10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2006

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 000-16674

IMPERIAL SUGAR COMPANY

(Exact name of registrant as specified in its charter)

Texas	74-0704500
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487

(Address of principal executive offices, including Zip Code)

(281) 491-9181

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨                Accelerated Filer  þ                Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  þ

As of January 23, 2007 there were 11,488,735 shares of common stock, without par value, of the registrant outstanding.

IMPERIAL SUGAR COMPANY

Index

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Operations (Unaudited)	4
	Consolidated Statements of Cash Flow (Unaudited)	5
	Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	15
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 6.	Exhibits	16
Signatures		17

Forward-Looking Statements

Statements regarding future market prices and margins, future energy costs, future operating results, future availability of raw sugar, operating efficiencies, future government and legislative actions, future outcomes of legal proceedings, future cost savings, future pension payments, our liquidity and ability to finance our operations, and other statements that are not historical facts contained in this report on Form 10-Q are forward-looking statements. We identify forward-looking statements in this report by using the following words and similar expressions:

•     expect   •     believe   •     plan   •     should   •     budget •     project   •     anticipate   •     intend   •     may   •     possible •     estimate   •     likely   •     could   •     predict   •     outlook

Forward-looking statements involve risks, uncertainties and assumptions, including, without limitation, market factors, energy costs, the effect of weather and economic conditions, farm and trade policy, our ability to realize planned cost savings, the available supply of sugar, results of actuarial assumptions, actual or threatened acts of terrorism or armed hostilities, legislative, administrative and judicial actions and other factors detailed elsewhere in this report and in our other filings with the SEC. Many of such factors are beyond our ability to control or predict. Management cautions against placing undue reliance on forward-looking statements or projecting any future results based on such statements or present or future earnings levels. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this report and other SEC filings.

2

PART I - FINANCIAL INFORMATION

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31, 2006			September 30, 2006
	(In Thousands of Dollars)
ASSETS
Current Assets:
Cash and Temporary Investments	$	72,221		$	56,250
Marketable Securities		447			308
Accounts Receivable, Net		42,082			54,192
Inventories:
Finished Products		37,945			53,118
Raw and In-Process Materials		61,106			72,844
Supplies		11,720			11,037
Total Inventory		110,771			136,999
Deferred Costs and Prepaid Expenses		6,859			7,526
Assets Held for Sale		4,791			4,791
Total Current Assets		237,171			260,066
Other Investments		3,169			2,826
Property, Plant and Equipment, Net		88,651			90,449
Deferred Income Taxes, Net		15,080			15,073
Other Assets		2,869			2,729
Total	$	346,940		$	371,143
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable, Trade	$	28,705		$	67,574
Dividends Payable		34,521			118
Current Maturities of Long-Term Debt		2,028			2,665
Other Current Liabilities		28,330			30,096
Total Current Liabilities		93,584			100,453
Long-Term Debt, Net of Current Maturities		1,500			1,500
Deferred Employee Benefits and Other Liabilities		83,685			83,305
Commitments and Contingencies
Shareholders’ Equity:
Preferred Stock, Without Par Value, Issuable in Series; 5,000,000 Shares Authorized, None Issued		—			—
Common Stock, Without Par Value; 50,000,000 Shares Authorized; 11,488,711 and 11,292,449 Shares Issued and Outstanding at December 31, 2006 and September 30, 2006		119,971			117,161
Retained Earnings		82,469			101,841
Accumulated Other Comprehensive Loss		(34,269	)		(33,117	)
Total Shareholders’ Equity		168,171			185,885
Total	$	346,940		$	371,143

See notes to consolidated financial statements.

3

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended December 31,
	2006			2005
	(In Thousands of Dollars, Except per Share Amounts)
Net Sales	$	226,998		$	253,986
Cost of Sales		188,229			221,653
Selling, General and Administrative Expense		12,065			11,891
Depreciation		3,252			3,310
Loss on Operating Asset Dispositions		—			116
Total Costs and Expenses		203,546			236,970
Operating Income		23,452			17,016
Interest Expense		(480	)		(572	)
Other Income — Net		1,504			676
Income from Continuing Operations Before Income Taxes		24,476			17,120
Provision for Income Taxes		8,776			6,069
Income from Continuing Operations		15,700			11,051
Income from Discontinued Operations		—			935
Net Income	$	15,700		$	11,986
Basic Earnings per Share of Common Stock:
Income from Continuing Operations	$	1.41		$	1.05
Income from Discontinued Operations		—			0.09
Net Income	$	1.41		$	1.14
Diluted Earnings per Share of Common Stock:
Income from Continuing Operations	$	1.37		$	0.98
Income from Discontinued Operations		—			0.08
Net Income	$	1.37		$	1.06
Weighted Average Shares Outstanding:
Basic		11,170,305			10,567,131
Diluted		11,434,365			11,258,151

See notes to consolidated financial statements.

