-----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, G2Ukfl/O8bToYW+NI/f3+sqUWyXV0ObkE2A13kVx09GNhJnwctc1q1OdJlOmSy2S hJxF83opripM4Xak6fDAOw== 0000950129-98-003395.txt : 19980814 0000950129-98-003395.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950129-98-003395 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-10307 FILM NUMBER: 98684898 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 10-Q 1 IMPERIAL HOLLY CORPORATION - DATED 6/30/1998 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission file number 1-10307 ------------------------------ IMPERIAL HOLLY CORPORATION (Exact name of registrant as specified in its charter) Texas 74-0704500 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Imperial Square, Suite 200, P.O. Box 9, Sugar Land, Texas 77487 (Address of principal executive offices, including Zip Code) (281) 491-9181 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 10, 1998. 27,050,208 shares. - -------------------------------------------------------------------------------- 2 IMPERIAL HOLLY CORPORATION Index
Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Consolidated Statement of Changes in Shareholders' Equity 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15
---------------------- The statements regarding future market prices, acreage planted, agricultural results and operating results and other statements that are not historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. The words "expect", "project", "estimate", "believe", "anticipate", "plan", "intend", "could", "may", "budget", "predict" and similar expressions are also intended to identify forward-looking statements. Such statements involve risks, uncertainties and assumptions, including, without limitation, market factors, the effect of weather and economic conditions, farm and trade policy, the ability of the Company to realize cost savings from acquisitions, the available supply of sugar, available quantity and quality of sugarbeets and other factors detailed elsewhere in this and other Company filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. - 2 - 3 PART I - FINANCIAL INFORMATION IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 SEPTEMBER 30, 1997 --------------- -------------------- (Unaudited) (In Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and temporary investments $ 9,408 $ 9,354 Marketable securities 65,643 55,883 Accounts receivable 129,040 62,158 Inventories: Finished products 161,271 92,815 Raw and in-process materials 64,050 17,623 Supplies 36,483 16,937 Deferred & prepaid expenses 30,739 27,805 --------------- -------------------- Total current assets 496,634 282,575 NOTE RECEIVABLE -- 1,285 OTHER INVESTMENTS 13,821 14,646 PROPERTY, PLANT AND EQUIPMENT - net 399,393 154,751 GOODWILL & OTHER INTANGIBLES - net 283,489 1,310 OTHER ASSETS 34,546 3,052 --------------- -------------------- TOTAL $ 1,227,883 $ 457,619 =============== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable -- trade $ 148,398 $ 53,923 Short-term borrowings 5,719 43,091 Current maturities of long-term debt 7,098 1,173 Other current liabilities 64,744 53,986 --------------- -------------------- Total current liabilities 225,959 152,173 LONG-TERM DEBT 525,431 81,304 DEFERRED TAXES AND OTHER CREDITS 125,238 31,183 SHAREHOLDERS' EQUITY Preferred stock -- -- Common stock 268,602 83,707 Stock held by benefit trust (15,819) -- Retained earnings 74,712 90,870 Unrealized securities gains - net 23,760 18,382 --------------- -------------------- Total shareholders' equity 351,255 192,959 --------------- -------------------- TOTAL $ 1,227,883 $ 457,619 =============== ====================
See notes to consolidated financial statements. - 3 - 4 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended June 30, June 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (In Thousands of Dollars, Except per Share Amounts) NET SALES $ 456,087 $ 197,758 $ 1,305,921 $ 557,203 ------------ ------------ ------------ ------------ COSTS AND EXPENSES: Cost of sales 407,336 170,806 1,186,907 492,323 Selling, general and administrative 15,627 8,317 49,835 24,498 Depreciation and amortization 11,489 4,464 33,910 14,236 Nonrecurring charges -- -- 18,287 -- ------------ ------------ ------------ ------------ Total 434,452 183,587 1,288,939 531,057 ------------ ------------ ------------ ------------ OPERATING INCOME 21,635 14,171 16,982 26,146 INTEREST EXPENSE (12,712) (2,782) (35,690) (8,875) REALIZED SECURITIES GAINS 2 -- 2,181 32 OTHER INCOME -- Net 1,066 185 3,824 802 ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES & MINORITY INTEREST 9,991 11,574 (12,703) 18,105 PROVISION FOR INCOME TAXES 4,716 4,280 (2,385) 6,370 MINORITY INTEREST IN INCOME OF