10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2007

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  x    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  x    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  x

As of January 25, 2008, there were 11,815,625 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 Flows (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	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	14
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 6.	Exhibits	15
	Signatures	16

Forward-Looking Statements

Statements regarding future market prices and margins, future import and export levels, future government and legislative action, future operating results, future availability of raw sugar, operating efficiencies, results of future investments and initiatives, future cost savings, future product innovations, future energy costs, our liquidity and ability to finance our operations, future pension payments and other statements that are not historical facts contained in this report on Form 10-Q are forward-looking statements that involve certain risks, uncertainties and assumptions. These risks, uncertainties and assumptions include, but are not limited to, market factors, farm and trade policy, our ability to realize planned cost savings and other improvements, the available supply of sugar, energy costs, the effect of weather and economic conditions, 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. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. We identify forward-looking statements in this report by using the following words and similar expressions:

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

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. All forward-looking statements in this report on Form 10-Q are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this report and in our other SEC filings.

2

PART I - FINANCIAL INFORMATION

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31, 2007			September 30, 2007
	(In Thousands of Dollars)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	95,173		$	74,229
Marketable Securities		10,311			20,693
Accounts Receivable, Net		32,351			49,409
Inventories:
Finished Products		30,149			34,156
Raw and In-Process Materials		50,126			54,197
Supplies		12,031			11,767
Total Inventory		92,306			100,120
Prepaid Expenses		4,514			7,342
Total Current Assets		234,655			251,793
Other Investments		4,503			3,683
Property, Plant and Equipment, Net		86,892			88,649
Deferred Income Taxes, Net		10,467			13,226
Other Assets		2,811			2,714
Total	$	339,328		$	360,065
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable, Trade	$	39,756		$	69,057
Dividends Payable		29,939			400
Other Current Liabilities		8,631			20,591
Total Current Liabilities		78,326			90,048
Long-Term Debt		1,500			1,500
Deferred Employee Benefits and Other Liabilities		74,181			68,426
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; 11,816,875 and 11,808,743 Shares Issued and Outstanding at December 31, 2007 and September 30, 2007		124,190			123,665
Retained Earnings		89,353			104,586
Accumulated Other Comprehensive Loss		(28,222	)		(28,160	)
Total Shareholders’ Equity		185,321			200,091
Total	$	339,328		$	360,065

See notes to consolidated financial statements.

3

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended December 31,
	2007			2006
	(In Thousands of Dollars, Except per Share Amounts)
Net Sales	$	215,505		$	226,998
Cost of Sales		(198,502	)		(188,229	)
Selling, General and Administrative Expense		(9,884	)		(12,065	)
Depreciation		(3,521	)		(3,252	)
Operating Income		3,598			23,452
Interest Expense		(436	)		(480	)
Interest Income		918			874
Other Income, Net		12,269			630
Income Before Income Taxes		16,349			24,476
Provision for Income Taxes		(4,086	)		(8,776	)
Net Income	$	12,263		$	15,700
Earnings per Share of Common Stock:
Basic	$	1.06		$	1.41
Diluted	$	1.04		$	1.37
Weighted Average Shares Outstanding:
Basic		11,618,846			11,170,305
Diluted		11,798,039			11,434,365

See notes to consolidated financial statements.