4

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

	Three Months Ended December 31,
	2006			2005
	(In Thousands of Dollars)
Operating Activities:
Net Income	$	15,700		$	11,986
Adjustments to Reconcile Net Income to Net Cash Provided By (Used In) Operating Activities:
Depreciation		3,252			3,310
Deferred Income Taxes		623			6,069
Reclassification from Accumulated Other Comprehensive Income (Loss) to Net Income		2,573			(2,434	)
Cash Paid (Received) on Change in Fair Value of Derivative Instruments		(4,379	)		2,120
Loss on Asset Dispositions		—			116
Income from Discontinued Operations		—			(935	)
Excess Tax Benefits from Stock-Based Compensation		(1,007	)		—
Other		570			365
Changes in Operating Assets and Liabilities (Excluding Operating Assets and
Liabilities Sold in Dispositions):
Accounts Receivable		11,995			(3,821	)
Inventories		26,228			8,509
Deferred Costs, Prepaids and Other Assets		399			4,064
Accounts Payable—Trade		(38,869	)		(39,763	)
Other Liabilities		(378	)		(1,040	)
Net Cash Provided By (Used In) Continuing Operations		16,707			(11,454	)
Net Cash Provided By Discontinued Operations		—			1,449
Net Cash Provided By (Used In) Operations		16,707			(10,005	)
Investing Activities:
Capital Expenditures		(1,454	)		(875	)
Investment in Marketable Securities		(56	)		—
Proceeds from Maturity of Marketable Securities		56			—
Other		—			(226	)
Investing Cash Flow		(1,454	)		(1,101	)
Financing Activities:
Repayment of Long-Term Debt		(637	)		(561	)
Issuance of Common Stock		1,016			33
Cash Dividends		(668	)		(26,308	)
Excess Tax Benefits from Stock-Based Compensation		1,007			—
Financing Cash Flow		718			(26,836	)
Increase (Decrease) in Cash and Temporary Investments		15,971			(37,942	)
Cash and Temporary Investments, Beginning of Period		56,250			49,179
Cash and Temporary Investments, End of Period	$	72,221		$	11,237
Supplemental Non-Cash Items:
Tax Effect of Deferred Gains and Losses	$	630		$	110
Dividends Accrued	$	34,404		$	638

See notes to consolidated financial statements.

5

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended December 31, 2006

(Unaudited)

	Shares of Common Stock	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	(In Thousands of Dollars, Except Share Data)
Balance September 30, 2006	11,292,449	$	117,161	$	101,841		$	(33,117	)	$	185,885
Comprehensive Income:
Net Income	—		—		15,700			—			15,700
Change in Unrealized Securities Gains (Net of Tax of $8)	—		—		—			15			15
Change in Derivative Fair Value (Net of Tax of $1,547)	—		—		—			(2,831	)		(2,831	)
Reclassification from Accumulated Other Comprehensive Income (Loss) to Net Income (Net of Tax of $909)	—		—		—			1,664			1,664
Total Comprehensive Income	—		—		—			—			14,548
Dividends ($3.06 per share)	—		—		(35,072	)		—			(35,072	)
Stock Options and Warrants Exercised and Restricted Stock Grants	196,262		2,810		—			—			2,810
Balance December 31, 2006	11,488,711	$	119,971	$	82,469		$	(34,269	)	$	168,171

See notes to consolidated financial statements.

6

IMPERIAL SUGAR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005

(unaudited)

1. ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of financial position and results of operations for the interim periods presented. These financial statements include the accounts of Imperial Sugar Company and its majority-owned subsidiaries (the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures required by accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2006. The Company operates its business as one domestic segment - the production and sale of refined sugar and related products.

Certain reclassifications were made to the prior years’ financial statements to conform to current year presentation.

Cost of Sales

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

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48—Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently analyzing the potential impact, if any, of FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently analyzing the potential impact, if any, of SFAS 157 on its consolidated financial statements.