SAVANNAH -- -- 1,766 -- ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 5,275 7,294 (12,084) 11,735 EXTRAORDINARY ITEM - NET OF TAX -- -- (1,999) -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 5,275 $ 7,294 $ (14,083) $ 11,735 ============ ============ ============ ============ BASIC EARNINGS PER SHARE OF COMMON STOCK: Income (loss) before extraordinary item $ 0.20 $ 0.51 ($ 0.52) $ 0.83 ============ ============ ============ ============ Net income (loss) $ 0.20 $ 0.51 ($ 0.61) $ 0.83 ============ ============ ============ ============ DILUTED EARNINGS PER SHARE OF COMMON STOCK: Income (loss) before extraordinary item $ 0.19 $ 0.51 ($ 0.52) $ 0.82 ============ ============ ============ ============ Net income (loss) $ 0.19 $ 0.51 ($ 0.60) $ 0.82 ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 27,043,121 14,220,388 23,206,716 14,174,870 ============ ============ ============ ============
NOTE: Includes the results of Savannah Foods & Industries, Inc. since October 17, 1997. See notes to consolidated financial statements. - 4 - 5 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended June 30, ------------------------------- 1998 1997 ------------- ------------- (In Thousands of Dollars) OPERATING ACTIVITIES: Net income (loss) $ (14,083) $ 11,735 Adjustments for non-cash and non-operating items: Extraordinary item - net 1,999 -- Minority interest in earnings of Savannah 1,766 -- Impairment loss 12,538 -- Depreciation & amortization 33,910 14,236 Other 143 6,934 Working capital changes: Receivables 1,753 5,249 Inventory (35,322) (40,543) Deferred and prepaid costs 18,551 (6,152) Accounts payable 38,719 17,663 Other liabilities (24,584) (2,572) ------------- ------------- Operating cash flow 35,390 6,550 ------------- ------------- INVESTMENT ACTIVITIES: Acquisition of Savannah, net of cash acquired (363,665) -- Capital expenditures (30,774) (13,505) Investment in marketable securities (10,604) (4,644) Proceeds from sales of securities 11,276 4,692 Proceeds from sales of fixed assets 477 98 Other 2,086 451 ------------- ------------- Investing cash flow (391,204) (12,908) ------------- ------------- FINANCING ACTIVITIES: Revolving credit borrowings - net (42,879) 11,437 CCC borrowings - advances 37,037 57,935 CCC borrowings - repayments (31,530) (57,935) Long term debt: Proceeds 520,874 -- Repayment (130,748) (9,525) Dividends paid (2,075) -- Sale of common stock 5,189 -- Other -- 840 ------------- ------------- Financing cash flow 355,868 2,752 ------------- ------------- INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 54 (3,606) CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 9,354 6,142 ------------- ------------- CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 9,408 $ 2,536 ============= =============
See notes to consolidated financial statements. - 5 - 6 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the Nine Months Ended June 30, 1998 (UNAUDITED)
SHARES OF COMMON STOCK COMMON STOCK -------------------------- -------------------------- UNREALIZED HELD BY HELD BY RETAINED SECURITIES ISSUED BENEFIT TRUST AMOUNT BENEFIT TRUST EARNINGS GAINS TOTAL ---------- ------------- --------- ------------- --------- ------------- --------- (IN THOUSANDS OF DOLLARS) BALANCE SEPTEMBER 30, 1997 14,283,775 $ 83,707 $ 90,870 $ 18,382 $ 192,959 Net Income (Loss) (14,083) (14,083) Cash Dividends (2,075) (2,075) Stock Issued in Merger 13,176,193 (814,810) 174,584 ($ 10,796) 163,788 Stock Issued to H. Kempner Trust Association 377,358 5,000 5,000 Stock Sold to Benefit Trust 505,440 (505,440) 5,023 (5,023) Employee Stock Purchase Plan & Other 24,470 288 288 Change in Unrealized Securities Gains 5,378 5,378 ---------- ------------- --------- ------------- --------- ------------- --------- BALANCE JUNE 30, 1998 28,367,236 (1,320,250) $ 268,602 ($ 15,819) $ 74,712 $ 23,760 $ 351,255 ========== ============= ========= ============= ========= ============= =========
See notes to consolidated financial statements. - 6 - 7 IMPERIAL HOLLY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED JUNE 30, 1998 AND 1997 Basis of Presentation - The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. These financial statements include the accounts of Imperial Holly Corporation and its majority owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures required by generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company's Transition Report on Form 10-K for the period ended September 30, 1997. Reclassifications - Certain amounts reported in prior fiscal periods have been reclassified to conform with the current period's presentation. Cost of Sales - Payments to growers for sugarbeets are based in part upon the Company's average net