4

IMPERIAL SUGAR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended December 31,
	2007			2006
	(In Thousands of Dollars)
Operating Activities:
Net Income	$	12,263		$	15,700
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation		3,521			3,252
Deferred Income Taxes		3,259			623
Reclassification from Accumulated Other Comprehensive (Income) Loss to Net Income		1,346			2,573
Cash Paid (Received) on Change in Fair Value of Derivative Instruments		(1,378	)		(4,379	)
Non-Cash Portion of Stock-Based Compensation		512			263
Excess Tax Benefits from Stock-Based Compensation		—			(1,007	)
Other		(592	)		(217	)
Changes in Operating Assets and Liabilities:
Accounts Receivable		17,058			11,995
Inventories		7,814			26,228
Prepaid Expenses and Other Assets		2,676			399
Accounts Payable—Trade		(29,301	)		(38,869	)
Other Liabilities		(3,822	)		146
Net Cash Provided By Operations		13,356			16,707
Investing Activities:
Capital Expenditures		(1,763	)		(1,454	)
Investment in Marketable Securities		(109,956	)		(56	)
Proceeds from Maturity of Marketable Securities		119,906			56
Proceeds from Sale of Marketable Securities		512			—
Other		(304	)		—
Investing Cash Flow		8,395			(1,454	)
Financing Activities:
Repayment of Long-Term Debt		—			(637	)
Issuance of Common Stock		14			1,016
Cash Dividends		(820	)		(668	)
Excess Tax Benefits from Stock-Based Compensation		—			1,007
Other		(1	)		—
Financing Cash Flow		(807	)		718
Increase in Cash and Cash Equivalents		20,944			15,971
Cash and Cash Equivalents, Beginning of Period		74,229			56,250
Cash and Cash Equivalents, End of Period	$	95,173		$	72,221
Supplemental Non-Cash Items:
Tax Effect of Deferred Gains and Losses	$	20		$	630
Dividends Accrued	$	29,539		$	34,404

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, 2007

(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, 2007	11,808,743	$	123,665	$	104,586		$	(28,160	)	$	200,091
Comprehensive Income:
Net Income	—		—		12,263			—			12,263
Foreign Currency Translation Adjustment	—		—		—			(2	)		(2	)
Change in Unrealized Securities Gains (Net of Tax of $12)	—		—		—			(36	)		(36	)
Change in Derivative Fair Value (Net of Tax of $344)	—		—		—			(1,034	)		(1,034	)
Reclassification from Accumulated Other Comprehensive Income (Loss) to Net Income (Net of Tax of $336)	—		—		—			1,010			1,010
Total Comprehensive Income	—		—		—			—			12,201
Cumulative Effect of Change in Accounting Principles	—		—		2,864			—			2,864
Dividends ($2.57 per share)	—		—		(30,360	)		—			(30,360	)
Stock Options Exercised and Restricted Stock Grants	8,132		525		—			—			525
Balance December 31, 2007	11,816,875	$	124,190	$	89,353		$	(28,222	)	$	185,321

See notes to consolidated financial statements.

6

IMPERIAL SUGAR COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006

(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, 2007. 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 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.

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 No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions, and SFAS No. 132 (revised 2003), Employers’ Disclosure about Pension and Other Postretirement Benefits. SFAS 158 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.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment to FASB Statement No. 115 (SFAS 159). SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value that are currently not required to be measured at fair value. Under SFAS 159, entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by instrument basis, with a few exceptions, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless a new election date occurs. The statement establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity’s election on its earnings. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company is currently analyzing the potential adoption and impact, if any, of SFAS 159 on its consolidated financial statements.

7

2. OTHER INCOME

In October 2007, the Company received an $11.2 million cash distribution from its long-term limited partnership investment as a result of the partnership selling its principal asset, an interest in a fuel oil terminal in the Port of Houston. The Company recorded the distribution in other income.

3. 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 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 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.

4. STOCK-BASED COMPENSATION

Options to purchase 1,000 shares of the Company’s common stock with a weighted-average exercise price per share of $14.05 were exercised during the three months ended December 31, 2007. Cash received from the exercise of stock options was $14,000 for the same period. The total intrinsic value of options exercised for the three months was $7,000.

In the three-month period ended December 31, 2007, the Company granted 10,000 shares of restricted stock to employees and 10,000 restricted share units (RSU’s) to new non-employee directors, with a weighted-average grant date fair value of $24.76 per share. The restricted stock shares generally vest over a four-year period from date of grant. The RSU’s vest six months following termination of board service, but no earlier than two years from date of grant. During the three-month period ended December 31, 2007, 1,959 shares of restricted stock vested with a fair value of $46,000.