7

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). This statement amends SFAS No. 87, Employers’ Accounting for Pensions (SFAS 87), SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (SFAS 88), SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions (SFAS 106), and SFAS No. 132 (revised 2003), Employers’ Disclosure about Pension and Other Postretirement Benefits (SFAS 132R). It requires the recognition of the overfunded or underfunded status of a defined benefit pension and other postretirement plan as an asset or liability in the balance sheet and changes in that funded status to be recognized in comprehensive income in the year in which the changes occur. SFAS 158 also requires measurement of the funded status of a plan as of the balance sheet date. As permitted, the Company has early-adopted the funded status recognition provisions of SFAS 158 effective September 30, 2006. The measurement date provisions are effective for fiscal years ending after December 15, 2008. The Company expects to adopt the measurement date provisions of SFAS 158 in fiscal 2009.

2. CONTINGENCIES

The Company is party to litigation and claims which are normal in the course of its operations. While the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its consolidated results of operations, financial position, or cash flows.

In connection with the sale of a subsidiary in 2002, the buyer assumed $18.5 million of industrial revenue bonds, with final maturity in 2025. The Company remains contingently liable for repayment of the bonds under a guaranty arrangement and does not believe that a liability is probable. The Company has recorded a non-current liability for the fair value of the guarantee pursuant to Financial Interpretation No. 45.

In connection with the sales of certain businesses, the Company made customary representations and warranties, and undertook indemnification obligations with regard to certain of these representations and warranties including financial statements, environmental and tax matters, and the conduct of the businesses prior to the sale. These indemnification obligations are subject to certain deductibles, caps and expiration dates and, in some cases, may be deducted from the related escrow balance.

In connection with the sale of the Holly Sugar subsidiary (“Holly”) to Southern Minnesota Beet Sugar Cooperative (“SMBSC”) in September 2005, $2.8 million of proceeds are in escrow until March 2007 to secure the Company’s indemnity obligations. SMBSC has alleged that the Company breached certain warranties and covenants in the sales agreement and has filed an arbitration claim before the American Arbitration Association (“AAA”) alleging damages in excess of $17 million. The Company denies the claims and intends to vigorously defend its position.

Also, in conjunction with the sale of Holly, the Company negotiated a five-year option to purchase up to 500,000 hundredweight of bulk, refined sugar per year from SMBSC at a formula price based on the traded domestic raw sugar futures market. SMBSC rejected the Company’s exercise of that option in February 2006, alleging that there had been a “material change” in the domestic raw sugar futures market, necessitating a renegotiation of the refined sugar price under the option. The Company filed a counterclaim against SMBSC in the AAA proceeding seeking specific performance of the Supply Option Agreement and $10 million of damages for breach of contract. The AAA hearing is scheduled for the second quarter of fiscal 2007.

8

3. STOCK-BASED COMPENSATION

During the three-month period ended December 31, 2006, options to purchase 193,058 shares of common stock with a weighted-average exercise price of $5.24 were exercised. Cash received from the exercise of stock options was $1.0 million and the tax benefit realized was $1.0 million. The total intrinsic value of options exercised in the quarter was $4.2 million.

Stock Appreciation Rights (SARs) totaling 5,000 were exercised during the three-month period ended December 31, 2006 at an exercise price of $1.35 per share. At December 31, 2006, there are no SARS remaining.

4. EARNINGS PER SHARE

The following table presents information necessary to calculate basic and diluted earnings per share (in thousands of dollars, except per share amounts):

	Three Months Ended December 31,
	2006		2005
Income from Continuing Operations:	$	15,700	$	11,051
Average Shares Outstanding		11,170,305		10,567,131
Effect of Incremental Shares Issuable from Assumed Exercise of Stock Options and Nonvested Restricted Stock Under the Treasury Stock Method (1)		264,060		691,020
Adjusted Average Shares		11,434,365		11,258,151
Diluted EPS - Continuing Operations	$	1.37	$	0.98
Income from Discontinued Operations	$	—	$	935
Average Shares Outstanding		11,170,305		10,567,131
Effect of Incremental Shares Issuable from Assumed Exercise of Stock Options and Nonvested Restricted Stock Under the Treasury Stock Method (1)		264,060		691,020
Adjusted Average Shares		11,434,365		11,258,151
Diluted EPS - Discontinued Operations	$	—	$	0.08
Net Income	$	15,700	$	11,986
Average Shares Outstanding		11,170,305		10,567,131
Effect of Incremental Shares Issuable from Assumed Exercise of Stock Options and Nonvested Restricted Stock Under the Treasury Stock Method (1)		264,060		691,020
Adjusted Average Shares		11,434,365		11,258,151
Diluted EPS - Net Income	$	1.37	$	1.06

(1) Warrants to purchase 1,049,734 shares of common stock were excluded from the computation of diluted EPS for the three months ended December 31, 2006 because they were anti-dilutive.