return for sugar sold (as defined in the participating contracts with growers) during the grower contract years, some of which extend beyond June 30. The contracts provide for the sharing of the net selling price (gross sales price less certain marketing costs, including packaging costs, brokerage, freight expense and amortization of costs for certain facilities used in connection with marketing) with growers. Cost of sales includes an accrual for estimated additional amounts to be paid to growers based on the average net return realized for sugar sold in each of the contract years through June 30. The final cost of sugarbeets cannot be determined until the end of the contract year for each growing area. Manufacturing costs prior to production are deferred and allocated to production costs based on estimated total units of production for each sugar manufacturing campaign. Additionally, the Company's sugar inventories, which are accounted for on a LIFO basis, are periodically reduced at interim dates to levels below that of the beginning of the fiscal year. When such interim LIFO liquidations are expected to be restored prior to fiscal year-end, the estimated replacement cost of the liquidated layers is utilized as the basis of the cost of sugar sold from beginning of the year inventory. Accordingly, the cost of sugar utilized in the determination of cost of sales for interim periods includes estimates which may require adjustment in future fiscal periods. Accounting Pronouncements - Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 "Accounting of Stock-based Compensation" ("SFAS No. 123"), and elected to continue to follow Accounting Principles Board Opinion No. 25 to measure employee stock compensation cost. The impact of SFAS No. 123 on pro forma earnings per share for the three and nine months ended June 30, 1998 and 1997 was not significant. - 7 - 8 The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income", Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" and Statement of Financial Accounting Standards No. 132 "Employers' Disclosures About Pensions and Other Post Retirement Benefits". These statements, which are effective for the Company's fiscal year ending September 30, 1999, establish additional disclosure requirements but do not affect the measurement of results of operation. Management is evaluating what, if any, additional disclosures may be required when these statements are implemented. Nonrecurring Charges - During the quarter ended March 31, 1998, the Company incurred a $975,000 charge for severance and related costs in connection with the reorganization of administrative functions after the acquisition of Savannah Foods & Industries, Inc. ("Savannah"). Additionally, a charge of $3,800,000 was recorded for the expected loss the Company will incur in the fourth quarter in fulfilling its industrial sales commitments in California at higher costs as a result of the abnormal weather experienced there during the winter and spring months. In February 1998, the Company announced its decision to cease sugarbeet processing at its Hereford, Texas factory, and provided $974,000 for the estimated cash closure costs, principally severance. The Company also recorded a $12,538,000 asset impairment loss to reduce the carrying value of the Hereford assets to estimated fair value. Savannah Acquisition - The Company acquired Savannah in a two step transaction concluded December 22, 1997, when Savannah merged with a wholly owned subsidiary of the Company. Previously, the Company had purchased 50.1% of Savannah's outstanding common stock in a tender offer which was completed October 17, 1997. Consideration in the acquisition consisted of $368.6 million cash and 12,361,000 shares of the Company's common stock valued at $163.8 million. The acquisition has been accounted for as a purchase, and these consolidated financial statements include the results of Savannah's operations and its cash flows since October 17, 1997, net of the minority shareholders' interest in the earnings of Savannah through December 22, 1997. Pro forma operating results as if the acquisition and related financing transactions described below had occurred on September 30, 1996, are as follows: - 8 - 9