5. 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,
	2007		2006
Net Income	$	12,263	$	15,700
Average Shares Outstanding		11,618,846		11,170,305
Effect of Incremental Shares Issuable from Assumed Exercise of Stock Options, Warrants and Nonvested Restricted Stock Under the Treasury Stock Method		179,193		264,060
Adjusted Average Shares		11,798,039		11,434,365
Diluted EPS - Net Income	$	1.04	$	1.37

8

6. PENSION AND OTHER POSTRETIREMENT BENEFITS

The components of net periodic benefit costs for the three months ended December 31, 2007 and 2006 were (in thousands):

	Three Months Ended December 31,
	2007			2006
Pension Plans
Service Cost	$	266		$	257
Interest Cost		3,077			3,139
Expected Return on Plan Assets		(2,911	)		(2,841	)
Amortization of Prior Service Cost		31			27
Recognized Actuarial Loss		347			312
Total Net Periodic Benefit Costs	$	810		$	894
Postretirement Benefits Other than Pension Plans
Service Cost	$	3		$	3
Interest Cost		147			150
Amortization of Prior Service Cost		(399	)		(398	)
Recognized Actuarial Loss		107			138
Total Net Periodic Benefit Costs (Income)	$	(142	)	$	(107	)

Pension plan contributions, which are based on regulatory requirements, were $0.2 million during each of the three months ended December 31, 2007 and 2006, respectively. Contributions during the remainder of fiscal 2008 are expected to be approximately $12.1 million.

7. INCOME TAXES

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (FIN 48) as of October 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The following table shows the impacts of adoption of FIN 48 on the Company’s Consolidated Balance Sheet (in millions):

	Increase (Decrease)
Assets:
Deferred Income Taxes-Net	$	0.5
Liabilities:
Other Liabilities (current)		(7.8	)
Deferred Employee Benefits and Other Liabilities (non-current)		5.4
Shareholders’ Equity:
Retained Earnings (Cumulative Effect of Accounting Change)		2.9

9

A reconciliation of the change in the amount of unrecognized tax benefits for the three months ended December 31, 2007, is as follows (in millions):

Balance, October 1, 2007	$	5.4
Additions based on tax positions related to the current year		0.2
Reductions for tax positions of prior years		(0.1	)
Balance, December 31, 2007	$	5.5

Substantially all of the $5.5 million unrecognized benefits would affect the Company’s effective tax rate if recognized. For the three-month period ended December 31, 2007, the Company recorded $0.1 million of interest expense as a result of positions taken during the prior period. Interest and penalties recognized in the Consolidated Balance Sheet at December 31, 2007 was $1.0 million. The Company classifies interest and penalties related to unrecognized tax benefits as interest and tax expense, respectively.

The Company files tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the fiscal years 2004 through 2007. The Company or its subsidiaries’ state tax returns are open to audit under the statute of limitations for the fiscal years 2003 through 2007.

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, 2007.

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, 2007 compared to Three Months Ended December 31, 2006

In the current quarter, we reported net income of $12.3 million or $1.04 per diluted share, compared to $15.7 million or $1.37 per diluted share during the first fiscal quarter of the prior year. The decrease was driven by lower gross margin resulting primarily from lower domestic refined sugar sales prices and higher freight and manufacturing costs, offset in part by lower raw sugar costs, income from a distribution received from a long-term limited partnership investment and a lower effective tax rate. 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.

10

Sugar sales volumes and prices were:

	Three Months Ended December 31,
	2007			2006
	Volume	Price		Volume	Price
	(000 cwt)	(per cwt)		(000 cwt)	(per cwt)
Sugar Sales:
Industrial	3,256	$	29.93	2,667	$	33.92
Consumer	2,236		35.87	2,366		37.99
Foodservice	717		31.62	707		40.52
Domestic Sales	6,209		32.26	5,740		36.41
World/Toll Sales	389		21.14	886		13.50
Sugar Sales	6,598	$	31.61	6,626	$	33.35

Net sales decreased 5.1% for the three months ended December 31, 2007, compared to the same period in the prior year. Domestic sugar volumes increased 8.2% for the quarter, primarily due to the conversion of a toll contract to domestic industrial sales, while domestic prices decreased 11.4% for the quarter. For the three months ended December 31, 2007, gross margin as a percentage of sales decreased to 7.9% compared to 17.1% in the prior year quarter. Domestic sugar market supply conditions, driven by a large domestic sugar beet crop, led to lower refined sugar prices in the latter part of fiscal 2007 and continuing into the first quarter of fiscal 2008. The large crop and projected surplus inventories have resulted in additional price declines in industrial contracts for the balance of fiscal 2008.