9

5. PENSION AND OTHER POSTRETIREMENT BENEFITS

The components of net periodic benefit costs for the three months ended December 31, 2006 and 2005 were (in thousands):

	Three Months Ended December 31,
	2006			2005
Pension Plans
Service Cost	$	257		$	193
Interest Cost		3,139			2,820
Expected Return on Plan Assets		(2,841	)		(3,039	)
Amortization of Prior Service Cost		27			28
Recognized Actuarial Loss		312			396
Curtailment Loss		—			97
Total Net Periodic Benefit Cost	$	894		$	495
Postretirement Benefits Other than Pension Plans
Service Cost	$	3		$	3
Interest Cost		150			196
Amortization of Prior Service Cost		(398	)		(365	)
Recognized Actuarial Loss		138			190
Total Net Periodic Benefit Cost (Income)	$	(107	)	$	24

Pension plan contributions, which are based on regulatory requirements, were $0.2 million during each of the three months ended December 31, 2006 and 2005. Contributions during the remainder of fiscal 2007 are expected to be approximately $1.3 million.

10

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with information contained in the Consolidated Financial Statements and the notes thereto and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Overview

We operate in a single domestic business segment, which produces and sells refined sugar and related products.

Our results of operations substantially depend on market factors, including the demand for and price of refined sugar, the price of raw cane sugar and the availability and price of energy and other resources. These market factors are influenced by a variety of external forces that we are unable to predict, including the number of domestic acres contracted to grow sugar cane and sugarbeets, prices of competing crops, domestic health and eating trends, competing sweeteners, weather conditions and United States farm and trade policy. The domestic sugar industry is subject to substantial influence by legislative and regulatory actions. The current farm bill limits the importation of raw cane sugar and the marketing of refined beet and raw cane sugar, potentially affecting refined sugar sales prices and volumes as well as the supply and cost of raw material available to our cane refineries.

Results of Operations

Three Months Ended December 31, 2006 compared to Three Months Ended December 31, 2005

In the current quarter, we reported income from continuing operations of $15.7 million or $1.37 per diluted share, compared to $11.1 million or $0.98 per diluted share during the first fiscal quarter of the prior year. The increase was driven by an improvement in gross margin resulting from higher sales prices and lower energy costs, offset in part by higher freight, storage, manufacturing and raw sugar costs. We discuss these factors in more detail below.

Our results of operations primarily depend on our success in achieving appropriate spreads of sugar sales prices over raw material costs and our ability to control our manufacturing, distribution and administrative costs. Sugar sales comprise approximately 97% of our net sales.

Sugar sales volumes and prices were:

	Three Months Ended December 31,
	2006			2005
	Volume	Price		Volume	Price
	(000 cwt)	(per cwt)		(000 cwt)	(per cwt)
Sugar Sales:
Industrial	2,667	$	33.92	3,425	$	29.49
Consumer	2,366		37.99	2,597		36.28
Foodservice	707		40.52	1,274		35.09
Domestic Sales	5,740		36.41	7,296		32.88
World/Toll Sales	886		13.50	561		12.78
Sugar Sales	6,626	$	33.35	7,857	$	31.45

11

Net sales decreased 10.6% for the three months ended December 31, 2006 compared to the same period in the prior year. Domestic sugar volumes decreased 21.3% for the quarter while domestic prices increased 10.7%. Tight domestic sugar market supply conditions, driven by a smaller domestic sugarbeet crop and delays in the start of the harvest in some sugar beet areas, along with the impact of gulf coast hurricanes on the cane sugar industry in the fall of 2005, led to rapidly rising refined sugar prices last year. Beginning late in fiscal 2006 and continuing in fiscal 2007, spot industrial prices and new contract pricing for 2007 declined from the high levels reached in 2006 due to the restoration of domestic cane refining capacity and USDA estimates of a 15% increase in beet sugar production from the crop which commenced harvest in fall of 2006.