Three Months Ended Nine Months Ended June 30, June 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ (In Thousands of Dollars, Except per Share Amounts) Net Sales $ 456,087 $ 501,304 $ 1,375,467 $ 1,439,930 ------------ ------------ ------------ ------------ Cost of Sales 407,336 433,466 1,250,674 1,256,997 Selling, General and Administrative 15,627 23,386 52,040 73,887 Depreciation and Amortization 11,489 12,318 35,227 33,687 Nonrecurring Charges -- -- 18,287 -- ------------ ------------ ------------ ------------ Operating Income 21,635 32,134 19,239 75,359 Interest Expense (12,712) (13,780) (38,661) (42,701) Other Income 1,068 430 6,692 1,194 ------------ ------------ ------------ ------------ Income Before Income Taxes 9,991 18,784 (12,730) 33,852 Provision for Income Taxes 4,716 8,014 (2,218) 15,234 ------------ ------------ ------------ ------------ Net Income $ 5,275 $ 10,770 $ (10,512) $ 18,618 ============ ============ ============ ============ Basic Earnings Per Share $ 0.20 $ 0.40 $ (0.39) $ 0.69 ============ ============ ============ ============ Diluted Earnings Per Share $ 0.19 $ 0.40 $ (0.39) $ 0.69 ============ ============ ============ ============ Weighted Average Shares Outstanding 27,043,121 26,959,129 27,033,005 26,913,611 ============ ============ ============ ============
In connection with the acquisition, the Company entered into a senior credit facility consisting of senior secured term loans aggregating $255 million and a $200 million senior secured revolving credit facility. Additionally, the Company issued $250 million of 9-3/4% Senior Subordinated Notes due 2007 and repurchased $75.1 million of its 8-3/8% Senior Notes due 1999 at a premium which is recorded, net of related taxes, as an extraordinary item. The senior credit facility is secured by substantially all of the Company's assets, and contains restrictive covenants which may limit, among other things, the Company's ability to incur additional indebtedness, make capital expenditures and investments or pay dividends. Additionally, the Company sold 377,358 shares of common stock to the H. Kempner Trust Association concurrent with the closing of the merger. Earnings per Share - The following table presents information necessary to calculate basic and diluted earnings per share. Amounts for the three and nine months ended June 30, 1997 have been restated to conform with the requirements of Statement of Financial Accounting Standards No. 128 "Earnings per Share", which was adopted effective December 31, 1997. - 9 - 10
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ----------- ------------ ----------- (In Thousands of Dollars, Except per Share Amounts) Earnings for basic and diluted computation: Income (loss) before extraordinary item $ 5,275 $ 7,294 $ (12,084) $ 11,735 Adjustments - None -- -- -- -- ----------- ----------- ------------ ----------- Adjusted income (loss) before extraordinary item $ 5,275 $ 7,294 $ (12,084) $ 11,735 =========== =========== ============ =========== Net income $ 5,275 $ 7,294 $ (14,083) $ 11,735 Adjustments - None -- -- -- -- ----------- ----------- ------------ ----------- Adjusted net income $ 5,275 $ 7,294 $ (14,083) $ 11,735 =========== =========== ============ =========== Basic earnings per share: Weighted average shares outstanding 27,043,121 14,220,388 23,206,716 14,174,870 =========== =========== ============ =========== Income (loss) per share before extraordinary item $ 0.20 $ 0.51 $ (0.52) $ 0.83 =========== =========== ============ =========== Net income (loss) per share $ 0.20 $ 0.51 $ (0.61) $ 0.83 =========== =========== ============ =========== Diluted earnings per share: Weighted average shares outstanding 27,043,121 14,220,388 23,206,716 14,174,870 Incremental shares issuable from assumed exercise of stock options under the treasury stock method 94,263 115,311 150,878 158,190 ----------- ----------- ------------ ----------- Weighted average shares outstanding - as adjusted 27,137,384 14,335,699 23,357,594 14,333,060 =========== =========== ============ =========== Income (loss) per share before extraordinary item $ 0.19 $ 0.51 $ (0.52) $ 0.82 =========== =========== ============ =========== Net income (loss) per share $ 0.19 $ 0.51 $ (0.60) $ 0.82 =========== =========== ============ ===========
- 10 - 11 Parent Company (Only) Information - Condensed financial information for Imperial Holly Corporation (parent company only) was as follows (in thousands of dollars):
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- (In Thousands of Dollars, Except per Share Amounts) Income Statement Data Net Sales $ 70,651 $74,787 $ 210,290 $232,782 Operating income (1,937) 2,260 (8,848) 8,926 Equity in undistributed earnings of subsidiaries 13,629 5,945 9,438 5,631 Income (loss) before extraordinary item 5,275 7,294 (12,084) 11,735
June 30, --------- 1997 --------- Balance Sheet Data Current assets $ 97,490 Property, plant and equipment, net 50,337 Investment in subsidiaries, at equity 653,927 Total assets 883,998 Current liabilities 12,835 Long-term debt, net 502,917 Shareholder's equity 351,255