A significant portion of our industrial sales are made under fixed price forward sales contracts for generally 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 falling industrial contract prices last year, as a result of the large fall 2006 crop, had not been fully realized in the first quarter of last year. The beet crop, which commenced harvest in the fall of 2007, was again historically large, and an oversupplied market continues to depress prices. As a result, industrial prices realized during the current quarter were 11.8% lower than the same quarter last year, but relatively flat compared to the fourth quarter of fiscal 2007. Industrial prices realized for the balance of fiscal 2008 are expected to continue to decline.

Consumer volumes are down 5.5% compared to the same quarter last year due to both the increased availability of sugar this past fall and increased competition, including Mexican imports. Competitive pressure in the marketplace resulting from larger supplies has also resulted in lower consumer prices during the quarter ended December 31, 2007.

Competitive pressures impacted foodservice price most significantly from the high level realized in the first quarter of last year. Foodservice prices were relatively flat with the fourth quarter of fiscal 2007. World and toll sales volumes were lower in the current quarter compared to the prior year quarter due to the conversion of a toll contract to domestic industrial sales. Weighted average world and toll sales price increased with the shift of the volume to higher priced world sales in the current quarter.

Partially offsetting the margin impact of lower refined prices, the higher availability of raw sugar has resulted in lower raw sugar prices. Our cost of domestic raw cane sugar decreased from $21.11 per cwt (on a raw market basis) for the prior year quarter to $20.84 per cwt for the quarter ended December 31, 2007. The lower domestic raw cane sugar cost increased our gross margin percentage by 0.7% for the three months ended December 31, 2007 compared to the same quarter last year. Lower world raw sugar costs compared to the prior year quarter positively impacted gross margin by 0.5%. We have been able to contract for raw sugar in the futures markets at rates lower than last fiscal year. While we are unable to predict whether these lower raw sugar futures market prices will continue, the contracting to-date should offset in part the expected lower refined prices.

Energy costs were slightly lower than the prior year due to a favorable mix of energy sources. Natural gas provided approximately 58% of the energy for our plants in last year’s first quarter, while the remainder of our energy usage was comprised of coal and fuel oil. In the current quarter, natural gas usage was reduced to 54% of the total. Our average NYMEX basis cost of natural gas after applying gains and losses from hedging activity increased to $7.65 per mmbtu in the current quarter from $7.46 per mmbtu in the prior year quarter. Our purchases of coal increased to an annual average cost of $3.69 per mmbtu in the current quarter compared to $3.58 per mmbtu in the prior year quarter. Despite the slightly higher costs of natural gas and coal, the favorable mix of higher coal usage lowered total energy costs by $0.2 million for the three months ended December 31, 2007 compared to the same period last year, positively impacting gross margin percentage by 0.1%. We have purchased or hedged approximately 56% of our expected 2.3 million mmbtu natural gas requirements for fiscal 2008 at prices slightly above prior year levels. If the balance of our anticipated natural gas purchases were priced in the

11

futures market on January 18, 2008, our full year fiscal 2008 natural gas costs would be approximately $0.2 million higher than the prior year. Additionally, we have contracted for our expected coal requirements for the next five years at a fixed price, plus variable freight, which currently results in a total cost of $3.69 per mmbtu. The contract price is subject to escalation factors based on mining operations costs and quality adjustments.

In addition to the effects of sales prices, raw sugar costs and energy costs described above, gross margin was impacted by higher transportation and manufacturing costs. Fuel costs have had an adverse effect on our transportation costs, which decreased our gross margin 0.8% for the quarter. Manufacturing costs increased in the current quarter due to increased costs for labor and packaging material, repairs and maintenance and operating supply/chemical costs. Increased manufacturing costs (excluding energy) negatively impacted gross margin by approximately 0.6% for the three-month period ended December 31, 2007 compared to the same period in the prior year.