A significant portion of our industrial sales are done under fixed price forward sales contracts for up to a year, many of which are on a calendar year basis. As a result, industrial sales prices tend to lag market trends. The lag effect of rising industrial contract prices last year largely matured in the second half of fiscal 2006 and the impact of falling prices has not yet been significantly realized. As a result, industrial sales prices realized during the current quarter were higher than the same quarter in the prior year and relatively flat compared to the fourth quarter of fiscal 2006. Industrial volumes declined in first quarter of fiscal 2007 because of market factors described above. Industrial prices are expected to decline during the remainder of fiscal 2007.

Private label consumer volume is down due to both the increased availability of sugar this past fall and increased private label competition, including Mexican imports. Restoration of the domestic cane production capacity and competitive pressure has resulted in the reduction of foodservice volumes. Foodservice prices softened somewhat during the quarter from the fourth quarter of fiscal 2006, but remained higher than the same quarter last year. Foodservice prices are expected to continue to decline during the remainder of fiscal 2007. World and toll sales volumes increased 57.9% in the current quarter compared to the prior year quarter. World and toll sales price increased 5.6%, as a larger percentage increase in toll volumes, which have significantly lower sales prices than world sales, largely offset higher world prices.

Partially offsetting the expected reduction in refined prices, market prices of raw sugar have declined in recent months. The domestic raw sugar supplies are substantially restored following the damage in 2005 to the Louisiana and Florida crops from three hurricanes. This, coupled with other increases in domestic sugar supplies, has resulted in the softening of domestic raw sugar prices thus far this fiscal year. While we are unable to predict whether these lower raw sugar market prices will continue, the Company’s raw sugar costs for the remainder of fiscal 2007 are expected to be lower than the same period in fiscal 2006, based on current raw sugar contracts and futures positions.

In addition, energy costs have decreased significantly compared to the past year. Natural gas provides approximately half of the energy for our plants, while the remainder of our energy usage is comprised of coal and fuel oil. Our average NYMEX basis cost of natural gas after applying gains and losses from hedging activity decreased to $7.46 per mmbtu in the current quarter from $10.80 per mmbtu in the comparable prior year’s quarter. Our purchases of coal decreased to an average cost of $3.58 per mmbtu in the current quarter compared to $3.86 per mmbtu in the prior year’s quarter. As of January 18, 2007, we had purchased or hedged approximately 69% of our expected 2.6 million mmbtu natural gas requirements for fiscal 2007. If the balance of our anticipated natural gas purchases were priced in the futures market on January 18, 2007, our full year fiscal 2007 gas costs would be approximately $5.8 million lower than in fiscal 2006.

For the three months ended December 31, 2006, gross margin as a percentage of sales increased to 17.1% compared to 12.7% in the prior year quarter. The increase in our current year’s gross margin percentage is primarily due to increased sugar sales prices and lower energy costs, partially offset by higher raw sugar, freight, storage and manufacturing costs. The increase in domestic and world sales prices in the first fiscal quarter of 2007 contributed 8.9% and 0.9%, respectively, to the increase in gross margin. Energy costs were $1.0 million lower for the three months ended December 31, 2006, amounting to an increase of gross margin percentage of 0.4% for the quarter. However, fuel costs continue to have an adverse effect on our transportation costs, which decreased our gross margin 0.5% for the quarter. Due primarily to higher inventories of finished goods sugar, increased warehouse storage and handling expenses decreased our gross margin percentage 0.3% this year versus last. Manufacturing costs increased in the current fiscal year due to increased costs for labor, repairs and maintenance costs, insurance expense, fringe benefit costs and the influence of lower production volumes on unit costs. Increased manufacturing costs (excluding energy) negatively impacted gross margin by approximately 3.9% for the three-month period ended December 31, 2006 compared to the same period in the prior year. Our cost of raw cane sugar increased from $20.93 per cwt (on a raw market basis) for the quarter ended December 31, 2005 to $21.11 per cwt for the current quarter. Higher raw sugar costs decreased our gross margin percentage by 0.7% for the three-month period this year versus last.