- 11 - 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As a result of the completion of the Savannah acquisition, the Company had substantial increases in sales, costs and expenses, assets, liabilities and its level of indebtedness. The pro forma financial information included in the Notes to Consolidated Financial Statements present the combined results of the companies as if the acquisition and related financing transactions had occurred as of September 30, 1996. The Company's primary capital requirements are expected to include debt service, capital expenditures and working capital. The primary sources of capital are expected to be cash flow from operations and borrowings under the revolving credit facility. At June 30, 1998, the Company had $138 million available under its $200 million revolving credit facility. Based upon current and anticipated future operations and anticipated future cost savings, the Company believes that capital resources will be adequate to meet anticipated future capital requirements. There can be no assurance, however, that the Company will realize sufficient cost savings or generate sufficient cash flow that, together with the other sources of capital, will enable the Company to service its indebtedness, or make anticipated capital expenditures. If the Company is unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future to service its debt, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing indebtedness, or obtain additional financing. The Company's financing arrangements entered into in connection with the acquisition of Savannah Foods impose various restrictions and covenants on the Company which could potentially limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, or to take advantage of business opportunities. The Company's senior credit facility incurs interest at variable rates. The Company has entered into interest rate swap arrangements with notional amounts aggregating $180 million, to limit its exposure to future increases in interest rates. The Company has developed plans to address the possible exposures related to the impact on its computer systems of the Year 2000. Key financial, information and operational systems have been assessed and plans are being implemented to modify or replace each affected system on a timely basis. Modification of Savannah's computer systems was completed in the third fiscal quarter and the target date for completion of the remaining year 2000 modifications is December 31, 1998. Costs to modify existing systems is expected to be less than $1 million. Additionally, as part of the Company's merger integration strategy, all major management information systems are expected to be replaced by newly acquired software by the end of fiscal year 2000. Certain of these new systems will replace existing software which is not year 2000 compliant; the first of such new company-wide applications was implemented June 30, 1998, with the replacement of remaining non-compliant applications scheduled for the first and second quarters of fiscal 1999. - 12 - 13 The Company has initiated discussions with major vendors and customers concerning their year 2000 readiness. The financial impact of making the required systems changes is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. The Company's capital expenditures for fiscal 1998 are expected to be approximately $45 million, including the completion of major projects to expand the Sidney, Montana factory, as well as to add bulk sugar storage and high speed packaging equipment at the Sugar Land refinery. The decrease in pro forma net sales of 9% for the three and 4% for the nine month periods ended June 30, 1998 compared to the same periods ended June 30, 1997 resulted from lower sales prices offsetting higher volumes, principally of beet sugar volumes. Refined sugar sales prices were lower in the current year due to a larger domestic sugar beet crop and higher than normal inventory levels. A significant portion of the Company's industrial sales are made under forward sales contracts, most of which commence October 1 and extend for up to a year, resulting in a lagging effect of market price changes on the Company's sugar sales. To mitigate its exposure to future price changes, the Company purchases raw cane sugar under forward purchase contracts and attempts to match refined sugar sales contracted for future delivery with the purchase or pricing of raw sugar when feasible. Margins on refined sugar sales were negatively affected by lower sugar prices. The Company purchases sugar beets under participatory contracts which provide for a percentage sharing of the net selling price realized on refined beet sugar sales and, in some cases, byproducts, between the Company and the grower. Use of this type of contract reduces the Company's exposure to price risk