Selling, general and administrative expense decreased $2.2 million for the period ended December 31, 2007 compared to the same period in the prior year primarily due to lower advertising costs, incentive compensation and other employee-related expenses in the current period. Lower advertising costs accounted for slightly less than half of the decrease from the prior year ($0.9 million). Overall compensation expense was ($0.4 million) lower due to lower incentive expense offset slightly by higher equity-based compensation costs. Employee benefit expenses were also lower primarily related to medical and workers compensation expense ($0.7 million).

Depreciation expense increased $0.3 million in the three-month period ended December 31, 2007, compared to the same period in the prior year primarily as a result of capital projects placed in service.

As a result of the foregoing, operating income was $3.6 million in the first fiscal quarter compared to $23.5 million in the first fiscal quarter of the prior year.

Other income, which includes equity investment earnings and distributions from cost basis investments, increased $11.6 million in the three-month period ended December 31, 2007 compared to the same period in the prior year. In October 2007, the Company received an $11.2 million cash distribution from its long-term limited partnership investment as a result of the partnership selling its principal asset, an interest in a fuel oil terminal in the Port of Houston. The Company recorded the distribution in other income. In November 2007, the Company formed a 50/50 joint venture with a Monterrey, Mexico-based sugar producer, which will market sugar products in Mexico and facilitate cross-border transactions (to the extent such transactions are economically viable) under the recently implemented NAFTA provisions. Other income in the first quarter of fiscal 2008 includes $0.2 million of equity in earnings of this new joint venture.

We have estimated a combined federal and state income tax rate of 25.0% for the three months ended December 31, 2007 compared to 35.9% in the same period last year. The decrease in the effective tax rate is primarily attributable to proportionately higher tax-free interest income in fiscal 2008, as well as the impact of equity earnings in our Mexican joint venture.

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, 2007, we had no outstanding borrowings under the Revolver and had borrowing capacity of $94.3 million, after deducting outstanding letters of credit totaling $5.7 million.

The Revolver, which expires in December 2011, 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, and

• prepay other debt.

12

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 $167 million during the three months ended December 31, 2007.

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, 2011, 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 first three months of fiscal 2008 were $1.8 million. Capital expenditures in fiscal 2008 are expected to total between $16 million and $18 million, of which approximately $7 million relates to normal equipment replacement, product quality and safety improvements and the balance relates to productivity improvements, energy savings and technology investments.

During the first quarter of fiscal 2008, we declared a special cash dividend of $2.50 per share or $29.5 million, payable January 3, 2008, in addition to the quarterly dividend of $0.07 per share paid in November 2007.

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, 2007.

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, 2007.

	Expected Maturity Fiscal 2008		Expected Maturity Fiscal 2009
Domestic Futures Contracts (net positions):
Contract Volumes (cwt)		2,654,000		(57,000	)
Weighted Average Contract Price (per cwt)	$	20.40	$	21.00
Contract Amount	$	54,159,000	$	(1,200,000	)
Weighted Average Fair Value (per cwt)	$	20.55	$	21.06
Fair Value	$	54,536,000	$	(1,203,000	)
	Expected Maturity Fiscal 2008		Expected Maturity Fiscal 2009
World Futures Contracts (long positions):
Contract Volumes (cwt)		769,000		18,000
Weighted Average Contract Price (per cwt)	$	9.79	$	10.07
Contract Amount	$	7,532,000	$	181,000
Weighted Average Fair Value (per cwt)	$	10.94	$	11.57
Fair Value	$	8,417,000	$	207,000

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.

13

The information in the table below presents our natural gas futures positions outstanding as of December 31, 2007.

	Expected Maturity Fiscal 2008
Futures Contracts (long positions):
Contract Volumes (mmbtu)		600,000
Weighted Average Contract Price (per mmbtu)	$	8.22
Contract Amount	$	4,932,000
Weighted Average Fair Value (per mmbtu)	$	7.62
Fair Value	$	4,572,000

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, 2007, 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, 2007, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

14

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.

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, 2007.

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.

15

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 28, 2008	By:	/s/ H. P. Mechler
		H. P. Mechler
		Senior Vice President and Chief Financial Officer

16

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.

17

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 control 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 control over financial reporting.

Date: January 28, 2008	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 control 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 control over financial reporting.

Date: January 28, 2008	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, 2007 (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 28, 2008	/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