12

Selling, general and administrative expense increased $0.2 million for the period ended December 31, 2006, compared to the same period in the prior year. Employee-related expenses, excluding compensation, were higher by approximately $1.1 million primarily due to increases in pension and workers compensation expense. Also contributing to the increase in costs in the current quarter were legal fees, $0.4 million, and advertising $0.1 million. These increased costs were largely offset by lower compensation costs of $1.1 million, primarily due to severance costs and higher incentive compensation in the prior year, and lower bad debt expense of $0.4 million.

Depreciation expense decreased $0.1 million in the three-month period ended December 31, 2006, compared to the same period in the prior year. The decrease is primarily a result of certain software assets becoming fully depreciated.

The Company’s lower debt level in fiscal 2007 decreased interest expense $0.1 million for the quarter ended December 31, 2006, compared to the same period in the prior year.

Other income, which includes interest income, equity earnings in investees and distributions from cost basis investments, increased $0.8 million in the three-month period ended December 31, 2006, compared to the same period in the prior year, primarily due to higher interest income.

We have estimated a combined federal and state income tax rate of 35.86% for the quarter ended December 31, 2006 compared to 35.45% in the same quarter of 2005.

Liquidity and Capital Resources

We fund our liquidity and capital requirements from cash generated from operations, supplemented as necessary with revolving credit borrowings under an agreement that provides for up to $100 million (subject to a borrowing base) of senior secured revolving credit loans (the “Revolver”). At December 31, 2006 we had no outstanding borrowings under the Revolver and had borrowing capacity of $85.6 million, after deducting outstanding letters of credit totaling $14.4 million.

The Revolver, which expires in December 2008, is secured by our cash and temporary investments, accounts receivable, inventory, certain investments and certain property, plant and equipment. Each of our subsidiaries is either a borrower or a guarantor under the facility. The agreement contains covenants limiting our ability to, among other things:

• incur other indebtedness,

• incur other liens,

• undergo any fundamental changes,

• engage in transactions with affiliates,

• enter into sale and leaseback transactions,

• change our fiscal periods,

• enter into mergers or consolidations,

• sell assets,

• prepay other debt.

In addition, in the event that our average total liquidity (defined as the average of the borrowing base including cash, less average actual borrowings and letters of credit) falls below $20 million, the Revolver requires that we comply with a quarterly covenant which establishes a minimum level of earnings before interest, taxes, depreciation and amortization. The Revolver limits our ability to pay dividends or repurchase stock if our average total liquidity, after adjustment on a pro forma basis for such transaction, is less than $20 million. Average total liquidity was $148 million during the three months ended December 31, 2006, prior to consideration of dividend payments.

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The Revolver also includes customary events of default, including a change of control. Borrowings are generally available subject to a borrowing base and to the accuracy of all representations and warranties, including the absence of a material adverse change and the absence of any default or event of default. Although the facility has a final maturity date of December 31, 2008, we classify debt under the Revolver as current, pursuant to Emerging Issues Task Force Issue 95-22 as the agreement contains a subjective acceleration clause if in the opinion of the lenders there is a material adverse effect, and provides the lenders direct access to our cash receipts.

Our capital expenditures for the three months ended December 31, 2006 were $1.5 million, primarily for normal replacement of factory equipment. Capital expenditures in fiscal 2007 are expected to be between $12 and $15 million, of which approximately $8 million relates to normal equipment, product quality and safety improvements and the balance relates to process improvement, packaging and technology investments.

During the first quarter of fiscal 2007, we declared a special cash dividend of $3.00 per share or $34.4 million, payable January 5, 2007, in addition to the regular quarterly dividend of $0.06 per share paid in November 2006.

A detailed analysis of the sources and uses of cash is provided in the Consolidated Statements of Cash Flows.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimate methodologies since the filing of our Annual Report on Form 10-K for the year ended September 30, 2006.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use raw sugar futures and options in our raw sugar purchasing programs and natural gas futures and options to hedge natural gas purchases used in our manufacturing operations. Our ability to effectively hedge raw sugar purchases is limited by the illiquidity in the domestic raw sugar futures market. Gains and losses on raw sugar futures and options are matched to inventory purchases and charged or credited to cost of sales as such inventory is sold. Gains and losses on natural gas futures are matched to the natural gas purchases and charged to cost of sales in the period of the purchase.

The information in the table below presents our domestic and world raw sugar futures positions outstanding as of December 31, 2006.