on sugarbeet purchases so long as the contract net selling price does not fall below the regional minimum support prices established by the USDA. Consequently, the decrease in the unit selling price of refined beet sugar resulted in decreases in the unit cost of sugarbeets purchased, mitigating the impact on beet sugar sales margins. The current quarter's operating results benefited from strong contributions by the Company's California beet sugar operations and Savannah cane sugar refineries, as well as continued improvements in the operations of the Sugar Land cane refinery. Efficient factory operations both in California and the Savannah refineries, along with full sugarbeet acreage in California reduced sugar production costs. Any adverse impact of record spring rains and delayed factory start-ups on beet quality and California factory operations is not expected to be felt until the Company's fourth fiscal quarter and will be dependent on weather conditions in California during that quarter. The Company recorded a $3.8 million charge in the quarter ended March 31, 1998, for the expected impact on industrial sales commitments of anticipated higher costs resulting from such abnormal weather. Beet sugar costs during the first half of the fiscal year were adversely impacted by the unusually mild winter in the Northern Rocky Mountain Region, affecting sugarbeets in storage, reducing production yields, and increasing processing costs. Beet sugar cost continued to be adversely affected by low acreage at the Company's Torrington, Wyoming and Hereford, Texas factories. - 13 - 14 In February 1998, the Company announced that it would not process sugar beets at the Hereford factory this fall. Severance and other cash closure costs related to this decision totaling $974,000 were provided for in the quarter ended March 31, 1998. Additionally, the Company recorded as a nonrecurring charge an impairment loss of $12,538,000 on Hereford's assets for the difference in their fair value and their carrying costs. Pro forma selling, general and administrative costs were $7.8 million lower for the three months and $21.8 million lower for the nine months ended June 30, 1998 compared to the same periods of the prior year, as increases in volume related selling costs were more than offset by reductions in general and administrative costs, primarily incentive compensation, relocation and corporate overhead costs. The Company has reorganized to eliminate duplication and streamline administrative functions and recorded a charge in its second fiscal quarter of $975,000 in connection with a 14% reduction in staff. This and other measures management is taking are expected to ultimately produce cost savings in excess of $40 million annually, approximately $20 million of which are in selling, general and administrative expenses. Management believes that over one-half of the total reduction will be in place on a "run rate" basis by the end of fiscal 1998. Pro forma interest expense for the nine months ended June 30, 1998 was lower than the comparable period of the prior year as a result of both lower short-term interest rates and reduced revolving credit borrowings. The minority interest in the earnings of Savannah is for the period from October 17, 1997 through December 22, 1997, when Savannah became a wholly-owned subsidiary. Other income increased due to higher dividends, lower costs related to farm land lease operations and an installment gain recognized in the second fiscal quarter on sale of a distribution facility in a prior year. - 14 - 15 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The exhibits required to be filed with this report are listed below: Exhibit 27 Financial Data Schedules Registrant is a party to several long-term debt instruments under which in each case the total amount of securities authorized does not exceed 10% of the total assets of Registrant and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii) (A) of Item 601(b) of Regulation S-K, Registrant agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. (b) The Company did not file a current report on Form 8-K during the three months ended June 30, 1998. - 15 - 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. IMPERIAL HOLLY CORPORATION (Registrant) Dated: August 13, 1998 By: /s/ Mary L. Burke ---------------------------- Chief Financial Officer (Principal Financial Officer) - 16 - 17 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 9,408 65,643 129,040 0 261,804 496,634 576,455 177,062 1,227,883 225,959 525,431 0 0 268,602 82,653 1,227,883 1,305,921 1,305,921 1,186,907 1,186,907 0 0 35,690 (12,703) (2,385) (12,804) 0 (1,999) 0 (14,083) (0.61) (0.60)
-----END PRIVACY-ENHANCED MESSAGE-----