... $ 9,951 $ 14,104 $ (6,897) $ 17,158 ======== ======== ======== =========== 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.............. $ 0.64 ===========
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 16,765(5) 28,792 Other (income) expense.................... (1,046) 400 -- (646) -------- -------- -------- ----------- Income before income taxes................ 11,157 7,373 (19,789) (1,259) Income tax provision...................... 4,080 1,930 (5,667)(6) 343 -------- -------- -------- ----------- Income before extraordinary item.......... $ 7,077 $ 5,443 $(14,122) $ (1,602) ======== ======== ======== =========== 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.............. (0.07) ===========
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. Interest rates on the Debt Financing are assumed to be:
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, MARCH 31, ------------- 1997 1997 1996 ----------- ---- ---- Six-year Senior Secured Loan...................... 7.31% 7.44% 7.23% Eight-year Senior Secured Loan.................... 7.56 7.69 7.48 Ten-year Senior Subordinated Notes................ 9.32 9.32 9.32 Revolving Credit Facility......................... 7.31 7.44 7.23
If interest rates were 1/8% higher during the periods, pro forma interest expense on variable rate debt for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996 would have increased $338,000, $173,000 and $165,000, 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 $0.30, $0.72 and $(0.08) 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 Alternative A Senior Credit Facility to finance the cash consideration paid in the Offer and the Merger, to purchase the Senior Notes in the Debt Tender Offer and to pay related fees and expenses estimated at $24.4 million. (The cash consideration paid in the Offer, the amount required to repurchase the Senior Notes in the Debt Tender Offer and certain of such expenses were originally financed with borrowings under the Tender Credit Facility, which amounts were repaid with borrowings under the Senior Credit Facility). (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-----