	Expected Maturity Fiscal 2007		Expected Maturity Fiscal 2008
Domestic Futures Contracts (long positions):
Contract Volumes (cwt.)		3,427,000		261,000
Weighted Average Contract Price (per cwt.)	$	20.69	$	20.21
Contract Amount	$	70,905,000	$	5,274,000
Weighted Average Fair Value (per cwt.)	$	19.79	$	19.77
Fair Value	$	67,812,000	$	5,158,000

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	Expected Maturity Fiscal 2007		Expected Maturity Fiscal 2008
World Futures Contracts (long positions):
Contract Volumes (cwt.)		704,000		103,000
Weighted Average Contract Price (per cwt.)	$	11.61	$	11.79
Contract Amount	$	8,179,000	$	1,215,000
Weighted Average Fair Value (per cwt.)	$	11.69	$	11.57
Fair Value	$	8,235,000	$	1,192,000

The above information does not include either our physical inventory or our fixed price purchase commitments for raw sugar. Short raw sugar futures positions may occur when suppliers deliver short futures pursuant to the pricing provisions of raw sugar supply agreements, creating an equal and offsetting long position in the physical supply agreement.

The information in the table below presents our natural gas futures positions outstanding as of December 31, 2006.

	Expected Maturity Fiscal 2007
Futures Contracts (long positions):
Contract Volumes (mmbtu)		980,000
Weighted Average Contract Price (per mmbtu)	$	8.70
Contract Amount	$	8,529,000
Weighted Average Fair Value (per mmbtu)	$	6.70
Fair Value	$	6,563,000

Item 4. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2006 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal controls over financial reporting that occurred during the three months ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to litigation and claims which are normal in the course of its operations. While the results of such litigation and claims cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a materially adverse effect on its consolidated results of operations, financial position, or cash flows.

In connection with the sales of certain businesses, the Company made customary representations and warranties, and undertook indemnification obligations with regard to certain of these representations and warranties including financial statements, environmental and tax matters, and the conduct of the businesses prior to the sale. These indemnification obligations are subject to certain deductibles, caps and expiration dates and, in some cases, may be deducted from the related escrow balance.

In connection with the sale of the Holly Sugar subsidiary (“Holly”) to Southern Minnesota Beet Sugar Cooperative (“SMBSC”) in September 2005, $2.8 million of proceeds are in escrow until March 2007 to secure the Company’s indemnity obligations. SMBSC has alleged that the Company breached certain warranties and covenants in the sales agreement and has filed an arbitration claim before the American Arbitration Association (“AAA”) alleging damages in excess of $17 million. The Company denies the claims and intends to vigorously defend its position.

Also, in conjunction with the sale of Holly, the Company negotiated a five-year option to purchase up to 500,000 hundredweight of bulk, refined sugar per year from SMBSC at a formula price based on the traded domestic raw sugar futures market. SMBSC rejected the Company’s exercise of that option in February 2006, alleging that there had been a “material change” in the domestic raw sugar futures market, necessitating a renegotiation of the refined sugar price under the option. The Company filed a counterclaim against SMBSC in the AAA proceeding seeking specific performance of the Supply Option Agreement and $10 million of damages for breach of contract. The AAA hearing is scheduled for the second quarter of fiscal 2007.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended September 30, 2006.

Item 6. Exhibits

(a) Exhibits

31.1	Chief Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.
31.2	Chief Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.
32	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	IMPERIAL SUGAR COMPANY (Registrant)
Dated: January 29, 2007	By:	/s/ H. P. Mechler
		H. P. Mechler
		Senior Vice President and Chief Financial Officer

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Exhibit Index

Exhibit No.	Document
31.1	Chief Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.
31.2	Chief Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.
32	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert A. Peiser, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Imperial Sugar Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: January 29, 2007	By:	/s/ Robert A. Peiser
		Robert A. Peiser
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, H.P. Mechler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Imperial Sugar Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: January 29, 2007	By:	/s/ H.P. Mechler
		H. P. Mechler
		Senior Vice President and       Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,

United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), Robert A. Peiser, President and Chief Executive Officer, and H.P. Mechler, Senior Vice President and Chief Financial Officer, of Imperial Sugar Company, a Texas corporation (the “Company”), each hereby certifies that, to the best of his knowledge:

(1) the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: January 29, 2007	/s/ Robert A. Peiser
	Robert A. Peiser
	President and Chief Executive Officer
	/s/ H.P. Mechler
	H. P. Mechler
	Senior Vice President and Chief Financial Officer